1. Workers' Compensation--subrogation lien--failure to file
action against third party
The trial court properly granted a Rule 12(b)(6) dismissal
of an action by an employer against a lawyer, his malpractice
insurer, and a workers' compensation claimant where the workers'
compensation claim was settled, the attorney allowed the statute
of limitations to lapse without filing a personal injury claim
against a third party, the malpractice suit was settled, and
plaintiff brought this action seeking to extend its subrogation
lien to the malpractice settlement. The third party, which
negligently failed to maintain scaffolding, caused the injury to
the employee (Ward); the attorney who failed to timely file a
suit against Formco did not cause an injury to Ward as that term
is defined in the Workers' Compensation Act.
2. Workers' Compensation--benefits and legal malpractice
settlement--no double recovery
A workers' compensation claimant did not receive a double
recovery where he settled his workers' compensation action, his
attorney did not file an action against a third party within the
statute of limitations, the employee settled a malpractice action
against the attorney, and the court allowed the employee to keep
the entire malpractice settlement rather than extending the
employer's subrogation lien to the settlement. The malpractice
insurer had reduced its award by the amount of malpractice
benefits.
3. Workers' Compensation--subrogation lien--additional legal
malpratice proceeds
The trial court did not have the authority under N.C.G.S. §
97-10.2(j) to determine the amount of a workers' compensation
subrogation lien and then to distribute the recovery, and payment
should not have gone to the Commission under that statute, where
an employee settled his workers' compensation claim, his attorney
allowed the statute of limitations to lapse without filing a
claim against a third party, the employee settled a malpractice
claim against the attorney, and the employer sought to assert a
lien against the malpractice settlement. The lawyer and his
malpractice insurer were not third parties within the meaning of
the Workers' Compensation Act.
4. Workers' Compensation--related legal malpractice claim--
separate actions
An employer who settled a workers' compensation claim did
not have an attorney-client relationship with the employee's
attorney, who failed to timely file a negligence action against a
third party. There would have been a clear conflict had the
attorney also been deemed the employer's attorney; moreover, the
attorney was hired by the employee to represent him and his
malpractice did not impede the employer's ability to sue the
third party. The malpractice claim is separate from the workers'
compensation claim.
Morris York Williams Surles & Barringer, L.L.P., by John F.
Morris and Christa C. Pratt, for plaintiff appellant.
Williamson, Dean, Williamson, Purcell & Sojka, L.L.P., by
Nickolas J. Sojka, Jr., and Andrew G. Williamson, Jr., for
Dennis M. Ward defendant appellee.
Dean & Gibson, L.L.P., by Rodney Dean and Susan L. Hofer for
W. Philip McRae and Lawyers Mutual Insurance Company of North
Carolina defendant appellees.
McCULLOUGH, Judge.
Defendant Dennis Ward was employed as a construction worker at
Grant Construction Company (Grant) in Scotland County, North
Carolina. Grant hired subcontractors to complete work on various
parts of its construction jobs. One such subcontractor was Formco
Concrete Forming (Formco), which was responsible for erecting,
maintaining, and disassembling scaffolding it used at Grant's
construction site. On 22 March 1993, Ward stepped onto Formco's
scaffolding and was seriously injured when the plywood walkway he
stood on collapsed. Prior to Ward's injury, Formco had removed the
shoring from the scaffolding, but left the wooden walkway in place.
Ward suffered serious and permanent injuries from his fall,and brought a valid workers' compensation claim agains
t Grant for
medical expenses, permanent injuries, and lost wages, pursuant to
the North Carolina Workers' Compensation Act, N.C. Gen. Stat.
§ 97-1, et. seq. Ward hired Attorney W. Philip McRae to represent
him in the workers' compensation suit against Grant. Grant
ultimately paid Ward over $10,000.00 in workers' compensation
benefits. On 23 February 1994, Ward signed an Agreement of Final
Settlement and Release, which ended his relationship with Grant and
gave Grant a lien on any settlement or recovery Ward could win in
a civil lawsuit against Formco. The Agreement was approved by the
North Carolina Industrial Commission on 4 March 1994.
McRae continued to represent Ward during Ward's personal
injury claim against Formco. However, McRae failed to file a civil
action against Formco within the three-year statute of limitations
prescribed by N.C. Gen. Stat. § 1-52 (1999). After Ward learned
that McRae negligently failed to file suit, he sued McRae for legal
malpractice. The malpractice lawsuit was settled on behalf of
McRae by Lawyer's Mutual Insurance Company (Lawyer's Mutual) for
the sum of $26,000.00.
