Perez v. Arya Nat. Shipping Line, Ltd., 76 Civ. 3009.

• Decision Date: 17 April 1979
• Docket Number: No. 76 Civ. 3009.,76 Civ. 3009.
• Citation: 468 F. Supp. 799
• Parties: Luis PEREZ, Plaintiff, v. ARYA NATIONAL SHIPPING LINE, LTD., Defendant.
• Court: U.S. District Court — Southern District of New York

468 F. Supp. 799

Luis PEREZ, Plaintiff, v. ARYA NATIONAL SHIPPING LINE, LTD., Defendant.

No. 76 Civ. 3009.

United States District Court, S. D. New York.

April 17, 1979.

Zimmerman & Zimmerman, New York City, for plaintiff; Morris Cizner, New York City, of counsel.

Walker & Corsa, New York City, for defendant; Joseph T. Stearns, New York City, of counsel.

LASKER, District Judge.

Luis Perez, a longshoreman, was injured in August, 1973, while working aboard a vessel owned by the defendant. In March, 1975, the Workmen's Compensation Board entered an order awarding Perez compensation under the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C. §§ 901-950 (LHWCA). Some fifteen months after the Board's action, Perez commenced this action against the shipowner, seeking damages for the personal injuries he suffered as a result of his accident.

I.

As amended in 1959, section 33(b) of the LHWCA provides:

"Acceptance of such compensation under an award in a compensation order filed by the deputy commissioner or Board 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."

33 U.S.C. § 933(b). The shipowner moves to dismiss the complaint on the grounds that since Perez did not commence this action within six months of the Board's award, his cause of action was assigned to his employer, and he cannot maintain this suit. In response Perez cites Czaplicki v. The Hoegh Silvercloud, 351 U.S. 525, 76 S.Ct. 946, 100 L.Ed. 1387 (1956), which carved an exception to the mandate of section 33(b). The principal question presented here is not whether the exception remains viable, but who bears the burden of proving whether it applies or not in a given case.

Despite the assignment provided for by section 33(b), an employee retains an interest in the cause of action even after he loses the right to sue on it, since section 33(e) of the LHWCA, 33 U.S.C. § 933(e), apportions any recovery secured by the employer between it and the employee. Section 33(e) allows the employer to keep out of any recovery it makes, the expenses it incurred in pressing the suit, expenses for medical care provided the employee, amounts paid or payable to the employee as compensation, and (as a further incentive to pursue its employee's claims vigorously) twenty percent of the balance. The remaining eighty percent goes to the employee.

Until the amendment of the LHWCA in 1959, the employee lost his right to sue immediately upon accepting compensation under an award, rather than six months later. See Pub.L.No. 86-171, 73 Stat. 391 (1959). This was the situation when the Supreme Court rendered its decision in Czaplicki. Noting that "in giving the assignee exclusive control over the right of action . . . the statute presupposes 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 a recovery," the Court construed section 33(b) as allowing an employee to sue in his own name "where there is such a conflict of interests and the inaction of the assignee operates to defeat the employee's interest in any possible recovery." Czaplicki v. The Hoegh Silvercloud, 351 U.S. 525, 531, 76 S.Ct. 946, 950, 100 L.Ed. 1387 (1956).

This "conflict of interest" exception to the mandate of section 33(b) was broadened considerably by lower courts in response to Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956). In Ryan, the Court held that a stevedore was liable to a shipowner for any portion of a recovery against the shipowner by the stevedore's employee which was attributable to the stevedore's breach of its warranty of workmanlike performance. Id. at 132-34, 76 S.Ct. 232. As a consequence of this holding, stevedores were understandably reluctant to sue shipowners on behalf of their employees. The most that the stevedore could hope to recover would be its costs associated with the employee's injury, plus twenty percent of any remaining recovery. In instituting suit, however, the employer opened itself up to the possibility that it would have to indemnify its opponent for part or all of that recovery. The greater the stevedore's recovery, the greater its potential liability to the very party from whom it recovered. Recognizing that "this conflict may well prevent the prosecution of the assignee's action with the vigor and zeal which would result in the maximum recovery for the employee," DiSomma v. N. V. Koninklyke Nederlandsche Stoomboot, 188 F.Supp. 292, 296 (S.D.N.Y.1960), many courts readily ruled that section 33(b) did not preclude an employee from suing on his own behalf. E. g., Potomac Electric Power Co. v. Wynn, 120 U.S.App.D.C. 13, 343 F.2d 295, 297 (1965); Johnson v. Sword Line, Inc., 257 F.2d 541, 544-46 (3d Cir. 1958); Allen v. United States, 235 F.Supp. 950, 954 (N.D. Cal.1963), aff'd 338 F.2d 160 (9th Cir. 1964), cert. denied, 380 U.S. 961, 85 S.Ct. 1104, 14 L.Ed.2d 152 (1965); DiSomma, supra, 188 F.Supp. at 297.

The defendant shipowner does not argue that the conflict of interest exception is no longer viable. The question presented, rather, is who bears the burden of proving that a conflict does or does not exist. Perez relies on Potomac Electric Power Co. v. Wynn, 120 U.S.App.D.C. 13, 343 F.2d 295 (1965). There the court held that "the employee may bring suit against a third party whenever it is evident that the employer-assignee, for whatever reason, does not intend to bring suit." Id. at 16, 343 F.2d at 298. An alternative approach is that announced in Bandy v. Bank Line Ltd., 442 F.Supp. 882 (E.D.Va.1977), and followed in Rodriguez v. Compass Shipping Co., 456 F.Supp. 1014 (S.D.N.Y.1978). These cases, on which the defendant relies, hold that the employee bears the burden of proving that a conflict exists. 442 F.Supp. at 886-87; 456 F.Supp. at 1023. For several reasons, we find the latter alternative to be the sounder position.

First, the employee seeks the advantage of an exception to a statute which on its face clearly deprives him of the right to sue. In such circumstances, it is appropriate to require the employee to demonstrate that the exception would be appropriate. Second, Perez could have filed suit within six months of the compensation award. He failed to do so, and now seeks, in effect, to extend his time in which to sue. When the conflict of interest exception originated in 1956, an employee who accepted compensation under an award immediately lost his opportunity to sue. The 1959 amendments to the LHWCA diminished the need for an exception to section 33(b): the employee can now avoid the adverse effects of any possible conflict of interest simply by filing suit within six months of the award. An employee who fails to do so should shoulder the burden of proving that he continues nonetheless to have a right to sue. Third, the 1972 amendments to the Act legislatively overruled the Ryan doctrine. See Pub. L.No. 92-576, § 18(a), 86 Stat. 1251 (1972) (codified as 33 U.S.C. § 905(b)). The solicitude towards employees reflected in the liberal application of the conflict of interest exception in cases such as Potomac Electric...