Kaiman v. Mercy Midlands Medical and Dental Plan

• Decision Date: 19 May 1992
• Docket Number: No. A-90-435,A-90-435
• Citation: 1 Neb.App. 148,491 N.W.2d 356
• Parties: Howard A. KAIMAN, Appellant, v. MERCY MIDLANDS MEDICAL AND DENTAL PLAN and Michael Lawler, Trustee, Appellees.
• Court: Nebraska Court of Appeals

Page 356

491 N.W.2d 356

1 Neb.App. 148

Howard A. KAIMAN, Appellant, v. MERCY MIDLANDS MEDICAL AND DENTAL PLAN and Michael Lawler, Trustee, Appellees.

No. A-90-435.

Court of Appeals of Nebraska.

May 19, 1992.

[1 Neb.App. 149] Jon B. Abbott, Omaha, for appellant.

Jon S. Reid, of Kennedy, Holland, DeLacy & Svoboda, Omaha, for appellees.

SIEVERS, C.J., and HANNON and WRIGHT, JJ.

SIEVERS, Chief Judge.

This appeal presents the first impression issue of whether a health care insurer who is reimbursed as the result of an injured employee's successful workers' compensation suit is obligated to pay attorney fees to the employee's attorney.

This case comes to us after the district court for Douglas County sustained the demurrer of Mercy Midlands Medical and Dental Plan and its trustee (Mercy Midlands). In reviewing an order sustaining a demurrer, an appellate court accepts the truth of facts well pled and the factual and legal inferences which may reasonably be deduced from such facts, but does not accept the conclusions of the pleader. Balfany v. Balfany, 239 Neb. 391, 476 N.W.2d 681 (1991). However, regarding a question of law, an appellate court has an obligation to reach a conclusion independent of that of the trial court in a judgment under review. City of Newman Grove v. Primrose, 240 Neb. 70, 480 N.W.2d 408 (1992).

BACKGROUND

The factual background, as revealed by plaintiff's petition, is that Patty Junge, an employee of Bergan Mercy Hospital, asserted that she had sustained an on-the-job injury. Her employer denied compensability. Junge, as an employee of Bergan Mercy, was covered by Mercy Midlands Medical and Dental Plan, a health maintenance organization (HMO). Mercy Midlands paid $13,554.38 to those who had provided medical services to Junge for her injury.

Junge retained counsel, who is the appellant herein. Suit was filed against Junge's employer in the Nebraska Workers' Compensation Court, and after two full hearings, that court entered an award in Junge's favor. As a result of the award in Junge's favor, Mercy Midlands received full reimbursement of the $13,554.38 it had paid to Junge's medical providers.

Junge's attorney, Kaiman, tendered a demand to Mercy Midlands for payment of a reasonable attorney fee, which he asserted was one-third of the amount reimbursed. The demand was denied, and as a result Kaiman filed suit against Mercy Midlands in the district court for Douglas County, seeking judgment against Mercy Midlands in the amount of $4,518.13.

Mercy Midlands filed a demurrer, which asserted that the district court had no jurisdiction over the subject matter and that the petition failed to state a cause of action because " Neb.Rev.Stat. § 48-101 et seq. (Reissue 1988), is the governing statutory authority and does not provide for attorneys fees in this type of case." On May 7, 1990, the district court sustained the demurrer without comment or opinion. Kaiman perfected his appeal and assigns the sustaining of the demurrer as error.

We must determine whether the petition states a cause of action, and if so, where jurisdiction lies.

IS A CAUSE OF ACTION STATED?

The issue of whether a cause of action is stated against an HMO by an attorney who has successfully presented an injured employee's workers' compensation claim against an employer with the result that an HMO is reimbursed is an issue of first impression in the State of Nebraska. We consider that an HMO is the equivalent of a health care insurer for purposes of our decision.

Nebraska's Common Fund Doctrine.

Kaiman argues that through his efforts, Mercy Midlands received full reimbursement of its payments on behalf of the injured employee Junge, and therefore under the common fund doctrine Mercy Midlands should bear a share of the cost of the recovery which was of direct and substantial benefit to Mercy Midlands. Mercy Midlands Kaiman asserts that the reimbursement of $13,554.38 to Mercy Midlands is a "common fund" and that he is owed a reasonable attorney fee of one-third, or $4,518.13, from Mercy Midlands. Under Nebraska law the common fund doctrine had its origination in United Services Automobile Assn. v. Hills, 172 Neb. 128, 109 N.W.2d 174 (1961), where the court recognized that ordinarily the right of a lawyer to compensation for his services depends upon a contract of employment, express or implied, but that there are exceptions. The applicable exception in that case was 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 compensation out of the whole fund where the services are rendered on behalf of and are of benefit to the common fund.

asserts that the common fund doctrine does not apply and that Neb.Rev.Stat. § 48-120 (Reissue 1988) provides for direct reimbursement to a health care insurer without provision for attorney fees and thus no cause of action can be stated for attorney fees.

