[*1]
Mueller v Elliott
2014 NY Slip Op 51179(U) [44 Misc 3d 1218(A)]
Decided on July 31, 2014
Supreme Court, Erie County
Nemoyer, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and will not be published in the printed Official Reports.


Decided on July 31, 2014
Supreme Court, Erie County


Kathleen P. Mueller, Plaintiff,

against

Marcus J. Elliott and JESSICA M. CARVER, Defendants.




2012/0019



CHARLES J. MARCHESE, ESQ., for Plaintiff



SUSAN R. DUFFY, ESQ. for non-parties First Student (Plaintiff's former employer), National Union Fire Ins. Co. (the employer's workers' compensation carrier), and Sedgwick Claims Management Services, Inc. (the carrier's claims administrator).


Patrick H. Nemoyer, J.

PAPERS CONSIDERED:the ORDER TO SHOW CAUSE of Plaintiff and the supporting affidavit of Charles J. Marchese, Esq., with annexed exhibits; and



the opposing AFFIDAVIT of Susan R. Duffy, Esq., with annexed exhibits.

Before the Court is a dispute between the plaintiff in this now discontinued personal injury action and, in effect, the plaintiff's employer's workers' compensation carrier. The dispute arises out of the discontinuance of the action by plaintiff pursuant to CPLR 3217 (a) (2), i.e., by the filing of a written stipulation signed by the attorneys of record for all parties. Important to an understanding of the discontinuance and the current dispute are the following facts, all of which are undisputed:

The then 57-year-old plaintiff was seriously injured as a result of a motor vehicle accident that occurred on January 7, 2009 in the Town of Amherst. The school bus that plaintiff was driving in the employ of First Student was stopped or standing in the median or left turn lane of a divided highway when it was struck by an oncoming vehicle driven by Marcus J. Elliott and owned by Jessica M. Carver (hereinafter defendants). The accident occurred under conditions of freezing rain and icy pavement. As a result of the collision, plaintiff was thrown from the driver's seat into the stairwell of the bus, sustaining injuries to her right arm and shoulder for [*2]which she has undergone two surgeries and apparently faces further surgery, possibly including a total shoulder replacement. Besides those ongoing medical expenses, plaintiff incurred lost wages. As a result, plaintiff made a claim for workers compensation benefits, which she thus far has received in an amount totaling $101,405.98. The carrier emphasizes that, because $50,000 of those benefits were paid by the carrier in lieu of first-party benefits (which the carrier has since recouped from defendants' vehicle insurer), "the recoverable lien against the claimant's third-party action is $51,405.98."

After plaintiff obtained the workers' compensation award, she and her personal injury attorney sought to negotiate a settlement with defendants' vehicle insurer without commencing an action. When that proved unlikely, plaintiff commenced an action under the instant index number in early January, 2012, four days before the expiration of the statute of limitations. Thereafter, plaintiff engaged in some litigation as well as some further settlement discussions with the vehicle insurer. Both were unsuccessful from plaintiff's standpoint. Concerning the settlement discussions, although defendants were insured only to the extent of $25,000 (the papers say $20,000), the vehicle insurer offered nothing to plaintiff in settlement of the action because of defendant-driver's doubtful liability for losing control of his vehicle on an icy roadway, and also because plaintiff's damages were to be much mitigated on account of her failure to wear her seatbelt. In the litigation, meanwhile, defendant in August 2012 obtained a conditional but self-effectuating order of preclusion against plaintiff for her failure to give over certain disclosure materials. Moreover, by November 2012, defendants had moved against plaintiff for an order dismissing the action for plaintiff's asserted failure to comply with that conditional order of preclusion.

During the pendency of that motion, the Court conferred with counsel for both parties. At that time, and in subsequent correspondence, plaintiff's attorney made clear his and his client's general lack of enthusiasm for pursuing the personal injury action in view of the expense of litigation and trial, the doubtful liability of defendants, the comparative fault of plaintiff, the valid seat-belt defense, and the minimal insurance coverage. At the same time, defense counsel and this Court re-enforced the view that plaintiff was facing the very real prospect of having her complaint dismissed on defendants' motion. Plaintiff relented and, on December 31, 2012, counsel for all parties signed a stipulation discontinuing the action. No payment was received by plaintiff in exchange for that discontinuance. Indeed, the only consideration given by defendant and received by plaintiff apparently was the essential abandonment of defendants' motion to dismiss the action.

