Texas Mut. Ins. Co. v. Ledbetter

Decision Date04 April 2008
Docket NumberNo. 06-0814.,06-0814.
PartiesTEXAS MUTUAL INSURANCE COMPANY, Petitioner, v. Paula LEDBETTER, Representative of the Estate of Charles Wade Ledbetter, Individually and as Next Friend of Dustin Wade Ledbetter, a Minor, and Tonja Ledbetter and Jamie Ledbetter, Individually, Respondents.
CourtTexas Supreme Court

Blake Bradford Thompson, The Thompson Law Office, Stephenville, Michael L. Byrd, Byrd & Associates, Lubbock, Mary Barrow Nichols, Jackie M. Kenyon, Texas Mutual Insurance Company, Mary A. Keeney, Graves Dougherty Hearon & Moody, P.C., Austin, TX, for Petitioner.

David C. Hall, Lance Hall, Sweetwater, Burt L. Burnett, Burnett & Burke, L.L.P., Abilene, for Respondents.

R. Bruce Moon, Brian J. Brandstetter, Brackett & Ellis, P.C., Fort Worth, TX, for Randy Nelms.

Joshua T. Kutchin, Robert H. Fugate, Fanning, Harper & Martinson, P.C., Dallas, TX, for Williams Scotsman, Inc.

William Lowe Burke III, Burnett & Burke, L.L.P., Abilene, TX, for D.L., Minor.

Justice BRISTER delivered the opinion of the Court, in which Chief Justice JEFFERSON, Justice HECHT, Justice O'NEILL, Justice WAINWRIGHT, Justice MEDINA, Justice GREEN, and Justice WILLETT joined, and in which Justice JOHNSON joined as to Parts I through III and Part V.

For decades, Texas law has required the first money recovered by an injured worker from a tortfeasor to go to the worker's compensation carrier, and until the carrier "is paid in full the employee or his representatives have no right to any funds."1 In this case, a $4.5 million settlement was structured so the plaintiffs and their attorney got all the funds and the compensation carrier got nothing. The plaintiffs argue this result is harmless because the carrier can sue the defendants (they do not volunteer themselves) to get the money back. That might give the carrier second or third money, but not first money. As the statute guarantees the carrier first money, we reverse.

I. Background

Charles Ledbetter was electrocuted in August of 2003 while working on a job for his employer. His worker's compensation carrier, Texas Mutual Insurance Company, paid $6,000 in funeral expenses and began paying $1,258 monthly death benefits to his widow and minor son.

His widow (individually, as administrator of his estate, and as next friend of his minor son) and two adult daughters filed suit in January 2004 against third parties alleged to be responsible for his death.2 The case settled for $4.5 million in November 2004, two weeks before the trial setting. As the settlement involved a minor, the trial court had to approve it.3 Notice of the settlement was sent to Texas Mutual on December 1, 2004, along with notice of the hearing set on December 14th.

Before the hearing began, Texas Mutual filed a petition in intervention seeking subrogation for past and future benefit payments. At the start of the hearing (indeed before the trial judge was able to call the case), the plaintiffs' attorney nonsuited all claims except those of Ledbetter's estate. The trial court granted the nonsuit over the carrier's objection that doing so would subvert its subrogation rights.

The plaintiffs then announced that the $4.5 million settlement would be allocated $2,388,545.40 to Ledbetter's estate (for pain and suffering before his death), $2,063,912.60 to their attorney, $47,542.00 to the ad litem, and nothing to the widow, the minor child, the adult daughters, or the compensation carrier. Ledbetter died intestate, so his widow was entitled to one-third of the estate and his children to the remainder.4 But there was no evidence regarding expenses or expected distributions from Ledbetter's estate, or any testimony regarding how this settlement benefitted the minor. To the contrary, the only reasons the ad litem stated for approving the settlement were (1) the minor would get nothing until he was 18 or older, and (2) his mother "understands her obligation to her child" in the meantime. Nor did the plaintiffs' attorney explain how the minor was to be protected, instead focusing his questions on protecting himself.5

The carrier's attorney attempted to ascertain what the estate would do with its money and whether the Ledbetters had any other income, but the plaintiffs' attorney objected and the trial court sustained those objections. The carrier also tried to prove up its right to subrogation, but the trial court again sustained the plaintiffs' attorney's objection that "[f]or him to show up today and file his petition and think he needs to start calling lawyers and everybody else as witnesses to prove their subrogation interest, if they have one, is ridiculous."

