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No. 85-290
IN THE SUPREME COURT OF THE STATE OF MONTANA.
1936

ANNA MARIE PHELAN,
Claimant and Appellant,
-vs-
LEE BLAINE ENTERPRISES, Employer,
and
ST. PAUL MERCURY INSURANCE COPPAMY,
Defendant and Respondent.

APPEAL FROM: The Workers' Compensation Court, the Honorable
Timothy Reardon, Judge presiding.

COUNSEL OF RECORD:

For Appellant:

Keefer, Royba.1, Hanson, Stacey & Jarussi; Gene R. Jarussi, Billings, Montana
For Respondent:

Lucas & Monaghan; Thomas Monaghan, Miles City, Montana
Submitted on Briefs: Oct. 31, 1985
Decided: February 27, 1986

Filed: FEB 2 7 19%
Clerk

Mr. Justice John Conway Harrison delivered the Opinion of the
Court.

The claimant, Anna Phelan, a twenty-four year old
female, filed a Petition for Hearing before the Workers'
Compensation Court asking the court to set aside a final
settlement entered into August 1981 on the grounds that the
parties to the settlement were suffering from a mutual
mistake of fact. The court barred claimant's petition as res
judicata and this appeal followed.

We reverse the judgement of the Workers1 Compensation
Court barring claimant's petition, and remand this matter to
the court with directions to hear the petition on its merits.

The present action arises out of a case which was
previously before the Workers' Compensation Court. The prior
case was entitled Phelan v. Biq Bear Stores, Inc. et. al. It
was assigned docket number 1432 and court file number
1281-102. The decision of the Workers' Compensation Court
was issued on March 21, 1984. For brevities sake this prior
case will hereinafter be referred to as "Phelan I."

In Phelan I, the Workers' Compensation Court was faced
with a complex factual situation and some novel questions of
law.

On October 30, 1980, claimant suffered a back injury
while employed by Lee Blaine Enterprises who was insured by
St. Paul Mercury Insurance Company ("St. Paul"). The
claimant underwent back surgery, and by July 7, 1981, was
judged by her treating physician to have reached a stationary
state. The physician rendered. an impairment rating of 25%,
and in August 1981, claimant entered into a final settlement
of her claim. She received 125 weeks of permanent partial
disability benefits, less some overpayments, for a total net

settlement of $9,556.43. It is this final settlement which

is the subject of the current appeal-.

In June 1981 (prior to the final. settlement mentioned
above), the claimant was employed by a second employer who
was insured by Glacier General Insurance Company. While
employed by the second employer, the claimant experience a
sexual incident which she considered to be a sexual assault.
She did not work from the date of the incident (June 29,
1981) until September 1, 1981.

In September 1981, the claimant was employed by a third employer which was insured by the State Compensation Insurance Fund. While employed by this third employer, the claimant suffered an industrial accident.
In general, the court in Phelan I was asked to
determine the following issues: First, was the amount
received by the claimant in her final settlement arising out
of the October 30, 1980, injury sufficient in light of her
disability? Second, was the sexual incident which occurred
in June of 1981 a compensable injury under the Workers1
Compensation Act? Third, what was the nature and extent of
claimant's current disability, if any, and her entitlement to
benefits, if any?

On March 21, 1984, the Workers' Compensation Court
entered its judgment. Succinctly stated, the court's
judgment was that the sexual incident did constitute a
compensable injury, and that the claimant was currently (as
of the date of the judgment) entitled to temporary total
disability benefits by reason of the injury which occurred in
September 1981 while employed by the third employer. In
addition, these temporary total disability benefits were
ordered to continue until the disability ceased as a result
of that injury. The court also found that claimant may be

entitled to additional benefits at "some later date." No
party to that first case requested a rehearing or appealed
the court's judgment.

It is important to note for the purposes of the current
appeal that the court's judgment in Phelan I dealt only with
the claimant's current disability status and her current
entitlement to disability benefits. The record indicates
there was no ruling on the issue of whether the final
settlement (entered into in 1981) arising out of her October
30, 1980, injury was sufficient in light of the claimant's
disability as of the date of the settlement.

On October 8, 1984, claimant filed a Petition for
Hearing seeking to set aside the final settlement entered
into in August 1981 between herself and St. Paul. The
claimant asked to have the settlement set aside on the
grounds that the parties to the settlement were suffering
from a mutual mistake of fact at the time the settlement was
entered into. The relief requested by the claimant was
denied by the court on the grounds of res judicata.
Specifically, the court ruled that claimant had raised
basically the same issue in Phelan I (the first issue
mentioned above) as she had raised in her current petition.
The court found that although the language of these two
issues were not identical, both framed the same issue:
whether the claimant is entitled to reopen her final
settlement agreement of August 1981. The court found it had
already ruled on this issue and consequently barred her
current petition as res judicata.