In April 2013, after plaintiff's counsel notified the workers' compensation carrier that the action had been voluntarily discontinued, the carrier's counsel wrote plaintiff's counsel, inquiring into the circumstances of the discontinuance. Counsel for the carrier specifically wanted to know whether the stipulation of discontinuance was signed as "part of a settlement and, if so, for how much." On the other hand, the carrier's attorney demanded that claimant justify any discontinuance of the action for no consideration. In response, plaintiff's counsel informed counsel for the workers' compensation carrier that there had been "no settlement or monetary recovery" in the action, which had been discontinued for the legal and practical reasons set out hereinabove and also because of the personal strain upon and lack of interest of plaintiff in pursuing the action. In response to that information, plaintiff has evidently been apprised that the [*3]carrier will not pay any future compensation benefits to her, specifically including for any costs for future surgery, on account of the fact that the carrier never consented to the stipulation of discontinuance.

Now before the Court is an application by plaintiff for an order, akin to one obtainable pursuant to Workers' Compensation Law § 29 (5), approving the stipulation of discontinuance nunc pro tunc. That application is opposed by the carrier, essentially on three grounds: 1) that the application does not meet the procedural requirements of Workers' Compensation Law § 29 (5); 2) that plaintiff unreasonably discontinued the action without the consent of the carrier; and 3) that the carrier was prejudiced, in terms of the enforcement of its lien rights, by such discontinuance. On the basis of the parties' respective submissions, this Court renders the following determinations:

By way of background, it is well established that:



"Section 29 of the Workers' Compensation Law governs the rights and obligations of employees, their dependents, and compensation carriers with respect to actions arising out of injuries caused by third-party tort-feasors. The claimant has the first right to bring a third-party action, and, while undertaking such an action, may continue to receive compensation benefits . . .. In the event that a claimant recovers in a third-party action, the compensation carrier is granted a lien on the amount of the recovery proceeds equal to the amount of past compensation it has paid, with interest . . .. The lien, however, is subordinate to reduction for costs and attorneys fees . . .." (Kelly, 60 NY2d at 136).



Thus, section 29 (1) confers two rights upon the carrier with regard to the proceeds of a favorable judgment or settlement of the so-called third-party action. The first is the right to enforce a lien against the "recovery" in the amount of benefits paid in the past, whereas the second is the right to a have "credit" against the payment of any further benefits — in other words, to enjoy a "holiday" in the payment of such benefits up to the amount of such credit (see Kelly, 60 NY2d at 137-138; McHenry v State Ins. Fund, 236 AD2d 89, 91 [3d Dept 1997]; Miller v Arrow Carriers Corp., 130 AD2d 279, 281 [3d Dept 1987]; see also Burns v Varriale, 9 NY3d 207, 215-217 [2007]). Both rights, however, are subject to the carrier's obligation to contribute ratably to the attorneys' fees and other costs incurred by the injured worker in obtaining the settlement or recovery (see Kelly, 60 NY2d at 137-138; Hammer v Turner Constr. Corp., 39 AD3d 705 [2d Dept 2007]; see also Burns, 34 AD3d 59, 65-66 [3d Dept 2006], affd 9 NY3d 207, 217).[FN1]

In contrast, where the injured worker does not commence a so-called third-party action against the tortfeasor within a statutorily specified time, the workers' compensation carrier that [*4]has paid benefits to the worker may, by virtue of its subrogation status and rights, and in accordance with a specific statutory grant of permission and assignment of right, commence its own action against the tortfeasor (see Workers' Compensation Law § 29 [2]). Generally, any recovery by the carrier on its claim redounds to its own benefit to the extent or up to the amount of any benefits paid or payable to the injured worker and, beyond that extent or amount, redounds to the benefit of the injured worker (see Workers' Compensation Law § 29 [2]).

Here, of course, the injured worker commenced a so-called third-party action against the offending driver and vehicle owner, but did not recover a cent. Thus, the sole question before this Court is whether a compromise order pursuant to Workers' Compensation Law 29 (5) should issue nunc pro tunc with respect to plaintiff's voluntary discontinuance of the action without any recovery.



