becomes liable for penalties of ten, or even twenty, percent of the withheld payments. Pa.Stat.Ann. tit. 77, § 774.1 (Purdon Supp. 1982).
Termination through invocation of the automatic supersedeas provision, then, constitutes "the exercise of some right or privilege created by the state." In that sense, this case resembles Lugar v. Edmondson Oil Co., 457 U.S. 922, 102 S. Ct. 2744, 73 L. Ed. 2d 482 (1982); in both cases the deprivation requires a special filing process specifically created by the state.
The automatic supersedeas provision does not merely codify the ordinary way of doing things, as the Court characterized section 7-210 of the New York Uniform Commercial Code in Flagg Brothers, Inc. v. Brooks, 436 U.S. 149, 98 S. Ct. 1729, 56 L. Ed. 2d 185 (1978). Section 7-210 allowed a warehouseman to sell goods in his possession to satisfy his lien, remitting the owner of the goods to asserting in a subsequent lawsuit any claim that the warehouseman had no proper lien. The Court rejected a claim that section 7-210 was unconstitutional in authorizing a transfer of the owner's goods to a third person without a hearing. The Court reasoned that the challenged application of section 7-210 involved no state action because, among other things, section 7-210 did not substantially change the state's relation to the transaction.
By contrast, absent the automatic supersedeas provision, an employer or insurer could not terminate an individual's benefits without a referee's adjudication. If the employer or insurer did so terminate, the Workmen's Compensation Act would not only award damages, but would also impose penalties.
(2) State Actor
Having found that section 413 satisfies Lugar 's first prong, we now turn to the second requirement that "the party charged with the deprivation must be a person who may fairly be said to be a state actor." 457 U.S. at 937, 102 S. Ct. at 2754. In analyzing this requirement, we have found it useful to distinguish four sorts of employers and insurers who may invoke the automatic supersedeas provision of section 413.
First, we consider the government as an employer. The Act covers employees of the Commonwealth and of local governmental entities by virtue of Pa.Stat.Ann. tit. 77, § 21 (Purdon 1952), which defines "employer" to include "the Commonwealth, and all governmental agencies created by it." Public employers may choose not to insure against their worker's compensation liability under the Act. For example, counsel represented to us at argument that the Pennsylvania Turnpike Commission self-insures. Tr. of Oral Arg. at 23. Thus, in section III(B)(2)(a) of this opinion, we consider whether self-insuring public employers are state actors.
Most public employers, however, insure through the State Workmen's Insurance Fund ("SWIF"), an insurer administered by the State Workmen's Insurance Board. See Pa.Stat.Ann. tit. 77, § 221 (Purdon Supp.1982). Section III(B)(2)(b) of this opinion considers whether SWIF is a state actor when it invokes the automatic supersedeas provision on behalf of a public employer.
Private employers can also insure through SWIF. Section III(B)(2)(c) of this opinion considers whether SWIF is a state actor when it invokes section 413 on behalf of a private employer.
Finally, section III(B)(2)(d) considers whether a private insurer or a self-insuring private employer is a state actor when it invokes the automatic supersedeas provision.
(a) Self-Insured Public Employers
State action exists when a self-insured public employer invokes section 413's automatic supersedeas procedure. By inquiring whether a state-created procedure involving a state actor worked a particular deprivation, Lugar 's two-pronged test seeks to identify that conduct "fairly attributable to the state." 457 U.S. at 937, 102 S. Ct. at 2754; accord Rendell-Baker v. Kohn, 457 U.S. at 838, 102 S. Ct. at 2770; Blum v. Yaretsky, 457 U.S. at 1004, 102 S. Ct. at 2786 ("The purpose of this requirement is to assure that constitutional standards are invoked only when it can be said that the State is responsible for the specific conduct . . . ."); Nguyen v. United States Catholic Conference, 719 F.2d 52, 54 (3d Cir.1983); Community Medical Center v. Emergency Medical Services, 712 F.2d 878, 879 (3d Cir.1983). However, the two aspects of the test "collapse into each other when the claim of a constitutional deprivation is directed against a party whose official character is such as to lend the weight of the state to his decisions." Lugar, 457 U.S. at 937, 102 S. Ct. at 2754. Thus, when a state agency or a local government invokes section 413 against one of its employees, the state is the actor.
(b) Public Employers Insured by SWIF
The analysis becomes slightly more complicated when a public employer insures through SWIF. Under Pennsylvania practice, the insurer, and not the employer, becomes the party responsible for payment of compensation benefits, see Cease v. Thomas, 155 Pa.Super. 215, 38 A.2d 547 (1944), and thus the insurer becomes the party which will actually invoke the automatic supersedeas.