On 8 March 1999, Grant filed suit against McRae, Lawyer's
Mutual, and Ward for negligence and breach of contract, arguing
that Grant's subrogation lien on any proceeds from a lawsuit
between Ward and Formco should extend to the proceeds that arose
from the legal malpractice settlement between Ward and Lawyer's
Mutual. On 2 June 2000, the trial court found that Grant's
complaint failed to state a claim upon which relief could be
granted, and therefore allowed defendants' motion to dismisspursuant to N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) (1999). Grant
appealed.
[1]On appeal, Grant brings forth six assignments of error,
all of which revolve around Grant's contention that the trial court
erred in finding that its complaint failed to state a claim upon
which relief could be granted. For the reasons set forth, we
disagree with Grant's arguments and affirm the trial court's
dismissal of Grant's complaint.
When a party files a motion to dismiss pursuant to N.C. Gen.
Stat. § 1A-1, Rule 12(b)(6),
[t]he question for the court is whether, as a
matter of law, the allegations of the
complaint, treated as true, are sufficient to
state a claim upon which relief may be granted
under some legal theory, whether properly
labeled or not. Stanback v. Stanback, 297
N.C. 181, 254 S.E.2d 611 (1979). In general,
"a complaint should not be dismissed for
insufficiency unless it appears to a certainty
that plaintiff is entitled to no relief under
any state of facts which could be proved in
support of the claim." Id. at 185, 254 S.E.2d
at 615, quoting 2A Moore's Federal Practice, §
12.08, pp. 2271-74 (2d ed. 1975) (emphasis
original).
Harris v. NCNB, 85 N.C. App. 669, 670-71, 355 S.E.2d 838, 840
(1987). See also N.C. Gen. Stat. § 1A-1, Rule 12(b)(6). The sole
purpose of a motion to dismiss is to test the legal sufficiency of
the complaint, and the trial court should not allow a motion to
dismiss unless it is clear that a plaintiff cannot present any set
of facts which would entitle him to relief. Sinning v. Clark, 119
N.C. App. 515, 517, 459 S.E.2d 71, 73, disc. review denied, 342
N.C. 194, 463 S.E.2d 242 (1995). With this standard of reviewfirmly in mind, we turn to Grant's complaint.
Grant maintains that it possessed a subrogation lien which
extended to any proceeds Ward recovered from his attorney
malpractice lawsuit against McRae. Grant's right to assert a
subrogation lien originates in N.C. Gen. Stat. § 97-10.2 (1999),
part of the North Carolina Workers' Compensation Act. Our
determination of whether Grant may pursue recovery on a subrogation
lien theory turns on the language of the statute itself; we will
therefore examine several of its key provisions in turn.
Generally speaking, an employer must pay workers' compensation
benefits to an employee if that employee suffers a compensable work
injury and notifies the employer of his workers' compensation
claim. See N.C. Gen. Stat. § 97-22 (1999). If the employee is
injured by a third party, the non-negligent employer must still pay
workers' compensation benefits, but can claim a subrogation lien on
any proceeds the employee wins in a subsequent lawsuit against the
third party. See N.C. Gen. Stat. § 97-10.2(f)(1). The employer's
right to a lien on a recovery from the third-party tortfeasor is
"mandatory in nature." Radzisz v. Harley Davidson of Metrolina,
346 N.C. 84, 89, 484 S.E.2d 566, 569 (1997).
To understand workers' compensation law, one must be familiar
with the relevant parties and their interactions. Beyond the basic
employer-employee relationship, there are other parties who may
share liability or owe money to each other. Though an employer is
initially responsible for paying workers' compensation benefits to
an injured employee, it may recover some or all of the money itpays from a third party who was at fault for the employee's
accident. N.C. Gen. Stat. § 97-10.2(a) explains the relationships
of the parties, and defines a "third party" as follows:
The right to compensation and other
benefits under this Article for disability,
disfigurement, or death shall not be affected
by the fact that the injury or death was
caused under circumstances creating a
liability in some person other than the
employer to pay damages therefor, such person
hereinafter being referred to as the "third
party." The respective rights and interests
of the employee-beneficiary under this
Article, the employer, and the employer's
insurance carrier, if any, in respect of the
common-law cause of action against such third
party and the damages recovered shall be as
set forth in this section.
