California District Court Rules in DIR Lien Stay Case

A lawsuit filed against the California Department of Industrial Relations (DIR) for an allegedly unconstitutional law requiring the stay of liens filed by/for criminally charged providers has been dismissed by U.S. District Court Judge George H. Wu. The lawsuit claimed that the law granting lien stays to criminally charged providers constituted improper governmental seizure of property, and that it violated the supremacy clause of the Constitution.

Judge Wu argued that, because property interests originate in and are shaped by the states, state law is ultimately key to deciding the fate of property in bankruptcy cases. If this were not the case, he states that “any state law or regulation potentially affecting property in a bankruptcy estate would violate the supremacy cause.” Judge Wu also argues that the stay cannot constitute an improper governmental seizure of property because a lien is not considered a vested property interest until a final judgement has been reached in the criminal cases of the charged providers. A motion to hold the DIR in contempt for allegedly violating an order from December 2017 has been rejected as well.

The judge is allowing for plaintiffs to file an amended complaint, for Workers’ Compensation Appeals Board judges to continue cases, and for the DIR’s Anti-Fraud Unit to submit evidence used against frozen liens.