At oral argument, counsel for the Commonwealth defendants seemed to concede that when SWIF acted on behalf of a public employer, state action existed. Tr. of Oral Arg. at 20. We give this concession close consideration because recent precedents cast some doubt on the existence of state action when a government agency "contracts out" its responsibilities. See Rendell-Baker v. Kohn, 457 U.S. 830, 102 S. Ct. 2764, 73 L. Ed. 2d 418 (1982) (education for disturbed students); Nguyen v. United States Catholic Conference, 719 F.2d 52 (3d Cir.1983) (payment of relief funds to refugees); cf. White v. Massachusetts Council of Construction Employers, 460 U.S. 204, 103 S. Ct. 1042, 75 L. Ed. 2d 1 (1983) (city which will only hire contractors who themselves hire half their workers from the city does not violate the commerce clause).
The State Workmen's Insurance Fund strongly argues that it is not a state agency and therefore does not have an "official character . . . such as to lend the weight of the state to [its] decisions." Lugar, 457 U.S. at 937, 102 S. Ct. at 2754. We disagree.
SWIF's argument proceeds from the limitation on the state's liability for claims on the fund to the assessments and premiums paid by insured employers. See Pa.Stat.Ann. tit. 77, § 221 (Purdon Supp.1982). But that same sentence provides that "such Fund shall be administered by the [State Workmen's Insurance] Board. . . ." Id. The Board consists of the Commissioner of Labor and Industry, the Insurance Commissioner, and the State Treasurer. Pa.Stat.Ann. tit. 77, § 211 (Purdon 1952). Further,
the officers and employes of the State Workmen's Insurance Board created by the act to which this is a supplement shall be deemed and held to be, for all purposes whatsoever, officers and employes of the Commonwealth of Pennsylvania, and shall be entitled to and have and exercise all the rights, powers, and privileges, and be subject to all the duties, restrictions, and penalties, of other officers and employes of the Commonwealth.
Pa.Stat.Ann. tit. 77, § 381 (Purdon 1952).
In short, three high state officials, collectively constituting the State Workmen's Insurance Board, have sole supervision of SWIF's administration. Moreover, these officials and their Board employees are "for all purposes whatsoever, officers and employees of the Commonwealth of Pennsylvania. . . ." They are subject to all the restrictions of other officers and employees of the Commonwealth. These restrictions include the Fourteenth Amendment. Therefore, we find that when SWIF acts, the state acts. See Pennsylvania v. Board of Trusts, 353 U.S. 230, 77 S. Ct. 806, 1 L. Ed. 2d 792 (1957); Pennsylvania v. Brown, 392 F.2d 120 (3d Cir.1968), cert. denied, 391 U.S. 921, 88 S. Ct. 1811, 20 L. Ed. 2d 657 (1968).
(c) Private Employers Insured by SWIF
Although counsel for the Commonwealth seems to have drawn a distinction between SWIF acting as insurer for a public employer and SWIF acting as insurer for a private employer, our analysis in the preceding subsection leads to the conclusion that SWIF acts for the state whenever it acts. Accordingly, the force of that argument requires us to find that state action exists when SWIF invokes the automatic supersedeas provision of section 413 even when SWIF does so on behalf of a private employer.
(d) Private Insurers and Self-Insured Private Employers
We have found state action, then, whenever a public entity insures itself and whenever either a public or private employer uses SWIF to insure. In any of these cases, invocation of the automatic supersedeas by the self-insuring public employer or by the public insurer is "fairly attributable to the state" because the state itself invokes section 413. We cannot base our conclusion on this ground, however, when a private insurer or employer uses section 413.
We note initially that Silas v. Smith, 361 F. Supp. 1187 (E.D.Pa.1973), dealt with the private employer/private insurer situation. See our discussion at p. 219, supra. The Silas court found no state action in a private insurer's invocation of the automatic supersedeas.
The Pennsylvania Commonwealth Court was assessing the private employer/private insurer situation when, in reliance on Silas, it found the current section 413 constitutionally acceptable. Henderson v. Workmen's Compensation Appeal Bd. (Rockwell International), 69 Pa. Commw. 613, 452 A.2d 277 (1982), petition for allowance of appeal denied (Pa. March 8, 1983); see also Commonwealth Dept. of Labor and Industry v. Workmen's Compensation Appeal Bd., 58 Pa.Commw. 413, 416 n. 3, 427 A.2d 1277, 1278 n. 3 (1981) (citing Silas for the proposition that notice and a hearing are not required for an automatic supersedeas in a case involving a private insurer). We do not find these precedents dispositive here.
