Colorado High Court Says 8th Amendment’s “Excessive Fines” Prohibition Protects Corporations, as Well as Individuals

Decision Calls Into Question Whether Per Diem Fines to Uninsured Employers Are Unconstitutionally Harsh

The Supreme Court of Colorado, with one justice dissenting in part, recently held that the Eighth Amendment’s prohibition against the imposition of “excessive fines” applies to fines levied against corporations, as well as individuals [Colorado Dept. of Labor and Empl., Div. of Workers’ Comp. v. Dami Hospitality, LLC, 2019 CO 47 (June 3, 2019)]. Additionally, the Court remanded the case to the Court of Appeals for return to the state’s Division of Workers’ Compensation, with instructions to develop a record sufficient to determine whether the $250-$500 fine that a business was required to pay for each day that it was out of compliance with Colorado’s workers’ compensation law—the computed fine totaled $841,200—was proportional to the harm or risk of harm caused by each day of noncompliance. The decision, while not binding, of course, beyond Colorado, calls into question similar per diem fines levied in other states.

Background

Dami Hospitality, LLC (“Dami”) was the owner-operator of a Denver motel, employing between four and ten people at any given time. As an employer of three or more persons, Dami was required to maintain workers’ compensation insurance [see § 8-43-409, C.R.S. (2018)]. Dami allowed its workers’ compensation coverage to lapse on several occasions and, based on evidence introduced at a hearing, did not respond to various notices mailed from the Division of Workers’ Compensation (“DWC”). There was some evidence that Dami had perhaps not kept DMC aware of its business address.

$841,200 Fine

Finding that Dami had been uninsured for a total of 1,698 days, the DWC applied the per diem schedule in the Colorado statute, and assessed a fine totaling $841,200.

Dami Claimed Fine was Excessive

Dami’s registered agent asked for leniency, pointing out that the corporation’s annual payroll was less than $50,000, that the aggregate fine proposed by the DWC exceeded the business’s gross annual income. The agent also asserted that there had never been a work-related accident or injury at the motel, either when coverage was in place or during any period of Dami’s noncompliance. The DWC eventually offered to reduce the fine by nearly one-half, to $425,000, but Dani was unable and unwilling to pay that amount.

Following a hearing, the DWC upheld the fees, observing that per diem fines were “not discretionary” and had been properly calculated under the statute’s schedule. Dami appealed to the Industrial Claim Appeals Office (“ICAO”). The ICAO rejected all but Dami’s excessive fines argument. The ICAO remanded the matter to the DWC, directing it to review the constitutionality of the aggregated per diem fines assessed in accordance with the test established by the court of appeals in Associated Business Products v. Industrial Claim Appeals Office, 126 P.3d 323 (Colo. App. 2005).

Without holding a hearing, the DWC ultimately issued a supplemental order concluding that the fine was “appropriate.” Dami again appealed to the ICAO, which affirmed the DWC’s supplemental order.

Court of Appeals Decision

Dami then appealed to the Court of Appeals, which set aside the assessment of aggregated per diem fines [see my March 2017 discussion of that court’s decision]. The court determined that the Associated Business Products test was the correct test to apply in assessing the constitutionality of the fee and that consideration of Dami’s ability to pay the fine was a relevant factor in that assessment. The division remanded the Order to the DWC for recalculation in accordance with its opinion. The DWC petitioned for certiorari, and the Supreme Court granted the petition.

Colorado Supreme Court’s Decision

Justice Hart delivered the Opinion of the Court. The high court first considered whether the 8th Amendment’s “excessive fines clause” afforded protection to corporations against constitutionally excessive fines. The court concluded that it did. Moving away from the test supplied in Associated Business Products, the supreme court held that the proper test to assess the constitutionality of government-imposed fines requires an assessment of whether the fine is grossly disproportional to the offense for which it is imposed, as articulated in United States v. Bajakajian, 524 U.S. 321, 334, 118 S. Ct. 2028, 141 L. Ed. 2d 314 (1998).

Accordingly, the court of appeals’ ruling was thus reversed and the case was remanded to that court for return to the DWC to determine whether the per diem fines at issue were proportional to the harm or risk of harm caused by each day of the employer’s failure to comply with the statutory requirement to carry workers’ compensation insurance.

The Court stressed that there was “scant evidence” in the record, particularly with regard to Dami’s ability to pay the daily fines. Because the test the Court announced was a new one in Colorado, the Court remanded to the court of appeals so that it could return the case to the DWC. Assuming it was appropriate or necessary to conduct an evidentiary hearing at that stage, the DWC was instructed to permit the parties to develop a record that permitted a complete evaluation of whether the $250-$500 fine imposed on Dami each day that it violated the workers’ compensation laws was constitutionally excessive in accordance with the high court’s opinion.

Dissent

Justice Samour dissented in part, indicating that he and his colleagues in the majority were generally “on the same page.” The justice disagreed that the proportionality analysis must be conducted with regard to each individual per diem fine, as opposed to the total fine of $841,200. Justice Samour said that, like the court of appeals, he would focus on the aggregate fine that the Director imposed, which was what triggered Dami’s appeal. Dami had never argued that the daily fine of $250 to $500 was unconstitutionally excessive; rather, Dami had contended all along that the $841,200 fine was.

Are Other Per Diem Penalties Similarly at Risk?

The purposes of this blog post do not allow an extensive discussion of per diem fines for failure to insure. They are rare, but they do exist [see Larson’s Workers’ Compensation Law, § 102.02]. For example, my home state, North Carolina does provide for daily fines, although the statute [N.C. Gen. Stat. § 97-94 ]allows a great deal more discretion in their imposition than was the case in Colorado.

Huge fines against uninsured employers do occur in other states. Readers may recall my June 2017 blog post regarding a New York case, Matter of Castillo v Brown, 151 A.D.3d 1310, 56 N.Y.S.3d 652 (3d Dept. 2017), in which a New York appellate court affirmed the imposition of an $86,000 penalty against a husband and wife who employed a live-in domestic to perform housekeeping and child care duties, but failed to maintain workers’ compensation insurance.

Because the authority relied upon in this Colorado decision is from the U.S. Supreme Court, the Court’s reasoning in Dami might well be considered persuasive in other states.