Id. (emphasis added).
N.C. Gen. Stat. § 97-10.2(h) describes the nature of a party's
lien in the context of a workers' compensation case. The statute
states, in pertinent part:
In any proceeding against or settlement
with the third party, every party to the claim
for compensation shall have a lien to the
extent of his interest under (f) hereof upon
any payment made by the third party by reason
of such injury or death, whether paid in
settlement, in satisfaction of judgment, as
consideration for covenant not to sue, or
otherwise and such lien may be enforced
against any person receiving such funds.
Neither the employee or his personal
representative nor the employer shall make any
settlement with or accept any payment from the
third party without the written consent of the
other and no release to or agreement with the
third party shall be valid or enforceable for
any purpose unless both employer and employee
or his personal representative join therein;
provided, that this sentence shall not apply:
(1) If the employe
r is made whole
for all benefits paid or to bepaid by him under this Chapter
less attorney's fees as
provided by (f)(1) and (2)
hereof and the release to or
agreement with the third party
is executed by the employee; or
(2) &nbs
p; If either party follows the
provisions of subsection (j) of
this section.
Id. (emphasis added).
Once a party shows that it is entitled to a lien, that amount
must still be calculated. N.C. Gen. Stat. § 97-10.2(j) explains
that
[n]otwithstanding any other subsection in
this section, in the event that a judgment is
obtained by the employee in an action against
a third party, or in the event that a
settlement has been agreed upon by the
employee and the third party, either party may
apply to the resident superior court judge of
the county in which the cause of action arose,
where the injured employee resides or the
presiding judge before whom the cause of
action is pending, to determine the
subrogation amount. After notice to the
employer and the insurance carrier, after an
opportunity to be heard by all interested
parties, and with or without the consent of
the employer, the judge shall determine, in
his discretion, the amount, if any, of the
employer's lien, whether based on accrued or
prospective workers' compensation benefits,
and the amount of cost of the third-party
litigation to be shared between the employee
and employer. The judge shall consider the
anticipated amount of prospective compensation
the employer or workers' compensation carrier
is likely to pay to the employee in the
future, the net recovery to plaintiff, the
likelihood of the plaintiff prevailing at
trial or on appeal, the need for finality in
the litigation, and any other factors the
court deems just and reasonable, in
determining the appropriate amount of the
employer's lien.
Though Grant recognizes these statutory provisions do notexpressly extend its lien to encompass Ward's recovery for
attorney
malpractice related to the third-party claim against Formco, it
maintains that N.C. Gen. Stat. § 97-10.2 should be liberally
construed to best serve the legislative intent of the statute. We
disagree.
Our Supreme Court has noted that
[t]he purpose of the North Carolina Workers'
Compensation Act is not only to provide a
swift and certain remedy to an injured worker,
but also to ensure a limited and determinate
liability for employers. Section 97-10.2 and
its statutory predecessors were designed to
secure prompt, reasonable compensation for an
employee and simultaneously to permit an
employer who has settled with the employee to
recover such amount from a third-party tort-
feasor.
Radzisz, 346 N.C. at 89, 484 S.E.2d at 569 (citations omitted).
The Radzisz Court also stated that "statutory interpretation
properly commences with an examination of the plain words of a
statute." Id. "An analysis utilizing the plain language of the
statute and the canons of construction must be done in a manner
which harmonizes with the underlying reason and purpose of the
statute." Electric Supply Co. v. Swain Electrical Co., 328 N.C.
651, 656, 403 S.E.2d 291, 294 (1991). Thus,
"[w]hen language used in [a] statute is clear
and unambiguous, [the Court] must refrain from
judicial construction and accord words
undefined in the statute their plain and
definite meaning."
Hieb v. Lowery, 344 N.C. 403, 409, 474 S.E.2d 323, 327 (1996),
(quoting Poole v. Miller, 342 N.C. 349, 351, 464 S.E.2d 409, 410
(1995)). We have found no North Carolina cases which address the
question of whether an employer's subrogation lien under N.C. Gen.
Stat. § 97-10.2 extends to proceeds from an attorney malpractice
lawsuit. After careful examination of the statute and our prior
case law, we agree with defendants that the language of N.C. Gen.
Stat. § 97-10.2 is clear and unambiguous, and does not contemplate
recovery in a situation such as this. We therefore hold that Grant
cannot assert a subrogation lien upon the proceeds Ward received
from his malpractice lawsuit against Attorney McRae.
