American States Insurance v. Bailey

                                             SIXTH DIVISION
                                            November 27, 1996









     
No. 1-95-3264
AMERICAN STATES INSURANCE COMPANY, ) 
                                   ) APPEAL FROM THE
          Plaintiff,               ) CIRCUIT COURT OF
                                   ) COOK COUNTY
     v.                            )
                                   )
MARSHALL BAILEY, EVELYN BAILEY,    )         
JOSEPH A. PACE, JOSEPH M. PACE,    )
AGNES PACE,                        )
                                   )
          Defendants,              ) 92 CH 6136
                                   )
     and                           )
                                   )
THE HARTFORD INSURANCE COMPANY,    )
                                   )
          Defendant-Appellee       )
                                   ) HONORABLE 
(A. Denison Weaver,                ) MARGARET S. McBRIDE    
                                   ) JUDGE PRESIDING.
          Intervenor-Appellant).   )   
                                                       
     JUSTICE McNAMARA delivered the opinion of the court:

     On June 26, 1992, plaintiff, American States Insurance
Company ("American States"), filed a complaint for interpleader
and declaratory judgment relief seeking to determine the rights
to a $100,000 settlement reached in a personal injury action
brought by Marshall Bailey ("Bailey") against American States'
insureds, Agnes and Joseph Pace ("the Paces").  American States
also requested that the court adjudicate a workers' compensation
lien held by The Hartford Insurance Company ("Hartford"), which
had provided workers' compensation benefits to Bailey.  Bailey's
attorney, A. Denison Weaver ("Weaver"), intervened in the action,
alleging that he was entitled to 33 1/3% of the settlement
pursuant to a contingent fee agreement with Bailey.  Upon
determining that Hartford's lien exceeded $100,000, the trial
court awarded Hartford the entire settlement amount less 25% for
attorney fees and costs owed to Weaver pursuant to section 5(b)
of the Workers' Compensation Act (820 ILCS 305/5(b)(West 1992)). 
Weaver was thereafter granted leave to plead that Hartford
intentionally interfered with his contractual relationship with
Bailey.  Weaver's second amended complaint alleged that Hartford
intentionally refused to furnish a release of its lien in 1981,
thereby depriving Bailey of access to the settlement funds and
inducing Bailey to breach his contingent fee agreement with
Weaver.  The trial court dismissed Weaver's second amended
complaint with prejudice, and he appeals.
     The relevant facts date back to October 9, 1979, when
Bailey, during the course of his employment with United Ford and
Commercial Workers, sustained injuries in an automobile accident
with the Paces.  On October 10, 1979, Bailey retained Weaver to
represent him in a personal injury action against the Paces. 
Bailey signed a contract agreeing to pay Weaver one-third of the
amount recovered.  Hartford began paying workers' compensation
benefits to Bailey and thereby became entitled to a statutory
lien on any judgment or settlement in the third-party action
against the Paces.  The Paces were insured by American States. 
On April 24, 1981, the matter was settled for the policy limit of
$100,000.  Bailey executed a release of all claims.  A release of
attorney's lien and a stipulation to dismiss were also executed. 
The trial court entered an order dismissing the matter with
prejudice.
     At the time of the settlement, the amount of Hartford's lien
was undetermined, as Bailey was still under medical treatment. 
Approximately one month after the settlement, Weaver contacted
Hartford by letter and requested that it "forward a release of
[the] compensation lien, with the understanding that the third-
party draft would be made payable to *** Hartford, Mr. Bailey and
myself and placed in an escrow account pending the disposition of
the Workmen's Compensation claim in order to earn interest on
that money until such time as the proceeds could be distributed." 
Hartford declined the request and at no time agreed to release or
waive its workers' compensation lien.
     Eleven years later, on June 26, 1992, American States filed
a complaint for interpleader and declaratory relief, naming as
defendants "Marshall Bailey, Evelyn Bailey, The Hartford
Insurance Company, Joseph A. Pace, Joseph M. Pace and Agnes
Pace."  As the Paces' insurance provider, American States sought
a "determination of all claims to the settlement sum of
$100,000.00" and requested "that the workers compensation lien of
Hartford *** be adjudicated."  On August 26, 1993, Weaver was
granted leave to file an intervening complaint, wherein Weaver
alleged that he was entitled to 33 1/3% of the settlement
proceeds pursuant to his contingent fee agreement with Bailey. 
