Haugenoe v. Workforce Safety & Insurance ( 2008 )

MARING, Justice.

[¶ 1] Robert Haugenoe appeals from a district court judgment affirming an agency order granting Workforce Safety and Insurance (“WSI”) a subrogation interest in a legal malpractice settlement. The legal malpractice action concerned Hauge-noe’s attorney’s failure to properly prosecute a medical malpractice claim related to a physician’s aggravation of a work-related injury suffered by Haugenoe. Haugenoe asserts that N.D.C.C. § 65-01-09, the sub-rogation provision of the workforce safety and insurance law, does not grant WSI a subrogation interest in the legal malpractice settlement. We agree. We hold that N.D.C.C. § 65-01-09 does not grant WSI a subrogation interest in an injured worker’s legal malpractice claim against a third-party tortfeasor. We, therefore, reverse the order of WSI and the district court judgment.

I

[¶ 2] Robert Haugenoe suffered a work-related injury in May 1999 while employed by Earl’s Electric in Williston. He filed a claim for WSI benefits, and WSI accepted the claim. Haugenoe retained a lawyer to represent him in a medical malpractice lawsuit after he concluded that his physician had failed to properly treat his injury. As part of Haugenoe’s representation, his lawyers agreed with WSI to represent its statutory subrogation interest in any damages recovered from the physician.

[¶ 3] Haugenoe’s attorneys failed to properly prosecute his claims against the physician, and a significant part of his claims against the physician were dismissed. Haugenoe retained other legal counsel to represent him for the prosecution of his remaining claims against the physician and for the prosecution of any claims against his former lawyers. Hau-genoe settled his legal malpractice claims against his former lawyers. After Hauge-noe settled the legal malpractice claims, WSI issued an order asserting it had a subrogation interest in the settlement.

[¶4] Haugenoe requested a rehearing of WSI’s order asserting a subrogation lien in the legal malpractice settlement. An administrative hearing followed. The administrative law judge (“ALJ”) recommended on November 15, 2006, that WSI had a subrogation interest in the legal malpractice damages recovered by Hauge-noe. WSI issued its final order on December 13, 2006. WSI’s final order adopted the ALJ’s recommended findings, conclusions, and order in their entirety except for one conclusion of law, which was stricken. Haugenoe appealed. The district court affirmed WSI’s final order. Hauge-noe appeals to this Court, arguing N.D.C.C. § 65-01-09 does not grant WSI a subrogation interest in his legal malpractice settlement.

II

[¶ 5] On appeal from a district court judgment in an appeal from an agency order, we review the agency order in the same manner as the district court. N.D.C.C. § 28-32-49. A district court must affirm the order of an administrative agency unless the district court determines that any of the following are present:

1. The order is not in accordance with the law.

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5. The findings of fact made by the agency are not supported by a preponderance of the evidence.

6. The conclusions of law and order of the agency are not supported by its finding of fact.

N.D.C.C. § 28-32-46. We do not make independent findings of fact or substitute our judgment for that of the administrative agency. Aga v. Workforce Safety and Ins., 2006 ND 254, ¶ 12, 725 N.W.2d 204. We determine only “whether a reasoning mind reasonably could have determined that the factual conclusions reached were proved by the weight of the evidence from the entire record.” Id.

[¶ 6] Questions of law are fully reviewable on appeal from an administrative order. Forbes v. Workforce Safety and Ins., 2006 ND 208, ¶ 10, 722 N.W.2d 536. Questions of statutory interpretation are questions of law. Rojas v. Workforce Safety and Ins., 2006 ND 221, ¶ 13, 723 N.W.2d 403. “Unless otherwise provided, statutes in effect on the date of an injury govern WSI benefits.” Rodenbiker v. Workforce Safety and Ins., 2007 ND 169, ¶ 16, 740 N.W.2d 831. Thus, the Workforce Safety and Insurance statute in effect in May 1999 governs Haugenoe’s benefits and provides the statutory provisions relevant to our consideration of this case.

Ill

[¶ 7] This case presents a question of first impression for this Court, resolution of which requires us to interpret N.D.C.C. § 65-01-09, the statutory provision subro-gating WSI to injured workers’ recoveries against certain third parties. The particular issue we address is whether WSI is subrogated to an injured worker’s cause of action against an attorney for legal malpractice in prosecuting a medical malpractice action against a physician who aggravated the worker’s injury.

