Hobson v. Mid-Century Ins. Co.

• Decision Date: 27 February 2001
• Docket Number: No. 2 CA-CV 99-0222, No. 2 CA-CV 00-0118.
• Citation: Hobson v. Mid-Century Ins. Co., 199 Ariz. 525, 19 P.3d 1241 (Ariz. App. 2001)
• Parties: Roger HOBSON, a single individual; Robert Q. Hoyt, Esq., a single individual; Robert Q. Hoyt, P.C., Plaintiffs/Appellants, v. MID-CENTURY INSURANCE COMPANY, Defendant/Appellee. Juano Morales and Shawna Morales, husband and wife; Robert Q. Hoyt, Esq., a single individual; Robert Q. Hoyt, P.C., Plaintiffs/Appellants, v. State Compensation Fund, Inc., Defendant/Appellee.
• Court: Arizona Court of Appeals

19 P.3d 1241

199 Ariz. 525

Roger HOBSON, a single individual; Robert Q. Hoyt, Esq., a single individual; Robert Q. Hoyt, P.C., Plaintiffs/Appellants, v.MID-CENTURY INSURANCE COMPANY, Defendant/Appellee.

Juano Morales and Shawna Morales, husband and wife; Robert Q. Hoyt, Esq., a single individual; Robert Q. Hoyt, P.C., Plaintiffs/Appellants, v.State Compensation Fund, Inc., Defendant/Appellee.

Nos. -0222, -0118.

Court of Appeals of Arizona, Division 2, Department A.

February 27, 2001.

Law Office of Bruce A. Burke, P.C., by Bruce A. Burke, Tucson, for plaintiffs/appellants.

Robert E. Wisniewski, P.C., by Robert E. Wisniewski, Phoenix, for defendant/appellee, Mid-Century Insurance Company.

Diana J. Simon, P.C., by Diana J. Simon, Tucson, for defendant/appellee, State Compensation Fund, Inc.

OPINION

PELANDER, J.

¶ 1 In these two cases, consolidated for appeal, the trial courts ruled as a matter of law that A.R.S. § 23-1023(C) does not permit an order compelling a workers' compensation lienholder to pay, from the amount it is paid on account of its statutorily prescribed lien, an equitable share of the attorney's fees and costs incurred by the claimant in a third-party tort action.The trial courts also ruled that, so construed, § 23-1023 does not unconstitutionally violate the separation of powers doctrine by infringing on the superior courts' equitable power.Because we agree with those rulings, we affirm.

BACKGROUND

¶ 2These cases have similar, undisputed facts.After plaintiff/appellantRoger Hobson sustained an industrial injury, his employer's workers' compensation carrier, defendant/appellee Mid-Century, accepted his claim and paid him benefits in excess of $36,000.Hobson, through his attorney Robert Q. Hoyt, then pursued a third-party action which eventually settled for $33,000, with Mid-Century's approval.After deduction of Hoyt's attorney's fee and costs, Mid-Century ultimately received $20,698.13 in payment of its workers' compensation lien pursuant to § 23-1023.

¶ 3 Hoyt then requested Mid-Century to pay a portion ($6,899.38) of his one-third contingency fee from its lien proceeds.When Mid-Century refused to do so, Hobson and Hoyt (collectively Hobson) filed a declaratory relief action against Mid-Century.¹Relying on the equitable "common fund" doctrine, Hobson requested the trial court to order Mid-Century to pay a proportionate share of the attorney's fees incurred in the third-party action.Mid-Century moved to dismiss the complaint.In granting that motion, the trial court noted that Mid-Century's refusal to pay a proportionate share of Hobson's attorney's fees was "unfair and works an apparent injustice" but that Hobson's "common fund" theory was "inconsistent with the clear language of A.R.S. § [23]-1023(C) and existing case law."Hobson's appeal followed the trial court's entry of judgment in favor of Mid-Century.

¶ 4Plaintiff/appellantJuano Morales also sustained an industrial injury and received workers' compensation benefits totalling $45,193.71 from his employer's workers' compensation carrier, the State Compensation Fund(SCF).Morales, through Hoyt, brought a third-party action which ultimately settled for $250,000, with SCF's consent.From that amount, Hoyt received $100,000, representing his forty percent contingency fee, plus $10,000 in costs; SCF received payment in full on its lien of $45,193.71; and Morales received the balance of $94,806.29, on which SCF asserted a "credit lien" against any incurred but unpaid workers' compensation benefits or benefits to be paid in the future and related to the same injury.

¶ 5 Hoyt and Morales (collectively Morales) then made a claim against SCF pursuant to A.R.S. § 12-821.01, seeking forty percent (or $18,077.48) of the money paid to SCF on its lien, plus forty percent (or $4,000) of the costs Hoyt had expended in prosecuting the third-party action.The claim also sought a forty percent (or $37,922.52) reduction from SCF's asserted "credit lien" on the settlement proceeds that Morales had received.After SCF failed to respond to the claim, Morales filed a declaratory relief action against SCF alleging the aforementioned claims and essentially seeking the same type of equitable relief that Hobson had sought: an order, pursuant to the common fund doctrine, requiring SCF to pay a proportionate share of attorney's fees and costs incurred in the third-party action.The trial court granted SCF's motion for summary judgment, and Morales's appeal followed.

