B. Latzko v. WCAB (Wayne Health Services, Inc.) (Majority Opinion)

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IN THE COMMONWEALTH COURT OF PENNSYLVANIA Barrie Latzko, Petitioner v. Workers Compensation Appeal Board (Wayne Health Services, Inc.), Respondent BEFORE: : : : : : : : : No. 1947 C.D. 2007 Submitted: January 25, 2008 HONORABLE BERNARD L. McGINLEY, Judge HONORABLE ROCHELLE S. FRIEDMAN, Judge HONORABLE JOSEPH F. McCLOSKEY, Senior Judge OPINION NOT REPORTED MEMORANDUM OPINION BY SENIOR JUDGE McCLOSKEY FILED: March 6, 2008 Barrie Latzko (Claimant) petitions for review of an order of the Workers Compensation Appeal Board (Board), affirming in part and reversing in part the decision of the Workers Compensation Judge (WCJ), which denied the termination and modification petitions filed on behalf of Wayne Health Services, Inc. (Employer). We now affirm. Employer is a medical equipment sales company. Claimant is a registered nurse who worked as an operations manager for Employer. Claimant s duties regularly included marketing and sales. In the course and scope of her employment on December 12, 2000, Claimant sustained injuries as a result of a motor vehicle accident. More specifically, while driving to a sales call at a hospital, Claimant was rear-ended by a truck as traffic was slowing down and narrowing to one lane due to a previous incident on the roadway. Employer ultimately accepted liability for Claimant s injuries with the issuance of a Notice of Compensation Payable (NCP). The NCP described Claimant s injuries as lumbar and cervical strains, aggravation of pre-existing lumbar and cervical degenerative disc disease, right shoulder impingement and rotator cuff syndrome. 1 (R.R. at 1a). In the meantime, Claimant retained Todd Goodman, Esq., of the law firm of Kornblau & Kornblau, P.C., to represent her in a third party action against the driver of the truck involved in the accident. Mr. Goodman promptly notified Employer s workers compensation carrier, Zurich North America (hereafter Zurich), of his representation of Claimant with respect to her third-party claim. Zurich responded to this letter noting that it had an existing workers compensation lien as to any third-party recovery. Zurich then sent regular notices to Mr. Goodman regarding the existence and amount of its lien. In March of 2002, Mr. Goodman, on behalf of Claimant, reached a settlement of the thirdparty action. Pursuant to a statement of distribution dated May 14, 2002, Claimant received a lump-sum settlement of this action in the amount of $30,000.00. Goodman received attorney fees and costs totaling $10,089.29. Mr. Additionally, Mr. Goodman deducted $4,500.00 from this settlement for what he described as the workers compensation lien and placed the same in escrow.2 As a result, Claimant received a net settlement in the amount of $15,410.71. Subsequent to this settlement, in April of 2002, Mr. Goodman contacted Zurich in order to discuss whether the latter would be willing to accept half of the amount 1 By WCJ decision and order dated November 18, 2004, the NCP was amended to include a lumbar disc herniation and lumbar radiculopathy. 2 Although not entirely clear in the record, based on the correspondence between counsel, it appears that Zurich s/Employer s lien at the time of settlement exceeded the escrowed monies in the amount of $4,500.00. 2 of its outstanding lien in satisfaction of the entire lien.3 At the time, however, Zurich was unwilling to compromise any portion of its lien. Mr. Goodman subsequently left the law firm and the matter was taken over by Mr. Jeffrey Kornblau, Esq. Despite repeated attempts to contact Mr. Kornblau, Zurich was unable to obtain a response. Zurich only learned of the third-party settlement in January of 2003, after making contact with counsel for the third party. Zurich proceeded to send debt notices to Mr. Kornblau requesting payment of its lien. Again, Zurich received no response. Zurich then commenced a civil action against Mr. Kornblau s firm in the Court of Common Pleas of Philadelphia County (Common Pleas Court). Subsequently, in his February 17, 2004, letter to counsel for Zurich, Mr. Kornblau advised Mr. Samuel Pace, Esq., of the $4,500.00 held in escrow and again asked if Zurich would be willing to accept the same as full satisfaction of its outstanding lien. By letter dated May 28, 2004, Mr. Pace advised Mr. Kornblau of Zurich s willingness to accept the offer of settlement in the amount of $4,500.00. However, in a subsequent letter dated June 22, 2004, Mr. Pace advised Mr. Kornblau that Zurich s acceptance of this offer was accompanied by the express agreement that [Zurich] will be entitled to a credit against future workers compensation payments to the extent they have exceeded or will exceed the reimbursement of $4,500. (R.R. at 233a). On December 17, 2004, the parties executed a release resolving the civil action before the Common Pleas Court. This release provided as follows: KNOW ALL MEN BY THESE PRESENTS, that Maryland Casualty [subrogee of Employer] and Zurich Insurance, for and in consideration of the sum of Four Thousand Five Hundred Dollars ($4,500.00), do hereby 3 Apparently, Attorney Goodman did not advise Zurich of the settlement during this conversation. 