Gallagher v. Lenart

• Decision Date: 30 August 2006
• Docket Number: No. 1-06-0065.,1-06-0065.
• Citation: 305 Ill.Dec. 208,854 N.E.2d 800
• Parties: James GALLAGHER and Michelle Gallagher, Plaintiffs-Appellees, v. Jaroslaw Robert LENART, Individually, and as agent for Pacella Trucking Express, Inc., and Pacella Trucking Express, Inc., an Illinois Corporation, Defendants-Appellees (Rail Terminal Services, LLC, Intervenor-Appellant).
• Court: United States Appellate Court of Illinois

854 N.E.2d 800

305 Ill.Dec. 208

James GALLAGHER and Michelle Gallagher, Plaintiffs-Appellees, v. Jaroslaw Robert LENART, Individually, and as agent for Pacella Trucking Express, Inc., and Pacella Trucking Express, Inc., an Illinois Corporation, Defendants-Appellees (Rail Terminal Services, LLC, Intervenor-Appellant).

No. 1-06-0065.

Appellate Court of Illinois, First District, Third Division.

August 30, 2006.

William P. Ryan, Terry L. Welch, Marwedel, Minichello and Reeb, P.C., Chicago, for Appellant.

Michael W. Rathsack, Chicago, for Plaintiffs-Appellees.

David E. Neumeister, Larry S. Kowalczyk, Querrey & Harrow, Ltd., Chicago, for Defendants-Appellees.

Justice THEIS delivered the opinion of the court:

Plaintiffs James and Michelle Gallagher brought suit against defendants Jaroslaw Robert Lenart, individually, and as agent for Pacella Trucking Express, Inc., and Pacella Trucking Express, Inc., an Illinois corporation (collectively, defendants), for personal injuries James sustained in a motor vehicle collision with Lenart. After that case settled, intervenor Rail Terminal Services, LLC (Rail Terminal), James' employer, was granted leave to intervene and sought to enforce its workers' compensation lien created pursuant to the Workers' Compensation Act (820 ILCS 305/5(b) (West 2004)) (the Act), against the settlement proceeds allocated to James. The trial court found that Rail Terminal had waived its lien pursuant to Borrowman v. Prastein, 356 Ill.App.3d 546, 292 Ill.Dec. 459, 826 N.E.2d 600 (2005), and granted defendants' motion to adjudicate any third-party claims and to issue settlement drafts. On appeal, Rail Terminal contends that the trial court erred in holding that it did not have a valid workers' compensation lien and in granting defendants' motion to adjudicate any third-party claims. For the following reasons, we reverse and remand for further proceedings.

On April 10, 2001, James, an employee of Rail Terminal, was operating a small truck in the scope of his employment when he was hit by a truck driven by Lenart. At that time, Lenart was an employee of Pacella Trucking Express, Inc., and was delivering a container to Rail Terminal's premises. James sustained injuries to his spine as a result of the accident, which required surgery and pain medication and caused him to miss many weeks of work.

Following the accident, James filed a claim for workers' compensation benefits under the Act against Rail Terminal. Rail Terminal and James settled this claim in July 2003 for $150,000. That settlement provided in relevant part:

"Respondent [Rail Terminal] to pay the petitioner [James] $150,000.00 in full and final settlement of all claims under the Workers' Compensation Act for injuries incurred on or about April 10, 2001 and any and all results, developments or sequale, past, present or future resulting from this accident. Respondent denies these injuries are compensable and this settlement is made to settle those issues as a purchase of the peace against any an[d] all claims for additional temporary total compensation, permanent partial disability and medical, surgical [or] hospital expenses, past, present or future. Review under Sections 19(h) and 8(a) [is] waived by the petitioner."

On November 21, 2001, James filed this personal injury action against defendants. In the amended complaint, James sought damages for his injuries and Michelle raised a loss of consortium claim. In November 2003, defendants filed a third-party action against Rail Terminal, alleging that Rail Terminal failed to properly train and supervise James and seeking contribution pursuant to the Joint Tortfeasor Contribution Act (740 ILCS 100/1 et seq. (West 2004)). Rail Terminal filed a motion for summary judgment on the third-party complaint, arguing that it did not fail to supervise or train James and that no additional supervision or training would have prevented this accident. The trial court granted Rail Terminal's motion for summary judgment in July 2005.

On September 16, 2005, the parties settled this case. Specifically, defendants paid $225,000 to Michelle for her loss of consortium claim and $125,000 to James for his personal injury claim. On September 23, 2005, Rail Terminal filed a petition to intervene in this personal injury case "for the purpose of protecting its Worker's [sic] Compensation lien" and a motion to set aside the allocation and to reallocate James' settlement with defendants. In these motions, Rail Terminal alleged that it had paid temporary total disability benefits to James in the amount of $24,903.51 and medical expenses in the amount of $53,392.21 as part of James' workers' compensation benefits. Further, Rail Terminal stated that it had settled James' claim for permanent partial disability for $150,000. Thus, the total amount of Rail Terminal's workers' compensation lien was $228,295.72.

