McClendon v. Charente Steamship Company

• Decision Date: 12 July 1965
• Docket Number: No. 21648.,21648.
• Citation: 348 F.2d 298
• Parties: Stevenson McCLENDON, Appellant, v. CHARENTE STEAMSHIP COMPANY, Ltd., T & J Harrison, Ltd., et al., Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

348 F.2d 298 (1965)

Stevenson McCLENDON, Appellant, v. CHARENTE STEAMSHIP COMPANY, Ltd., T & J Harrison, Ltd., et al., Appellees.

No. 21648.

United States Court of Appeals Fifth Circuit.

July 12, 1965.

Will Gray, Houston, Tex., for appellant.

E. D. Vickery, Ed Bluestein, Jr., S. G. Kolius, Carl O. Bue, Jr., Houston, Tex., Fulbright, Crooker, Freeman, Bates & Jaworski, Gus A. Schill, Jr., Royston, Rayzor & Cook, Houston, Tex., of counsel, for appellees.

Before BROWN and BELL, Circuit Judges, and HUNTER, District Judge.

GRIFFIN B. BELL, Circuit Judge:

Appellant McClendon was injured in September 1959 when he slipped and fell while working as a longshoreman aboard the SS Advisor, a vessel owned and operated by appellees Charente Steamship Company Ltd., and T & J Harrison, Ltd. McClendon pursued his rights to compensation under the Longshoremen's and Harborworkers' Compensation Act, 33 U.S.C.A. § 901 et seq., against his stevedore-employer, Texas Contracting Company, and its insurance carrier, Texas Employer's Insurance Association. On February 4, 1961, McClendon received a formal compensation award in the amount of $5,041.

More than six months later — on August 17, 1961 — McClendon instituted the present suit against Charente and Harrison alleging that his injuries resulted from the negligence of the owners and operators and from the unseaworthiness of the vessel. The Texas tort statute of limitations would have expired in about a month. Charente and Harrison then brought in Texas Contracting Company as a third party defendant and claimed indemnity based on the stevedore's implied warranty of workmanlike service. Texas Employer's Insurance Association was brought in by order of the District Court in order that all parties in interest might be represented.

Section 933 of Title 33 is the portion of the Longshoremen's and Harborworkers' Compensation Act concerned with employee rights of action against third party tort-feasors. Subsection (b) of that section provides that acceptance of a compensation award shall operate as an assignment to the employer "of all right of the person entitled to compensation to recover damages against such third person unless such person shall commence an action against such third person within six months after such award." Charente and Harrison moved to dismiss the suit on the grounds that six months having elapsed since the award, McClendon's cause of action has been assigned to his employer. Thus, they contended that Texas Contracting and its subrogated insurance carrier were the real parties in interest. Texas Contracting and its insurer joined Charente and Harrison in support of the motion to dismiss.

McClendon countered by alleging a conflict of interest between himself and his employer-assignee and its insurer, and contended that in such circumstances, § 933(b) did not bar suit by the employee beyond the six month deadline. The District Court, however, construed § 933 (b) as barring suits beyond six months regardless of a conflict of interest and dismissed the complaint. McClendon v. Charente Steamship Co., S.D.Tex., 1964, 227 F.Supp. 256. McClendon appeals.

Charente and Harrison rest their case on what they contend is the plain and unequivocal language of § 933(b). McClendon's contention that no such limitation applies where there is a conflict of interest between the employee and his assignee is based on the Supreme Court's decision in Czaplicki v. The Hoegh Silvercloud, 1956, 351 U.S. 525, 76 S.Ct. 946, 100 L.Ed. 1387, a case decided under § 933(b) as it stood prior to the 1959 amendments. Charente and Harrison take the view that the 1959 amendments to § 933(b) legislatively overruled the Czaplicki conflict of interest doctrine.

Prior to 1959, § 933(a) required the injured employee to elect whether to accept compensation benefits or to pursue his common law remedy against the third party. Section 933(b) provided that acceptance of compensation operated as an immediate assignment by operation of law to the employer of the employee's right of action. The employee retained an equity in the third party tort claim however, for under § 933(e), if the employer-assignee successfully pursued the third party action, any recovery over and above expenses of litigation and the compensation payment were paid over to the employee. The theory of putting the employee to an election was that the interest of the employer or its insurance carrier in recovering the compensation payment would coincide with the interest of the employee in pursuing his claim against the third party tort-feasor, and that since the employer's indemnity came before the interest of the employee, control over the litigation should be vested in the employer.