3 remise, release and forever discharge Kornblau and Kornblau, P.C., and Todd A. Goodman, Esquire, their respective heirs, executors, administrators, successors, and assigns, from any and all claims, demands, damages, costs, expenses, loss of services, actions and causes of action arising out of a December 12, 2000, accident involving Barrie Latzko, and which was the subject of a lawsuit filed in the Philadelphia County Court of Common Pleas at February Term, 2004, No. 1399. It is hereby understood that Wayne Health Services, Inc. should not have been involved in the underlying litigation. (R.R. at 235a). In the meantime, in July of 2004, as Zurich was resolving the civil action before the Common Pleas Court, Zurich/Employer filed a petition to terminate Claimant s compensation benefits alleging that she had fully recovered from her original work injuries. Claimant filed an answer denying that she was fully recovered. Zurich/Employer also later filed a petition to modify compensation benefits seeking subrogation/credit with respect to Claimant s third-party recovery. Claimant filed an answer essentially denying that Employer was entitled to any credit. These petitions were consolidated for purposes of hearing and disposition by the WCJ. While the parties presented medical evidence regarding the termination petition, they presented the WCJ with a stipulation as to the modification petition. In this stipulation, the parties acknowledged Claimant s receipt of a thirdparty lump-sum settlement in the amount of $30,000.00, with Claimant receiving a net amount of $15,410.71 after deductions of the $4,500.00 escrowed for Employer s workers compensation lien, $10,000.00 for attorney fees and $89.29 for costs. The parties also acknowledged that Zurich repeatedly notified Mr. Goodman at Kornblau & Kornblau of its existing and increasing lien and made several attempts to contact both him and later, Mr. Kornblau. Additionally, the parties acknowledged the civil action in 4 the Common Pleas Court and the subsequent resolution of the same with Zurich s receipt of $4,500.00. This stipulation further indicated that at no time during any of the proceedings did Zurich agree to waive any portion of its lien. If Claimant were called to testify, the parties indicated that she would aver that she retained Kornblau & Kornblau to represent her in the third-party action, that she received a settlement of the same in the amount of $30,000.00 and that she believed, upon representations by her third-party counsel, that the $4,500.00 deducted from the settlement proceeds was full and final satisfaction of Zurich s lien. Ultimately, the WCJ denied and dismissed Employer s termination and modification petitions. With respect to the former, the WCJ concluded that Employer failed to meet its burden of proving that Claimant had fully recovered. To the contrary, the WCJ found that Claimant continued to suffer from residual problems related to her original work injuries. With respect to Employer s modification petition seeking a subrogation credit, the WCJ concluded that Employer failed to meet its burden of establishing entitlement to such credit. Rather, the WCJ found that Zurich/Employer had agreed to accept the $4,500.00 from Mr. Kornblau and forever discharge any and all claims regarding its lien. In essence, the WCJ found that Employer had waived its right to the lien beyond the $4,500.00 received from Mr. Kornblau. In reaching his decision in this regard, the WCJ relied on the release executed by the parties in the civil action before the Common Pleas Court as well as the May 28, 2004, letter from Mr. Pace, counsel for Zurich, accepting Mr. Kornblau s offer of settlement. 5 Employer thereafter filed an appeal with the Board, but only as to the WCJ s decision denying and dismissing its modification petition.4 The Board reversed the decision of the WCJ denying and dismissing Employer s modification petition, holding that Employer was entitled to realize its subrogation rights, to the extent that it exceeds $4,500, by means of a grace period as to future compensation. (Board Decision at 7). In so holding, the Board noted that the WCJ failed to recognize the June 22, 2004, letter from Mr. Pace to Mr. Kornblau reserving Zurich s right to a credit against Claimant s future benefits. Additionally, the Board noted that the release relied upon by the WCJ discharged only Kornblau & Kornblau, P.C., and Mr. Goodman, but did not discharge Claimant. Claimant thereafter filed a petition for review with this Court. On appeal,5 Claimant argues that the Board erred as a matter of law in reversing the WCJ s decision denying and dismissing Employer s modification petition. More specifically, Claimant argues that the Board erred in concluding that the WCJ committed reversible error in failing to consider Mr. Pace s June 22, 2004, letter to Mr. Kornblau. Additionally, Claimant argues that the Board erred in concluding that the release executed in the civil action before the Common Pleas Court only discharged her third-party attorney and did not discharge her. We disagree. 