Rail Terminal also stated that a settlement between plaintiffs and defendants was reached on September 16, 2005, and that Rail Terminal did not participate in or approve of that settlement. It further claimed that since James received $125,000, he had received only 35.7% of the $350,000 settlement whereas Michelle had received 64.3% of the settlement for her loss of consortium claim. Rail Terminal alleged that plaintiffs structured the settlement in this way to circumvent Rail Terminal's workers' compensation lien. With these two motions, Rail Terminal sought to intervene in the personal injury suit and reallocate the settlement so as to recover the full amount of its lien.

On October 7, 2005, defendants filed a motion to adjudicate any third-party claims and to issue settlement drafts. Citing Borrowman v. Prastein, 356 Ill.App.3d 546, 292 Ill.Dec. 459, 826 N.E.2d 600 (2005), defendants argued that because of certain language in the settlement of James' workers' compensation claim with Rail Terminal, Rail Terminal had waived its workers' compensation lien. Plaintiffs joined in this motion. Rail Terminal responded, arguing that the language of the workers' compensation claim settlement agreement did not indicate that Rail Terminal had intentionally waived its right to assert its lien. Rail Terminal attached affidavits from one of its attorneys and several insurance personnel who were involved in settling James' workers' compensation case. These witnesses averred that Rail Terminal never agreed or intended to waive its workers' compensation lien and that both plaintiffs' and defendants' counsel knew of this intention. Further, one witness stated that it was not customary to waive an employer's right to recover its lien as part of negotiations for settlement of a workers' compensation claim and that if such a waiver was contemplated, a provision expressly memorializing such waiver would be included in any settlement contract.

On December 13, 2005, the trial court granted Rail Terminal's petition to intervene. Additionally on December 13, the trial court granted defendants' motion to adjudicate third-party liens, finding that Rail Terminal did not have a lien under Borrowman. The court denied Rail Terminal's motion to set aside the settlement agreement and reallocate, finding that it did not need to reach that issue. Rail Terminal then filed this timely appeal.

Rail Terminal argues that it is entitled to a lien under section 5(b) of the Act (820 ILCS 305/5(b) (West 2004)) and that the trial court erred in finding that it had waived its workers' compensation lien by not specifically reserving it in the settlement of James' workers' compensation claim. In its argument, Rail Terminal contends that Borrowman v. Prastein, 356 Ill.App.3d 546, 292 Ill.Dec. 459, 826 N.E.2d 600 (2005), the sole case upon which the trial court relied in making its finding, is distinguishable and poorly reasoned and urges this court to reject it. Plaintiffs and defendants respond that Borrowman was correctly decided and that the trial court properly relied on that case in finding that Rail Terminal had waived its lien.

A detailed discussion of Borrowman is necessary to this case. Plaintiff Charles Borrowman fractured his heel in April 1995 while working for his employer, intervenor Watertower Paint & Repair Company (Watertower). Borrowman, 356 Ill. App.3d at 547, 292 Ill.Dec. 459, 826 N.E.2d at 601. Borrowman then filed for workers' compensation benefits against Watertower. Defendant Dr. Rebeccah Prastein performed surgery to repair his fracture. Soon thereafter, Borrowman developed an infection in his heel which Dr. Prastein treated with antibiotics. After the infection cleared, Borrowman experienced a severe earache, hearing loss, dizziness and balance problems, which were later attributed to the antibiotics. Borrowman, 356 Ill.App.3d at 547, 292 Ill.Dec. 459, 826 N.E.2d at 601.

In October 1997, Borrowman filed a medical malpractice suit against Dr. Prastein for damages he sustained from the antibiotics. On January 7, 2000, pursuant to a settlement contract, Borrowman and Watertower settled Borrowman's workers' compensation claim for $230,000. In February 2001, Borrowman filed a petition to adjudicate Watertower's claim for a workers' compensation lien. Borrowman, 356 Ill.App.3d at 547, 292 Ill.Dec. 459, 826 N.E.2d at 602. In July 2001, Borrowman settled his medical malpractice case for $750,000. Borrowman again filed a petition to adjudicate Watertower's lien. The parties engaged in discovery and held a hearing where witnesses testified as to the amount of Watertower's lien based on how much of the workers' compensation benefits were attributable to the medical malpractice. The trial court held that Watertower was entitled to a lien on Borrowman's medical malpractice settlement of $175,973.71. Borrowman, 356 Ill. App.3d at 548, 292 Ill.Dec. 459, 826 N.E.2d at 602.

On appeal, Borrowman argued that Watertower was not entitled to a lien, or in the alternative, was entitled to a smaller lien. The opinion does not indicate the basis...