Hartford thereafter moved for summary judgment, arguing that its
workers' compensation lien, totalling $204,593.95, exceeded the
total amount of the settlement.  The trial court granted
Hartford's motion on September 12, 1994.  The court awarded
Hartford the entire $100,000, out of which Hartford was directed
to pay Weaver the statutory fee of 25%, plus costs, pursuant to
section 5(b) of the Workers' Compensation Act (820 ILCS
305/5(b)(West 1992)).  The trial court also granted Weaver leave
to file an amended complaint adding a second count alleging that
Hartford intentionally interfered with the contractual
relationship between Weaver and Bailey.  On May 12, 1995, the
trial court dismissed the amended complaint without prejudice. 
     On June 8, 1995, Weaver filed a second amended complaint. 
It alleged that Hartford intentionally and wrongfully refused to
furnish a release of its lien, even though Hartford's interests
in the settlement proceeds would have been protected in an
interest-bearing escrow account.  The complaint further alleged
that Hartford did so with the knowledge that it was interfering
with the contingent fee agreement between Weaver and Bailey, in
that, absent a release of lien, American States would not issue
its settlement draft, depriving Bailey and Weaver of access to
the settlement proceeds.  Hartford moved to dismiss Weaver's
second amended complaint pursuant to section 2-615 of the Code of
Civil Procedure (735 ILCS 5/2-615 (West 1992)), for failing to
state a cause of action upon which relief could be granted, and
pursuant to section 2-619(a)(5) (735 ILCS 5/2-619(a)(5) (West
1992)), as being time-barred.  On September 5, 1995, the trial
court granted the motion, adopting both of Hartford's arguments
as grounds for dismissal with prejudice.  Weaver now appeals.  He
first contends that his second amended complaint alleges each of
the necessary elements to establish Hartford's intentional
interference with his contractual relationship with Bailey. 
Weaver further argues that his claim against Hartford is a
counterclaim and is therefore not subject to a statute of
limitations defense.
     Turning to Weaver's first contention, it is well established
that a complaint should be dismissed on the pleadings only if it
is clearly apparent that no set of facts can be proved that would
entitle recovery.  Reuben H. Donnelley Corp. v. Brauer, 275 Ill.
App. 3d 300, 655 N.E.2d 1162 (1995).  A reviewing court must
determine whether the allegations in the complaint, when
interpreted in light most favorable to the plaintiff, are
sufficient to set forth a cause of action upon which relief may
be granted.  Burdinie v. Village of Glendale Heights, 139 Ill. 2d 501, 565 N.E.2d 654 (1990).  
     The five elements necessary to state a cause of action for
intentional interference with a contractual relationship include: 
(1) the existence of a valid and enforceable contract between the 
plaintiff and a third person, (2) defendant's knowledge of the
existing contract, (3) defendant's intentional inducement of the
breach, (4) a subsequent breach by the third person, and (5)
damage to the plaintiff.  Kraft Chemical Co. v. Illinois Bell
Telephone Co., 240 Ill. App. 3d 192, 608 N.E.2d 243 (1992). 
Allegations of malice are not required to adequately plead the
tort of intentional interference with contractual relations.
Donnelley, 275 Ill. App. 3d at 312, 655 N.E.2d  at 1172; Roy v.
Coyne, 259 Ill. App. 3d 269, 630 N.E.2d 1024 (1994).
Additionally, justification is an affirmative defense which a
defendant must plead and subsequently prove.  Donnelley, 275 Ill.
App. 3d at 313, 655 N.E.2d  at 1172; Roy, 259 Ill. App. 3d at 883-
84, 630 N.E.2d  at 1033-34.
