Saadeh v. Saadeh, Inc.

DEBORAH S. EYLER, J. The Circuit Court for Anne Arundel County granted a motion for judgment in favor of Saadeh, Inc., and its workers’ compensation insurer, Ohio Casualty Insurance Company (“Ohio Casualty”), the appellees, at a bench trial of a workers’ compensation case brought by John P. Saadeh, the appellant. The court found that, on the evidence presented, a person the appellant alleged was a third-party joint tort-feasor liable for injuries the appellant sustained in the course of his employment was not liable; and therefore, the appellant’s settlement with another third party with respect to the same injuries ³⁰⁹ completely resolved his only third-party tort claim. The court ruled that, because the appellant had accepted the settlement before he filed a workers’ compensation claim, and had done so without the knowledge or approval of Ohio Casualty, he had elected a tort remedy and was barred, under Md.Code (1999 Repl. Vol.) section 9-901 of the Labor and Employment Article (“LE”), from receiving workers’ compensation for the same injuries.

On appeal, the appellant presents one question, which we have reworded: Did the trial court err in concluding that the alleged joint tort-feasor was not liable for the appellant’s injuries? For the following reasons, we shall affirm the judgment of the circuit court. FACTS AND PROCEEDINGS The appellant and his wife own the appellee company, Saadeh, Inc., which for ten years owned and operated a restaurant in Annapolis trading under the name “Jo’s Deli.” The appellant worked full time at the deli. On July 28, 1996, the appellant was waiting on a customer named Louis Ravenet, Jr., who was present in the deli with his wife and his father, Louis Ravenet, Sr. 1 Junior became irate over a food order.

When the appellant tried to calm him down, Junior became more angry and then refused to leave, even though it was closing time. The situation escalated and culminated in Junior’s punching the appellant in the face, breaking his nose, and inflicting other injuries on him. The police were called and Junior was arrested and charged with disorderly conduct, trespassing, and assault and battery. The appellant underwent surgery to repair his broken nose.

He remained under a doctor’s care for several months for the injuries he sustained in the July 28,1996 incident. ³¹⁰ Trial on the charges against Junior was scheduled for December 23, 1996. That day, Junior and the State reached an agreement to place the case on the “stet docket,” under Rule 4-248. That agreement in turn was based on a settlement between the appellant and Junior that called for the appellant to release his claims and causes of action arising out of the July 28, 1996 incident in exchange for a promise by Junior to pay him $50,000, in equal installments, over a 14-month period. On January 15, 1997, the appellant and Junior committed their settlement agreement to writing. 2 At the time that the appellant entered into the settlement with Junior he had not yet filed a claim for workers’ compensation in connection with the July 28, 1996 incident (and may not have planned to do so).

It is undisputed that the appellant entered into the settlement agreement without Ohio Casualty’s knowledge or approval. On April 14,1997, three months after signing the settlement agreement with Junior, the appellant suffered a spontaneous dissection of the right carotid artery, which produced serious medical complications. He and his treating doctors maintain that this condition resulted from the July 28, 1996 attack. On August 27, 1997, the appellant filed a claim with the Workers’ Compensation Commission (“Commission”) in connection with the July 28, 1996 incident.

The appellees contested the claim. On December 1, 1997, a merits hearing was held. Thereafter, on June 25, 1998, the Commission issued a decision finding that the appellant’s claim was barred under the' election of remedies doctrine, as embodied in LE section 9-901. The appellant filed an action for judicial review in the Circuit Court for Anne Arundel County.

The parties filed cross-motions for summary judgment. At the hearing on the motions, the appellant argued that he should not be deemed to have elected a tort remedy because he still had a viable tort ³¹¹ claim against Senior. The appellant argued that Senior was a third-party joint tort-feasor who shared legal responsibility with Junior for the injuries inflicted on July 28, 1996. On March 16, 1999, the circuit court remanded the case to the Commission to determine two issues: first, whether Junior had fully paid in accordance with the settlement agreement so as to have been released from liability; and second, if so, whether “one or more additional joint tort-feasors [were] available to reimburse [the appellees] via subrogation?” The court’s order directed that “[i]f there are no surviving or identifiable joint tort-feasors who also may be held liable, then [Junior’s] full release would constitute an election of remedies and a final bar to the [appellant’s] Workers’ Compensation Claim.” On July 26, 1999, the appellant filed a tort action against Senior in the Circuit Court for Baltimore County, for damages for the injuries he suffered in the July 28, 1996 incident.

