Hardy v. Brantley Construction Co.

COZORT, Judge.

These two cases have been consolidated for opinion because they arise from the same transactions and involve a common issue of law.

Plaintiffs John H. Hardy and Albert R. Wells were seriously injured on 28 October 1983 when struck by an automobile being driven by John Roger McKinney. At the time of the accident Hardy and Wells were employed by defendant Brantley Construction Company and were on the job at the time of the accident. Defendant Nationwide Insurance Company, the workers’ compensation carrier for Brantley, paid workers’ compensation benefits of $54,777.78 to Hardy and $17,373.13 to Wells. On 7 November 1983 a claims representative of Nationwide notified the Great American Insurance Company, McKinney’s automobile liability insurance carrier, of Nationwide’s subrogation lien for the workers’ compensation payments made to Hardy and Wells. In a telephone conversation on 7 December 1983 between a claims representative from Nationwide and W. H. Lewis, Jr., a Great American claims representative, Lewis told the Nationwide representative that “it looks like we are going to pay these claims.”

On 12 December 1983, Hardy signed a contract for legal services, retaining Allen G. Thomas, a Wilson attorney, to represent him in his claim for damages resulting from the 28 October 1983 accident. The contract provided for Thomas and his law partner to receive one-fourth of the amount recovered on a settlement without filing suit, and one-third of the amount recovered upon a legal action. On 23 January 1984 Wells signed a contract with Thomas identical in all material respects to Hardy’s contract with Thomas. On 20 December 1983 Great American settled with Nationwide on Nationwide’s subrogation lien with respect to damage to the Brantley vehicle struck by McKinney on 28 October 1983. In the early months of 1984, Lewis learned that Hardy and Wells were represented by Thomas. Lewis wrote to Thomas requesting medical bills and wage information so that the claims could be evaluated. On 27 February 1984 Thomas was notified by letter that Nationwide had turned its subrogation interests over to George R. Ragsdale, a Raleigh attorney. On 6 April 1984 Lewis again wrote to Thomas requesting the medical information and wage data. Lewis never received the information requested from Thomas. Lewis received a letter dated 30 April 1984 from Thomas advising Lewis that Thomas had filed suit with respect to the claims of Hardy and Wells. On 29 June 1984, the attorneys for McKinney, defendant in the action filed by Thomas, filed an answer denying liability.

On or about 18 February 1986, the action filed by Thomas against McKinney was settled, with Great American agreeing to pay $50,000.00, the maximum amount of coverage under McKinney’s policy. By letter dated 9 April 1986, Thomas notified the Industrial Commission of the settlement and requested disbursement of the $50,000.00 to be paid by Great American. In that letter Thomas contended he was entitled to one-third of the money going from Great American to Hardy, Wells, and Nationwide, in accordance with his contingent fee contracts with Hardy and Wells. Under Thomas’ request, the $50,000.00 would be distributed as follows: (1) $600.00 which had previously been paid to another party who was injured; $5,000.00 for Hardy; $7,300.00 for Wells; and $37,100.00 for Nationwide’s subrogation lien. Each of the last three amounts would be reduced by one-third, with Thomas receiving the one-third. The attorney for Nationwide wrote to the Commission on 15 April 1986 requesting a hearing, contending that Thomas was not entitled to one-third of the amount due Nationwide. In an affidavit filed with the Commission on 2 May 1986, Lewis, the Great American claims representative, stated: “In November of 1983, this case was deemed a case of 100% liability. Had the medical information with respect to Mr. Wells and Mr. Hardy been provided to me earlier, settlement by tendering the full amount of the policy limits would have been precipitated sooner.”

In Orders filed 15 May 1986, Commissioner William H. Stephenson held that Thomas was entitled to one-third of all payments as his fee, including one-third of the amount going to Nationwide. Nationwide appealed to the Full Commission. In unanimous Opinions and Awards filed 3 October 1986, the Full Commission adopted as its own and affirmed the 15 May 1986 Orders of Commissioner Stephenson. In finding no reversible error, the Commission stated:

Based on the information presently before the Industrial Commission it appears that, with Nationwide performing the majority of the work in obtaining the settlement, from an equitable standpoint the fee which Attorney Thomas received was excessive. However, the Industrial Commission does not have jurisdiction in this regard and the proper forum for the defendants’ argument is the legislature.

Brantley and Nationwide appealed to this Court. We find the Commission’s conclusion of law that it had no jurisdiction to assess the reasonableness of Thomas’ fee to be in error.

Legal conclusions made by the Industrial Commission are subject to appellate review. Pollard v. Krispy Waffle #1, 63 N.C. App. 354, 356, 304 S.E. 2d 762, 763 (1983). Therefore, the question of the Commission’s authority to review the fee claimed by Thomas is properly before this Court.

In his Orders distributing attorney fees to Thomas, Commissioner Stephenson stated:

G.S. 97-10.2 specifically provides that the attorney for the party making the settlement shall be entitled to an attorney fee for his services. Counsel for plaintiff made the settlement. He is therefore entitled to the fee and it must be paid “in direct proportion to the amount each party receives from the settlement.” As stressfully as Nationwide contends in its argument that it is obligated to pay no fee, the statute is contrary to this position and the motion that no fee be assessed against Nationwide is hereby DENIED.

