Alabama Workers' Comp Blawg

Alabama Court of Appeals Holds that Attorney Should not Take Fee in Workers Comp case and Third Party Case

On July 18, 2014, the Alabama Court of Civil Appeals released its opinion in Arthur Barney v. Elizabeth Bell, as personal representative of the estate of Maurice Bell, deceased, and William Clay Teague. In the underlying action, Barney sued two Montgomery attorneys for legal malpractice arising out of a personal injury and workers’ compensation claim they handled for Barney. Barney was injured in a work-related car accident in July of 2010. He retained the two attorneys to represent him in his claim against his employer for workers’ compensation benefits, and in a negligence claim against the driver of the other vehicle who caused the accident. Pursuant to Code Section 25-5-11, an employer or its insurer is entitled to reimbursement of workers’ compensation benefits it has paid if the claimant also recovers damages from a third-party. However, the Act provides that the employer’s right to reimbursement is subject to a portion of the employee’s attorney’s fees incurred obtaining a settlement or judgment against the liable third party. The employer’s pro-rata share of attorney’s fees is an amount proportional to the reduction in the employer’s liability, and is generally equal to the contingency fee agreement that the attorney has with the claimant.  

Barney settled his workers’ comp claim for $42,500, of which the attorneys received a 15 percent fee in the amount of $6,375. However, as a material term of that settlement, the employer’s insurer reserved its rights to full reimbursement of over $65,000 in workers’ compensation benefits that it had paid Barney from any recovery Barney might later obtain as a result of the negligence action against the third party. The third party’s insurer later settled with Barney in the amount of $45,000. Since Barney had signed a 50 percent contingency fee agreement with his attorneys for handling the personal injury case, his attorneys forwarded half of the $45,000 settlement to the insurer. The attorneys then retained the other $22,500 as their fee, pursuant to their agreement with Barney. Barney then filed suit against the attorneys, alleging legal malpractice. Barney alleged that his attorneys had charged him excessive attorney’s fees in violation of Alabama law, and that they also retained some of his money for their own benefit. Specifically, Barney alleged that the insurer agreed to reduce its subrogation interest to $22,500, and that the attorneys were only entitled to $11,250 pursuant to their 50% contingency agreement. Additionally, Barney alleged that his attorneys were not entitled to retain the $6,375 attorney fee they had collected on the workers’ compensation settlement, because they had been fully compensated in the third-party case.

One of the defendant attorney’s testified that he had received a letter from an attorney informing him that he could not retain the $6,375 fee based on the holding in Bynum v. City of Huntsville. However, the defendant attorney stated that he was not aware of the holding in that case, and that he did not believe he had to refund the fee to Barney unless a Court ordered him to do so. The insurer’s claims adjuster admitted in deposition that she agreed to accept half of the third party recovery in satisfaction of its statutory reimbursement of subrogation rights. However, the totality of her testimony suggested that she understood that the defendant attorneys were entitled to the other half of the $45,000 settlement, as the employer’s pro-rata share of Barney’s attorney fees.

At trial, the defendant attorneys offered the claims adjuster’s testimony, and moved for summary judgment on the grounds that the insurer did not compromise its claim, and that they were therefore entitled to the fees they had collected. The trial Court granted their motion, effectively dismissing Barney’s malpractice claims, and Barney appealed. The Court of Appeals found that the insurer did not compromise its reimbursement claim. The Court of Appeals agreed with the trial Court’s finding that the insurer’s agreement to accept $22,500 was actually an agreement to accept the full $45,000, and then pay the 50% pro-rata share to Barney’s attorneys. Therefore, the attorneys were permitted to keep the other $22,500 as their fee. However, the Court of Appeals stated that the case of Bynum v. City of Huntsville required that the Court should credit the proceeds of the third-party settlement against any workers’ compensation benefits awarded before assessing attorney’s fees, in order to prevent a claimant from paying exorbitant attorney’s fees to an attorney who prosecutes both the worker’s compensation claim and a third party claim. Since the amount of the third-party tort case settlement exceeded the amount of the workers’ compensation settlement, the attorneys were not entitled to retain the attorney’s fees they had collected on the workers’ compensation case after they received their fee on the tort claim. Therefore, the Court of Appeals reversed that portion of the trial Court’s Order, directing the trial Court to enter a judgment for compensatory damages in the amount of $6,375.00 on Barney’s malpractice claim, and to determine what, if any, punitive damages Barney is entitled to.

My Two Cents

This case raises several interesting issues. While the defendant attorneys were apparently wrong in retaining the $6,375 fee from the workers’ compensation claim based on the holding in Bynum v. City of Huntsville, the Court’s conclusion that it amounts to malpractice is a bit of a stretch. Alabama law requires that an attorney shall be required to use such reasonable care and skill and diligence as other similarly situated legal service providers in the same general line of practice in the same general area ordinarily exercise in a like case. Attorneys are required to use a reasonable level of skill to research and discover the rules. While every attorney is expected to know commonly known rules of law, they are not required to know every rule of law or every case on a particular issue.

Another interesting issue is whether this holding has any implications in cases where a claimant retains one attorney to handle his workers’ compensation case, and another to handle a related tort case. It would hardly seem fair to deprive one attorney of a fee for handling a worker’s compensation case, just because another attorney received a hefty fee on a related tort case.

However, this ruling may be good news for employers in some cases. If the employer knows that the claimant’s attorney cannot take a fee on the workers’ compensation claim due to a situation similar to the one in Barney, the employer should theoretically be able to obtain a better settlement. For instance, if the claimant settles a case for $100,000, he typically only gets $85,000 after 15% attorney fees are deducted. However, if the attorney cannot take a fee, that same case could probably be settled for $85,000, because the attorney fee would not be deducted, leaving the claimant with the same amount of money.  

_________________________________

ABOUT THE AUTHOR

This article was written by Charley M. Drummond, Esq. of Fish Nelson, LLC. Fish Nelson is a law firm located in Birmingham, Alabama dedicated to representing employers, self-insured employers, and insurance carriers in workers’ compensation cases and related liability matters. Drummond and his firm are members of The National Workers’ Compensation Defense Network (NWCDN). The NWCDN is a national and Canadian network of reputable law firms organized to provide employers and insurers access to the highest quality representation in workers’ compensation and related employer liability fields. If you have questions about this article or Alabama workers’ compensation issues in general, please feel free to contact the author at cdrummond@fishnelson.com or (205) 332-3414.