Appeal by unnamed defendants from order entered 20 July 2001
by Judge William C. Gore in Brunswick County Superior Court. Heard
in the Court of Appeals 22 August 2002.
The Del Re' Law Firm, by Benedict J. Del Re', Jr., for
plaintiff-appellee.
Lewis & Roberts, P.L.L.C., by A. Graham Shirley and John H.
Ruocchio, for unnamed defendant-appellants.
MARTIN, Judge.
The unnamed defendants, plaintiff's former employer and its
workers' compensation insurance carrier, appeal from a superior
court order decreasing their compensation lien against plaintiff's
third-party recovery pursuant to G.S. § 97-10.2(j). Defendant
Boone is not a party to this appeal.
On 6 March 1998, plaintiff was driving a van in the course of
his employment with unnamed defendant-employer John Williams
Plumbing, Inc. (“Williams Plumbing”), when he was rear-ended by
defendant Boone. While there was $400.00 or less in damage to the
van plaintiff was driving, plaintiff received personal injuriesthat required emergency room treatment and further medical care.
Unnamed defendant-carrier Builders Mutual Insurance Company
(“Builders Mutual”) was the carrier on the risk at the time of the
accident and accepted plaintiff's claim as a compensable injury by
accident and began paying compensation pursuant to an I.C. Form 63.
After an initial diagnosis of neck strain by the emergency
room physician, plaintiff received chiropractic treatment for neck
pain but eventually had to undergo surgery for a cervical disc
protrusion. As part of plaintiff's claim, Builders Mutual paid
$12,266.46 in compensation for temporary total disability and
$29,076.46 in medical bills. Based on a rating of 10 percent
permanent partial disability of the cervical spine, plaintiff and
Williams Plumbing and Builders Mutual entered into an Agreement of
Final Settlement and Release (“the Agreement”) on 13 May 1999.
Under the terms of the Agreement, plaintiff received a lump sum
payment of $15,000 and payment of all related medical bills up to
the time of the Agreement. Under G.S. § 97-10.2, the temporary and
permanent disability compensation and medical expenses paid by
Builders Mutual would have provided Builders Mutual with a
subrogation lien of $56,342.92. Recognizing the possibility of a
third-party recovery against defendant Boone, the parties included
the following provision in the Agreement:
As a part of this settlement the Employer
and Insurer agree to reduce their lien
pursuant to G.S. 97-10.2 to a net of
$24,151.00. The parties agree that, in the
event of a third-party recovery, the Employer
and Insurer will receive a total of
$24,151.00, not subject to a reduction for
counsel fees, costs or expenses and notsubject to reduction under G.S. 97-10.2(j)
(emphasis added).
The Agreement, which was executed after plaintiff had filed suit
once against defendant Boone and taken a voluntary dismissal
without prejudice, was approved by the Industrial Commission on 25
May 1999.
Plaintiff filed a second lawsuit against defendant Boone on 25
July 2000. As a result of mediation, plaintiff and Boone's
insurance carrier, State Farm, reached a settlement in the amount
of $30,000. Builders Mutual was present at the negotiations and
refused requests to reduce its lien amount further. Due to this
refusal, plaintiff moved the trial court to decrease Builders
Mutual's lien pursuant to G.S. § 97-10.2(j). Plaintiff requested
that the lien be reduced to $10,000 so that plaintiff, plaintiff's
counsel, and Builders Mutual would each receive one-third of the
recovery amount.
After a hearing on the motion, the trial court found that
since the Agreement had been executed, plaintiff had been diagnosed
with a “more substantial disability.” It also found that “a
favorable recovery to the plaintiff if the matter had gone to trial
was speculative based upon representations from counsels for
Plaintiff and Defendant based upon possible contributory negligence
on the part of the Chiropractor . . . .” Thus, the trial court
reasoned that Builders Mutual stood to lose any chance of redeeming
its lien if the jury verdict was for defendant Boone. The trial
court entered an order decreasing Builders Mutual's lien in
accordance with plaintiff's request. Following the entry of the order decreasing the lien,
plaintiff took a voluntary dismissal with prejudice of the civil
claim against defendant Boone. Williams Plumbing and Builders
Mutual submitted timely notice of appeal from the order.
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Williams Plumbing and Builders Mutual challenge the trial
judge's order decreasing their compensation lien on two grounds.
First, they assert that the trial court had no jurisdiction to
modify the terms of the Agreement, which had been approved by the
Industrial Commission. Next, they argue that even if the trial
court had the necessary jurisdiction to decrease the lien, its
decision to do so was an abuse of discretion. We agree with
appellants' first argument, and thus do not reach their second.
The primary question presented by this appeal is whether G.S.
§ 97-10.2(j) authorizes a superior court judge to override the
terms of a settlement agreement approved by the Industrial
Commission with respect to an agreed-upon lien amount for the
employer and carrier. The statute does not specifically address
the rights of an employer or its carrier to enforce an agreement
with the injured employee with respect to a lien upon proceeds of
a recovery agreement with a third party. The statute provides:
(j) Notwithstanding any other subsection in
this section, . . . 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. . . 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 judgeshall 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 . . .
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.
