Michigan Mut. Ins. Co. v. Smoot
| Decision Date | 22 December 2000 |
| Docket Number | No. CIV.A.00-1026-A.,CIV.A.00-1026-A. |
| Citation | 129 F.Supp.2d 912 |
| Court | U.S. District Court — Eastern District of Virginia |
| Parties | MICHIGAN MUTUAL INSURANCE COMPANY, Plaintiff, v. Wayne Davis SMOOT, Sr., Debbie Smoot, Ronald M. Cohen, Esquire, Ronald M. Cohen & Associates, P.C., Robert R. Michael, Esquire, and Shadoan & Michael, LLP, Defendants. |
Henry Cannon Spalding, III, Sands, Anderson, Marks & Miller, Richmond, VA, for Plaintiff.
Christopher P. Schewe, Alexandria, VA, Thomas Leo Appler, Crews & Hancock, Fairfax, VA, Matthew William Lee, Eccleston and Wolf, Washington, DC, for Defendants.
THIS MATTER is before the Court on Defendants Wayne Davis Smoot, Sr. and Debbie Smoot's Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6). The principle issue before the Court is whether a worker/claimant in a personal injury action is required by the Virginia Workers' Compensation Act to reimburse the workers' compensation carrier the amount in benefits previously paid by the carrier to the worker. Related issues are whether the worker's retention of his personal injury award amounted to conversion of the monies to which the carrier is entitled; whether the worker's failure to reimburse the carrier amounted to a breach of the worker's employment contract; and whether the worker and his attorneys' retention of the personal injury award amounted to a conspiracy to injure the carrier's trade or business.
In this case, a worker was injured in an automobile accident while he was performing duties in the course of his work as a tow truck driver. The worker filed a claim for workers' compensation, and Michigan Mutual Insurance Company, the employer's insurance carrier, paid him benefits. The worker later hired attorneys to pursue his claim against the third-party tortfeasor. The workers' compensation carrier was aware of the pending lawsuit, but did not assert its statutory subrogation rights in the course of the worker's lawsuit. The worker's attorneys settled the lawsuit and secured a financial settlement. Legal fees and costs were paid to the attorneys, and the remainder of the settlement proceeds were disbursed to the worker.
The workers' compensation carrier has brought this suit against the worker and the attorneys, seeking to recover from them the full amount of workers' compensation benefits paid to the worker. The workers' compensation carrier's claim is essentially that the Workers' Compensation Act affords the carrier a self-executing "lien" against the worker's proceeds from the lawsuit, and that the worker and the worker's attorneys are required to collect the amount of the workers' compensation benefits for the carrier from the proceeds of any recovery.
The worker asserts that the Workers' Compensation Act affords a workers' compensation carrier certain statutory rights to subrogate itself for the worker in a lawsuit, as well as the right to intervene in any pending lawsuit and to assert a claim. The worker disputes the workers' compensation carrier's contention that these rights amount to a "lien" for reimbursement. The worker contends that, because the carrier did not assert its rights in the worker's third-party suit, the worker is not liable to reimburse the carrier the amount of the workers' compensation benefits. Moreover, the worker asserts that, under Virginia law, the workers' compensation carrier does not have a cause of action; neither statutory nor common law provides for reimbursement of paid benefits from a worker's tort action recovery. Rather, the Supreme Court of Virginia has ruled that where a worker settles a third-party tort claim without the consent of the workers' compensation carrier, then the carrier may withhold from the worker payment of any future claims for benefits.
Upon consideration of the Virginia Workers' Compensation Act and the common law of Virginia, the Court holds that even where the workers' compensation carrier does not assert its statutory rights in a pending tort proceeding, the worker is obligated to reimburse the carrier for compensation paid to the worker.
Defendant Wayne Smoot ("the Worker") was an employee of Henry's Wrecker Service Company ("Wrecker Service"). Defendant Debbie Smoot is the Worker's wife (collectively "Smoots"). Plaintiff Michigan Mutual Insurance Company ("Michigan Mutual" or "Carrier") is the Wrecker Service's workers' compensation insurance provider.