This was the context in which the Supreme Court decided Czaplicki v. The Hoegh Silvercloud, supra. There an injured longshoreman accepted compensation benefits, thus causing immediate assignment of his claim to his stevedore-employer. When the employer failed to pursue the claim, Czaplicki filed suit himself against the vessel, the owner, the operator, and the Hamilton Marine Contracting Company, the manufacturer of the steps which caused Czaplicki's injury. The stevedore's subrogated insurance carrier, Traveler's Insurance Company, was also the insurer for Hamilton. Thus, there was a clear conflict of interest between Czaplicki and Traveler's, since if ultimate liability fell on Hamilton, the suit by Traveler's would be in effect a suit against itself. The Supreme Court held that given a conflict of interest and inaction by the assignee, the statutory assignment under § 933(b) did not bar suit by the employee in his own name. The Court stated:

"Travelers was also the insurer of Hamilton, one of the third parties subject to suit. Hamilton had constructed the steps on which the accident occurred, and might be held liable if its negligence was the cause of Czaplicki\'s injuries; it might also be subject to a claim over by (the owner or the operator of the vessel) if either of them should be held liable. Cf. Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 76 S.Ct. 232 100 L.Ed. 133. The result is that Czaplicki\'s rights of action were held by the party most likely to suffer were the rights of action to be successfully enforced. In these circumstances, we cannot agree that Czaplicki is precluded by the assignment of his rights of action from enforcing those rights in an action brought by himself.

"* * * In giving the assignee exclusive control over the right of action * * * we think that the statute presupposed that the assignee\'s interests will not be in conflict with those of the employee, and that through action of the assignee the employee will obtain his share of the proceeds of the right of action, if there is recovery. Here, where there is such a conflict of interests, the inaction of the assignee operates to defeat the employee\'s interest in any possible recovery. Since an action by Travelers would, in effect, be an action against itself, Czaplicki is the only person with sufficient adverse interest to bring suit. In this circumstance, we think the statute should be construed to allow Czaplicki to enforce, in his own name, the rights of action that were his originally."

In 1959 § 933 was amended. The election requirement of § 933(a) was abolished, and § 933(b) was altered to provide for assignment by operation of law only if the employee failed to bring suit himself within six months of the compensation award. Furthermore, § 933(e) was changed to provide that the employer could retain one-fifth of the excess recovery itself. This latter measure was designed as an incentive for the employer to vigorously represent the interest of the employee and not to compromise the third party claim for the amount of the compensation award.¹

Charente and Harrison contend that the 1959 amendments provided a statutory solution to the problem of conflict of interest judicially recognized in Czaplicki. The solution, they contend, was to allow the employee six months in which to sue, and to foreclose suit beyond that point even in conflict of interest situations. McClendon argues that Congress in 1959 was concerned only with eliminating the hardship caused by the election requirement which forced the employee to forego compensation benefits if he elected to sue the third party. The remedy, according to McClendon, was to abolish the election requirement and allow the employee to accept compensation and still bring suit himself within six months. After six months, the right to sue is transferred to the employer in order to safeguard its recoupment interest. However, McClendon argues, an equity in the claim remains with the employee just as under the pre-1959 law; hence, once the right to sue has passed to the employer, Czaplicki is as controlling now as before. Given a conflict of interest, the employee should be allowed to sue in his own name, limited only by the applicable state tort statute of limitations or laches.

Thus, the crucial question in this case is the effect of the 1959 amendments on the Czaplicki doctrine. The District Court held that Czaplicki had been legislatively overruled; that after six months the employee's right to sue ceased absolutely even in conflict of interest cases. We are constrained to disagree, and we hold, in line with Czaplicki, that where there is a conflict of interest and inaction by the assignee, the employee may sue notwithstanding the statutory assignment under § 933(b).

Our reasoning begins with the basic proposition that the Longshoremen's and Harborworkers' Compensation Act is to be liberally construed in favor of the injured employee. Voris v. Eikel, 1953, 346 U.S. 328, 74 S.Ct. 88, 98 L.Ed. 5; Pillsbury v. United Engineering Co., 1952, 342 U.S. 197, 72 S.Ct. 223, 96 L.Ed. 225. The legislative history of the 1959 amendments is not particularly revealing, but does by negative inference support the view...