Ankney v. Franch

DAVIS, Judge. INTRODUCTION The challenge to the lower court’s judgment presented by appellant Ankney stems from rulings by the Circuit Court for Anne Arundel County that struck the testimony of two witnesses offered by Ankney as experts in workers’ compensation law and consequently determining that there was no evidence of malpractice committed by appellee Franch, Ankney’s lawyer. He had counselled her that she would not succeed in appealing an adverse decision of the Workers’ Compensation Commission (the Commission) opining that Ankney was barred from future workers’ compensation benefits because of her settlement with a third party. Thus, this appeal is principally a review of whether the trial judge, in his evidentiary ruling and interpretation of the pertinent law, erred in ⁹¹ granting Franch’s motion for judgment in essence determining that Ankney had not produced sufficient evidence to sustain a claim for malpractice.

Before reaching the question of whether Franch’s advice constituted legal malpractice, we must decide whether the decision of the Workers’ Compensation Commission opining that Ankney’s settlement barred recovery of future benefits was wrong and whether the state of the law was such, at the time of Franch’s advice, that he exercised the proper standard of care in rendering his advice and his assessment of Ankney’s chances for success. The purpose and objective of workers’ compensation statutes are to insure that an employee who is injured during activity which benefits the employer will be compensated without regard to the fault of the employer. The employee, on the one hand, is not left without a remedy when he or she is injured through no fault of the employer, and the employer, at the same time, avoids the disruption of business by reason of burdensome lawsuits having the potential of crippling the business enterprise. It is the clearly-stated policy of such statutes, including Maryland’s statute, Md.Ann.Code, Labor and Employment, § 9-101 et seq., to carry out a beneficent purpose and to vest liberally in employees, injured during or in the course of their employment, benefits pursuant to a preset schedule according to the degree and duration of physical impairment.

While the benevolent purpose of the statutes is the cardinal principle in determining the rights of the parties, this case presents the question of how to achieve the beneficent purpose of the statute while not impairing an employer’s right to be reimbursed by a third party who has caused the injury. THE INSTANT CASE Appellant Lottie L. Ankney 1 brought suit against appellees William F. Franch, et al., alleging legal malpractice in ⁹² Franch’s handling of a workers’ compensation claim. The malpractice claim proceeded to trial in August 1993. At the close of Ankney’s case, the Circuit Court for Anne Arundel County struck the entire testimony of Ankney’s two expert witnesses and granted Franch’s motion for judgment.

Ankney presents the following questions for our review, which we restate for clarity: I. Did the trial court err as a matter of law in striking the entire testimony of plaintiff’s expert witnesses?

II

Did the trial court abuse its discretion in striking the entire testimony of plaintiffs expert witnesses?

III

Did the trial court err in granting defendant’s motion for judgment, when expert witnesses were unnecessary and the court could have instructed the jury on the relevant points of law? FACTS In January 1982, Lottie Ankney injured her back during the course of her employment at Maritel Enterprises. Ankney had been sent to purchase lunch for a work-related meeting. Returning from that errand, she slipped on the ice and fell in a parking lot owned by Beerfoot Enterprises, Inc. Following a hearing in April 1982, the Workers’ Compensation Commission awarded Ankney benefits from the date of the fall.

Ankney’s attorney in those proceedings was Samuel H. Paavola. Pursuant to an insurance policy with Maritel, the benefits were to be paid by Aetna Casualty & Surety Insurance Company (Aetna). According to Ankney, Aetna was slow in paying covered medical expenses. After one of her treating physicians filed suit, Ankney complained to Paavola, who negotiated a third-party settlement with Beerfoot’s insurance company.

From the $6,500 settlement, Paavola retained roughly $1,900 in ⁹³ attorney’s fees. Ankney testified that the balance went to pay covered medical expenses. She also testified that Aetna continued to be slow in paying her medical bills: They paid a few of them, off and on, you know. But, uh, they didn’t pay all of them.

In fact, when I was cut out completely from Working—Workman’s [sic] Comp, Mr. Franch still had quite a few bills there that hadn’t been paid. And from the time limit that it was cut off, I had quite a few bills that they should have paid, you know, before that, and I never got it. Ankney eventually discharged Mr. Paavola and retained the appellees, William F. Franch and the firm of Franch, Earnest & Cowdrey, P.A. On January 22, 1985, Franch appeared before the Workers’ Compensation Commission at a hearing on Ankney’s claim. Aetna advised the commissioner that Ankney had settled her third-party claim against Beerfoot without Aetna’s knowledge or consent.