4 Employer did not appeal the WCJ s decision insofar as it denied and dismissed its termination petition. 5 Our scope of review in a workers compensation appeal is limited to determining whether an error of law was committed, constitutional rights were violated, or whether necessary findings of fact are supported by substantial evidence. Section 704 of the Administrative Agency Law, 2 Pa. C.S. §704. Further, in Leon E. Wintermyer, Inc. v. Workers Compensation Appeal Board (Marlowe), 571 Pa. 189, 812 A.2d 478 (2002), our Supreme Court held that review for capricious disregard of material, competent evidence is an appropriate component of appellate consideration in every case in which such question is properly brought before the court. Wintermyer, 571 Pa. at 203, 812 A.2d at 487. 6 Section 319 of the Pennsylvania Workers Compensation Act (Act)6 addresses an employer s right to subrogation and provides, in pertinent part, as follows: Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe, his personal representative, his estate or his dependents, against such third party to the extent of the compensation payable under this article by the employer; reasonable attorney s fees and other proper disbursements incurred in obtaining a recovery or in effecting a compromise settlement shall be prorated between the employer and employe, his personal representative, his estate or his dependents. The employer shall pay that proportion of the attorney s fees and other proper disbursements that the amount of compensation paid or payable at the time of recovery or settlement bears to the total recovery or settlement. Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employe, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future installments of compensation. 77 P.S. §671. We have previously indicated that [t]he purpose of this subrogation is threefold: it prevents double recovery for the same injury; it relieves the employer of liability occasioned by the negligence of a third party; and it prevents a third party from escaping liability for his negligence. Kidd-Parker v. Workers Compensation Appeal Board (Philadelphia School District), 907 A.2d 33, 37 (Pa. Cmwlth. 2006), petition for allowance of appeal denied, 591 Pa. 676, 916 A.2d 1004 (2007) (citations omitted). Moreover, in Kidd-Parker, we described Section 319 of the Act as clear and unambiguous, written in mandatory terms and without exceptions. 6 Act of June 2, 1915, P.L. 736, as amended, 77 P.S. §671. 7 Id. Furthermore, both this Court and our Pennsylvania Supreme Court has held that the right of subrogation under Section 319 of the Act is both automatic and absolute. Id.; Brubacher Excavating, Inc. v. Workers Compensation Appeal Board (Bridges), 575 Pa. 168, 835 A.2d 1273 (2003). Nevertheless, our Supreme Court has held that an employer s subrogation rights can indeed be abrogated by choice. See Winfree v. Philadelphia Electric Co., 520 Pa. 392, 397, 554 A.2d 485, 487 (1989). In keeping with this principle, this Court has held that an agreement whereby an employer releases or waives its subrogation rights against the claimant s third-party settlement recovery is valid under the Act and that the claimant in such a situation is entitled to the benefit of the bargain. See SKF USA, Inc. v. Workers Compensation Appeal Board (Smalls), 714 A.2d 496 (Pa. Cmwlth. 1998), petition for allowance of appeal denied, 559 Pa. 684, 739 A.2d 546 (1999); Baus v. Workmen s Compensation Appeal Board (Nelson Co.), 585 A.2d 573 (Pa. Cmwlth. 1991).7 In the present case, Claimant first argues that the Board erred in concluding that the WCJ committed reversible error in failing to consider Mr. Pace s June 22, 2004, letter to Mr. Kornblau. In an attempt to resolve the civil action brought by Zurich/Employer against Mr. Kornblau s law firm, Mr. Pace and Mr. Kornblau exchanged several pieces of correspondence. The WCJ specifically relied on a letter from Mr. Pace dated May 28, 2004, in reaching his decision in this matter. This letter simply indicated Zurich s/Employer s acceptance of the offer of settlement in the amount of $4,500.00. However, the WCJ neglected to mention a follow-up letter dated June 22, 7 In Baus, we held that the employer could settle its claim for a past lien for a lesser amount out of the third-party recovery by agreement and the claimant therein is entitled to the benefit of that bargain. 