Hogan Ex Rel. Hogan v. Johnson Motor Lines

PARKER, Judge. By this appeal the appellants challenge as unconstitutional the provision in G.S. 97-10.2(f)(2) which directs that the attorney fee incurred by the party who effects recovery against a third party tort-feasor be apportioned between and paid by the employee and employer in proportion to the amount which each receives from the recovery. We find the statute constitutional and affirm the order of the Industrial Commission. As originally enacted, the North Carolina Workmen’s Compensation Act required an employee injured by the tort of a third party to elect between accepting an award under the act or procuring a judgment against the third party. He could not do both. Acceptance of an award worked an assignment of his claim against the tort-feasor to his employer, who could enforce it. Any amount recovered by the employer was applied first to pay the reasonable expenses and attorney’s fees incurred in effecting the recovery, next to reimburse the employer in the amount for which he was liable under the act, and finally any excess was held *292 for the benefit of the injured employee. Sec. 11, Ch. 120, Public Laws of 1929. By amendment in 1933, the injured employee was in any event given the right to receive compensation under the act, and the employer was given the right within the first six months after the injury to file suit against the tort-feasor. If he failed to do so within that time, the injured employee thereafter had the right to bring the action. Any recovery effected against the tort-feasor, whether by action of the employer or employee, was applied in the same sequence as formerly. Sec. 1, Ch. 449, Public Laws of 1933. By amendment in 1943 the employer was given the exclusive right to bring the action against the third party during the first six months in cases in which the employer filed with the Commission written admission of liability under the act as well as in cases in which an award under the act had been issued. The 1943 amendment also provided that the attorney fees incurred in effecting recovery against the third party “shall be a charge against the amount due and payable to the employer and employee in proportion to the amount each shall receive out of the recovery.” Sec. 1, Ch. 622, 1943 Session Laws. The statutory provisions relating to the prosecution of claims against third party tort-feasors were further amended by Sec. 1, Ch. 1324, 1959 Sessions Laws and by Sec. 1, Ch. 171, 1971 Sessions Laws. These provisions are still in effect and are now codified in G.S. 97-10.2. Under these provisions the injured employee, rather than the employer, is given the first right to proceed to enforce the liability of the third party, if such proceedings are instituted not later than 12 months after the date of injury. Thereafter, either the employee or the employer, if he has filed written admission of liability under the act, has the right for a certain time to proceed to enforce the liability of the third party. G.S. 9740.2(c). Distribution of any amount recovered from the third party is governed by G.S. 9740.2(f), which is as follows: (f)(1) If the employer has filed a written admission of liability for benefits under this chapter with, or if an award final in nature in favor of the employee has been entered by, the Industrial Commission, then any amount obtained by any person by settlement with, judgment against or otherwise from the third party by reason of such injury or death shall be disbursed by order of the Industrial *293 Commission for the following purposes and in the following order of priority: a. First to the payment of actual court costs taxed by judgment. b. Second to the payment of the fee of the attorney representing the person making settlement or obtaining judgment, and such fee shall not be subject to the provisions of § 90 of this Chapter [G.S. 97-90] but shall not exceed one third of the amount obtained or recovered of the third party. c. Third to the reimbursement of the employer for all benefits by way of compensation or medical treatment expense paid or to be paid by the employer under award of the Industrial Commission. d. Fourth to the payment of any amount remaining to the employee or his personal representative. (2) The attorney fee paid under (f)(1) shall be paid by the employee and the employer in direct proportion to the amount each shall receive under (f)(l)c and (f)(l)d hereof and shall be deducted from such payments when distribution is made. In the present case the amount of the attorney fee allowed the attorneys representing the injured employee for their services in effecting the recovery against the third party was set by the consent judgment which terminated the action against the third party in the Superior Court. All parties to the present proceeding consented to that judgment. The fee allowed, being one-third of the recovery, was within the limitation contained in G.S. 97-10.2(f)(l)b. In the disbursement order now appealed from the Industrial Commission followed the directive of G.S. 97-10.2(f)(2) that such fee be paid by the employee and the employer in direct proportion to the amount of the recovery from the third party each receives. Since it could not be known at the time the Commission’s order was entered exactly how much the employer and its reinsurance carrier will ultimately be required to pay in benefits to the injured employee during his lifetime, it was impossible to determine exactly what amount the employer and its reinsurance carrier will ultimately be entitled to receive out of *294 the third party recovery. For this reason the Commission properly approved payment by way of partial distribution based on the amounts actually paid to the date of its order by the employer and its reinsurance carrier for the benefit of the injured employee. By directing that the employer and its carrier be reimbursed out of the third party recovery only two-thirds of the payments made by them, the Commission followed the directive contained in G.S. 97-10.2(f)(2). Appellants do not contend to the contrary. Rather, their contention is that the statute itself is unconstitutional. Specifically, they contend that the statute is unconstitutional in that it unjustifiably impairs their freedom to negotiate a contract on their own for representation by attorneys of their choice to represent them in the prosecution and settlement of their subrogation rights against the third party tort-feasor. We do not agree. As reference to the statutory history discloses, our Legislature has tried a number of different approaches in its efforts to achieve an equitable accommodation between the rights of the injured employee and his compensation paying employer as against the third party whose fault created the injury and loss of both. For the last thirty-five years, since the amendment effected by Ch. 622 of the 1943 Session Laws, our statutes have directed that the burden of the attorney fees incurred in effecting a recovery against the third party be borne by both the injured employee and his employer in proportion to the amount which each receives out of the recovery, and this without regard to which one employed the attorney. This solution has the merit of fairness. Under it neither party is allowed to reap the benefits of a recovery without bearing a share of its costs. The workmen’s compensation statutes of at least fourteen States other than our own provide a similar solution. See Annot., 74 A.L.R. 3d 854 (1976). Although the appellate courts of those States have many times been called upon to apply their statutes, we have found but one case in which the constitutionality of an apportionment statute similar to ours has been challenged. In that case, Reno v. Maryland Casualty Company, 27 Ill. 2d 245, 188 N.E. 2d 657 (1962), a challenge similar to the one in this case was made to the constitutionality of the Illinois attorney fee apportionment statute. In rejecting that challenge, the Supreme Court of Illinois said: *295 It is next argued that the [attorney fee apportionment statute] abrogates the employer’s freedom to contract, that it deprives him of his property without due process of law and that it deprives him of the equal protection of the law. The underlying basis of the employer’s right to subrogation is the prevention of an unjust enrichment on the part of the employee in the form of a double recovery for the same injury. On the other hand, the legislature has provided that the employer pay a part of the necessary costs including attorney fees in order to prevent.an unjust enrichment on the part of the employer who has a right of reimbursement from the recovery secured by the employee. We do not believe that requiring an employer to pay his proportionate share of the necessary costs incurred in securing the fund from which he is to be reimbursed denies him his property without due process of law or denies him equal protection of the law. 27 Ill. 2d at 248, 188 N.E. 2d at 658. We agree with the reasoning of the Illinois Court. We find the provisions directing apportionment of attorney fees contained in G.S. 97-10.2(f) to be constitutional. The order of the Industrial Commission here appealed from complied with that statute and is Affirmed. Judges MARTIN (Robert M.) and ARNOLD concur.