[¶ 8] Our primary objective in statutory interpretation is to determine the legislature’s intent. Rojas, 2006 ND 221, ¶ 13, 723 N.W.2d 403. To determine the legislature’s intent, we look at the language of the statute itself and give it its plain, ordinary, and commonly understood meaning. Overboe v. Farm Credit Services, 2001 ND 58, ¶ 9, 623 N.W.2d 372. “Although courts may resort to extrinsic aids to interpret a statute if it is ambiguous, we look first to the statutory language, and if the language is clear and unambiguous, the legislative intent is presumed clear from the face of the statute.” Id. We harmonize statutes when possible to avoid conflict between them. Rojas, 2006 ND 221, ¶ 13, 723 N.W.2d 403. Our interpretation of a statute “must be consistent with legislative intent and done in a manner which will accomplish the policy goals and objectives of the statutes.” Id. “We presume the Legislature did not intend an unreasonable result or unjust consequence.” Id.

[¶ 9] The purpose of our workforce safety and insurance law is to provide “sure and certain relief’ to injured workers “regardless of questions of fault and to the exclusion of every other remedy, proceeding, or compensation.” N.D.C.C. § 65-01-01. In turn, the law abolishes “all civil actions and civil claims for relief for those personal injuries” suffered by injured workers. Id. While the law relieves employers from liability for the workers’ work-related injuries, it does not reheve third-party tortfeasors from liability for such injuries. See Polucha v. Landes, 60 N.D. 159, 233 N.W. 264, 269 (1930). Instead, it “expressly provides measures for realizing upon that liability, both in the interest of making the fund whole on account of the award and in the interest of the employee.” Id.

[¶ 10] The statute allows WSI to realize upon the liability of third-party tortfeasors through its subrogation provision. See id. Section 65-01-09, N.D.C.C., grants WSI a subrogation interest in injured workers’ recoveries against certain third parties:

When an injury or death for which compensation is payable under provisions of this title shall have been sustained under circumstances creating in some person other than the fund a legal liability to pay damages in respect thereto, the injured employee, or the employee’s dependents may claim compensation under this title and proceed at law to recover damages against such other person.

N.D.C.C. § 65-01-09 (1999). WSI’s sub-rogation rights are intended “to reimburse the fund, to the extent possible, at the expense of the persons at fault.” Blaskowski v. N.D. Workmen’s Comp. Bureau, 380 N.W.2d 333, 335 (N.D.1986). The legislature intended this provision to create an incentive for workers to pursue and litigate third-party claims. Lawson v. N.D. Workmen’s Comp. Bureau, 409 N.W.2d 344, 347 (N.D.1987).

[¶ 11] We already established in Polu-cha, 60 N.D. 159, 233 N.W. 264, that an injured worker is entitled to benefits for the aggravation of his work-related injury due to the mistake of a physician which occurs in the course of treating the injury. See id. at 268. We also established that WSI is subrogated to an injured worker’s cause of action against a physician for aggravation of a work-related injury occasioned by the physician’s malpractice. See id. at 269. Like the 1999 version of the WSI subrogation statute, the then-applicable version of the WSI subrogation statute provided that WSI was granted a subrogation interest in injured workers’ recoveries against third parties “ ‘[w]hen an injury or death for which compensation is payable under this act shall have been sustained under circumstances creating in some other person than the North Dakota workmen’s compensation fund a legal liability to pay damages in respect thereto....’” See id. (quoting Section 396a20 of the 1925 Supplement to the Compiled Laws of 1913). We held that the subrogation provision “subrogates the fund to any cause of action against a third person for a compen-sable injury.” Polucha, 233 N.W. at 269. We reasoned that “the injury, if any, caused by the malpractice of the physician is regarded as resulting from the original injury and is compensable under the law.” Id.