Thereafter, in Krause v. State Farm Mut. Auto. Ins. Co., 184 Neb. 588, 169 N.W.2d 601 (1969), the court once again followed and cited United Services Automobile Assn. v. Hills:

In awarding the insured's attorney an attorney's fee proportionate to the amount of services he had rendered in collecting the subrogation claim along with the personal injury claim against the tort-feasor, this court laid down the substantive principle of liability as follows: "The applicable rule is that 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."

Krause, 184 Neb. at 591, 169 N.W.2d at 603.

These cases are not precisely on point, as they involve the recovery of a subrogation interest in a tort action. Nonetheless, the decisions show an unwillingness to allow the holder of the subrogated interest to have a "free ride" from the effort of the plaintiff and his or her attorney, who successfully bring the action which results in the creation of the fund which satisfies the subrogated interest. The concept that the employer or compensation insurer who benefits from third-party tort litigation must share in the expenses thereof is now codified in the Nebraska Workers' Compensation Act, Neb.Rev.Stat. § 48-118 (Reissue 1988). The Nebraska Supreme Court observed that it may well be that the 1963 amendments to § 48-118 were influenced by the Hills decision. Gillotte v. Omaha Public Power Dist., 189 Neb. 444, 203 N.W.2d 163 (1973), overruled on other grounds, Nekuda v. Waspi Trucking, Inc., 222 Neb. 806, 388 N.W.2d 438 (1986).

Certainly, the principle of the Hills case was followed by the language of § 48-118 which provides that where an injured employee brings an action against an alleged third-party tort-feasor, the employee shall be entitled to "deduct from any amount recovered the reasonable expenses of making such recovery, including a reasonable sum for attorney's fees, which expenses and attorney's fees shall be prorated to the amounts payable to the employer or his or her insurer under the above right of subrogation...." § 48-118. The quoted provision from § 48-118 specifically addresses payment when the employer fails to join in the making of the claim and the prosecution of the suit. However, the Nebraska Supreme Court has made it clear that an attorney fee is due under § 48-118 even if the holder of the subrogation interest joins in the suit with its own attorney if the employee's attorney is responsible for the recovery which results in reimbursement of the subrogation interest. See Schulz v. General Wholesale Co-op. Co., Inc., 195 Neb. 410, 238 N.W.2d 463 (1976) (fee denied on a finding that there was no abandonment of representation by the subrogation holder, St. Paul Fire and Marine Insurance Company, nor reliance upon or acquiescence The Nebraska Supreme Court, in Gillotte v. Omaha Public Power Dist., supra, extended the liability of the subrogated employer or workers' compensation carrier for attorney fees and costs to include not only what had been paid to date, but also to include the value of the future workers' compensation liability which was eliminated as a result of the recovery against the third party. Accordingly, not only was Gillotte an extension of United Services Automobile Assn. v. Hills, to the workers' compensation arena, it caused the common fund doctrine to be enlarged by including the value of discharged future benefits in the common fund.

in representation of its interest by the employee's attorney).

Nekuda v. Waspi Trucking, Inc., supra, reaffirmed the essential holdings of Gillotte, but overruled it "only insofar as it required the immediate payment of the fees and expenses," with respect to future workers' compensation benefits which had not yet accrued or been paid by the employer. Nekuda, 222 Neb. at 817, 388 N.W.2d at 445. Payment of fees on future benefits is to be made as they accrue. Id.

In discussing allocation of attorney fees under § 48-118, the Supreme Court has observed that the court before which the underlying action is pending is in a better position to allocate fees according to the contribution of each attorney, but if the employer fails to join in the action, the court before which the recovery was made would simply deduct the attorney fee from the employer's subrogation interest "without as much of an allocation problem because the employee's counsel made the recovery possible." (Emphasis supplied.) Moyer v. Douglas & Lomason Co., 212 Neb. 680, 684, 325 N.W.2d 648, 650 (1982).

In view of the jurisdictional issue which is raised herein by this case and discussed hereafter, it is important to note that in Hills, Krause, Gillotte, Nekuda, and Moyer, the parties who had an interest in the recovery and against whom fees and expenses could be assessed were all parties to the...