     Weaver argues that his second amended complaint meets the
criteria established by the rules of pleading in Illinois by
setting forth the ultimate facts necessary to establish each of
the essential elements of a cause of action for intentional
interference with a contractual relationship.  Weaver points to
paragraphs 1, 2, and 3 of his complaint as establishing that
there was a contractual relationship between himself and Bailey
and that Hartford had knowledge of said relationship.  Paragraphs
4, 5, and 6, Weaver argues, allege the remaining elements of the
cause of action.  These paragraphs state:
               "4.  That Intervenor *** requested
          Hartford to furnish American States with a
          release of its compensation lien for and in
          consideration of Bailey and Intervenor
          agreeing with Hartford to place the
          settlement proceeds in an interest bearing
          account subject to the joint control of
          Bailey and Hartford until such time as the
          pending compensation proceedings were
          resolved and the amount that Hartford was
          entitled to on its lien was determined. 
               5.  That Hartford, with the wrongful
          intent of compelling Bailey to settle his
          outstanding worker's compensation claim prior
          to the time that the nature and extent of
          Bailey's injuries were determined, and for an
          amount less than what Bailey was legally
          entitled to in order to limit Hartford's own
          financial liability, wrongfully refused to
          furnish American States with a release of
          lien, notwithstanding that Hartford's right
          to participate in the settlement proceeds
          would not have been prejudiced.
               6.  That in refusing to furnish American
          States with a release of its lien, Hartford
          did so with the knowledge that it was
          wrongfully interfering with the contractual
          relationship between Bailey and Intervenor in
          that absent a release of lien, American
          States would not issue its settlement draft,
          thereby depriving Bailey and Intervenor of
          the settlement benefits and, in particular,
          depriving Intervenor of that portion of the
          settlement benefits that Intervenor was
          entitled to by reason of the employment
          contract entered into."
Weaver further avers that Hartford cannot challenge the legal
sufficiency of his complaint by merely arguing that it was
justified in intentionally inducing Bailey to breach his contract
with Weaver.  Instead, Weaver asserts, Hartford can only plead
and prove justification as an affirmative defense.
     Hartford responds that it is unnecessary to reach the issue
of justification because Weaver's complaint contains merely
conclusory allegations and legal conclusions, and cannot support
a cause of action for intentional interference with a contractual
relationship.  Specifically, Hartford contends that Weaver's
allegations do not and cannot establish that Hartford
intentionally induced Bailey to breach his contingent fee
agreement with Weaver.  Nor can Weaver establish, Hartford
argues, that Bailey even breached his contract with Weaver.      
     We agree with Hartford.  Specifically, we fail to perceive
how Weaver can establish that Hartford deliberately and
intentionally induced Bailey to breach his contingent fee
agreement.  Instead, Weaver's failure to recover one-third of the
settlement flows directly from the trial court's application of
section 5(b) of the Workers' Compensation Act (820 ILCS
305/5(b)(West 1992)).  That section grants an employer or his
workers' compensation carrier a statutory lien on the proceeds
that an employee obtains from a third party.  Corley v. McHugh,
266 Ill. App. 3d 618, 639 N.E.2d 1374 (1994).  The section
further provides: 
               "Out of any reimbursement received by
          the employer pursuant to this Section, the
          employer shall pay his pro rata share of all
          costs and reasonably necessary expenses in
          connection with such third-party claim,
          action or suit and where the services of an
          attorney at law of the employee or dependents
          have resulted in or substantially contributed
          to the procurement by suit, settlement or
          otherwise of the proceeds out of which the
          employer is reimbursed, then, in the absence
          of other agreement, the employer shall pay
          such attorney 25% of the gross amount of such
          reimbursement."  820 ILCS 305/5(b) (West
          1992).   
The words "in the absence of other agreement" have been construed
to refer to an agreement between an employer and the employee or
his attorney.  Swets v. Tovar, No. 1-95-0192, slip op. (Ill. App.
Ct. November 4, 1996); Vandygriff v. Commonwealth Edison, 68 Ill.
App. 3d 396, 386 N.E.2d 318 (1979); Kimpling v. Canty, 13 Ill.
App. 3d 919, 300 N.E.2d 839 (1973); Railkar v. Boll, 125 Ill.