[¶ 12] Now we must determine whether WSI’s statutory subrogation interest also extends to an injured worker’s cause of action against an attorney for the attorney’s failure to properly prosecute a medical malpractice claim against a physician whose treatment of the injured worker aggravated the worker’s injury. The conclusions reached by other courts that have considered this issue are decidedly mixed. Some have held that the workers’ compensation insurer is entitled to a subrogation interest in legal malpractice proceeds. See Frazier v. N.J. Mfrs. Ins. Co., 142 N.J. 590, 667 A.2d 670 (1995); Williams v. Katz, 23 F.3d 190 (7th Cir.1994) (interpreting Illinois law); Nicholas v. Morgan, 58 P.3d 775 (Okla.2002); Tallerday v. Delong, 68 Wash.App. 351, 842 P.2d 1023 (1993); Graham v. Liberty Mut. Group, 1998 WL 961376 (E.D.Pa. Dec.15, 1998); Poole v. Workers’ Comp. Appeal Bd., 570 Pa. 495, 810 A.2d 1182 (2002); Toole v. EBI Cos., 314 Or. 102, 838 P.2d 60 (1992); Bongiorno v. Liberty Mut. Ins. Co., 417 Mass. 396, 630 N.E.2d 274 (1994). Others have held that the insurer is not entitled to such proceeds. See Head v. Continental Casualty Co., 931 So.2d 1192 (La.Ct.App.2006); ATS, Inc. v. Listenberger, 111 S.W.3d 495 (Mo.Ct.App.2003); Mosier v. Warren E. Danz, P.C., 302 Ill.App.3d 731, 235 Ill.Dec. 823, 706 N.E.2d 83 (1999); Eastman v. Messner, 302 Ill.App.3d 526, 236 Ill.Dec. 204, 707 N.E.2d 49 (1998); Woodward v. Pratt, Bradford & Tobin, P.C., 291 Ill.App.3d 807, 226 Ill.Dec. 32, 684 N.E.2d 1028 (1997); Sladek v. K Mart Corp., 493 N.W.2d 838 (Iowa 1992); Smith v. Long, 178 Wis.2d 797, 505 N.W.2d 429 (1993); In re Worker’s Comp. Lien, 231 Mich.App. 556, 591 N.W.2d 221 (1998); Va. Municipal Group Self-Ins. Assn. v. Crawford, 2004 WL 3132010 (Va.Cir.Ct. Nov.24, 2004); Travelers Ins. Co. v. Bree se, 138 Ariz. 508, 675 P.2d 1327 (Ct.App.1983); Fink v. Dimick, 179 F.Supp. 354 (D.Conn. 1959); Mt. Pleasant Special Sch. Disk v. Gebhart, 378 A.2d 146 (Del.Ch.1977); Soliz v. Spielman, 44 Cal.App.3d 70, 118 Cal. Rptr. 127 (1974).

IV

[¶ 13] Haugenoe asserts that WSI does not have a subrogation interest in the legal malpractice settlement. He contends N.D.C.C. § 65-01-09 does not give WSI a lien over his legal malpractice settlement award because there is no compensation payable for legal malpractice under Title 65, N.D.C.C. Moreover, Haugenoe asserts the benefits WSI paid him were not for harm suffered because of Haugenoe’s attorney’s negligence.

[¶ 14] Haugenoe insists that WSI only obtains a lien when the third party at issue has liability relating to the worker’s physical injury. Haugenoe contends that his former attorney was liable for his failure to pursue the medical malpractice claim, which is separate from the compensable physical injury suffered by Haugenoe. Haugenoe further argues that the obligation of the attorney arose separately from and subsequent to the third-party tortfeasor physician’s obligation to compensate Haugenoe for aggravating his physical injury.

[¶ 15] WSI argues that it has a statutory subrogation interest in the legal malpractice settlement award. WSI contends the purpose of statutorily granting WSI subrogation rights in injured employees’ damage awards arising from third-party actions is to reimburse the WSI fund at the expense of the persons at fault. WSI argues that the term “legal liability” should be broadly construed.

[¶ 16] WSI contends it is not necessary for settlement damages to arise out of the initial work injury or an aggravation of the initial physical injury before WSI can assert a subrogation interest in the damages. WSI asserts it should have a subrogation interest in the damages Haugenoe recovered from his attorney because those damages are the same as the damages he would have recovered from the physician that aggravated his work-related injury had the lawyer not been negligent. This argument relies on an application of the “case-within-a-case” doctrine.

[¶ 17] The “case-within-a-case” doctrine provides that ‘“a legal malpractice claimant must prove two claims: first, the one that was lost, and also that his attorney’s negligence caused that loss.’ ” Dan Nelson Construction, Inc. v. Nodland & Dickson, 2000 ND 61, ¶ 14, 608 N.W.2d 267 (citation omitted). The implication is that, in order to succeed in the legal malpractice action, “the employee must demonstrate not merely an injury as a result of the malfeasance of his previous counsel, but also the malfeasance of the original tortfeasor which resulted in the underlying injury.” Poole, 810 A.2d at 1184. Other courts have held that an insurer may rely upon the injured worker’s legal malpractice action to fulfill any subrogation statute requirement that the compensable injury be caused by a third party. See, e.g., id. at 1185.

