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Rehearing on fines for small hotel without comp denied

Colorado ruling

The Supreme Court of Colorado on Monday denied a rehearing on a June 3 ruling that the state Division of Workers’ Compensation must develop an evidentiary record on whether a $250 to $500 a day fine imposed on a small Denver hotel that didn’t have comp coverage for more than four years total is excessive.

Dami Hospitality LLC employed between four and 10 people at its hotel and had several lapses in comp insurance coverage from 2005 to 2014, which is when the division levied an aggregate fine of $841,200, according to documents in Colorado Department of Labor and Employment, Division of Workers’ Compensation v. Dami Hospitality, LLC; and Industrial Claim Appeals Office, filed with the state high court in Denver.

Dami, with an annual payroll of less than $50,000, argued “the aggregate fine proposed by the DWC exceeded the business’s gross annual income … Dami was thus unable to pay the aggregated per diem fines and requested leniency in the form of a penalty that is more reasonable to the size of (the) business,” documents state.

The division upheld the fine, stating the fines were in accordance with Colorado law and were not “discretionary,” documents state.

Dami appealed to the Industrial Claim Appeals Office, which remanded the matter to the workers comp division, directing it “to review the constitutionality of the aggregated per diem fines assessed in accordance with the test established by (case law),” which applied a test, borrowed from United States Supreme Court, which requires consideration of “(1) the degree of reprehensibility of the defendant’s misconduct, (2) the disparity between the harm (or potential harm) suffered by the plaintiff and the punitive damages award, and (3) the difference between the punitive damages awarded and the civil penalties authorized or imposed in comparable cases,” documents state.

Without holding a hearing, the division ultimately issued a supplemental order concluding that the fine passes the test and “that the fine of $841,200 … assessed against (Dami) according to that Rule is appropriate,” documents state.

A state court of appeals later found that “DWC abused its discretion by failing to apply (the test). . . to Dami’s specific circumstances” and remanded the case to the comp division for recalculation.

The state Supreme Court on Monday reversed the ruling in part by ordering the DWC to reconsider whether the $250 to $500 daily fines — and not the aggregated lump sum—is constitutional based on the Eight Amendment, ordering the DWC to “as necessary and appropriate, permit the development of an evidentiary record sufficient to allow the application of this Excessive Fines Clause analysis.”

“While the assessment for the 1,698 per diem fines may have reflected a lump sum total owed by Dami, the fines were clearly imposed at a daily rate as a result of many daily violations,” the court wrote. “We thus cannot allow the size of aggregated per diem fines in this case to distort our Eighth Amendment jurisprudence more generally. When a fine is imposed on a per diem basis, with each day constituting an independent violation, the evaluation of whether a fine is excessive must be done with reference to each individual daily fine.”

Two judges dissented in part, with one writing “the majority today holds that the Eighth Amendment offers Dami protection against excessive fines … I wholeheartedly agree. Unfortunately, the majority opinion, at least in this context, has no teeth because it says that Dami is restricted to challenging the daily fine amount.”

Officials with Dami and attorneys involved could not immediately be reached for comment.


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