To date, Senior has not been served with process in that case. The case remains pending, however. On remand, the Commission held an evidentiary hearing, on January 12, and April 10, 2000. The parties stipulated that Junior in fact had made all the required payments under his settlement agreement with the appellant and therefore was released from all liability in connection with the incident of July 28, 1996.

On April 13, 2000, the Commission issued a decision making that finding, and further finding that “[t]here are no surviving or identifiable joint tort-feasors who also may be liable.” On that basis, the Commission once again concluded that the appellant’s compensation claim was barred under LE section 9-901. The appellant filed a second action for judicial review in the Circuit Court for Anne Arundel County. A bench trial commenced on January 23, 2002. Pursuant to an agreement of counsel, the sole issue for decision was whether the appellant was barred by the election of remedies doctrine from receiving compensation under the Act.

The appellant called three witnesses, each of whom had observed ³¹² the altercation or part of it: William Gibbs, an employee of Jo’s Deli; Edward Timnivliouglou, the owner of a neighboring business; and Belle Pollack, a deli customer. At the conclusion of the appellant’s case, the appellees moved for judgment. After hearing argument of counsel, the trial court reviewed the evidence, made findings of fact, and found that there was no basis for joint tort-feasor liability on the part of Senior. On that ground, the court ruled that by settling with Junior the appellant had elected a tort remedy and was barred from recovering compensation under the Act.

On March 6, 2002, the court issued an order memorializing its ruling. The order granted the appellees’ motion for judgment, affirmed the Commission’s order of April 13, 2000, and stated “there are no surviving or identifiable joint tort-feasors who also may be liable; accordingly, the [appellant’s] release constitutes an election of remedies and a final bar to his workers’ compensation claim.” The appellant noted a timely appeal. We shall recite additional facts in our discussion of the question presented. DISCUSSION Under LE section 9-901, entitled “Choice of proceeding against third party or employer[,]” [w]hen a person other than an employer is liable for the injury ... of a covered employee for which compensation is payable under this title, the covered employee ... may: (1) file a claim for compensation against the employer under this title; or (2) bring an action for damages against the person liable for the injury ... or, in the case of joint tort-feasors, against each joint tort-feasor.

The Court of Appeals has held that this statute permits a covered employee to obtain compensation under the Workers’ Compensation Act, LE sections 9-101, et seq., and then pursue a tort claim against a third-party tort-feasor; or ³¹³ to simultaneously pursue compensation and a tort action. Franch v. Ankney, 341 Md. 350 , 670 A.2d 951 (1996); Perdue v. Brittingham, 186 Md. 393 , 47 A.2d 491 (1946). The employee may not, however, pursue a tort remedy to conclusion and then file and obtain compensation. Johnson v. Miles, 188 Md. 455 , 53 A.2d 30 (1947); Central GMC, Inc. v. Lagana, 120 Md.App. 195 , 706 A.2d 639 , cert. granted, 350 Md. 280 , 711 A.2d 871 , appeal dismissed, 351 Md. 160 , 717 A.2d 384 (1998). 3 LE section 9-901 is logically related to the two statutory sections that follow it.

LE section 9-902, entitled “Action against third party after award or payment of compensation[,]” establishes a subrogation scheme. It allows that when compensation has been awarded or paid to a covered employee, the insurer “may bring an action for damages against the third party who is liable for the injury ... [to] the ... employee[,]” LE section 9-902(a), and further directs that if the damages the insurer recovers in the third-party action exceed the amount of compensation it has paid, then after deducting the costs and expenses of the action, it must pay the balance over to the employee. 4 LE section 9-902(b). For two months after the first award of compensation, the insurer’s right to bring a third-party action is exclusive. LE section 9-902(c).

Thereafter, the insurer and the employee share that right. If the employee brings suit and is awarded damages, then, after deducting the costs and expenses of the action, he must reimburse the insurer for the compensation it has paid under the Act; the employee then may keep the balance of damages recovered. LE section 9-902(e). Thus, whether the third-party action is brought by the ³¹⁴ insurer or the employee, the insurer is entitled to recoup from the tort-feasor the compensation it has paid.

The insurer’s right of subrogation against a third party responsible for the employee’s injury exists apart from the Act; but the Act creates a method for enforcing it. Western Maryland R. Co. v. Employers’ Liab. Assurance Corp., 163 Md. 97, 102 , 161 A. 5 (1932). The Court of Appeals has held that when compensation has been awarded or paid, thus giving rise to a subrogation right in the insurer, the insurer is entitled to participate in the decision to settle a third-party claim asserted by the employee, and the third party may not settle separately with the employee without the acquiescence of the insurer.

