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USCA1 Opinion
UNITED STATES COURT OF APPEALS
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
FOR THE FIRST CIRCUIT
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No. 92-1902
MARY A. HOLBROOK, MARY E. HOLBROOK,
INDIVIDUALLY AND AS MOTHER AND
NEXT FRIEND OF DANIEL M. HOLBROOK,
Plaintiffs, Appellants,
v.
ANDERSEN CORPORATION, ET AL.,
Defendants, Appellees.
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APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. Gene Carter, U.S. District Judge]
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Before
Boudin, Circuit Judge,
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Campbell, Senior Circuit Judge,
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and Stahl, Circuit Judge.
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James M. Campbell with whom Michelle I. Schaffer, Ronald M.
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Davids and Campbell & Associates were on brief for appellants.
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Margaret D. McGaughey, Assistant United States Attorney, with
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whom Richard S. Cohen, United States Attorney, and Paula D. Silsby,
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Senior Litigation Counsel, were on brief for appellees.
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June 30, 1993
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BOUDIN, Circuit Judge. The Holbrooks' two-and-a-half-
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year-old son, Daniel Holbrook, sustained severe and permanent
injuries after falling through a second-floor window of the
Holbrooks' apartment. Because plaintiff Mark Holbrook was
employed by the United States Navy at the time of the
accident, the United States paid 80 percent of the costs of
Daniel's medical treatment under the Dependent's Medical Care
Act, 10 U.S.C. 1071 (the "Dependent's Act"). The Holbooks
then sued Andersen Corporation, the manufacturer of the
window and screen, alleging negligence and product liability.
The Holbrooks notified the United States of the initiation of
the suit, but the United States did not intervene.
Three days before trial, the Holbrooks and Andersen
settled the suit for $725,000.1 This amount was far less
than the complaint had sought, and the amount presumably
reflected the parties' judgment about likelihood of success;
Daniel Holbrook had been unsupervised at the time of the
accident, and there were no witnesses. The United States was
not a party to the settlement, nor did the settlement
agreement provide that any money should be paid by Andersen
to the United States in respect of the medical costs that the
government had incurred. The settlement agreement did
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1Attorneys' fees and expenses absorbed a large portion
of this amount ($391,505.50). Of the balance, the Holbrooks
were allotted a portion ($50,000) for direct expenses with
the remainder to be held in trust for Daniel.
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provide, however, that the Holbrooks would indemnify Andersen
if the latter were held liable to the United States.
In its order approving the settlement, the district
court sua sponte ordered that $139,028 of the settlement
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proceeds be placed in an escrow account to satisfy potential
liens of the United States or others.2 Six months later the
United States moved to compel disbursement to it of the funds
held in escrow, and shortly thereafter the United States
formally moved to intervene in the action; the Holbrooks
opposed both motions. The court ultimately granted both
motions and after a recalculation of the government's actual
payments ordered disbursement to the United States of
$122,834. The balance of the escrow was remitted to the
Holbrooks. The Holbrooks appeal, arguing that this
disbursement was not authorized by law.
In claiming a right to a portion of the Holbrooks'
settlement, the United States relies solely on the Federal
Medical Care Recovery Act, 42 U.S.C. 2651 ("the Recovery
Act"). This statute grants to the government a right to
recover from a third-party tortfeasor the reasonable value of
medical services that the government has furnished under the
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2Local rules required court approval of settlements of
claims brought on behalf of minor children. The court's
escrow order may have been prompted by the Holbrooks'
statement in their motion for court approval of the
settlement that the Navy had paid 80 percent of the medical
bills and that the total medical expenses amounted to
$139,028.
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Dependent's Act (or under other similar statutes).
Specifically, the Recovery Act provides:
In any action in which the United States is
authorized or required by law to furnish hospital,
medical, surgical, or dental care and treatment . .
. to a person who is injured or suffers a disease,
after the effective date of this Act, under
circumstances creating a tort liability upon some
third person . . . to pay damages therefor, the
United States shall have a right to recover from
said third person the reasonable value of the care
and treatment so furnished or to be furnished and
shall, as to this right be subrogated to any right
or claim that the injured person . . . has against
such third person to the extent of the reasonable
value of the care and treatment so furnished or to
be furnished.
42 U.S.C. 2651(a). The statute then sets forth procedures
for the government's enforcement of this right of recovery.
The United States may "intervene or join in any action or
proceeding brought by the injured or diseased person" or, if
such an action is not commenced within six months, may
"institute and prosecute legal proceedings against the third
person who is liable for the injury or disease." Id.
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2651(b).
The parties direct their arguments in this case chiefly
at the procedural component of the statute, section 2651(b).
The Holbrooks argue that the United States' motion to
intervene came too late, because it was not filed until after
the Holbrooks' suit against Andersen was resolved by
settlement. The United States responds by pointing to case
law providing that the procedural devices set forth in
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section 2651(b) are not exclusive and that a motion to
intervene may be filed "at any time," even after entry of
judgment. United States v. Merrigan, 389 F.2d 21, 25 (3d
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Cir. 1968); see also United States v. York, 398 F.2d 582,
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585-86 (6th Cir. 1968). We think that the crucial issue is
not when the government may intervene but rather whom it may
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proceed against once it makes an appearance in the case.
The statute grants to the United States a right to
recover "from [the] third person" who is liable in tort for
the injury. It makes no provision for the United States to
recover against the injured party or from funds
unconditionally paid to the injured party by the tortfeasor.