By order dated January 29, 1985, the Commission ruled that Ankney’s claim for benefits was terminated by the unauthorized settlement, and further compensation after that date was denied. No appeal was taken. In April 1986, Ankney’s petition to reopen the case was also denied. Ankney’s back condition grew progressively worse, and she underwent surgery in 1988 and 1991.

She made several attempts to return to work, but was unable to do so. At trial, Ankney presented evidence that, as of the date of the fall, she suffered from a sixty-eight percent functional impairment of her back, and was one hundred percent disabled from employment. There was also expert testimony that she probably will suffer gradual deterioration and will, over the years, become “much worse than she is now.” The gravamen of Ankney’s complaint is that Franch gave her bad advice regarding the merits of an appeal from the Commission’s decision to terminate her benefits. She further contends that Franch greatly overstated the cost of pursuing an appeal.

According to Franch, Ankney elected not to proceed after being properly advised on those matters. It is ⁹⁴ not disputed that Franch requested an advance of $2,500 toward the cost of an appeal, including the expense of expert witnesses. Ankney testified that Franch “seemed to think that I didn’t have a chance of, you know, getting anywhere with going to the Circuit Court.” By letter dated February 28, 1985, Franch stated: This letter will confirm a telephone conversation which we had on Monday, February 25th, at which time I told you that I did not believe that an appeal could be successful and for that reason it was mutually agreed that there would be no appeal taken. Ankney testified that she did not have the $2,500, “[b]ut if I thought that I had a chance of getting my Workman’s [sic] Comp back, I would have borrowed it from my brother or from someone.” Prior to trial, Ankney proposed to offer expert testimony from two practicing workers’ compensation attorneys: Herbert Arnold and Harold DuBois.

Both witnesses were prepared to testify regarding the appropriate standard of care. After taking their depositions, Franch filed a memorandum arguing that Ankney’s experts should be excluded because their opinions were based on “an erroneous assumption as to the applicable Maryland law.” At trial, both experts testified that the Commission had erred in terminating Ankney’s benefits. Mr. Arnold explained: I believe that the only action against Mrs. Ackney [sic] should have been a credit against any future award of compensation, and that her case should have remained open subject to credit. I believe if Aetna, having been represented by Mr. Paavola, since they’re a subrogee of Mrs. Ackney [sic] here, if they felt that they had some grievance against him for settling the case, then they should have—should have taken an action against him as far as a breach of any alleged subrogation rights are concerned, or an alleged breach of subrogation rights.

But as far as the Workers’ ⁹⁵ Compensation claim is concerned, absolutely not. It should have stayed open subject to a credit. Mr. Dubois also testified that the Workers’ Compensation Commission erred when it terminated Ankney’s claim, and opined that Ankney would have been successful on appeal. With regard to the advance that Franch requested, Dubois testified that the amount was “excessive” because “there was only one limited issue in this case,” and it would have been decided on summary judgment without any need for expert witnesses.

With respect to the amount of workers’ compensation benefits lost by Ankney as a result of the alleged failure by Franch to exercise the proper standard of care, the following colloquy transpired: Q (By Mr. Shar) Based upon your education, training, experience and expertise in the area of Workman’s [sic] Compensation law, uhm, do you have an opinion what, if any Workman’s [sic] Compensation protection Lottie Ankney lost as a result of the Defendant’s breaches of the generally accepted standards of legal practice? A As a result of being terminated by—as a result of her benefits being terminated? sf: :{« s|* A The opinion is that first of all, I believe she has lost— she lost her medical benefit, a lifetime medical benefit for the injuries which are causally related to that particular accident. Q What do you mean by medical benefit? A Medical expenses.

The doctors, the hospitals, the prescriptions, the, uh, uh, what other incidental expenses would be required. Q Okay. A In addition to that, she lost compensation for her— her lost time from work, and for her disability. Q All right. ⁹⁶ A She lost her temporary-total disability compensation, she lost her permanent-partial disability compensation, and/or her permanent total disability compensation payments.

And when I talk about the temporary-total, permanent-partial and permanent-total, I’m talking about dollars that the insurance company would be obligated to pay her had it not been for the, uh, uh, uh, closing out of this case. ****** Q Do you need it to refresh your recollection? A Well, we’re getting involved in dates here. What I— what I said was, that on November 7th, 1980—’83 the medical evidence showed this woman was totally disabled, and if they had pursued this matter to appeal and they had been successful in having the Court determine that her benefits were not cut off, temporary-total and/or permanent-total disability Compensation for the period November 7th, 1983 up until the time of my deposition would have been around five hundred and three weeks. Her Compensation—Mrs. Ankey’s (sic) Compensation rate, based on her average weekly wage at the time of her accident, was a hundred and seventy-seven dollars a week.

