Franch v. Ankney

CHASANOW, Judge. The question presented in this appeal is whether the trial judge abused his discretion in striking the testimony of two ³⁵⁴ expert witnesses in an attorney malpractice case on the ground that the experts’ opinions were based on an erroneous interpretation of Maryland law. We hold that the judge’s ruling did not constitute an abuse of discretion. I. This appeal stems from an attorney malpractice action brought in the Circuit Court for Anne Arundel County in 1988 by Respondent Lottie Ankney (Ankney) against William A. Franch (Franch), Petitioner, alleging negligence in Franch’s representation of Ankney in a workers’ compensation claim. 1 The gist of Ankney’s complaint is that Franch gave her bad advice regarding the prospects of successfully appealing an unfavorable ruling of the Workers’ Compensation Commission (the Commission), and that as a result she failed to pursue an appeal that would have been successful.

Ankney injured her back in January 1982 during the course of her employment at Maritel Enterprises (Maritel). She had been sent to purchase lunch for a meeting. Returning to the office, Ankney slipped and fell on an icy parking lot owned by a third party, Beerfoot Enterprises, Inc. Ankney filed a workers’ compensation claim against her employer, Maritel, and in April of 1982 the Commission awarded her compensation for medical expenses associated with the injury plus $177 per week in disability benefits. All benefits were to be paid by her employer’s insurance company, Aetna Casualty & Surety Company (Aetna).

Ankney’s attorney in the original workers’ compensation proceeding was Samuel H. Paavola. According to Ankney, Aetna was slow in paying her medical expenses, and that as a result she suffered financial hardship. After one of her doctors filed suit against her for non-payment of medical bills, Ankney complained about the situation to Paavola. In response, Paavola negotiated a $6,500 settlement with Beerfoot, the owner of the parking lot in which Ankney ³⁵⁵ had been injured.

The settlement was reached without the prior knowledge or approval of Aetna. Part of the settlement was retained by Paavola as attorney fees, and Ankney used the remainder of the money, $4,573.55, to pay part of her medical expenses. Upon learning from Paavola that Ankney had recovered $6,500 from the parking lot owner, Aetna advised Paavola that it would no longer pay Ankney workers’ compensation benefits on the ground that its subrogation interests in the claim against Beerfoot had been prejudiced by the settlement. In fact, Aetna indicated that it was “very surprised” to learn of the settlement with Beerfoot since it was “initially advised that the accident occurred” on property owned by Maritel, Ankney’s employer.

At some point after the settlement with Beerfoot, Ankney discharged Paavola and retained Franch to represent her. In August of 1984, Franch requested an emergency hearing before the Commission on Ankney’s case due to “serious financial problems” she was suffering. At the hearing, Aetna argued that it was no longer liable to pay Ankney any benefits because Ankney had entered into an unauthorized settlement with the third-party tortfeasor, Beer-foot. In an order dated January 29, 1985, the Commission agreed with Aetna and terminated Ankney’s benefits from the date of the settlement with Beerfoot.

Shortly after the Commission’s ruling, Ankney had discussions with Franch and his law partner, Ronald Jarashow, regarding the possibility of appealing the Commission’s ruling. According to Ankney, Franch and Jarashow advised her that she could appeal the decision to circuit court, but that she would have to advance $2,500 to cover costs associated with the appeal and that she would have little chance of prevailing. This advice was apparently based on the view that the unauthorized settlement probably foreclosed Ankney’s right to future benefits. 2 Based on the advice of Franch and Jara ³⁵⁶ show, Ankney opted not to pursue the appeal. 3 In a letter to Ankney dated February 28, 1985, Franch confirmed that he did “not believe that an appeal could be successful,” and therefore “it was mutually agreed that there would be no appeal taken.” The time for appealing the commission’s decision expired, and Ankney lost her opportunity to challenge the Commission’s ruling. In January of 1988, Ankney filed a malpractice action against Franch and his law firm, Frarich, Earnest & Crowdrey, P.A., alleging that the defendants breached the generally accepted standards of care by failing to appeal the Commission’s ruling.

