Strachan Shipping Company v. Melvin

• Decision Date: 03 February 1964
• Docket Number: No. 19753.,19753.
• Parties: STRACHAN SHIPPING COMPANY, Appellant, v. Tom MELVIN and Ponce Cement Corporation, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

327 F.2d 83 (1964)

STRACHAN SHIPPING COMPANY, Appellant, v. Tom MELVIN and Ponce Cement Corporation, Appellees.

No. 19753.

United States Court of Appeals Fifth Circuit.

January 7, 1964.

Rehearing Denied February 3, 1964.

Marion R. Shepard, Mathews, Osborne & Ehrlich, Jacksonville, Fla., for appellant.

Nathan Bedell, Louis Kurz, Jacksonville, Fla., Malcolm B. Rosow, New York City, Charles Kohlmeyer, Jr., New Orleans, La., E. D. Vickery, Houston, Tex., Bedell, Bedell & Dittmar, Jacksonville, Fla., for appellees, Standard, Weisberg & Harolds, New York City, of counsel,

Charles Kohlmeyer, Jr., New Orleans, La., E. D. Vickery, Houston, Tex., for T. Smith & Son, Inc., Walsh Stevedoring Co., Inc., and Texas Employer's Ins. Ass'n, amici curiae, Lemle & Kelleher, New Orleans, La., Royston, Rayzor & Cook, Houston, Tex., of counsel.

Before BROWN, GEWIN and BELL, Circuit Judges.

GEWIN, Circuit Judge.

Melvin was injured while performing services as a longshoreman on a ship. His employer Strachan, the appellant here, paid him $27,836.92 compensation and other benefits under the Longshoreman's Compensation Act.¹ Melvin then employed an attorney to prosecute his claim against a third party tort feasor. The contract between Melvin and his attorney stated:

"It is hereby understood and agreed that I am to receive sixty (60%) per cent of all damages recovered by way of suit or settlement, and my attorney is to have for his fee the balance derived from said suit or settlement and disbursements and taxable costs."

Suit was filed and the case was tried by a jury which returned a verdict for Melvin of $30,000.00. The third party against whom the judgment was rendered paid that amount into the registry of the court and Melvin's attorney filed a petition asserting that he was entitled to 40% of the sum plus his expenses arising out of the suit, and claiming that his lien had priority over the subrogation lien claimed by appellant. The District Court held that Melvin "* * * is entitled to reimbursement for his expenses of the litigation, including a reasonable attorney's fee, as a first charge against the fund recovered from the third party." The court thereafter conducted a hearing, took evidence, and determined that a reasonable attorney's fee was 40% of the amount recovered plus expenses. Accordingly, out of the $30,000.00, Melvin's attorney was awarded $12,000.00 as a fee plus $558.88 expenses. The remainder was ordered to be paid to appellant. It is well settled and not disputed on this appeal that both the employer and the attorney have a lien on the recovery. The sole question here is, which of the two liens take priority when the recovery is insufficient to pay both liens in full.

Appellant contends that since the payment of the attorney's fee has reduced the amount recovered to less than its $27,836.92 subrogation lien, it in effect is being required to pay part of the fee of an attorney it did not employ. The Federal Courts have long recognized the following principle:

"That under certain circumstances attorneys, who are officers of the court, will be protected by the court in the collection of their fees is not to be doubted. This is ordinarily done on the theory that attorneys have a lien upon any fund in the hands of the court or being administered by the court or that has been brought into the court by their efforts, for the value of the services rendered."

Wessinger v. Sturkie, 4 Cir.1935, 77 F.2d 751. See also Sprague v. Ticonic Nat. Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L. Ed. 1184 (1938); and United States v. Jacobs, (D.C. Maryland 1960) 187 F. Supp. 630.

In the order directing the payment of the attorney's fees, the District Court considered all factors involved and concluded:

"* * * Upon consideration of such petition, the affidavit of plaintiff\'s chief counsel and testimony adduced with respect to the reasonableness of the attorneys\' fee claimed, the Court finds that a reasonable fee for the services performed by the plaintiff is 40% of the amount of the recovery or the sum of $12,000.00."