At the end of the short hearing, the trial court approved the settlement — even though the nonsuit and dismissal purportedly meant it no longer involved a minor. The final judgment ordered five insurers to pay annuities to six different persons or entities, none of whom were Ledbetter's family members;6 in an attachment, Ledbetter's widow "acknowledged" that she would direct payment from some of those annuities to family members, but the attachment also contained a provision allowing her to "change the payment directions" within 30 days of the judgment. The trial court also struck the carrier's intervention but ordered it to remain a party (though it is unclear to what), and ordered the carrier to keep paying Ledbetter's widow and son future benefits.

The court of appeals held the trial court erred in striking the carrier's intervention,7 and in allocating 100 percent of the settlement to the estate, citing the limited evidence that Charles suffered pain before his death and the undisputed evidence that his widow and son suffered the loss of their sole means of support.8 But the court of appeals declined to set aside the trial court's nonsuit and reinstate Ledbetter's wife and son as parties.9 Both sides appeal, the plaintiffs arguing the court of appeals went too far, and the carrier arguing it did not go far enough.

II. The Carrier's Right to First Money

The law governing this settlement is simple: the compensation carrier gets the first money a worker receives from a tortfeasor.10 First-money reimbursement is crucial to the worker's compensation system because it reduces costs for carriers (and thus employers, and thus the public) and prevents double recovery by workers.11

If an employee is killed in the course and scope of employment, the compensation carrier must pay benefits to the worker's legal beneficiaries (usually a spouse or minor children).12 If the death was caused by a third party, the beneficiaries may bring wrongful death and survival claims,13 and a carrier who pays benefits may do the same in the name of the beneficiaries or the employee.14 If there is a recovery, "rather than the employee owning the money and being forced to disgorge it, the carrier is first entitled to the money up to the total amount of benefits it has paid,"15 according to the following statutory plan:

• any net recovery up to the amount of past benefits goes to the carrier;16

• any recovery greater than past benefits but less than all future benefits goes to the beneficiary, but releases the carrier from future payments to that extent;17

• any recovery greater than past and future benefits combined goes to the beneficiary.18

There is nothing discretionary about this statute; a carrier's right to reimbursement is mandatory. In the words of the statute:

The net amount recovered by a claimant in a third-party action shall be used to reimburse the insurance carrier for benefits, including medical benefits, that have been paid for the compensable injury.19

Thus, until a carrier is reimbursed in full, "the employee or his representatives have no right to any of such funds."20

Obviously, the carrier did not get the first money when the trial court denied its subrogation claim and distributed the entire settlement to the Ledbetter estate, the plaintiffs' attorney, and the ad litem. The court of appeals correctly held the trial court abused its discretion in doing so.

III. The Carrier's Right to Intervene

The court of appeals was also correct that the trial court erred in striking the carrier's intervention.

There is no deadline for intervention in the Texas Rules of Civil Procedure.21 Generally one cannot intervene after final judgment.22 But when a subrogee's interest has been adequately represented and then suddenly abandoned by someone else, it can intervene even after judgment or on appeal so long as there is neither unnecessary delay nor prejudice to the existing parties.23

Here, the carrier had no reason to intervene earlier, as its claim and the plaintiffs' were identical insofar as recovering from any tortfeasors. The compensation statute explicitly allows attorneys to represent workers and their carriers simultaneously, and to collect fees out of the carriers' subrogation claims.24 The draft judgment the plaintiffs filed with the trial court included a paragraph granting the carrier subrogation after deducting one-third as an attorney's fee. Not until the plaintiffs nonsuited and asked the trial court to award the carrier nothing did it have any reason to intervene to protect its claim.

Nor did the carrier's intervention cause any delay or prejudice, as the underlying case had already settled. The intervention would not have delayed the settlement a moment had the plaintiffs honestly admitted the benefits they got and agreed to the carrier's right to first money as Texas law requires.

In their response and cross-petition, the plaintiffs have dropped their claim that the carrier's intervention was filed too late, now conceding it had no legal duty to intervene any earlier. Instead, they argue subrogation should be denied because the carrier neither pleaded nor proved the exact amount of benefits it paid.

There is no requirement that a carrier plead the precise amount of reimbursement it seeks. Such...

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