"The starting point of the Court's analysis of this matter is the statute, which provides in pertinent part that the



compromise of any such [third-party] cause of action by the employee ... at an amount less than the compensation provided for by this chapter shall be made only with the written approval of the ... insurance carrier liable to pay the same. However, written approval of the ... insurance carrier need not be obtained if the employee or his dependents obtain a compromise order from a justice of the court in which the third-party action was pending' (Workers' Compensation Law 29 [5]).



"The statute then goes on to prescribe the required contents of a petition and supporting papers (including a detailed physician's affidavit) to be submitted in support of a request of a judicial approval-of-settlement or compromise order.' The statute concludes by stating:



If the third-party action is on trial at the time the offer of settlement which is acceptable to the plaintiff, is made and either such written approval or order as provided in this subdivision is required, the action may be marked settled subject to the securing of such written approval or such order. If such written approval or such order is not subsequently secured within three months the action shall be restored to the head of the trial day calendar' (Workers' Compensation Law 29 [5]).



"Although the statute nowhere says so, most courts seem to construe the statute as requiring the settling plaintiff to seek judicial approval of any carrier-non- approved settlement (and not just the settlement of a case actually being tried at the time) within three months of such settlement (see e.g. Jackson, 70 AD3d at 695; Matter of Cosgrove v County of Ulster, 51 AD3d 1326, 1327 [3d Dept 2008]; Matter of Paneto v RMSCO, Inc., 41 AD3d 253, 254 [1st Dept 2007]; but see Matter of Bernthon v Utica Mut. Ins. Co., 279 AD2d 728, 729 n [3d Dept 2001] [holding three-month approval period inapplicable where settlement not entered into during trial of third-party action]). Moreover, although the statute lists [*5]the consequence of not obtaining trial-court approval of the settlement within three months merely as the restoration of the case to the head of the trial calendar, the courts consistently have treated the three months as a presumptive deadline which, once disregarded by the plaintiff, would require the plaintiff to obtain a court order approving the settlement nunc pro tunc or else be barred from receiving any further workers' compensation benefits (see Jackson, 70 AD3d at 695; Cosgrove, 51 AD3d at 1327; Singh, 12 AD3d at 499; see generally Johnson, 84 NY2d at 19).



"Concerning whether a nunc pro tunc approval-of-settlement order should be granted, a matter committed to the sound discretion of the this Court (see Jackson, 70 AD3d at 695; Reynar v Village of Sloatsburg, 17 AD3d 601 [2d Dept 2005], lv denied 5 NY3d 706 [2005]; Matter of Gilson v National Union Fire Ins. Co., 246 AD2d 897 [3d Dept 1998]), this Court sets forth the Fourth Department's ... analysis of the issue, as follows:



The delay of petitioner in seeking a compromise order does not by itself require dismissal of her petition (see, Matter of Dauenhauer v Continental Cas. Ins. Co., 217 AD2d 943, 944), and respondent failed to demonstrate prejudice resulting from the delay (see, Borrowman v Insurance Co., 198 AD2d 891). The remaining issue is whether respondent was prejudiced by the settlement itself. That issue turns largely on whether the settlement terms were reasonable (see generally, Matter of Gregory v Aetna Ins. Co., 231 AD2d 906), and the court did not reach that issue. Because the record does not indicate whether the settlement represented the full amount of the insurance coverage and does not otherwise establish the reasonableness of the settlement', we reverse the order, reinstate the petition, and remit the matter to Supreme Court for a hearing on that issue (Matter of Dauenhauer v Continental Cas. Ins. Co., supra, at 944; see, Amsili v Boozoglou, 203 AD2d 137, 138; Davison v Chemical Leaman Tank Lines, 136 AD2d 937, 938)' (Buchanan v Scoville, 241 AD2d 965, 966 (4th Dept 1997]).



"Other appellate courts, however, emphasize an issue or element not prominently mentioned in the Fourth Department cases, i.e., the plaintiff's reason or excuse for not sooner seeking judicial approval of the settlement. For example, in Furtado v Mario's Bakery (17 AD3d 527, 527-528 [2d Dept 2005]), it was said:



[A] party may seek judicial approval of the compromise beyond the three-month period upon demonstrating that the compromise is reasonable, the delay in seeking approval was not attributable to the party's fault or neglect, and the workers' compensation carrier was not prejudiced by the delay (see Zamfino v Furman, 1 AD3d 591 [2003]; Matter of Bernthon v Utica Mut. Ins. Co., 279 AD2d 728 [2001]; Matter of Gilson v National Union Fire Ins. Co., 246 AD2d 897 [1998]). ... In view of the inordinate delay of more [*6]than three years between the compromise and the application for approval in this case (see Matter of Taylor v Continental Ins. Co., supra), the lack of any reasonable explanation therefor, and the prejudice to the rights of the carrier, the Supreme Court providently exercised its discretion in denying the motion (see Singh v Ross, supra; Matter of Bernthon v Utica Mut. Ins. Co., supra; Harosh v Diaz, 253 AD2d 850 [1998]; Matter of Gilson v National Union Fire Ins. Co., supra; Matter of Wilbur v Utica Mut. Co., 228 AD2d 928 [1996]).'