8 2004, wherein Mr. Pace noted that Zurich/Employer was reserving its right to a credit against Claimant s future benefits. The Board cited to this letter as one of the bases for reversing the WCJ s decision denying Employer s modification petition. We see no error on the part of the Board in this regard.8 Next, Claimant argues that the Board erred in concluding that the release executed in the civil action before the Common Pleas Court only discharged her thirdparty attorney and did not discharge her. As noted above, the purpose underlying the release was the resolution of the civil action initiated by Zurich/Employer against counsel for Claimant. Claimant s counsel retained in escrow $4,500.00 of the third-party settlement proceeds. Zurich/Employer repeatedly attempted to obtain said monies under their absolute right to subrogation. However, Claimant s counsel was not cooperative, necessitating the aforementioned litigation by Zurich/Employer. While the evidence of record seems to indicate the intent of Claimant s counsel to reach an agreement with Zurich/Employer to resolve the latter s entire lien, such evidence also reveals Zurich s/Employer s unwillingness to compromise the same. This unwillingness is evidenced by the June 22, 2004, letter from Mr. Pace addressed in detail above. Ultimately, the parties executed the aforementioned release. However, this release, by its very terms, was only applicable to Kornblau & Kornblau and Attorney Goodman with respect to the escrowed monies and the underlying civil litigation. This release does not specifically reference Claimant, nor does it reference or in any way limit Zurich s/Employer s right to a credit against Claimant s future workers compensation 8 Claimant characterizes the June 22, 2004, letter as merely a counteroffer made within the context of settlement negotiations which lacks relevance due to the failure of the release to contain any language regarding a future lien. Admittedly, the release contains no such language regarding a future lien. However, as will be discussed in more detail below, the release makes no specific reference to Claimant either. Rather, the release, by its very terms, applies only to the law firm of Kornblau & Kornblau and Attorney Goodman, personally. 9 benefits. The Board cited to the language of the release in concluding that the same does not discharge Claimant from any claims as to the full extent of Zurich s/Employer s lien. We fail to see any error on the part of the Board in this regard. Finally, we must address Claimant s assertion, in the event that we reached the determination above, that Employer is only entitled to recoup its lien as it existed at the time the third-party claim was settled in May of 2002.9 In other words, Claimant asserts that Employer is only entitled to recoup the monies it paid in the form of workers compensation benefits as of that time. However, we have previously addressed an employer s entitlement to a future credit in Budd Company v. Workers Compensation Appeal Board (Settembrini), 798 A.2d 866 (Pa. Cmwlth. 2002), explaining as follows: Where suit is brought and a recovery obtained against the tortfeasor, the employer has a past due lien against that recovery in the amount of the past benefits paid. Employer has an absolute right to immediate payment of this past-due lien from the recovery fund after payment of attorneys fees and litigation expenses. To the extent the recovery exceeds the past due lien and litigation costs, the balance is paid to claimant and employer retains a lien against this payment for reimbursement of future compensation benefits which may become payable. Budd Company, 798 A.2d at 868-69 (citations omitted). In the present case, Claimant s net disbursement from the settlement of her third-party action totaled $15,410.71. Zurich/Employer has since received the $4,500.00 from Claimant s counsel which had been escrowed as a result of Zurich s/Employer s third-party lien. Since Claimant s recovery exceeded Zurich s/Employer s lien at the 9 There is no documentation as the exact amount of Zurich s/Employer s lien in May of 2002. However, the evidence of record reveals that said lien totaled $6,478.81 as of April, 2002. See R.R. at 252a. 10 time of settlement, Employer retained a future lien for the full amount of Claimant s net settlement, i.e., $15,410.71. Accordingly, the order of the Board is affirmed. JOSEPH F. McCLOSKEY, Senior Judge 11 IN THE COMMONWEALTH COURT OF PENNSYLVANIA Barrie Latzko, Petitioner v. Workers Compensation Appeal Board (Wayne Health Services, Inc.), Respondent : : : : : : : : No. 1947 C.D. 2007 ORDER AND NOW, this 6th day of March, 2008, the order of the Workers Compensation Appeal Board is hereby affirmed. JOSEPH F. McCLOSKEY, Senior Judge

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