Our decision is based in large part on the definition of a
"third party" in N.C. Gen. Stat. § 97-10.2(a). According to
subsection (a), Grant, as the employer, may assert a subrogation
lien if it pays workers' compensation benefits when the employee's
injury "was caused under circumstances creating a liability in some
person other than the employer to pay damages therefor, such person
hereinafter being referred to as the 'third party.'" Id. Plainly
read, the third party must be one who caused an injury to the
employee. Prior case law has defined a third party as "any other
person or party who is a stranger to the employment but whose
negligence contributed to the injury." Warner v. Leder, 234 N.C.
727, 732, 69 S.E.2d 6, 9 (1952), overruled on other grounds by
Pleasant v. Johnson, 312 N.C. 710, 325 S.E.2d 244 (1985) and
Woodson v. Rowland, 329 N.C. 330, 407 S.E.2d 222 (1991). The term
"injury" is defined by N.C. Gen. Stat. § 97-2(6) (1999) as follows:
"Injury. -- 'Injury and personal injury' shall mean only injury by
accident arising out of and in the course of the employment, andshall not include a disease in any form, except where it results
naturally and unavoidably from the accident."
After considering the facts of this case, we conclude that the
only injury Ward suffered by accident during the course of his
employment was his fall from Formco's scaffolding at the job site.
Since Formco was in charge of maintaining its scaffolding and
failed to do so, it is the only third party in this lawsuit which
caused an injury to Ward. While Attorney McRae failed to file
Ward's lawsuit against Formco and caused Ward to suffer pecuniary
losses, McRae himself did not cause an injury to Ward as that term
is defined under the Workers' Compensation Act.
We agree with Grant that the Legislature intended non-
negligent employers to be reimbursed for monies they pay to
employees who are injured by a negligent third party. Johnson v.
Southern Industrial Constructors, 347 N.C. 530, 538, 495 S.E.2d
356, 360-61 (1998). However, we disagree with Grant's argument
that the proceeds of the attorney malpractice lawsuit were meant to
be included as part of these recoverable amounts. Despite Grant's
efforts to characterize its case as being predicated on a third-
party action, we do not find its arguments persuasive. The
Workers' Compensation Act speaks in terms of injury to the
employee, then to recovery. Here, the attorney malpractice lawsuit
was an entirely separate action from the underlying tortious
conduct of Formco. We do not interpret N.C. Gen. Stat. § 97-10.2
to extend to entirely separate actions which did not injure the
employee as herein discussed. Thus, Grant cannot claim a right of
subrogation to the proceeds of Ward's lawsuit against McRae. [2]Grant also argues that allowing Ward to k
eep the entire
proceeds from his legal malpractice lawsuit against Attorney McRae,
without giving Grant its subrogation lien, would effect a double
recovery for Ward, in direct contravention of N.C. Gen. Stat. § 97-
10.2. To remedy this problem, Grant maintains that it should
receive a subrogation lien upon the proceeds of Ward's lawsuit
against McRae, such that Ward is made whole from his workers'
compensation benefits and part of his award from his legal
malpractice lawsuit. We disagree. Pursuant to subsection (j), a
superior court judge has discretion to award a plaintiff a double
recovery at the expense of the employer. Since the language of
N.C. Gen. Stat. § 97-10.2(j) is clear and unambiguous, the
Legislature intended this possible result. Allen v. Rupard, 100
N.C. App. 490, 397 S.E.2d 330 (1990), disc. review denied, 328 N.C.
270, 400 S.E.2d 449 (1991).
In any event, Ward did not receive a double recovery.
Lawyer's Mutual paid $26,000.00 to settle Ward's claim, but first
reduced their award by the amount of money Ward received from Grant
in workers' compensation benefits. Lawyer's Mutual's money paid
Ward for McRae's legal malpractice, and Grant's payment constituted
Ward's rightful workers' compensation benefits. Ward was simply
compensated pursuant to two different causes of action which arose
from one precipitating event.
[3]With regard to Ward's recovery, Grant also argues that the
trial court had the authority to determine the amount of the
subrogation lien and then distribute any third-party recovery. Again, we disagree. Under N.C. Gen. Stat. § 97-10.2(j), the trial
court's authority vests only after one of two triggering events
occurs:
[I]n the event that a judgment is obtained by
the employee [1] in an action against a third
party, or [2] in the event that a settlement
has been agreed upon by the employee and the
third party, either party may apply to
the . . . superior court judge . . . to
determine the subrogation amount.