"Thus, in the aforementioned Taylor decision (9 AD3d 657, 659 [3d Dept 2004]), the court overturned a nunc pro tunc compromise order based on the plaintiff's unexcused and "inordinate" delay of nine years in seeking such approval, without considering the reasonableness of the settlement or the extent of any prejudice to the carrier. Even the other Departments of the Appellate Division have held, however, that the "reason for [the] petitioner's delay rather than its length determines the timeliness of a motion pursuant to Workers' Compensation Law 29 (5) for a nunc pro tunc compromise order" (Amsili v Boozoglou, 203 AD2d 137, 137 [1st Dept 1994]). Further, the other Departments have stated that, although misconstruction of the applicable law does not constitute a reasonable excuse for the ... delay in applying for judicial approval of the settlement' (Gilson, 246 AD2d at 898), a well justified belief ... that [the carrier] had no lien against the third-party recovery' might constitute a sufficient reason for the delay (see DeRosa v Petrylak, 290 AD2d 596, 598-599 [3d Dept 2002])" (Wiechec v Dolina, 29 Misc 3d 1234 [A] [Sup Ct, Erie County, NeMoyer, J., December 14, 2010] [footnotes omitted], affd for reasons stated 93 AD3d 1209 [4th Dept 2012]).

The foregoing clear statutory provisions and case law notwithstanding, the Court's analysis of the issue before it is complicated by the fact that, in citing to Workers' Compensation Law § 29 (5), both contestants rely on a statute that, on its face, has no application to this situation. Plaintiff relies on that statute and case law thereunder as the basis for this Court's authority to issue an order approving the voluntary discontinuance of the action nun pro tunc. The workers' compensation carrier, in contrast, relies on the statute and the case law thereunder in asserting its position that plaintiff's failure to obtain the carrier's consent to or the Court's timely approval of the voluntary discontinuance means that plaintiff's future workers' compensation benefits may be completely cut off by the carrier. The problem for both parties and the Court, however, is that nothing in the statute requires plaintiff to obtain either the carrier's consent or a court order before (or after) voluntarily discontinuing the personal injury action. Moreover, nothing in the statute attaches any consequence — let alone the draconian penalty of forfeiture of all future workers compensation benefits — to a plaintiff's failure to obtain carrier approval or a court order prior to (or after) voluntarily discontinuing an action in these circumstances.

Rather, the statute on its face concerns what plaintiff in a personal injury action against a third-party tortfeasor must do in order to favorably settle or "compromise . . . any such cause of [*7]action." The Court is unable to construe plaintiff's voluntary discontinuance of the action, for no monetary consideration, as any such "compromise" or settlement of the action within the contemplation or intendment of the statute. Capitulation is not a compromise or settlement; losing is not winning. In the absence of any such "compromise" or monetary settlement of the action by plaintiff, plaintiff has no statutory obligation to obtain either the carrier's consent or a judicial approval-of-settlement order, be it contemporaneous or nunc pro tunc. Workers' Compensation Law § 29 (5) makes that clear in specifying that the written consent of the carrier is required only where there has been a "compromise of any such cause of action by the employee . . . in an amount less than the compensation provided for by this chapter." The Court cannot regard the complete absence of any monetary compensation — $0 — as a monetary "amount" within the meaning of that statute. In the litigation/settlement context, actual recoveries and settlements are more much meaningfully expressed, i.e., by dollar signs followed by positive integers.