Moreover, the United States' right to recover under the
statute is contingent upon "circumstances creating a tort
liability upon some third party." 42 U.S.C. 2651(a);
Thomas v. Shelton, 740 F.2d 478, 481 (7th Cir. 1984)
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(tortfeasors' "liability under the Medical Care Recovery Act
depends on their being found liable . . . under the tort law
of the pertinent state"); United States v. Trammel, 899 F.2d
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1483, 1488 (6th Cir. 1990) (same). There has been no such
determination in this case.
"All courts which have considered the question have
agreed that the statute gives the United States an
independent right of recovery against the tortfeasor . . . ."
United States v. Housing Authority of Bremerton, 415 F.2d
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239, 241 (9th Cir 1969). Thus, the government's right is not
extinguished by the injured person's settlement and release
with the tortfeasor. See, e.g., United States v. Theriaque,
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674 F. Supp. 395 (D. Mass. 1987). Indeed, the government's
right against the tortfeasor under the Recovery Act is not
defeated even by certain restrictions that might bar the
injured person's own recovery.3 There is thus no necessity
for the United States to look to the injured party's
settlement for compensation.
If the United States wishes to invoke the Recovery Act
to recover its medical payments in this case, we think that
under the plain language of the statute it must proceed
against Andersen and seek to establish Andersen's tort
liability. The language of the statute does not authorize
the government to collect under the Recovery Act out of a
settlement negotiated between the injured person and the
tortfeasor. Nor is there any case law that permits such a
recovery absent an express agreement designating for the
government a portion of the settlement.
This case does not involve the peculiar facts of
Cockerham v. Garvin, 768 F.2d 784, 787 (6th Cir. 1985).
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3See Heusle v. National Mutual Ins. Co., 628 F.2d 833,
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837 (3d Cir. 1980) (procedural restrictions); United States
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v. Moore, 469 F.2d 788, 790 (3d Cir. 1972) (state doctrine of
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interspousal immunity), cert. denied, 411 U.S. 905 (1973);
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United States v. Gera, 409 F.2d 117, 119-20 (3d Cir. 1969)
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(state statute of limitations).
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There the Sixth Circuit allowed recovery out of settlement
proceeds where "[t]he [injured person] and tortfeasor
specifically agreed that part of the money paid over to the
[injured person] would be held in escrow pending a claim by
the [United States] for specific medical bills . . . ." The
court treated the escrow as giving the government
"beneficiary" status akin to that enjoyed by the third-party
beneficiary of a contract. See id. at 784. The court also
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decided that on remand the government's share of the
settlement should be determined by "equitable
considerations," taking account of any discounted settlement
accepted by the victim and the litigation costs he had borne.
Id. at 787. The government does not argue that in this case
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there was any third-part beneficiary agreement between the
Holbrooks and Andersen.
Rather, the United States says that its present claim
has been misunderstood. It argues that its attempt to
recover from the escrow is not a claim against the Holbrooks
but rather, consistent with the Recovery Act, is a claim
against Andersen, which supplied the funds. This is a word
game that does not reflect the reality of the situation:
Andersen has paid the settlement amount to the Holbrooks in
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exchange for a release of claims against it. The money
belongs to the Holbrooks and their son quite as much as Mr.
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Holbrook's salary paid to him by the Navy belongs to him and
not to the Navy which is the source of the funds.
The best argument for the United States is based on
policy considerations. Andersen's payment to the Holbrooks
is not technically an admission of liability, Fed. R. Evid.
408, but in reality the settlement reflects a judgment by
Andersen that there is a risk of liability and that the case
is worth that much to settle. But to the extent the
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tortfeasor is liable to the Holbrooks under tort law--an
issue mooted by the settlement--it is also liable to the
United States for any medical costs paid by the latter.
Of course the United States still has a right to sue
independently and, if it can prove liability, to collect its
full medical expenses with no settlement discount at all.
But everyone knows that if fault is debatable and the
tortfeasor settles with the injured party, the chances for
the United States to recover may be much reduced. Any lawyer
would prefer to try a tort case in which the co-plaintiff is
an injured two-and-a-half-year old, especially where a
verdict for the child virtually requires an award for the co-
litigant.
What is even more troubling is that the tortfeasor has
an incentive in such a case to pay the injured party
something extra in settlement precisely in order to uncouple
the two claims. Once the United States is left to litigate
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on its own, it not only has no sympathetic victim to take the
lead before the jury but must bear its own litigation
expenses. And, if (as here) the alleged tortfeasor has an
indemnity agreement with the victim, making the latter
responsible for any award to the United States, the victim or
witnesses associated with the victim now have an economic
incentive to minimize the tortfeasor's fault when the United
States sues.
These policy concerns are not overwhelming: the United
States is not without litigation resources, in this case it
has the benefit of much discovery already done by the
Holbrooks, and perjury laws cabin the witnesses' testimony.
Had it anticipated the problem, Congress might well have
provided a legislative solution along the lines of the
Cockerham case: The Recovery Act could easily have said that
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if the tortfeasor and victim settle, the United States can
claim for its medical costs an "equitable" share of the
settlement to be determined by the court. But Congress did
not to so--it cannot anticipate every problem--and so the
question posed is whether the courts should do the repair
work themselves.
The answer here, we think, is no. The statute does not
literally forbid this "equitable share" solution, but neither
do the provisions of this reasonably detailed statute provide
for any such recovery against the victim or the settlement
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fund. Nor can we be certain that Congress would wish to
impose an "equitable share" solution; perhaps it might pick a
quite different solution or no solution at all. There is no
magic formula to say when courts should do patch-work repairs
to legislation, but in our view this is not such a case. If
Congress wants a solution, it is best for it to tailor its
own.
The judgment of the district court is reversed.
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Document Info
Docket Number： 92-1902
Filed Date： 7/2/1993
Precedential Status： Precedential
Modified Date： 9/21/2015