The claimant raises the following issue for review by
this Court:

(1) Did the Workers' Compensation Court err in
applying the doctrine of res judicata to deny claimant's

request that her final settlement of August 1981 be set
aside?

The doctrine of res judicata is designed to prevent "relitigation of that which has been finally adjudicated." S-W Company 77. John Wight, Inc. (1978), 179 Mont. 392, 404-5, 587 P.2d 348, 355. The criteria used to determine whether an issue is barred by res judicata were set forth by this Court in Smith v. County of Musselshell (1970), 155 Mont. 376, 378, 472 P.2d 878, 880, as follows:
These criteria are: (1) the parties or
their privies must be the same; (2) the
subject-matter of the action must be the
same; (3) the issues must be the same,
and must relate to the same
subject-matter; and (4) the capacities of
the persons must be the same in reference
to the subject-matter and to the issues
between them.

Of the four criteria set out in Smith, the parties
agree the important one in the present case is criteria (3)
which is the identity of the issues. The rule regarding the
identity of the issues is simple. If the issues in the
second case were not raised and determined in the first case,
then the judgment of the first case does not bar the second
action. Specifically, this Court has held:

[Ulnless it clearly appears that the
precise question involved in the second
case was raised and determined in the
former, the judgment is no bar to the
second action.

Brannon v. Lewis and Clark County (1963), 143 Mont. 200, 207,

Applying the above standards to the instant case, we
hold the Workers' Compensation Court erred in denying
claimant's petition to set aside the final settlement on the
grounds of res judicata.

First, the issues in Phelan I and the present case are
not the same. In Phelan I th.e issue before the Workers'

Compensation Court which was similar to the nain issue in the
present case was issue number 3:

3. Whether claimant's final settlement
arising out of her injury on October 30,
1980, is sufficient, and, if not, the
total amount of compensation to be
award-ed to her as a result of the
disability that she suffered from her
industrial accident of October 30, 1980.

The record indicates issue number 3 in Phelan I was based on
a case decided by this Court in November 1981, three months
after the parties entered into the final settlement which is
the center of the present dispute.

In November 1981, this Court decided Holton v. F.H.
Stoltze Land and Lumber Company (1981), 195 Mont. 263, 637
P.2d 10. In Holton this Court ruled that a carrier had a
duty to pay without delay undisputed benefits. This
undisputed amount was to be paid without requiring a claimant
to enter into a settlement. Holton, 637 P.2d at 13, 14.

In light of Holton, the record indicates claimant
presented issue number 3 (quoted above) to the Workers'
Compensation Court in Phelan I. It was claimant's position in
Phelan I that the settlement should be reopened because
claimant had settled her case (and thus gj-ven up a valuable
right) in exchange for an amount equal to the undisputed
liability. Under Holten, the claimant argued, that amount
should have been paid without requiring any settlement.
Specifically, it was claimant's contention in Phelan I (as
set out in the pre-trial order) that:

The settlement with St. Paul Mercury Insurance Co. on September 17, 1981, was on a Final basis (i.e., could be reopened within four years) and was based on an impairment rating of 25% given by Dr. Maurice Smith. However, the Montana Supreme Court in Holton v. F. H. Stoltze Land & Lumber Co., 38 St. Rptr., 1835, 637 P2d 10 (1981) held th&t an
injured. worker is entitled to be paid the
impairment rating absolutely and in all
events, with no strings attached. Thus,
claimant is entitled to be paid 125 weeks

(500 x 25%) at her permanent partial rate of $85.00, or $10,625.00 absolutely and in a.11 events without being required to give up a valuable legal right, i .e. , to keep her case open indefinitely. This fact, plus the fact tha.t her legal disability as defined by 39-71-121 MCA is greater than her impairment rating, mandates that the Final settlement with St. Paul be reopened..
We hold the question in Phelan I, with regard to issue

number 3, was basically one of amount. That is, was the

settlement in sufficient amount to compensate the claimant

adequately for her disability given the hold.ing of Holton?

The issue in clai.mantfs present petition. before the

Workers' Compensation Court was as follows:

1. Whether at the time of settlement the
parties were suffering from a mutual
mistake of fact which now requires that
the settlement be set aside.

That is, were the parties suffering from a mutual mistake of
fact at the time of settlement which requires that settlement

be set aside?

Claimant asserts the mistake of fact under which the
pa.rtieswere laboring in August 1981 was the fact (unknown to
either St. Paul or claimant) that claimant was actually
totally disabled by reason of the June 1981 sexual assault.
Claimant argues since she was totally disabled by reason of
the second industrial accident, it was not possible for her
or St. Paul to consider and evaluate her permanent disability
which resulted from her first injury in October 1980.
Claimant. argues the doctor's rating could not be
intelligently evaluated by herself or St. Paul because she
was totally disabled by reason of a second, separate injury.
Therefore, claimant argues, their mutual mistake as to the
status of her disability when the settlement was entered into

is the mistake which requires the settlement to now be set
aside.