DISCUSSION

¶ 6 Because the underlying facts in both cases are undisputed, we determine de novo whether the trial courts correctly interpreted and applied the relevant substantive law.Bills v. Arizona Property and Cas. Ins. Guar. Fund,194 Ariz. 488, ¶ 6, 984 P.2d 574, ¶ 6 (App.1999).We also review de novo statutory interpretation issues and constitutional claims.Id.At the heart of these appeals is § 23-1023(C).As amended in 1965 and again in 1968, that statute provides in pertinent part:

If [the employee] proceeds against such other [third-party tortfeasor], compensation and medical, surgical and hospital benefits shall be paid as provided in this chapter and the insurance carrier ... shall have a lien on the amount actually collectable from such other person to the extent of such compensation and medical, surgical and hospital benefits paid.This lien shall not be subject to a collection fee.The amount actually collectable shall be the total recovery less the reasonable and necessary expenses, including attorneys' fees, actually expended in securing such recovery....

(Emphasis added.)The 1968amendment to the statute added the italicized sentence concerning "a collection fee."

¶ 7 Hobson and Morales (collectively plaintiffs) contend the trial courts misread § 23-1023(C) to preclude apportionment against the carriers of attorney's fees and costs incurred in plaintiffs' third-party actions.According to plaintiffs, the 1968amendment"introduces ambiguities" as to whether the statute prohibits such apportionment.Plaintiffs maintain that a "collection fee" and "attorney's fee" are not synonymous.The former, they argue, only refers to "an amount paid to a debt collector for efforts to collect a judgment which has already been secured but (perhaps because the judgment debtor is a `deadbeat' or uninsured) has not been paid."In contrast, plaintiffs argue, the phrase "attorneys' fees" in § 23-1023(C) only refers to "the fee earned by the tort lawyer in the course of the third-party litigation, which culminates in reducing the [plaintiffs'] claim to a judgment."Based on that alleged distinction, plaintiffs further contend the statute does not preclude "an award of an `attorneys' fee' from the lien amount paid from [a] tort settlement."Absent any express prohibition, plaintiffs argue, trial courts may invoke their equitable power, pursuant to the common fund doctrine, to apportion part of the attorney's fee against the workers' compensation lien.

¶ 8 Our primary goal in interpreting statutes is to discern and give effect to legislative intent.Bills,194 Ariz. 488, ¶ 6, 984 P.2d 574, ¶ 6.We focus on the language of a statute and, if it is inconclusive or ambiguous, we then consider other factors such as the statute's context, subject matter, historical background, effects, consequences, spirit, and purpose.Id.See alsoHayes v. Continental Ins. Co.,178 Ariz. 264, 268, 872 P.2d 668, 672(1994)("If a statute's language is clear and unambiguous, we apply it without resorting to other methods of statutory interpretation.").

¶ 9 Several insurmountable hurdles defeat plaintiffs' argument.First, we find no ambiguity in § 23-1023(C); nor have other courts that have construed it.As our supreme court has stated: "Under the language of the Arizona statute, the proper computation of the compensation carrier's lien is first to deduct from the amount of the settlement the attorney's fees and reasonable and necessary costs of the litigation.The remainder is the amount against which the insurance carrier has a lien."Liberty Mut. Ins. Co. v. Western Cas. & Sur. Co.,111 Ariz. 259, 262, 527 P.2d 1091, 1094(1974).See alsoPolito v. Industrial Comm'n,171 Ariz. 46, 48, 828 P.2d 182, 184(App.1992)(noting that "the lien attaches to the entire third-party recovery (less expenses and attorney's fees)," and finding "no ambiguity or conflict in the statute");Martinez v. Industrial Comm'n,168 Ariz. 307, 309-10, 812 P.2d 1125, 1127-28(App.1991)("The language of the lien statute unambiguously states that the lien attaches to the `total recovery' obtained from a third party.");Young v. Industrial Comm'n,146 Ariz. 582, 584, 707 P.2d 986, 988(App.1985), quoting§ 23-1023(C)("The statute allows the carrier to assert a lien on the `amount actually collectable,'" which "is defined as including `the total recovery' less specified deductions for expenses and attorney's fees.").

¶ 10 Second, our supreme court has rejected plaintiffs' proffered interpretation of § 23-1023(C).In the Liberty Mutual case, as in these cases, the plaintiffs sought "a declaratory judgment that [the workers' compensation carrier] was not entitled to have the full amount of its alleged liens repaid in that attorney's fees and expenses should first be deducted."111 Ariz. at 260, 527 P.2d at 1092.Construing the 1968 version of the statute, the court rejected that claim by holding that § 23-1023(C) does not "permit[ ] the workmen's compensation carrier's lien to be depleted by the amount of the employee's attorney's fees and reasonable expense of litigation."Id. at 261, 527 P.2d at 1093.This court, of course, is bound by applicable supreme court authority.McKay v. Industrial Comm'n,103 Ariz. 191, 438 P.2d 757(1968);City of Phoenix v. Leroy's Liquors, Inc.,177 Ariz. 375, 378, 868 P.2d 958, 961(App.1993).

¶ 11 As plaintiffs correctly note, the court in Liberty Mutual referred to its prior holding in ...