Id. LE section 9-903, entitled, “Effect of receipt of amount in action,” provides that, when an employee has made a workers’ compensation claim and subsequently receives a damages award in a third-party action, then with one exception the damages award is in place of any compensation award the employee could receive under the Act, and his compensation case is finally closed and settled. The exception arises when the damages award is less than the amount of compensation the employee would be entitled to receive under the Act. In that situation, the employee can reopen his compensation claim and recover the difference between the amount of damages he received and the full amount of compensation payable under the Act.

In Franch v. Ankney, supra, 341 Md. 350 , 670 A.2d 951 , the Court of Appeals addressed a situation in which an employee made a claim for workers’ compensation, and was receiving benefits, and then asserted a tort claim against a third party allegedly liable for the employee’s on-the-job injury. The employee entered into a settlement with the third party, but did not notify her workers’ compensation insurer or obtain its consent. The Commission ruled that the settlement fully relieved the insurer of any obligation to pay additional benefits. ³¹⁵ In the context of a malpractice suit against a lawyer who advised the employee not to appeal the Commission’s decision, the Court held that, even though the employee should not have settled the third-party claim without the insurer’s approval, her doing so did not preclude her from receiving additional compensation. Instead, it had the effect of reducing the compensation she was entitled to by an amount equal to that by which the unauthorized settlement had prejudiced the insurer’s subrogation right.

The Court explained that that sum would be the amount of the settlement plus any difference between the settlement amount and the value of a reasonable settlement that could have been obtained had the insurer been afforded the opportunity to participate in the settlement negotiations. The Court stated: The [insurer’s] rights in the claim against the third party are only those derived through the employee. Pursuant to general principles of subrogation law, therefore, if an injured employee settles the claim and releases the third party tort-feasor from liability, the [insurer’s] ability to pursue the claim against the tort-feasor is extinguished. Thus, a de minimis settlement between the employee and the tort-feasor could prejudice the [insurer’s] interest by depriving the [insurer] of its ability to obtain reimbursement equal to the full value of the third party claim....

Therefore, an employee should notify the ... 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 ... insurer.... “[A]n unauthorized third-party settlement does not, in itself, constitute grounds for the termination” of benefits. Rather, ... the [insurer] is entitled to reimbursement from the proceeds of the settlement as the statute provides.... See LE 9-902(e). Additionally, ... if the [insurer] 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 ³¹⁶ actual unauthorized settlement and the settlement was less than the workers’ compensation benefits, then the [insurer] is also entitled to a credit for the amount of the prejudice .... [I]n cases where the total amount of the credits due the [insurer] because of the unauthorized settlement exceeds the amount of future benefits that would be due the employee, the employee’s benefits could be terminated.

Id. at 358-60 , 670 A.2d 951 (quoting Ankney v. Franch, 103 Md.App. 83, 109 , 652 A.2d 1138 (1995)) (other citations omitted) (footnotes omitted). In Central GMC, Inc. v. Lagana, supra, 120 Md.App. 195 , 706 A.2d 639 , the injured employee entered into a settlement with the third party who had caused her on-the-job injury. She did so before filing a compensation claim, and withoult notifying or receiving authorization from her workers’ compensation insurer. When the employee later filed a compensation claim, the Commission ruled it was barred under the election of remedies doctrine.

In affirming that decision, this Court explained that the employee’s settlement extinguished the subrogation right the insurer would have against the third party if the insurer later paid compensation. Because entering into a settlement that extinguished the insurer’s subrogation right was inconsistent with the employee’s later receiving compensation that the insurer would be entitled to recover via subrogation, the employee was deemed to have elected the tort remedy in place of the compensation remedy, and thererfore could not obtain compensation. See Surratts Associates v. Prince George’s County, 286 Md. 555, 568 , 408 A.2d 1323 (1979) (explaining that among elements of election of remedies doctrine are “(1) two or more coexisting remedies between which there is a right of election; (2) inconsistency as to such available remedies; and (3) the actual bringing of an action and pursuing it to a final judgment.”). The Court in Lagaña stressed that the terms “election of remedies” and “impairment of subrogation interests” were not “co-extensive.” 120 Md.App. at 212 , 706 A.2d 639 .

The doctrine of election of remedies comes into play when, ³¹⁷ prior to bringing a workers’ compensation claim, the injured worker settles with a third-party tort-feasor (id. at 208-09, 706 A.2d 639 ); on the other hand, the issue of whether the insurer’s right to subrogation has been impaired arises when, in cases like Franch, an employee settles with a third-party tort-feasor after a workers’ compensation claim has been filed. Id. at 209-10, 706 A.2d 639 . Settlement of a claim against the sole third-party tort-feasor prior to the filing of a workers’ compensation claim constitutes a binding election of remedies and extinguishes the insurer’s duty to pay the compensation claim, whereas an unauthorized settlement with a third-party tort-feasor after a workers’ compensation claim has been brought (as in Franch) simply results in decreasing the amount the employee is entitled to recover in his compensation claim by a sum equal to the impairment. See Central GMC, Inc. v. Lagana, supra, 120 Md.App. at 205-06 , 706 A.2d 639 .