We hold that invocation of section 413's automatic supersedeas provision by a private insurer or by a private employer involves state action. The Supreme Court has "consistently held that a private party's joint participation with state officials in the seizure of disputed property is sufficient to characterize that party as a 'state actor' for purposes of the Fourteenth Amendment." Lugar, 457 U.S. at 941, 102 S. Ct. at 2756. "In this context 'joint participation' [does not require] something more than invoking the aid of state officials to take advantage of state created attachment procedures." 457 U.S. at 942, 102 S. Ct. at 2756.
In order to invoke the automatic supersedeas, an insurer or employer must file a petition on a form provided by the state. A state agency, the Bureau of Worker's Compensation, must review the petition before the supersedeas may take effect. Although the Bureau does not review the petition's merits, it does review the petition for formal compliance with the Workmen's Compensation Act; the Bureau has a form for returning inadequate petitions. Unless the insurer or employer satisfies the Bureau of the petition's compliance with section 413, the insurer or employer cannot terminate the employee's benefits. Further, the insurer/employer relies on the Bureau to notify the employee of the termination of benefits.
Section 413's automatic supersedeas procedure requires a filing with the Bureau of Worker's Compensation. This filing is sufficient to constitute "joint participation" and to subject private invocation of the automatic supersedeas to the due process clause.
(C) Due Process
Having decided that benefits terminations under section 413's automatic supersedeas provision must comply with the Fourteenth Amendment, we now consider whether section 413 accords plaintiffs sufficient process to constitute due process. See, e.g., Perri v. Aytch, 724 F.2d 362 at 366, (3d Cir. Dec. 22, 1983) ("Even though Perri had a property interest in her probationary employment, she must still demonstrate that she was deprived of the interest without due process of law.") We agree with the Supreme Court of Iowa that Mathews v. Eldridge, 424 U.S. 319, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976), makes the automatic supersedeas unconstitutional. See Auxier v. Woodward State Hospital-School, 266 N.W.2d 139 (Iowa 1978), cert. denied, 439 U.S. 930, 99 S. Ct. 319, 58 L. Ed. 2d 324 (1979) (holding Iowa version of section 413 unconstitutional).
In Mathews, the Supreme Court held that the Social Security Administration need not provide an evidentiary hearing before terminating an individual's Social Security Disability Insurance benefits. Cf. Goldberg v. Kelly, 397 U.S. 254, 90 S. Ct. 1011, 25 L. Ed. 2d 287 (1970) (requiring pretermination evidentiary hearing for recipient of AFDC). The Court concluded in Mathews that disability insurance recipients threatened with a loss of benefits were accorded a sufficient pretermination process, albeit that process was not of a formal evidentiary nature, so that an evidentiary hearing could be postponed until after termination.
The Social Security procedure provided that
whenever the agency's tentative assessment of the beneficiary's condition differs from his own assessment, the beneficiary is informed that benefits may be terminated, provided a summary of the evidence upon which the proposed determination to terminate is based, and afforded an opportunity to review the medical reports and other evidence in his case file. He may also respond in writing and submit additional evidence.
424 U.S. at 337-338, 96 S. Ct. at 904 (footnote omitted); see also Washington v. Secretary of Health and Human Services, 718 F.2d 608, 609-610 (3d Cir.1983) (describing waiver of these procedural protections). The procedures sustained in Mathews were perceived by the Court as "providing the claimant with an effective process for asserting his claim prior to any administrative action. . . ." 424 U.S. at 349, 96 S. Ct. at 909-910. In marked contrast, section 413 provides no notice whatsoever until after the termination of benefits pending a final hearing.
The foregoing discussion has led us to the conclusion that operation of the automatic supersedeas authorized by section 413 of the Pennsylvania Workmen's Compensation Act involves conduct reasonably attributable to the state and that section 413 does not accord worker's compensation recipients due process. Thus, plaintiffs have made out a violation of 42 U.S.C. § 1983 (Supp. V. 1981). Plaintiffs are entitled to entry of a judgment declaring the unconstitutionality of the automatic supersedeas provision of section 413.
Invalidation of the automatic supersedeas provision does not call for invalidation of any other provision of the Workmen's Compensation Act, even though the Act contains no severability provision. "Under Pennsylvania law, separate provisions of a statute are presumed severable, and any particular one will survive a decision voiding another unless it is so interrelated with the void provision or incomplete without it that the legislature could not have intended it to stand alone." Stoner v. Presbyterian Hospital, 609 F.2d 109, 112 (3d Cir.1979) (citing 1 Pa.Cons.Stat.Ann. § 1925).