So, we call that accrued benefit, five hundred and three accrued—five hundred and three weeks of accrued benefits at a hundred and seventy-seventy [sic] dollars, would have been eighty-nine thousand, thirty-one dollars, and that would have just been from 19—from 1983 until July of ’93, a period of a little less than ten years. Q And would the—would the Compensation benefits stop at that time? A No. If a person is considered to be—if the Commission had believed, and if a person is considered to be permanently and totally disabled, they would be entitled to a life-time benefit. ****** A Yeah. What I did is I used the—I got them this time—I didn’t have it the last time, the Vital Statistics of the United Stated of 1987, and in this is commonly referred ⁹⁷ to as the Life Tables published by the National Center for Health—these are health statis—statistics.

And Mrs., uh, uh, Ankey (sic) in—July of 1993 was— Q At the time of your deposition? A —right, is fifty-seven years old. So, a person at age fifty-seven in July of 1993, according to the United States Government Life Tables has another twenty-five point two years of life remaining. So, that be the case, if she had lived, according to Uncle Sam, another twenty-five point two years, that would be another one thousand, three hundred and ten more weeks, again multiplying that by a hundred and seventy-seven dollars a week, we’re talk—now talking about another two hundred and thirty-one thousand, nine hundred and forty dollars, if they—if the insurance company—if she was found permanently and totally disabled, and she got benefits for the rest of her life, and she lived to age, uh, fifty-seven—fifty-seven and twenty-five is eighty-two.

Q And what would that total? A That would have been two thou—two hundred and thirty-one thousand, nine hundred and forty. That, coupled with what we—what I referred to before as the accrued compensation, the eighty-nine thousand, we’re talking now around three hundred and twenty thousand dollars worth of benefits that are being potentially deprived because Commissioner Rosenbaum cuts off Mrs. Ankey’s (sic) Compensation. Q Now, is that three hundred twenty thousand dollars, does that absorb the medicals?

That lifetime medicals? A No, that’s just annuity. That’s just Compensation dollars in her pocket. That does not take into account her medical expenses, prescriptions, doctors, hospitals, things of this nature.

Q Would—would that also be covered? A Certainly, it would have been covered, if the case is still, what we call alive, or still open. Q Do those figures, the three hundred twenty-thousand dollars and the—the life-time of medicals, uhm, do those ⁹⁸ figures include physical pain that Mrs. Ankney had to suffer during the years that she unable to get medical attention because she lost her Worker’s [sic] Compensation? A No. Q Do they include, uh, her emotional pain and trauma that she had to go through as a result of being unable to work, without income, without money coming in from— A No, this—this again, is strictly dollar replacement for salary.

This doesn’t take into consideration any other factors. At the close of Ankney’s case, the court granted Franch’s motion to strike the testimony of both experts. The judge explained: Now, as I said, I considered the Western Railway Company case in 163 Maryland 97 [ 161 A. 5 ] [ (1932) ] as the only authority, at least the only guiding authority in—on this case. And I am satisfied that one reading of that case would clearly be that the, uh, uh, Commissioner is right in cutting off the claims.

Now, I—I said, that would be a logical extension of that case. I also have some problems as to whether that would be the current law. Now, to take the position that the only alternative would be for a credit, I think is just a complete misstatement of the law. I don’t accept that.

I believe that the insurance company certainly would have a right to show that the actions—were prejudicial. Because the court’s ruling left Ankney without expert testimony on the appropriate standard of care, the court also granted Franch’s motion for judgment. From those rulings, Ankney noted the present appeal. LEGAL ANALYSIS The questions presented by Ankney may be condensed into two broad issues.

We first consider the law that would have governed an appeal from the termination of Ankney’s benefits, then address the ultimate question: did the trial court err or ⁹⁹ abuse its discretion in striking the entire testimony of Ankney’s expert witnesses? I When an employee suffers injury or occupational illness in the course of his or her employment, the employer 2 is required to pay compensation under the terms of the Workers’ Compensation Act (the Act), Md.Code Ann., Lab. & Empl. (LE) § 9-101 et seq. (1991 RepLVol.) (formerly Md.Ann. Code, art. 101). 3 In cases involving a tortious third party, the original version of the Act created an election of remedies: the employee was required to choose between a statutory claim against the employer, or a common law tort claim against the third party.

Hagerstown v. Schreiner, 135 Md. 650, 653 , 109 A. 464 (1920). If the employee filed a claim under the Act, the employer was granted the right to proceed against the third party. Amendments adopted in 1920 and 1922 abolished the election of remedies and granted the employee the right to sue the third party if the employer had not done so within two months following the initial award of compensation under the Act. See Brocker Mfg. v. Mashburn, 17 Md.App. 327, 332-35 , 301 A.2d 501 (1973) (discussing the history of the Act with regard to third-party claims); LE § 9-902(c).