Title 33 U.S.C.A. § 933 allows the employer to sue the third party tort feasor if the injured employee fails to do so within the prescribed period. Section 933(e) prescribes the method and priorities of the distribution of any recovery made by the employer to be:

"(1) The employer shall retain an amount equal to —

(A) the expenses incurred by him in respect to such proceedings or compromise (including a reasonable attorney\'s fee as determined by the deputy commissioner);

(B) the cost of all benefits actually furnished by him to the employee under section 907 of this title;

(C) all amounts paid as compensation;

(D) the present value of all amounts thereafter payable as compensation, such present value to be computed in accordance with a schedule prepared by the Secretary, and the present value of the cost of all benefits thereafter to be furnished under section 907 of this title, to be estimated by the deputy commissioner, and the amounts so computed and estimated to be retained by the employer as a trust fund to pay such compensation and the cost of such benefits as they become due, and to pay any sum finally remaining in excess thereof to the person entitled to compensation or to the representative; and

(2) The employer shall pay any excess to the person entitled to compensation or to the representative, less one-fifth of such excess which shall belong to the employer."

The act makes no provision for the method and priorities of distribution where the employee brings the suit. This court in Voris v. Gulf-Tide Stevedores, 5 Cir. 1954, 211 F.2d 549, was faced with the difficulties presented by this void in the statute. There, the employee was drowned on the job and his children were awarded $16.62 per week under the Longshoreman's Act, the payments to terminate upon their eighteenth birthdays. An action against a third party was instituted on behalf of the minor children and a judgment in the amount of $13,500.00 was recovered. The District Court, in the third party action, awarded to the children's attorneys, fees of $3,900.00; to the employer $1,742.58 for compensation already paid; and the balance of $7,857.42 was directed to "be recovered by the minor libellants * * *" The District Court then held that it was the total or gross recovery of $13,500.00 that should be credited to the employer against the future payments. On appeal, this court reversed stating the decisive question to be:

"* * * whether `the amount recovered\' referred to in Section 933 (f) means the amount actually received by the compensation beneficiaries in the third party action (that is less attorneys\' fees) or whether it means the total amount paid by the third party defendant."

In answering the "decisive question", we held:

"* * * To hold that the minors recovered the aggregate amount paid by the defendant would be to disregard the realities of the situation, and to ignore the age-old equitable principle that one who accomplishes the creation of a fund for the benefit of another is entitled to reimbursement therefrom for the reasonable costs thereby incurred."

* * * *

"* * * The issue here is as to who shall bear the burden of the necessary cost of that recovery with respect to the item of attorneys\' fees. The insurance carrier was the sole beneficiary of the legal services rendered for the plaintiff in the third party action, and it does not appear that it was in any way prejudiced by the judgment; on the contrary, it was greatly benefited by it. The subrogee has accepted the benefits of that recovery, and it should bear its reasonable burdens. 34 Cyc. 370, note 64."

In Voris, among other factors, our conclusion was based on two important considerations: (a) where the employer has brought the suit, the act expressly allows the deduction of attorney's fees before requiring the employer to turn over to the injured employee (or his representatives) any excess over the compensation paid or to be paid; and (b) the act must be liberally construed in favor of the workman;² and therefore, "* * * the acceptance by Congress of the equitable principle in the case of employers requires a clear legislative expression to the contrary to authorize a departure from that principle by the courts in the case of third party actions by injured employees or their representatives; and that we do not have."

We have carefully examined the cases cited by the appellant and by Amicus Curiae, but find none of them controlling here. Under the particular facts of this case and the record before us, we are not able to say that the trial court committed error in granting the relief sought by the petition of the appellee to fix a lien for attorney's fees; or in the subsequent proceeding in which the court received evidence and fixed a reasonable attorney's fee to be paid out of the fund in question. Needless to say, District Courts will exercise careful supervision over cases of this nature and give proper consideration to the equitable principles involved, fully exercising such powers to prevent an unscrupulous attorney from profiting at the expense of litigants.

The judgment is affirmed.

JOHN R. BROWN, Circuit Judge (dissenting).

To fill a slight literal void in the statute, the Court's solution produces inequitable, if not shocking, results. None of these consequences could have been intended by a Court speaking, as does this one, in the high and noble terms of equitable principles linked with a liberal application of the Longshoremen's Act in favor of the injured maritime worker as the some-time ward of the Admiralty. In so deciding, the Court rejects contrary holdings of at least two other Circuits and applies our prior Voris decision to a situation not even remotely contemplated by that case. Moreover, this method of distribution might encourage questionable professional practices.¹ This last comes about from the fact that it is the plaintiff's lawyer,...