The balance of the statute makes clear that subsection (5) can have no real application here. Although the carrier asserts actual prejudice to its actual lien rights, which it purports to value down to the penny, Workers' Compensation Law § 29 (1) makes explicit that the carrier's lien rights arise only upon the "recovery" by the plaintiff "from" the tortfeasor, "whether by judgment, settlement or otherwise," of monetary amounts or "proceeds" from which the court-apportioned attorneys' fees and costs and disbursements may be deducted and against which any lien on the part of the workers' compensation carrier may be enforced. Thus, it is clear that the carrier's lien rights can arise only upon the employee's recovery of a monetary sum from the tortfeasor. In other words, the carrier's lien rights never come into existence, and thus cannot be prejudiced in any legal or logical sense, absent such recovery by the employee. More to the point of this case, the carrier's lien rights do not arise upon the employee's mere institution of an action against the third-party tortfeasor; indeed, the injured is under no obligation to either commence or maintain an action under any circumstances. Therefore, the carrier's hypothetical lien rights could not legally or logically have been prejudiced in this matter by plaintiff's mere voluntary discontinuance of the personal injury action without monetary consideration. Therefore, under principles of logic as well as any reading of the statute, the employee cannot be deemed bound, for fear of prejudicing the carrier's interests or suffering a forfeiture of her own future compensation benefits, to obtain either the carrier's consent to the discontinuance or a court order approving the same.

If the carrier had sincerely or legitimately been concerned with the potential of prejudice to its potential or hypothetical lien rights under the circumstances at bar, despite the problematical liability and damages issues, the minimal insurance coverage, and the prospect of having to split any recovery three ways with plaintiff and her counsel, the carrier had a more than adequate remedy of its own under the statute. According to Workers' Compensation Law § 29 (2), and given both its payment of benefits to plaintiff and plaintiff's failure to commence an action sooner than she actually did commence it, the carrier could have interposed its own complaint against the offending driver and vehicle owner, thereby preempting plaintiff's action. Moreover, even failing that, the carrier might have timely intervened in and monitored the progress of plaintiff's personal injury action once it was commenced, whereupon it could have offered to take over or at least bankroll the prosecution of that action once plaintiff and her [*8]lawyer became unwilling to pursue it.

Notwithstanding all of the foregoing, the Court will grant plaintiff the relief she seeks. In other words, the Court will grant an order, nunc pro tunc, approving the parties' stipulation of discontinuance. Indeed, the Court will take the opportunity to iterate that it was quite involved in the discussions between the parties around the time of the discontinuance, and that the Court at that time fully blessed the parties' stipulated discontinuance of the action. Indeed, the Court at that time would have gladly signed an order approving the voluntary discontinuance had anyone thought it the least bit necessary or appropriate to submit one for the Court's signature. At the time, however, the parties and the Court were understandably operating according to their reading of CPLR 3217 (a), which plainly provides that no court order is necessary under the circumstances at bar. Moreover, for the reasons stated supra, the Court had no inkling that the situation might be deemed by the plaintiff's employer's workers' compensation carrier to be governed by the requirements of Workers' Compensation Law § 29 (5). The Court will conclude by noting:



"Clearly, the purpose of Workers' Compensation Law § 29 (5) is not to trap unwary litigants or their counsel into an unwitting forfeiture of workers' compensation benefits. Rather the sole purpose' of the statute is to prevent imprudent settlements of [third party] suits by the employee or his estate to the prejudice of the employer's (or carrier's) subrogat[ation or lien recoupment] rights' (Matter of Meachem v. New York Cent. R.R. Co., 8 NY2d 293, 297 [1960]; see Kusiak, 49 AD2d at 124). Given that statutory purpose, this Court sees absolutely no reason to withhold its approval of the [voluntary discontinuance]" (Wiechec, 29 Misc 3d 1234 [A] at *5, affd for reasons stated 93 AD3d 1209).

Accordingly, the application of plaintiff for an order approving the stipulation of discontinuance of the action is GRANTED nunc pro tunc.



SO ORDERED:

HON. PATRICK H. NeMOYER, J.S.C.



July 31, 2014

Footnotes


Footnote 1:Workers' Compensation Law § 29 (1) thus provides that, where an injured worker brings a third-party action, the compensation carrier is entitled to enforce its lien, with interest, against "the proceeds of any recovery from such [third party], whether by judgment, settlement or otherwise, after the deduction of the reasonable and necessary expenditures, including attorney's fees, incurred in effecting such recovery, to the extent of the total amount of compensation awarded under or provided or estimated by this chapter for such case and the expenses for medical treatment paid or to be paid by it and to such extent such recovery shall be deemed for the benefit of such . . . carrier [emphasis supplied]."