Hauptman, O'Brien, Wolf & Lathrop, P.C. v. Auto-Owners Ins. Co.

• Decision Date: 17 September 2021
• Docket Number: No. S-20-516.,S-20-516.
• Citation: 964 N.W.2d 264,310 Neb. 147
• Parties: HAUPTMAN, O'BRIEN, WOLF & LATHROP, P.C., appellee and cross-appellant, v. AUTO-OWNERS INSURANCE COMPANY, appellant and cross-appellee.
• Court: Nebraska Supreme Court

310 Neb. 147

964 N.W.2d 264

HAUPTMAN, O'BRIEN, WOLF & LATHROP, P.C., appellee and cross-appellant,

v.AUTO-OWNERS INSURANCE COMPANY, appellant and cross-appellee.

No. S-20-516.

Supreme Court of Nebraska.

Filed September 17, 2021

Michael T. Gibbons, Omaha, and Raymond E. Walden, of Woodke & Gibbons, P.C., L.L.O., for appellant.

Joshua J. Yambor, Omaha, and Stevie Chesterman, of Hauptman, O'Brien, Wolf & Lathrop, P.C., for appellee.

Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

Cassel, J.

INTRODUCTION

This appeal presents a question of law: Does a statute granting an insurer the right of subrogation preempt a common-law rule allowing an attorney to collect a pro rata share of his or her fees from an insurer? Because the statutory language is silent as to attorney fees and there is no indication that the Legislature intended to restrict or preclude the common fund doctrine, we conclude that attorney fees are not within the field occupied by the statute. We affirm.

BACKGROUND

LAW AT ISSUE

Before summarizing the facts, we set forth the statute and common-law rule central to this appeal. The statute, Neb. Rev. Stat. § 44-3,128.01 (Reissue 2010), provides:

A provision in an automobile liability policy or endorsement which is effective in this state and which grants the insurer the right of subrogation for payment of benefits under the medical payments coverage portion of the policy shall be valid and enforceable, except that if the claimant receives less than actual economic loss from all parties liable for the bodily injuries, subrogation of medical payments shall be allowed in the same proportion that the medical expenses bear to the total economic loss. For purposes of this section, it shall be conclusively presumed that any settlement or judgment which is less than the policy limits of any applicable liability insurance coverage constitutes complete recovery of actual economic loss.

The common law implicated is known as the common fund doctrine. The common fund doctrine provides that an attorney who renders services in recovering or preserving a fund, in which a number of persons are interested, may in equity be allowed his or her compensation out of the whole fund, only where the attorney's services are rendered on behalf of, and are a benefit to, the common fund.¹ Thus, "where the holder of the subrogation right does not come into the action, whether he refuses to do so or acquiesces in the plaintiff's action, but accepts the avails of the litigation, he should be subjected to his proportionate share of the expenses thereof, including attorney's fees."²

We now provide context for the dispute.

FACTUAL BACKGROUND

Auto-Owners Insurance Company (the insurer) issued an automobile insurance policy to Charlyn Imes. The policy and an endorsement both contained a section on preserving the insurer's right to recover payments. The section of the endorsement addressed the right to recover disbursements made pursuant to medical payments coverage. This section stated in part that if the insurer makes a payment under the endorsement and the person for whom payment is made has a right to recover damages from another, the insurer will be entitled to that right and the person for whom payment is made shall transfer the right to the insurer and do nothing to prejudice it.

After Imes suffered injuries in a motor vehicle accident, the insurer made medical payments of $1,000 on her behalf. Imes retained Hauptman, O'Brien, Wolf & Lathrop, P.C. (the law firm), via a contingent fee agreement to pursue her claims against a negligent third party. Imes ultimately sued the negligent third party. She sought special and general damages, including medical expenses of $40,100.

Two months after the filing of the lawsuit, the insurer sent a letter to the negligent third party's insurance company. The insurer requested that its right of recovery be "considered, protected and satisfied" in the event the negligent third party's insurance company made payment. The letter further stated: "Please be advised that [the insurer] will represent our subrogation interest for payment made on behalf of our insured. We will not honor any requests for attorney fees unless we expressly request their assistance in pursuit of our subrogation."

Eight months after filing suit, Imes settled for $48,200. The law firm asked the insurer to take a one-third reduction of its $1,000 medical payment subrogation interest in exchange for the law firm's efforts in obtaining a settlement from which the insurer may be reimbursed. The insurer refused to accept less than $1,000.