In light of the discussion above, we hold the issues in
Phelan I and the present case are not the same. In Phelan I,
the question was basically one of amount. In the present
case, the questj-on goes straight to the validity of the
settlement agreement itself. The issues are different --for
this reason alone res judicata does not apply.

The second reason we hold the Workers' Compensation
Court erred in denying claimant's petition on the grounds of
res judicata is because issue number 3 in Phelan I was not
d.ecided. In its decision in Phelan I, the Workers'
Compensation Court did not rule on claimant's contention that
she was entitled to reopen her final settlement under the
Holton case. This issue went unanswered.

The Workers' Compensation Court in Phelan I did say
that claimant was currently (as of the date of the judgment)
totally disabled and entitled to temporary total disability

benefits.  The court also assigned responsibility  for the  
claimant's  current  disability.  The  court  found  that  
claimant's  disability  stemmed  from  her  third  industrial  

accident which occurred September 1981. Thus, St. Paul (the
insurer at the time of the first industrial accident) was not
responsible for the claimant's temporary total disability
benefits. Likewise, Glacier General (the insurer at the time
of the sexual assault) was not responsible for the claimant's
current temporary total disability benefits. Specifically,
as to St. Paul, the court found in Phelan I as follows:

3. Lee Blaine Enterprises (Employer) and
St. Paul Mercury Insurance Company
(defendant) are not liable to the
claimant for further compensation or
payments.

The cl-aimant's October 30, 1980, injury and subsequent laminectomy resulted in a physical impairment that had reached a stationary state by July 7, 1981. Dr. Smith concluded that she had reached maximum medical healing as of that date, and rated her impairment at 25 percent. Finding of Fact No. 8. There is evidence that the stress of this injury also contributed to her generalized anxiety disorder. Finding of Fact No. 12. This disorder was diagnosed on June 19, 1981, but had stabilized by August of the same year. -Id.
Montana is "committed to the doctrine that the particular injury must be the proximate cause of the present condition for which the claimant seeks compensation." Newrnan v. Kamp, 140 Mont. 487, 495, 374 P.2d 100, 104 (1962); ~ittlev. Structural Systems, Mont.
, 614 P.2d 516, 37 St. Rptr. 1187, 1191 (1980). Here it is determined that the claimant's current disability is based on her fear of associating with men and her back condition, caused by the Sign Talker sexual incident and the Big Rear accident, respectively. Findings of Fact Nos. 8, 9, 13, 1.4.
Since the claimant's back had reached
maximum medical healing prior to her
second physical injury at Big Rear, Lee
Blaine Enterprises and St. Paul Mercury
Insurance Company cannot be held liable
for her current physical disability.

The finding in Phelan I that St. Paul was not liable

for claimant's current physical disability did not answer the

question of whether claimant had received sufficient

compensation in her 1981 final settlement. In other words,

the record indic~tes no ruling was made by the court in

Phelan I on issue number 3 which raised the question of

whether Holton, supra, mandated a reopening of the final

settlement. Therefore, even if the issue in Phelan T was

identical to the issue in the present case (which it is not),

res judicata would not bar the present case because the issue

was not decided in Phelan I.

Finally, it should be noted that the present issue of
whether the parties were suffering from a mutual mistake of
fact with regard to the final settlement could not have been
raised in Phelan I. In its brief, St. Paul argues that the
doctrine of res judicata bars the claimant's petition because
the current petition raises an issue which should have been
raised and decided in Phelan I. In other words, St. Paul
argues that claimant's current petition is barred because it
raises a matter which could have been litigated in Phelan I.

There is authority holding that the doctrine of res
judicata applies not only to "issues which were raised and
decided, but to issues which should have been raised and
decided." Hadford v. Hadford (Mont. 1981), 633 P.2d 1181,
1185, 38 St.Rep. 1308, 1313. However, this rule is not
applicable in the present case.

As noted earlier in this opinion, the Workers' Compensation Court in Phelan I found that at the time the parties entered into the final settlement for claimant's first industrial accident, claimant was actually totally disabled by reason of a second, separate compensable injury. Only after the court decision from Phelan I did the parties know that the sexual assault was a second industrial accident and that claimant was totally disabled by reason of this second accident at the time she settled her claim with St. Paul. In other words, claimant's present petition is based upon facts determined by the Workers' Compensation Court in its Phelan I decision. Therefore, it would have been virtually impossible for claimant to have raised the issue of mutual mistake of fact with regard to the final settlement in Phelan I.
The judgment of the Workers' Compensation Court barring
claimant's petition is reversed, and we remand this matter to
the court with directions to hear the petition on its merits.

We concur: f

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