In the case at bar, the parties agree that, under the holdings discussed above, if Junior were the only third party responsible for the appellant’s injuries, then by settling with him before filing a compensation claim and without giving notice to or obtaining consent from Ohio Casualty, the appellant would have extinguished, in advance, the subrogation right Ohio Casualty would have if it were to pay workers’ compensation on a later-filed claim. Therefore, if that were the case, the appellant would have been deemed to have elected a tort remedy and would have been barred from receiving compensation under the Act. The parties’ differences of opinion stem from the possibility. that there were two third-party tort-feasors jointly responsible for the appellant’s injuries — Junior, the primary joint tortfeasor, and Senior, an aider and abettor, and thus also a joint tort-feasor. The appellant points out that LE section 9-901(2) provides that an employee may bring a third-party action against “each joint tort-feasor,” when joint tort-feasors are liable for his injury. ³¹⁸ The situation gives rise to several related questions.

First, if Senior and Junior were joint tort-feasors with respect to the appellant’s injuries, and if even after the appellant’s settlement with Junior, a tort remedy still could be pursued and obtained against Senior, did the settlement with Junior operate as an election of a tort remedy? Second, in what forum and when is the joint tort-feasor status of Senior to be decided? Third, if the circuit court in the compensation case was a proper body to decide Senior’s tort-feasor status, was its finding that Senior was not a joint tort-feasor legally correct and supported by non-clearly erroneous factual findings? And finally, if so, did the court properly conclude that the appellant’s settlement with Junior was a final resolution of his only possible third-party tort claim that extinguished, in advance, any subrogation right that Ohio Casualty would acquire upon paying workers’ compensation, and therefore precluded him from obtaining compensation under the election of remedies doctrine?

On the first question, we conclude that the governing statutes and the holdings in Franck and Lagaña dictate that, if there was a viable third-party damages claim against Senior, as a joint tort-feasor, after the appellant entered into his settlement agreement with Junior, and after he filed his compensation claim, the settlement did not necessarily preclude the appellant from obtaining workers’ compensation. As a subrogee, a workers’ compensation insurer’s subrogation right against each third-party tort-feasor jointly responsible for the employee’s injury is derivative of the employee’s rights against each such tort-feasor. Montgomery County v. Valk Mfg. Co., 317 Md. 185, 190 , 562 A.2d 1246 (1989) (citing Ennis v. Donovan, 222 Md. 536, 540 , 161 A.2d 698 (1960)(quoting Baltimore Transit Co. v. State ex rel.

Schriefer, 183 Md. 674, 679 , 39 A.2d 858 (1944))). Under the Maryland Uniform Contribution Among Joint Tort Feasors Act, Md.Code (2002 Repl.Vol.), section 3-1401 et seq., of the Courts & Judicial Proceedings Article (“CJ”), an employee’s release of one third-party joint feasor ³¹⁹ does not discharge the liability of the other (or others) unless the release so provides. CJ § 3-1404. Instead, depending on the language used in the release, and assuming that the settling wrongdoer’s tort-feasor status is established either by agreement in the release or by adjudication, a judgment against a joint tort-feasor will be reduced by the sum paid for the release, unless a different reduction formula was agreed upon and stated in the release.

Id.; Porter Hayden Co. v. Bullinger, 350 Md. 452, 470 , 713 A.2d 962 (1998); Jacobs v. Flynn, 131 Md.App. 342, 375 , 749 A.2d 174 , cert. denied sub nom., Kishel v. Jacobs, 359 Md. 669 , 755 A.2d 1140 (2000); Jones v. Hurst, 54 Md.App. 607, 608 , 459 A.2d 219 (1983). Accordingly, so long as there is a viable tort claim against a putative joint tort-feasor for damages for the employee’s injuries, it is not established that the insurer’s future subrogation right has been extinguished by the employee’s unauthorized, pre-claim settlement with another joint tort-feasor. Upon the award or payment of workers’ compensation, the insurer may proceed in tort against a second putative joint tort-feasor; and after two months, the employee also may do so if the insurer has not. Any judgment entered against the third-party joint tort-feasor will be for the full amount of damages, because there is but a