PROCEDURAL BACKGROUND

The law firm sued the insurer in county court. It alleged that its work in obtaining a recovery on behalf of Imes, including the insurer's subrogation interest in the claim, created a common fund; that the insurer benefited from the law firm's work; and that a fair and customary attorney fee under Nebraska common law was one-third of the amount recovered per the law firm's fee agreement with Imes. The law firm therefore sought recovery of $333.33 against the insurer.

The insurer filed an answer and set forth various affirmative defenses. The insurer also filed a counterclaim, seeking a declaration that it was entitled to the full $1,000 under § 44-3,128.01 and the terms of the insurance policy. Upon cross-motions for summary judgment, the county court sustained the law firm's motion and overruled the insurer's motion. The insurer appealed to the district court.

The district court affirmed the entry of summary judgment. The court stated that the statute "in no way limits or affects the Common Fund doctrine and the Common Fund doctrine in no way limits or affects section 44-3,128.01."

The insurer then appealed to the Nebraska Court of Appeals. In considering whether the common fund doctrine survived § 44-3,128.01, the Court of Appeals discussed the insurer's preemption argument. The Court of Appeals clarified that the issue was the law firm's entitlement to recover a reasonable attorney fee for its efforts in securing the insurer's subrogated medical payment and stated: "This is not a ‘field’ addressed by the statute, which states that an insurer is entitled to full recovery of its medical payments when policy limits have not been received (as opposed to a pro rata share when they have and not all economic losses have been recovered)."³ The court recognized that the statute was silent as to attorney fees and stated that there was nothing in case law to indicate that the statute preempted the common fund doctrine. Thus, the Court of Appeals affirmed the district court's order.

The insurer filed a petition for further review, which we granted.

ASSIGNMENTS OF ERROR

The insurer assigns three errors in its petition for further review, which can be distilled to one: The Court of Appeals erred in failing to determine that the common fund doctrine was preempted by § 44-3,128.01.

STANDARD OF REVIEW

To the extent an appeal calls for statutory interpretation or presents questions of law, an appellate court must reach an independent conclusion irrespective of the determination made by the court below.⁴

ANALYSIS

The insurer has relied on preemption throughout the proceedings. Preemption typically arises in connection with federal law. Federal preemption arises from the Supremacy Clause of the U.S. Constitution and is the concept that state laws that conflict with federal law are invalid.⁵ We have also encountered preemption claims with respect to whether municipal ordinances⁶ or township laws⁷ were preempted by state law. And the concept of preemption can arise in the interaction of common law and statutory law.⁸ That is the situation before us.

The common fund doctrine is a part of the common law. In 1866, Nebraska adopted the common law of England.⁹

An equity court's authority over fees, including "the usual case ... where through the complainant's efforts a fund is recovered in which others share," can be traced back to the English Court of Chancery.¹⁰ But the common law is not immutable. No one has a vested interest in any rule of the common law, and the Nebraska Legislature has the power to abolish rights so long as no vested right is disturbed.¹¹

The insurer argues that within the statutorily defined field of automobile liability insurance, § 44-3,128.01 preempts application of the common fund doctrine. Whether the common fund doctrine should apply under the specific circumstances of this case is not at issue¹² ; instead, the limited issue before us is whether the doctrine is preempted by § 44-3,128.01.

There are three types of preemption: (1) express preemption, (2) field preemption, and (3) conflict preemption. In all three cases, the touchstone of preemption analysis is legislative intent.¹³ Express preemption occurs when the Legislature has expressly declared in explicit statutory language its intent to preempt local laws.¹⁴ That is clearly not the situation here. Field preemption and conflict preemption arise in situations where the Legislature did not explicitly express its intent to preempt local laws, but such can be inferred from other circumstances.¹⁵ In field preemption, legislative intent to preempt local laws is inferred from a comprehensive scheme of legislation.¹⁶ The mere fact that the Legislature has enacted a law addressing a subject does not mean that the subject matter is completely preempted.¹⁷ In conflict preemption, legislative intent to preempt local laws is inferred to the extent that a local law actually conflicts with state law.¹⁸

In determining whether the Legislature intended to preempt the common fund doctrine when enacting § 44-3,128.01, we are mindful of four principles of statutory interpretation and construction. First, if a statute is in derogation of common law, it is to be strictly construed.¹⁹ Second, the construction of a statute which restricts or removes a common-law right should not be adopted unless the plain words of the...