Stringfellow v. SD Warren Co.

• Decision Date: 13 July 1993
• Docket Number: No. 1:91cv 644.,1:91cv 644.
• Citation: 828 F. Supp. 510
• Parties: Russell STRINGFELLOW, Plaintiff, v. S.D. WARREN COMPANY, Defendant and Third-Party Plaintiff, v. LAPE INDUSTRIAL FIBERGLASS, INC., Third-Party Defendant.
• Court: U.S. District Court — Western District of Michigan

828 F. Supp. 510

Russell STRINGFELLOW, Plaintiff, v.S.D. WARREN COMPANY, Defendant and Third-Party Plaintiff, v.LAPE INDUSTRIAL FIBERGLASS, INC., Third-Party Defendant.

No. 1:91cv 644.

United States District Court, W.D. Michigan, S.D.

July 13, 1993.

Grant J. Gruel of Gruel, Mills, Nims & Pylman, Grand Rapids, MI, for plaintiff.

Gary Stec of Harvey, Kruse, Westen & Milan, Troy, MI, for defendant and third-partyplaintiffS.D. Warren.

Steven L. Kreuger of Nelson & Kreuger, P.C., Grand Rapids, MI, for third-party defendant Lape Indus.

OPINION

SCOVILLE, United States Magistrate Judge.

This is a diversity action arising under Michigan law.Plaintiff, an employee of third-party defendantLape Industrial Fiberglass, Inc., was injured in September of 1989 while working on the premises of defendantS.D. Warren Company in Muskegon, Michigan.Plaintiff began this action in 1990 in the Mobile County, Alabama, Circuit Court seeking damages against S.D. Warren Company for its alleged negligence resulting in plaintiff's injuries.S.D. Warren removed the case to the United States District Court for the Southern District of Alabama.While the case was pending there, the court granted Fireman's Fund Insurance Company leave to intervene as plaintiff to assert its lien under the Mississippi Worker's Compensation Act for over $500,000 in compensation and medical benefits paid to or on behalf of Mr. Stringfellow.The case was thereafter transferred to this court pursuant to 28 U.S.C. § 1404(a).

By order dated December 18, 1992, this court required that the case be submitted to mandatory mediation pursuant to the Michigan Tort Mediation Act, Mich.Comp.Laws § 600.4951-.4969, a provision of Michigan substantive law which this court considers binding upon it in all diversity cases arising under Michigan tort law.SeeW.D.Mich. L.R. 42(n) and commentary.The case was submitted to mediation on April 30, 1993.The mediators rendered an award in favor of plaintiffs, allocating $200,000 to Fireman's Fund as reimbursement for worker's compensation paid, with the remainder to Mr. Stringfellow.At the time of the mediation, Fireman's Fund had paid compensation benefits in the amount of approximately $650,000.Both S.D. Warren and Fireman's Fund accepted the mediation evaluation, but Mr. Stringfellow did not.Under the Michigan Tort Mediation Act, where a case involves multiple parties, judgment "shall be entered as to those opposing parties who have accepted the portions of the evaluation that apply to them."Mich.Comp.Laws § 600.4967(2).Consequently, S.D. Warren submitted to the court a proposed form of judgment awarding intervening plaintiff Fireman's Fund $200,000.Fireman's Fund objected to the form of the judgment.S.D. Warren has now filed a motion for entry of judgment, requesting that judgment be entered in the form that it proposes.Fireman's Fund has filed briefs in opposition to the motion.On July 8, 1993, the court heard oral argument and issued an oral opinion.This opinion memorializes and supplements the court's oral opinion.

Discussion

The only issue presently before the court is the form of judgment that should be entered as a consequence of the acceptance of the mediation award by both Fireman's Fund and S.D. Warren.The parties agree that the Tort Mediation Act provides for the entry of a judgment in these circumstances, but disagree as to the scope and effect of the judgment.S.D. Warren contends that the $200,000 judgment satisfies Fireman's claims both for past compensation benefits (in the approximate amount of $650,000) and any claim it may have for reimbursement of future compensation benefits paid to Mr. Stringfellow.Fireman's Fund, by contrast, contends that the judgment satisfies only its claims against S.D. Warren Company and does not extinguish its right to seek reimbursement from any award or settlement hereafter rendered to plaintiff of the remaining $450,000 in past benefits or its right to a credit for future compensation benefits.

This issue is governed by section 827 of the Michigan Worker's Disability Compensation Act.¹Section 827 provides for reimbursement of the employer of an injured worker (or the employer's worker's compensation carrier) from the proceeds of any recovery against a third-party tortfeasor responsible for the worker's injuries.Subsection 1 of the statute allows the injured worker to proceed with a tort claim against the third party, despite the worker's collection of compensation benefits.If the injured worker does not commence a tort action within one year after the personal injury, the insurance carrier may bring suit to enforce the tort liability in the name of the injured worker.In those circumstances, the injured worker has the right to notice of the action and to intervene.Mich.Comp.Laws § 418.827(1).