At trial on the malpractice action in August of 1993, Ankney produced, as expert witnesses, two attorneys who practice in the field of workers’ compensation law, Herbert J. Arnold (Arnold) and Harold DuBois (DuBois). Both attorneys testified that, contrary to what Franch advised Ankney, an appeal of the Commission’s ruling would have succeeded and would not have involved significant litigation expenses. Both attorneys testified that the Commission erred as a matter of law in terminating Ankney’s benefits, and therefore she would have prevailed in the circuit court via a motion for summary judgment. The experts further opined that, in advising Ankney that a circuit court appeal had little chance of success, Franch had breached the duty of care he ³⁵⁷ owed Ankney, his client, and that that breach had caused Ankney to lose workers’ compensation benefits to which she was entitled.

DuBois estimated the potential value of the lost benefits at $320,000 plus the value of Ankney’s medical expenses related to the injury. At the conclusion of Ankney’s case, Judge Raymond G. Thieme, Jr. granted Franch’s motion to strike the testimony of both experts on the ground that the opinions were based on an incorrect interpretation of Maryland law. The trial judge then granted a motion for judgment in favor of Franch on the ground that Ankney had failed to produce any admissible expert testimony establishing the relevant standard of care. 4 Ankney appealed to the Court of Special Appeals. The intermediate appellate court held that the judge’s striking of the testimony constituted a “clear abuse of discretion,” and remanded the case for retrial.

Ankney v. Franch, 103 Md.App. 83, 115-16 , 652 A.2d 1138, 1153-54 (1995). We granted certiorari.

II

Under the Maryland Workers’ Compensation Act, Maryland Code (1991 Repl.Vol, 1995 Supp.), Labor and Employment Article (LE), §§ 9-101 through 9-1201, 5 an employer is generally required to pay workers’ compensation benefits to an employee who suffers an accidental personal injury in the course of employment, regardless of whether the employer is ³⁵⁸ at fault for the injury. See LE § 9-501. Where, as here, the employee’s injury resulted from the tortious conduct of a third-party, the statute grants the employer 6 the right to sue the third-party to recover an amount equal to the benefits the employer has been required to pay the employee because of the injury. See LE § 9-902(a) and (b); Erie Insurance v. Curtis, 330 Md. 160, 164 , 623 A.2d 184, 186 (1993).

The employer has the exclusive right to pursue a cause of action against the third-party tortfeasor for two months. LE § 9-902(c); Eri e, 330 Md. at 164 , 623 A.2d at 186 . Thereafter, the employee also has the right to bring an action against the third-party, but the employer retains subrogation rights in the employee’s claim. Erie, 330 Md. at 164 , 623 A.2d at 186 .

The employer’s subrogation interest in the third-party claim acts as a “statutory lien” on any recovery the employee may obtain from the third-party. Richard P. Gilbert and Robert L. Humphreys, Jr., Maryland Workers’ Compensation Handbook § 16.1-5, at 325 (2d ed. 1993, 1995 Cum.Supp.). In other words, if the employee recovers compensation from the third-party tortfeasor, the employer is entitled to obtain reimbursement for its workers’ compensation payments from the proceeds. See LE § 9-902(e).

Where recovery from the third party is less than the employee is entitled to receive in benefits, the employee retains the right to recover the difference between the amount received from the third party and the amount payable under the statute. See LE §§ 9-902, 9-903; see also Brocker Mfg. v. Mashburn, 17 Md.App. 327 , 301 A.2d 501 (1973). The employer’s rights in the claim against the third party are only those derived through the employee. See Johnson v. Miles, 188 Md. 455, 459 , 53 A.2d 30, 32 (1947).

Pursuant to general principles of subrogation law, therefore, if an injured employee settles the claim and releases the third-party tortfeasor from liability, the employer’s ability to pursue the claim against the tortfeasor is extinguished. See Noma ³⁵⁹ Elec. Corp. v. Fidel. & Dep. Co., 201 Md. 407, 410 , 94 A.2d 277, 278 (1953); 6A John Alan Appleman and Jean Appleman, Insurance Law and Practice § 4092, at 239 (1972); 16 Couch on Insurance 2d (Rev ed.) § 61:194, at 250-51 (1983).