Thus, the employer has an exclusive right to proceed against a third party for the first two months after the initial award; thereafter, the covered employee has an equal right to bring suit. Because the employer and employee both have an interest in the third-party claim, the statutory scheme carefully provides for the distribution of any damages recovered. An ¹⁰⁰ employer who recovers damages in excess of the costs and compensation awarded must pay the full amount of the excess to the injured employee. LE § 9—902(b).

When the employee recovers damages, the employer must be reimbursed for any compensation already paid and awarded, and any amounts paid for medical services, funeral expenses, or other purposes enumerated in the Act. LE § 9-902(e). See also Western Maryland Railway Co. v. Employer’s Liab. Assurance Corp., 163 Md. 97, 102-03 , 161 A. 5 (1932) (holding that the terms of a settlement agreement between the employee and a third party violated the employer’s statutory right to be reimbursed from the proceeds of the settlement).

It is firmly established that the Act does not give the employer a separate right of action against a tortious third party. Smith v. Bethlehem Steel Corp., 303 Md. 213, 221-22 , 492 A.2d 1286 (1985). As the Court of Appeals observed in Western Maryland Railway, 163 Md. at 104 , 161 A. 5 , “[tjhere is only one claim, and that is of the one injured, or his dependents in the case of death, and one judgment, the division of which is fixed by statute.” The employer’s rights are purely derivative, and by way of subrogation. Erie Insurance Co. v. Curtis, 330 Md. 160, 164 , 623 A.2d 184 (1993); Johnson v. Miles, 188 Md. 455, 459 , 53 A.2d 30 (1947).

In Erie Insurance, 330 Md. at 162-64 , 623 A.2d 184 , the Court explained that this subrogation interest constitutes a statutory lien on the employee’s recovery in a third-party action. See also Richard P. Gilbert & Robert L. Humphreys, Jr., Maryland Workers’ Compensation Handbook, § 16.1-5, at 325 (2d ed. 1993). In recognition of that interest, the employer has an absolute right to intervene in a third-party action filed by the covered employee. Collins v. United Pac.

Ins. Co., 315 Md. 141, 145 , 553 A.2d 707 (1989). See also Johnson, 188 Md. at 460 , 53 A.2d 30 (employer’s statutory interests are satisfied when the employer is given an opportunity to “intervene and control” the third-party suit and obtain reimbursement out of any recovery). ¹⁰¹ In the case at hand, Aetna’s subrogation rights for any benefits paid after the date of the settlement were destroyed by Ankney’s unauthorized settlement. See Cleaveland v. C & P Telephone Co., 225 Md. 47, 51-52 , 169 A.2d 446 (1961). 4 The merits of Ankney’s legal malpractice claim turn, in part, on whether the Commission properly terminated Ankney’s benefits as a consequence of that settlement.

In their handbook on workers’ compensation law, Gilbert and Humphreys suggest: The claimant may not impair the lien -with impunity. The claimant should not settle the claim “out from under” the lienholder by reaching a separate accommodation with the third-party tort-feasor. Impairment of the employer/insurer’s rights by the vehicle of a de minis [sic] settlement could foreclose the claimant’s future rights in workers’ compensation proceedings and require a disgorging of the employer/insurer’s monetary interest. Gilbert & Humphreys § 16.1-5, at 325 (citations omitted).

Whether a covered employee’s future right to compensation must be foreclosed as a consequence of an unauthorized settlement has yet to be decided by this Court or the Court of Appeals. In considering that issue, we strive to strike an appropriate balance between the employer’s right to subrogation and the claimant’s right to compensation under the Act. In granting the motion to strike the testimony of Ankney’s experts, the trial court relied heavily on Western Maryland Railway . There, the injured employee entered a third-party settlement that provided for payment of a certain sum apart from, and in excess of, any workers’ compensation benefits ¹⁰² received.

Id. 163 Md. at 100 , 161 A. 5 . The agreement further stipulated that the release contained therein should “not operate to release or discharge, or in any way affect” the insurer’s subrogation rights. The Court of Appeals concluded: As the appellants construe [the Workers’ Compensation] act, the alleged tort-feasor can settle with the employee, by entering into an agreement whereby the settlement is stated to be in excess of or in addition to any amount which the insurer might recover against them. In our opinion such a settlement cannot be made without the acquiescence of the insurer.