Subsection 2 provides that either the carrier or the employee "may settle their claims as their interest shall appear" prior to the entry of judgment.Subsection 3 provides that settlement by the employee is not a bar to the carrier's right to proceed against the third party"for any interest or claim it might have."Subsection 5 directs the allocation of funds recovered from the third-party tortfeasor.After deduction for the expenses of recovery, the proceeds must first go to reimbursement of the carrier for compensation benefits paid to the date of recovery.The balance, if any, is payable to the employee, but is treated as an advance payment by the compensation carrier against "any future payments of compensation benefits."Mich. Comp.Laws § 418.827(5).The other subsections of the statute are not relevant to the present controversy.

The cases decided under this statute and its forerunners make clear the nature of the compensation carrier's interest.The compensation carrier does not have a separate and independent tort claim against the third party.Rather, the Michigan cases describe the compensation carrier's right to reimbursement as "a form of statutory subrogation."Transamerican Freight Lines, Inc. v. Quimby,381 Mich. 149, 160 N.W.2d 865, 867-68(1968);seeDownie v. Kent Products, Inc.,420 Mich. 197, 362 N.W.2d 605, 614(1984)(compensation carrier's interest is "a subrogation without assignment").At other times, the Michigan courts refer to the carrier's interest as a "statutory lien."Downie,362 N.W.2d at 614;Ohio Farmers Ins. Co. v. Neff,112 Mich.App. 53, 315 N.W.2d 553, 555(1981).These cases make clear that the compensation carrier, by virtue of its payment of benefits, does not have a separate and independent tort claim against the third party.Rather, the carrier is subrogated to the rights of the injured worker and has a statutory lien to enforce its subrogation rights.

Furthermore, by granting the compensation carrier a right to intervene in the worker's case or to itself initiate an action in the name of the injured worker, the Legislature clearly created a right enforceable against both the injured worker and the third-party tortfeasor.This point is made clear by decisions in lawsuits brought by the compensation carrier to enforce its rights after the worker and the tortfeasor have settled without notice to the carrier.In such circumstances, the carrier may sue both the worker and the tortfeasor to assert its statutory rights under section 418.827.SeeTraveler's Ins. Co. v. S & H Tire Co.,134 Mich. App. 214, 351 N.W.2d 279, 281-82(1984);Ohio Farmers Ins. Co. v. Neff,112 Mich.App. 53, 315 N.W.2d 553(1981).Consequently, when a compensation carrier intervenes in a tort suit brought by an injured worker, the carrier is seeking to assert its statutory interests against both the worker and the tortfeasor.

As noted above, subsection 2 of the statute allows both the carrier and the injured worker to settle their claims "as their interests shall appear."Mich.Comp.Laws § 418.827(2).In the leading case of Franges v. General Motors Corp.,404 Mich. 590, 274 N.W.2d 392(1979), the Supreme Court identified the three interests referred to by this statutory language.Two interests belong to the compensation carrier.The first is the carrier's "reimbursement interest," that is, its right to recovery of compensation benefits previously paid or payable as of the date of judgment.274 N.W.2d at 400.The carrier's second interest is a future credit in the amount of any recovery by the employee, for additional compensation benefits to be paid in the future.Id.The court described this second interest of the carrier as a "contingent, future interest," because it only arises if the compensation carrier pays benefits after the date of the judgment.Id. at 403.The employee has a single interest — a lump sum recovery, consisting of any funds remaining after payment of the carrier's reimbursement interest, and treated as an advance payment of future compensation benefits.

Against this statutory background, the issue presently before the court and the respective positions of the parties may be restated with some clarity.Fireman's Fund has intervened in this action to assert its statutory lien under Mich.Comp.Laws § 418.827 upon any proceeds of plaintiff's tort action against S.D. Warren.Subsection 5 of the Act would allow Fireman's Fund to have any proceeds of this lawsuit first applied to its "reimbursement interest" to compensate the carrier for past compensation benefits paid.Any remainder would go to Mr. Stringfellow, as a credit against any future compensation benefits.It is clear that the insurance company's complaint in intervention, therefore, seeks to assert rights both against Mr. Stringfellow and against S.D. Warren.Pursuant to subsection 2 of the Act, Fireman's Fund was able to settle its claims, as its "interest shall appear"; that is, Fireman's Fund was able to settle and compromise both its reimbursement interest and its contingent future interest.

The issue before the court is the effect of the acceptance of mediation...