Furthermore, there is no case precedent precisely on point in North
Carolina. The general language of G.S. § 97-10.2(j) has been held
to be clear and unambiguous, granting a trial judge authority to
use its discretion in adjusting a compensation lien amount, even if
the result is a double recovery for the plaintiff.
See Allen v.
Rupard, 100 N.C. App. 490, 397 S.E.2d 330 (1990). However, under
the facts of this case, this subsection would appear to be in
tension with the Industrial Commission's exclusive jurisdiction
over settlements of workers' compensation claims.
See N.C. Gen.
Stat. § 97-10.1, 97-17 (2002).
Under G.S. § 97-17, parties to a workers' compensation claim
may submit a settlement agreement to the Industrial Commission for
approval. If approved by the Commission, the agreement is
considered binding on the parties involved, and can only be set
aside by the Industrial Commission upon a showing of “fraud,
misrepresentation, undue influence, or mutual mistake.”
Id.;
Pruitt v. Knight Publishing Co., 289 N.C. 254, 221 S.E.2d 355(1976). In particular, the statute provides that unless a party
can make such a showing:
[n]o party to any agreement for compensation
approved by the Commission shall deny the
truth of the matters contained in the
settlement agreement . . . .
N.C. Gen. Stat. § 97-17(a) (2002). Therefore, where a settlement
agreement speaks specifically to the matter of the employer and
carrier's lien, and the plaintiff-employee has agreed to the lien
provision, G.S. § 97-17 indicates that the employee is bound by the
agreement and only the Industrial Commission has jurisdiction to
set it aside.
In
Turner v. CECO Corp., 98 N.C. App. 366, 390 S.E.2d 685
(1990)
, the plaintiff-employee sustained injuries while working for
the defendant-employer for which a third-party tortfeasor was also
potentially liable. The plaintiff and third party entered into a
settlement agreement that was reviewed and approved by the trial
court. The defendant-employer and carrier consented to this
settlement and represented to the trial court that they had agreed
to waive any lien they would have on the proceeds of the third-
party settlement in exchange for the plaintiff's promise not to
pursue two disputed compensation claims against the employer.
However, at the same time the defendants submitted their agreement
with the plaintiff to the Industrial Commission for approval, they
also petitioned for a lien on the monthly payments plaintiff would
receive under the third-party settlement. The Commission approved
the settlement, but denied the defendants' petition for a lien.
This denial was upheld on appeal, with this Court emphasizing that: [a]n agreement, approved by the Commission and
otherwise valid, between the parties to a
workers' compensation claim
as to the
distribution between them of proceeds
recovered from a third party action is
binding.
Id. at 370, 390 S.E.2d at 688 (emphasis added).
Although the
Turner case differs from the case at hand in that
the lien-related request was put to the Commission rather than the
trial judge, it does indicate that provisions of a settlement
agreement approved by the Commission that limit or waive a lien are
to be considered binding on the parties.
See id. Moreover, if an
employer and carrier will not be allowed to escape a waiver of
their lien, it stands to reason that employees should be held to
their agreement to a certain lien amount, especially where the
parties specifically agreed it was “not subject to reduction under
G.S. 97-10.2(j).”
In his brief, plaintiff points out that one of the factors a
judge should consider under G.S. § 97-10.2(j) is the “likelihood of
the plaintiff prevailing at trial” and that the judge in this case
found that a favorable recovery for plaintiff was “speculative”
given the possible intervening liability of plaintiff's
chiropractor. Under these circumstances, plaintiff characterizes
Builders Mutual's refusal to reduce their lien as “forcing”
plaintiff to go to trial.
Although G.S. § 97-10.2(j) may have been intended in part to
avoid just such a situation, in a case where the employee,
employer, and carrier have agreed in advance as to the disposition
of any lien, a carrier's insistence on the agreed-upon lien amountmay be viewed as an insistence on receiving the benefit of the
bargain previously struck with the employee. These bargains have
been committed to the discretion of the Industrial Commission.
N.C. Gen. Stat. § 97-10.1, 97-17. Were we to hold otherwise, the
Commission's authority to approve settlement agreements in which
rights to a lien are an essential element of the bargain would be
undermined. Parties would no longer be able to have confidence
that agreements as to compensation liens were binding and would
thus lose this useful bargaining element. Lastly, parties such as
the defendants in this case, stripped of their rights by a trial
court, would have no recourse other than further litigation either
to set aside the agreement and receive reimbursement of the
settlement consideration from plaintiff, or for breach of contract
against plaintiff. We do not imagine that in granting the superior
court the discretion to determine subrogation amounts under G.S. §
97-10.2(j) to facilitate settlement of third party claims, the
Legislature intended to undermine the authority of the Industrial
Commission to do the same for workers' compensation claims.
We hold that in order to adjust a lien amount agreed to in a
workers' compensation claim settlement approved by the Commission,
the parties must apply to the Industrial Commission under G.S. §
97-17. Plaintiff may not use G.S. § 97-10.2(j) to make an end-run
around the duly executed and Commission-approved Agreement. The
superior court had no jurisdiction to adjust a lien amount agreed
upon in such an agreement. The order appealed is vacated.
Vacated. Judges TYSON and THOMAS concur.
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