The Worker was injured in a motor vehicle accident on March 6, 1995 during the course of his employment. He applied for, and received, workers' compensation in the amount of $162,587.57 from Michigan Mutual. The Worker and his wife subsequently sued the other driver involved in the accident in federal court. Defendant Ronald M. Cohen, Esquire, Defendant Ronald M. Cohen & Associates, P.C. (Defendant Cohen's firm), Defendant Robert R. Michael, Esquire, and Defendant Shadoan & Michael, LLP (Defendant Michael's firm) (collectively "Attorneys") represented the Smoots in the third-party action. Michigan Mutual notified the Smoots that Michigan Mutual asserted a "lien" in the amount of the workers' compensation award. However, Michigan Mutual did not intervene or assert any of its rights in the third-party action. Without Michigan Mutual's knowledge or consent, the parties settled the third-party action on June 22, 1998 for $500,000.00.
The third party's insurer issued a check payable to the Smoots, Shadoan & Michael, LLP, and Robert R. Michael. Defendant Michael deducted the attorneys' fees and costs from the settlement and disbursed the remainder. The Smoots received $326,672.49, and the Attorneys received $166,666.66 in attorneys' fees and $6,660.85 for the reimbursement of expenses. Michigan Mutual asked the Worker and his Attorneys to reimburse Michigan Mutual the amount of the workers' compensation benefits. The Worker and his wife have refused Michigan Mutual's requests.1
Michigan Mutual filed a petition with the Virginia Workers' Compensation Commission to terminate the Worker's compensation benefits, and sought a ruling to compel the Worker and/or his Attorneys to reimburse Michigan Mutual for compensation paid to the Worker. The Commission terminated the Worker's future benefits, because the Worker had settled his tort action without Michigan Mutual's consent. The Commission ruled that it did not have authority to order the Worker or his attorneys to reimburse Michigan Mutual the compensation benefits.
Michigan Mutual sues all Defendants for conversion (Count I), the Worker for breach of his employment contract (Count II), the Worker and his wife for unjust enrichment (Count III), all Defendants for negligent breach of their duty to protect the alleged workers' compensation lien (Count IV), all Defendants for violation of Virginia's Workers' Compensation Act (Count V), and all Defendants for conspiracy to injure Michigan Mutual's trade and business (Count VI).2 Defendants Wayne Davis Smoot, Sr. and Debbie Smoot jointly filed a Motion to Dismiss.
The Court reviews the facts underlying a Rule 12(b)(6) motion and accepts the Complaint's factual allegations as true. See Mylan Lab., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.1993). The Court considers the Complaint and its allegations in the light most favorable to the non-moving party. See id. The Court shall not grant a motion to dismiss for failure to state a claim unless it appears to a certainty that the plaintiff cannot prove any set of facts in support of its claim which would entitle the plaintiff to relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
As a preliminary matter, a number of Michigan Mutual's claims against the Smoots are based on Michigan Mutual's misapprehension of a workers' compensation carrier's rights under the Workers' Compensation Act ("Act"). Sections 65.2-309 and 65.2-310 of the Virginia Code give Michigan Mutual certain rights that are derivative of the Worker's rights. VA. CODE §§ 65.2-309, -310 (1995). The Act grants Michigan Mutual the right of subrogation. Subrogation granted a right to Michigan Mutual to assert Smoot's tort claim against the tortfeasor. See id. § 65.2-309. Subrogation is not self-executing under the Act; an act of intervention is necessary.
In this case, to assert its statutory rights, Michigan Mutual could have brought a lawsuit against the third-party tortfeasor in Michigan Mutual's own name or in Smoot's name (i.e., file a third-party lawsuit). See id. § 65.2-309. Alternatively, Michigan Mutual could have permitted Smoot to institute a lawsuit, then Michigan Mutual could have intervened prior to the verdict or settlement and moved the Court to order the third-party tortfeasor to reimburse Michigan Mutual for the benefits it has already paid the Worker. See id. §§ 65.2-310, -313. These options are set forth explicitly in the Act:
A claim against an employer under this title for injury or death benefits shall operate as an assignment to the employer of any right to recover damages which the injured employee, his personal representative or other person may have against any other party for such injury or death, and such employer shall be subrogated to any such right and may enforce, in his own name or in the name of the injured employee or his personal representative, the legal liability of such other party.
VA. CODE § 65.2-309.
In any action by an employee, his personal representative or other person against any person other than the employer, the court shall, on petition or motion of the employer at any time prior to verdict, ascertain the amount of compensation paid and expenses ... incurred by the employer under the provisions of this title and deduct therefrom a proportionate share of such amounts as are paid by the carrier for reasonable expenses and attorney's fees as provided in § 65.2-311; and in...
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