Ocean SS Co. v. Lumbermens Mut. Casualty Co., 145.

• Decision Date: 03 February 1942
• Docket Number: No. 145.,145.
• Citation: 125 F.2d 925
• Parties: OCEAN S. S. CO. OF SAVANNAH v. LUMBERMENS MUT. CASUALTY CO. OF ILLINOIS et al.
• Court: U.S. Court of Appeals — Second Circuit

125 F.2d 925 (1942)

OCEAN S. S. CO. OF SAVANNAH v. LUMBERMENS MUT. CASUALTY CO. OF ILLINOIS et al.

No. 145.

Circuit Court of Appeals, Second Circuit.

February 3, 1942.

Edward J. Keane, of New York City (Keane & Reid and Herbert P. Reid, all of New York City, on the brief), for plaintiff-appellant.

Abraham M. Fisch, of New York City, for defendant-appellee Patrick O'Connor.

Before L. HAND, CHASE, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

The sole question in this case is whether an employer who has paid compensation to an injured employee gets reimbursement out of the proceeds of a third-party action by the employee without proportionately sharing the cost of attorney's fees. The district court decided that the plaintiff employer did not, D.C.S.D.N.Y., 39 F.Supp. 51, and it has appealed. We think this result is untenable under the governing statute. New York Workmen's Compensation Law, § 29, Consol.Laws, c. 67.

The controlling provision of this statute is subdivision 1, which took its present form in 1937. Prior to that time the employee was forced to elect whether to take compensation, and by that act assign his claim against third parties to his employer, or pursue his third-party remedies, thereby limiting himself to compensation only for any deficiency. After the act was amended, the injured employee was not required to elect whether to take compensation or pursue his remedies, but might do both within the time limits therein specified. It was then provided: "In such case, the state insurance fund, if compensation be payable therefrom, and otherwise the person, association, corporation or insurance carrier liable for the payment of such compensation, as the case may be, shall have a lien on the proceeds of any recovery from such other, whether by judgment, settlement or otherwise, after the deduction of the reasonable and necessary expenditures, including attorney's fees, incurred in effecting such recovery, to the extent of the total amount of compensation awarded under or provided or estimated by this chapter for such case and the expenses for medical treatment paid by it and to such extent such recovery shall be deemed for the benefit of such fund, person, association, corporation or carrier."

It will be noted that under this statute the employer has a lien on the proceeds of recovery after the deduction of reasonable and necessary expenditures, including attorney's fees, incurred in effecting such recovery, but to the extent of the total amount of compensation paid. We think that language controlling to provide full reimbursement of all compensation paid, without any deduction, up to the net proceeds as here defined. That is, the attorney's fees are deductible in determining the maximum amount the employer may receive back, but do not otherwise affect or limit the reimbursement.

In the present case plaintiff has paid the sum of $5,030.88 as compensation to, and medical expenses for, its employee, the defendant O'Connor, on account of an accident occurring in 1938. O'Connor has now recovered a judgment in the Supreme Court of New York for $20,000 against the Bush Terminal Company for the accident; and this action, for reimbursement of the $5,030.88, is brought under the diversity-of-citizenship jurisdiction of the district court against the Lumbermens Mutual Casualty Company of Illinois as Bush's insurer, as well as Bush and O'Connor. In the state suit, O'Connor had an agreement with his attorney to pay the latter 40 per cent of any recovery; and he has actually paid the attorney this percentage on the balance after deduction of the compensation due plaintiff, that is, on approximately fifteen, rather than twenty, thousand dollars. It is O'Connor's contention that plaintiff must pay whatever more is due the attorney. The other two defendants are in substance mere stakeholders so far as this action is concerned. In sustaining O'Connor's contention, the district judge held plaintiff liable for only a reasonable attorney's fee, which he fixed at 25 per cent, rather than 40 per cent, or a total deduction of $1,257.72, which he ordered paid to the attorney in question by the defendant insurance company, with balance of $3,773.16 payable to plaintiff. This is the judgment from which plaintiff appeals.

As we interpret the statute, plaintiff's reimbursement could never exceed the net amount of defendant O'Connor's recovery after paying his attorney; but since that amount in any event would be some $12,000, there is no occasion for the application of that limitation here. Plaintiff therefore should recover "the total amount of compensation" paid, and "the expenses for medical treatment paid by it," which is the sum herein sued for.

Against what seems thus the clear meaning of ...