V

[¶ 18] We hold that N.D.C.C. § 65-01-09 does not grant WSI a subrogation interest in an injured worker’s legal malpractice claim against an attorney who committed malpractice in handling the injured worker’s claim against a third-party tortfeasor. Thus, WSI does not have a subrogation interest in Haugenoe’s legal malpractice settlement award.

[¶ 19] The plain language of N.D.C.C. § 65-01-09 (1999) creates a condition precedent to WSI’s subrogation. WSI is sub-rogated to the rights of the injured employee only “[w]hen an injury or death for which compensation is payable under provisions of this title shall have been sustained under circumstances creating in some person other than the fund a legal liability to pay damages in respect thereto.” Id. In Polucha, we interpreted this provision as subrogating the fund to “any cause of action against a third person for a compensable injury.” 233 N.W. at 269 (emphasis added).

[¶20] “Compensable injury” is a defined term under title 65, N.D.C.C. A “compensable injury” is an “injury by accident arising out of and in the course of hazardous employment which must be established by medical evidence supported by objective medical findings.” N.D.C.C. § 65-01-02(11) (1999). The statute lists numerous types of injuries that do and do not constitute “compensable injuries” under the statute. See id. The import of these lists is that only physical injuries suffered by workers in the course of their employment while conducting lawful activities and caused by the employment are compensable under the statute. See id.

[¶ 21] Although an injured worker is required by the case-within-a-case doctrine to demonstrate the malfeasance of the original tortfeasor resulting in the worker’s underlying injury in order to recover damages in a legal malpractice claim, the injured worker’s claim against his attorney is unlike an injured worker’s underlying third-party claim. As a Missouri appellate court noted, a physical injury is “distinguishable from the strictly economic loss compensated by a legal malpractice claim.” See ATS, Inc., 111 S.W.3d at 499. We will not ignore the language of the subrogation statute and grant WSI a subrogation interest in a legal malpractice claim simply because a legal malpractice plaintiff is required to satisfy this standard of proof.

[¶ 22] Moreover, an injured worker’s claim against Ms attorney is independent to the initial third-party claim in which WSI is granted a subrogation interest. The worker’s claim against the attorney would not have arisen except for the worker’s hiring of an attorney. As a California appellate court remarked, if an employee is not liable to a workers’ compensation insurer for not pursuing a claim against a third-party tortfeasor, then he is not liable where his failure to prosecute a claim was due to the negligence of an attorney. See Soliz, 118 Cal.Rptr. at 128.

[¶ 23] Our holding does not deny WSI a remedy for damages suffered as a result of an attorney’s malpractice in the prosecution of a claim against a third-party tortfeasor. WSI is free to assert its own claim against an attorney who has committed malpractice while representing WSI’s subrogation interest.

VI

[¶ 24] Here, the condition precedent to WSI’s subrogation was not met because Haugenoe did not recover from a third party who caused or aggravated his physical injury. Rather, Haugenoe’s recovery is from an attorney who had nothing to do with his physical injury. The damage suffered by Haugenoe as a result of his attorney’s legal malpractice is not a “compensa-ble injury.” Once Haugenoe’s attorney failed to properly prosecute his medical malpractice claim, he was forever barred from recovering from the physician for the aggravation of his compensable injury; thus, there is no possibility of a literal application of the subrogation statute to his legal malpractice settlement. Hauge-noe recovered for the loss of a legal right, not a physical injury as contemplated by the statute.

[¶ 25] We, therefore, hold that WSI does not have a subrogation interest in Haugenoe’s legal malpractice settlement.

VII

[¶ 26] In the alternative, Haugenoe argues that his settlement with his attorney was structured in a manner that exempted the settlement award from any subrogation interest WSI may have in the award. Haugenoe further argues that, even if WSI has a subrogation interest, WSI waived that interest by not participating in the legal malpractice action. We do not reach these issues because we hold that N.D.C.C. § 65-01-09 does not grant WSI a subrogation interest in the legal malpractice settlement.

VIII

[¶ 27] We hold that N.D.C.C. § 65-01-09 does not grant WSI a subrogation interest in an injured worker’s legal malpractice claim against an attorney who committed malpractice in handling the injured worker’s claim against a third-party tort-feasor. We, therefore, reverse the order of WSI and the district court judgment.

[¶ 28] GERALD W. VANDE WALLE, C.J., and CAROL RONNING KAPSNER, J., concur. [¶ 29] The Honorable STEVEN E. McCullough, d.j., sitting ⅛ place of CROTHERS, J., disqualified.