Commissioner Stephenson made no reference to the “reasonableness” of the fee in his Order. In the Full Commission’s Opinions and Awards affirming Commissioner Stephenson, the Commission observed that the fee appeared excessive. Without citing any statutory authority for its conclusion, the Commission then held it lacked jurisdiction “in this regard.” We find the Opinions and Awards of the Commission to be a legal conclusion that the Commission lacks statutory authority to review the reasonableness of a contingent fee for the attorney for the plaintiff when the fee is to be subtracted from the subrogation interests of the workers’ compensation carrier. This legal conclusion is in error.

The authority of the Industrial Commission and its hearing officers to review fees for attorneys is found in N.C. Gen. Stat. § 97-90. Subsection (c) provides:

(c) If an attorney has an agreement for fee or compensation under this Article, he shall file a copy or memorandum thereof with the hearing officer or Commission prior to the conclusion of the hearing. If the agreement is not considered unreasonable, the hearing officer or Commission shall approve it at the time of rendering decision. If the agreement is found to be unreasonable by the hearing officer or Commission, the reasons therefor shall be given and what is considered to be reasonable fee allowed.

The rights and remedies of the employee and employer against third party tort-feasors, including provision for disbursement of amounts recovered, is found in N.C. Gen. Stat. § 97-10.2. Under N.C. Gen. Stat. § 9740.2(f), the General Assembly directed the order and priority of disbursements of amounts recovered, addressing the subject of attorney’s fees as follows:

b. Second to the payment of the fee of the attorney representing the person making settlement or obtaining judgment, and except for the fee on the subrogation interest of the employer 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.

N.C. Gen. Stat. § 97-10.2(f)(l)b (emphasis added). We read this statute to provide as a general rule that “the payment of the fee of the attorney representing the person making settlement or obtaining judgment . . . 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.” Thus, the general rule is that the fee the attorney charges the employee is not subject to the reasonableness requirement of N.C. Gen. Stat. § 97-90(c); the only restriction is that it may not exceed one-third of the amount recovered. The fee attributable to subrogation interests of the employer (or its carrier) is excluded from that provision exempting attorney fees from the reasonableness requirement of N.C. Gen. Stat. § 97-90(c) by the phrase “except for the fee on the subrogation interest of the employer.” Thus, while the statute in question is not a model of clarity, we find its purpose plain: the attorney fee taken from the employee’s share may not exceed one-third of the amount recovered, but it is not otherwise subject to the reasonableness requirement of N.C. Gen. Stat. § 97-90(c); the attorney fee on the subrogation interest of the employer (or its carrier) is subject to the reasonableness requirement of N.C. Gen. Stat. § 97-90(c) and may not exceed one-third of the amount recovered from the third party.

This result is supported by the legislative history of N.C. Gen. Stat. §§ 97-90 and 97-10.2(f)(l) and case law. N.C. Gen. Stat. § 97-90, in a much shorter form, was a part of the original Workmen’s Compensation Act enacted by the General Assembly in 1929. 1929 N.C. Sess. Laws ch. 120, s. 64. Subsection (c) was added in 1959. 1959 N.C. Sess. Laws ch. 1268. In that same session, the General Assembly also enacted what is now N.C. Gen. Stat. § 97-10.2(f)(l)b. 1959 N.C. Sess. Laws ch. 1324. The phrase excepting the fee on the subrogation interest from the exclusion on reasonableness requirement did not appear in the 1959 version. Thus, as enacted in 1959, the statutes provided that no attorney fee in a third-party action was subject to the reasonableness requirement. Only the one-third limitation applied. In a 1978 case, this Court upheld the constitutionality of N.C. Gen. Stat. § 97-10.2(f), denying the employer’s and the carrier’s claim that the statute unjustifiably impaired their right to be represented by attorneys of their choice in protecting their subrogation rights against third-party tort-feasors. Hogan v. Motor Lines, 38 N.C. App. 288, 294-95, 248 S.E. 2d 61, 64 (1978), disc. rev. denied, 296 N.C. 411, 251 S.E. 2d 469 (1979). Five months after the Supreme Court denied review in Hogan, the General Assembly amended N.C. Gen. Stat. § 97-10.2(f)(l)b to except the fee on the subrogation interest from the reasonableness exclusion. 1979 N.C. Sess. Laws ch. 865. We read this legislative action as manifesting the intent of the General Assembly that the fee to be taken from the subrogation interest is subject to the reasonableness determination by the Commission directed by N.C. Gen. Stat. § 97-90(c).

The result of the case at bar is:

(1) The decision of the Commission to disburse $5,000.00 to plaintiff Hardy, less one-third to attorney Thomas as his fee, is affirmed.

(2) The decision of the Commission to disburse $7,262.87 to plaintiff Wells, less one-third to attorney Thomas as his fee, is affirmed.

(3) The decision of the Commission to disburse the remaining $37,137.13 to Nationwide, less one-third to attorney Thomas as his fee, is vacated, and the matter is remanded to the Commission to review the fee on the subrogation interest in accordance with N.C. Gen. Stat. § 97-90(c).

Affirmed in part; vacated in part and remanded.

Judge Greene concurs. Judge Phillips dissents.