Id. at 102-03 , 161 A. 5 . The Court noted that the effect of the settlement was “to split a single cause of action into two causes” in contravention of the well-established principle that there is “only one claim, and that is of the one injured.” Id. at 103-04 , 161 A. 5 . A close reading reveals that the case is not directly applicable here. Under article 101, § 58, an employee was not entitled to receive funds from a third-party tort-feasor until after the employer had been reimbursed for “compensation already paid or awarded and any amount or amounts paid for medical or surgical services.” Western Maryland Railway, 163 Md. at 102 , 161 A. 5 .

The settlement reached was squarely in conflict with that provision, and the Court properly concluded that “such a settlement cannot be made without the acquiescence of the insurer” (emphasis added). Id. at 102-103 , 161 A. 5 . 5 Moreover, the appeal in Western Maryland Railway was brought from an order restraining the settlement. Id. at 98 , 161 A. 5 . The employee’s claim for benefits under the Act had not been terminated, and there is nothing in the decision ¹⁰³ directly supporting the proposition that the Commission could terminate an employee’s claim solely on the basis of an unauthorized third-party settlement.

The opinion does state, however, that an employee “cannot settle with the one causing him loss, except with the acquiescence of the insurance company without putting into peril his status with the latter.” Id. at 103 , 161 A. 5 (quoting Packham, 91 Md. at 523, 46 A. 1066 ). The precise nature of that potential peril is never clearly stated. II In many jurisdictions, an employee who settles a third-party claim without the employer’s consent forfeits any future right to workers’ compensation benefits. See 2A Arthur Larson, The Law of Workmen’s Compensation § 74.17(a), at 14-428 (1992).

Among jurisdictions that reach that result, the great majority have concluded that termination of benefits was required by the relevant statute. See 4 Larson, Appendix C, Table 21, at 574.42 (listing twenty-four states whose workers’ compensation statutes require an employee to obtain the employer’s consent before reaching a third-party settlement); 2A Larson § 74.17(a), at 14-428-14-440 (citing cases construing many of those statutes). In some cases, the applicable statute expressly states that all rights to compensation “shall be terminated” if the employee reaches a third-party settlement without the employer’s written approval. See, e.g., Parmelee v. International Paper Co., 157 A.D.2d 878 , 550 N.Y.S.2d 150, 151 (1990).

See also Nicklos Drilling Co. v. Cowart, 927 F.2d 828, 831 (5th Cir.1991) (construing the Longshore and Harbor Workers’ Compensation Act). Other courts have concluded that termination of the employee’s benefits was necessary to protect the employer’s subrogation rights and to prevent the employee from reaching an unreasonably small settlement. In Hornback v. Industrial Comm’n, 106 Ariz. 216 , 474 P.2d 807, 810-11 (1970), the Supreme Court of Arizona noted that the statute expressly required the employer’s written approval for any third-party settlement that was less than the compensation awarded. The ¹⁰⁴ Arizona court concluded that termination of the employee’s benefits was required to give full effect to the statute’s approval provision.

The Supreme Court of Virginia reached an identical conclusion in Safety-Kleen Corp. v. Van Hoy, 225 Va. 64 , 300 S.E.2d 750, 753-54 (1983). In Indiana and North Carolina, state legislatures have adopted yet a third approach. In those states, the workers’ compensation statute provides that a third-party settlement shall not be valid without the written consent of both the employer and employee. See State v. Mileff, 520 N.E.2d 123, 128 (Ind.Ct.App.1988); Williams v. International Paper Co., 324 N.C. 567 , 380 S.E.2d 510, 512-13 (1989).

Among those states in which the statute is silent, as in Maryland, there appears to be a diversity of opinion. As the Supreme Court of Minnesota explained in Lang v. William Bros. Boiler and Mfg., 250 Minn. 521 , 85 N.W.2d 412 (1957): [I]n what appears to be a majority of the states, the employee is allowed to make the [unauthorized] settlement, and still collect compensation, but the employer is not thereafter precluded from recovering from the third party the amount it must pay, in spite of the settlement. Underlying all these cases seems to be the general thought that the employer, having been given a right of indemnification for compensation paid, should not have that right affected by a settlement to which he is not a party____ Id. 85 N.W.2d at 417 (citations omitted).

See also United Steelworkers of America v. Quadna Mountain Corp., 435 N.W.2d 120, 122 (Minn.App.1989) (citing Lang with approval). See generally, 2A Larson § 74.17(e), at 14-454-14-462. This approach, unfortunately, is plainly inconsistent with Maryland law. As we noted earlier, Aetna’s subrogation rights for any benefits paid after the date of the settlement were destroyed.

Cleaveland, 225 Md. at 51-52 , 169 A.2d 446 . Compare Traveler’s