We again note that McRae and Lawyer's Mutual are not third
parties within the meaning of the Workers' Compensation Act.
Ward's settlement of the legal malpractice claim with Lawyer's
Mutual was therefore neither a judgment against the third party nor
a settlement with the third party. Thus, neither of the
statutorily prescribed events could ever occur, and Grant cannot
recover. We also do not agree with Grant that the settlement
proceeds should have gone to the Industrial Commission under N.C.
Gen. Stat. § 97-10.2(j). For money to properly be placed with the
Industrial Commission, the money must come from a third-party
tortfeasor, who is paying because of the injury. See Montgomery v.
Bryant Supply, 91 N.C. App. 734, 735, 373 S.E.2d 299, 300 (1988),
disc. review denied, 324 N.C. 248, 377 S.E.2d 755 (1989).
[4]Grant next argues that Attorney McRae's failure to file
suit against Formco directly harmed its ability to recover from
Formco as well. Grant bases part of its argument on the contention
that
McRae had an attorney-client relationship with both Grant and Ward
at the same time. However, we find that this is impossible as amatter of law. Rule 1.7 of the Revised Rules of Professional
Conduct states that
(a) A lawyer shall not represent a
client if the representation of that client
will be or is likely to be directly adverse to
another client, unless:
(1) the lawyer reasonably believes the
representation will not adversely affect the
interest of the other client; and
(2) each client consents after
consultation which shall include explanation
of the implications of the common
representation and the advantages and risks
involved.
In this case, Attorney McRae was hired by Ward to represent
him in both his workers' compensation proceeding and against
Formco. There would have been a clear conflict had McRae also been
deemed Grant's attorney, because it would have been impossible for
McRae to represent Grant against Formco and also against itself on
the issue of workers' compensation. McRae's representation of Ward
during the workers' compensation proceeding was directly adverse to
Grant's position in that matter as the employer. As for the third-
party action and the subrogation lien, McRae could not have argued
both that Ward was entitled to the full amount and that Grant was
entitled to a portion of Ward's recovery. Clearly, then, McRae was
not an attorney for both Ward and Grant simultaneously.
It was also erroneous for Grant to have relied upon McRae to
protect its interest against Formco. Grant could have initiated
its own lawsuit against Formco under N.C. Gen. Stat. § 97-10.2(c),
which states that
[i]f settlement is not made and summons
is not issued within said 12-month period, andif employer shall have filed with the
Industrial Commission a written admission of
liability for the benefits provided by this
Chapter, then either the employee or the
employer shall have the right to proceed to
enforce the liability of the third party by
appropriate proceedings . . . .
Id. (emphasis added). In short, McRae's legal malpractice directly
interfered with Ward's right to pursue a civil action against
Formco, but did not similarly impede Grant's ability to sue Formco.
We decline to assist Grant on appeal when its own inaction caused
its right to sue to lapse.
We further note that under N.C. Gen. Stat. § 97-10.2(b), Ward
had three years from the date of his injury to file suit against
Formco; the last day he could file suit was 22 March 1996. Under
N.C. Gen. Stat. § 97-10.2(c), Grant's statute of limitations during
which it could file suit against Formco expired sixty days before
Ward's statute of limitations; the last day Grant could file suit
was 22 January 1996.
Grant brings forth other arguments for relief, stating that
its right to recover on a subrogation lien theory is valid because
this case is predicated on the third-party action and the damages
recovered from the malpractice lawsuit are the same damages that
Ward would have recovered in the third-party action. Because we
determine that the malpractice lawsuit is separate from the
workers' compensation claim, we deem Grant's arguments to be
meritless. We therefore reject Grant's assertion that it was a
third-party beneficiary to the attorney-client contract between
Ward and his attorney, McRae.
Grant has also assigned error to the sufficiency of notice itreceived for Ward's motion to dismiss. However, Grant
did not
raise this issue in the court below, and also failed to advance any
argument or cite any authority to support this argument, and has
thus waived this assignment of error. See State v. Nobles, 350
N.C. 483, 503, 515 S.E.2d 885, 898 (1999); and N.C.R. App. P.
28(b)(5) (1999). Because we conclude that all of Grant's arguments
are without merit, we hereby affirm the trial court's dismissal of
Grant's complaint.
Affirmed.
Judges MARTIN and BIGGS concur.
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