Thus, a de minimis settlement between the employee and the tortfeasor could prejudice the employer’s interest by depriving the employer of its ability to obtain reimbursement equal to the full value of the third-party claim. See Maryland Workers’ Compensation Handbook § 16.1-5, at 325. For example, in the instant case, Aetna may have been prejudiced if Beerfoot was negligent in failing to keep its parking lot free of ice. If Beerfoot’s negligence caused Ankney to slip and fall, then under general principles of tort law Beerfoot was liable for the full extent of Ankney’s damages.

In settling the claim against Beerfoot and releasing it from liability, however, Ankney destroyed Aetna’s right to obtain any reimbursement from Beerfoot. Therefore, an employee should notify the employer or insurer when making a claim against a third party and when contemplating any settlement, especially when the settlement is substantially below the amount of workers’ compensation benefits paid or payable by the employer/insurer. See Maryland Workers’ Compensation Handbook § 16.1-5, at 325; see also Western Maryland Railway Co. v. Assurance Corp., 163 Md. 97, 103-04 , 161 A. 5, 8 (1932) (noting that an insured who settles with a third-party tortfeasor without the acquiescence of the insurance company risks forfeiting all money previously recovered by the insured from the insurance company). The question at the heart of this case is what was the effect of Ankney’s unauthorized settlement on Aetna’s duty to pay future workers’ compensation benefits to Ankney?

The Commission ruled that the settlement fully relieved Aetna of its responsibility to pay any benefits after the date of the settlement. The Court of Special Appeals, however, concluded that the Commission’s decision to terminate Ankney’s benefits was “inconsistent with the legislative intent” of the workers’ compensation statute. Ankney, 103 Md.App. at 108 , 652 A.2d at 1150 . The intermediate appellate court held that “an unautho ³⁶⁰ rized third-party settlement does not, in itself, constitute grounds for the termination” of benefits.

Ankney, 103 Md. App. at 109 , 652 A.2d at 1150 . Rather, the court held, the employer is entitled to reimbursement from the proceeds of the settlement as the statute provides. Ankney, 103 Md.App. at 110 , 652 A.2d at 1151 . See LE § 9-902(e).

Additionally, the court held that if the employer can establish that it has been prejudiced by the settlement, i.e., because the reasonable dollar value of the third-party claim might have been significantly greater than the amount of the actual unauthorized settlement and the settlement was less than the workers’ compensation benefits, then the employer is also entitled to a credit for the amount of the prejudice. 7 Ankney, 103 Md.App. at 109-10 , 652 A.2d at 1151 . The court also noted that in cases where the total amount of the credits due the employer because of the unauthorized settlement exceeds the amount of future benefits that would be due the employee, the employee’s benefits could be terminated. Ankney, 103 Md.App. at 111 , 652 A.2d at 1151 . See also LE § 9-903. 8 We agree with ³⁶¹ the above described analysis by the Court of Special Appeals. 9 Indeed, the parties do not contend otherwise. 10 III.

We turn to the ruling of the trial judge striking the testimony of Ankney’s two expert witnesses, which the Court of Special Appeals held to be an abuse of discretion. As a general rule, expert witnesses may not give opinions on questions of law except for those concerning the law of another jurisdiction. 6 Lynn McLain, Maryland Evidence § 702.1, at 219-20 (citing Maryland cases); 1 McCormick on Evidence § 12, at 50 (John W. Strong ed., 4th ed. 1992). Expert testimony of attorneys is admissible in attorney malpractice cases, however, for the purpose of establishing the standard of care for a reasonable, prudent lawyer in a particular situation. See Cochrane v. Little, 71 Md. 823 , 333, 18 A. 698, 701 (1889); Hooper v. Gill, 79 Md.App. 437, 441 , 557 A.2d 1349, 1351 , cert. denied, 317 Md. 510 , 564 A.2d 1182 (1989), and cert. denied, 496 U.S. 906 , 110 S.Ct. 2588 , 110 L.Ed.2d 269 (1990).

Because an expert opinion on the