App. 2d 203, 260 N.E.2d 851 (1970).  A contingent fee agreement
otherwise reached between an employee and his attorney does not
affect or override the statutory 25% fee provided for in section
5(b).  See, e.g., Swets, No. 1-95-0192, slip op. at 12;
Vandygriff, 68 Ill. App. 3d at 398-99, 386 N.E.2d at 319-20;
Kimpling, 13 Ill. App. 3d at 921-22, 300 N.E.2d  at 841; Railkar,
125 Ill. App. 2d at 207-8, 260 N.E.2d  at 854.   
     For example, in Railkar, the plaintiff was awarded $5,000 in
his personal injury action against a third party, but his
employer's workers' compensation lien of $9,800 attached to the
entire judgment.  Plaintiff's attorney contended that he was
entitled to 50% of the judgment pursuant to his contingent fee
agreement with plaintiff.  This court rejected the argument,
holding that section 5(b) "provide[d] the only basis" for a fee
recovery against the employer in the absence of a contrary
agreement between the employee or his attorney and the employer. 
Railkar, 125 Ill. App. 2d at 206, 260 N.E.2d  at 853.  Likewise,
in Vandygriff and Kimpling, this court rejected arguments by
attorneys that contingent fee agreements with the employees they
represented entitled them to more than the 25% statutory fee out
of the amount the employers received as reimbursement. 
Vandygriff, 68 Ill. App. 3d at 398-99, 386 N.E.2d at 319-20;
Kimpling, 13 Ill. App. 3d at 921-22, 300 N.E.2d  at 841.
     Very recently, in Swets v. Tovar, No. 1-95-0192, slip op.
(Ill. App. Ct., November 4, 1996), the first division of this
court relied on Railkar and Vandygriff in reversing a trial
court's adjudication of a workers' compensation lien.  In Swets,
the plaintiff was injured in an automobile accident in the course
of her employment with the Village of Lansing.  She retained an
attorney to represent her in a third-party action against the
driver of the other automobile, and the matter was settled for
the defendant's insurance policy limit of $100,000.  The trial
court distributed the plaintiff's settlement by first deducting
$33,333.33 as payment of her attorney's one-third contingent fee. 
The remaining $66,666.67, reduced by 25% in additional attorney
fees and $425.67 in costs, was awarded to the Village.  The
Village consequently received $49,680.75 as reimbursement, but it
had already paid the plaintiff $270,595.77 in workers'
compensation benefits as of the time of the settlement
distribution.  On appeal, this court reversed the trial court's
ruling, holding that the court erroneously reduced the settlement
by one-third before distributing the remaining funds.  In
addition, the trial court was given the following instructions on
remand:
          "[T]he settlement proceeds must be considered
          as a whole, i.e., $100,000; then reduced by
          $25,000, representing the statutory 25%
          amount in fees to plaintiff's attorney; then
          reduced by plaintiff's attorney's costs of
          $425.67.  The remaining $74,574.33 would be
          payable to the Village for workers'
          compensation benefits already paid."  Swets,
          No. 1-95-0192, slip op. at 13.  
     The above line of cases, especially Railkar and Swets,
provide support for the trial court's dismissal of Weaver's
complaint in the case at hand.  As in Railkar and Swets, the
workers' compensation benefits paid here exceeded the entire
amount recovered in the third-party action.  Thus, section 5(b)
provided the sole basis for determining the amount of fees owed
to Weaver.  According to Weaver's calculations, however, the
$100,000 principal would have accrued enough interest to
reimburse Hartford and still entitle Bailey to some of the
proceeds if Hartford would have agreed to release its lien in
1981 and place the third-party draft in an interest-bearing
account.  Nevertheless, the fact that Hartford declined to
release the lien that it became statutorily entitled to pursuant
to section 5(b) does not establish that Hartford intentionally
induced Bailey to breach his contingent fee agreement with
Weaver.  Weaver's allegations amount to nothing more than an
attempt to circumvent the holdings in Railkar, Vandygriff, and
Kimpling.  Moreover, this court's recent decision in Swets
confirms that Weaver is entitled to no more than the statutory
fee of 25%, plus costs, that he has already received pursuant to
the requirements of section 5(b).       
     We therefore concur with the trial court's dismissal of
Weaver's second amended complaint for failure to state a cause of
action for intentional interference with contractual relations. 
In light of this holding, we find it unnecessary to reach
Weaver's contention that his complaint is not time-barred.
     Accordingly, for the reasons set forth above, the judgment
of the circuit court of Cook County is affirmed.
     Judgment affirmed.
     ZWICK, P.J., and RAKOWSKI, J., concur.