529 F. 2d 15 - Cella v. Partenreederei Ms Ravenna B Latti

This appeal arises from a claim of attorney's fees against that part of a longshoreman's recovery against a third party shipowner which is subject to a stevedore-employer's compensation lien. Appellant-attorney claims that his action in pursuing an injured longshoreman's third party complaint to settlement created a 'common fund' which the longshoreman and the employer's compensation carrier shared. Equity, he says, demands that the compensation carrier be required to pay reasonable attorney's fees out of that portion of the recovery which it receives.1 Relying on precedent, the district court denied the attorney's motion for fees, and ordered the entire amount to be paid to the insurance carrier without an allowance for fees. The issue on appeal is whether the district court applied the proper legal standards in refusing to grant the requested fees.

The injury to longshoreman Cella occurred on the MS RAVENNA on December 11, 1972, shortly after the effective date of the 1972 amendments to the Longshoremen's and Harbor Workers' Compensation Act, 33 U.S.C. § 901 et seq. Almost immediately thereafter, the compensation carrier of Cella's employer began paying medical benefits and compensation without reducing its liability to an award. 33 U.S.C. §§ 907, 914. The longshoreman instituted suit against the shipowner alleging that it had negligently caused his injury. The employer's insurance carrier did not formally intervene in the action, but notified both the longshoreman and the defendant shipowner that it was asserting a lien on the longshoreman's recovery in the amount of the compensation and benefits paid.2 The case never went to trial, but was settled for a total sum of $199,560.72. By the time of settlement, the carrier had paid $24,560.72 in compensation and medical benefits, and was liable for no more as the settlement was not consented to in writing. See 33 U.S.C. § 933(g). The issue in this case is the proper distribution of the settlement. After subtracting the total amount due the insurance carrier, the plaintiff's attorney retained one-third of the net settlement of $175,000 as a fee from the longshoreman, and turned the rest over to his client. Wishing to assert a right to fees from the insurance carrier, the attorney forwarded $14,560.72 to the carrier, and deposited the balance, $10,000, in the registry of the district court.

The issue of whether attorney's fees can be subtracted from the portion of a longshoreman's recovery against a third party tortfeasor which reimburses the employer's insurance carrier has a long history of litigation. With the exception of those cases where the recovery against the third party does not adequately compensate the longshoreman and his attorney, Chouest v. A & P Boat Rentals, Inc., 472 F.2d 1026 (5th Cir.), cert. denied, 412 U.S. 949, 93 S.Ct. 3012, 37 L.Ed.2d 1002 (1973); Strachan Shipping Co. v. Melvin, 327 F.2d 83 (5th Cir. 1964), the employer or its carrier has not been required to bear a portion of the burden of attorney's fees or litigation expenses. Lamar v. Admiral Shipping Corp., 476 F.2d 300, 303 (5th Cir. 1973); Haynes v. Rederi A/S Aladdin, 362 F.2d 345, 351 (5th Cir. 1966); Davis v. United States Lines Co., 253 F.2d 262 (3d Cir. 1958); Fontana v. Pennsylvania R.R., 106 F.Supp. 461, 463--64 (S.D.N.Y.1952), aff'd mem. on opinion below sub. nom., Fontana v. Grace Line, Inc., 205 F.2d 151 (2d Cir.), cert. denied, 346 U.S. 886, 74 S.Ct. 137, 98 L.Ed. 390 (1953).

Appellant acknowledges this weight of precedent, but contends that these cases merely reflect the lack of equity in awarding attorney's fees from the stevedore employer prior to the 1972 amendments to the Act. He claims that the common fund theory has always been applicable to fees in the context of longshoremen's suits, and that the relevant equities have been changed so substantially by the 1972 amendments that an award of fees is now appropriate. Appellee contends that the refusal to assess fees, although not mandated by the Act, see 33 U.S.C. § 933, was to conform the distribution of the recovery to that provided for in the Act, see 33 U.S.C. § 933(e), and furthers the purposes of the Act.

The Act, as amended, permits an injured longshoreman both to receive compensation under the Act and sue a third party for the injuries he has received.3 33 U.S.C. § 933(a). The Act itself makes no provision for reimbursement of the employer or its insurance carrier, and does not set out a particular formula for distribution of any recovery against the third party tortfeasor. If, however, compensation is paid to the injured workman subject to an award, and the longshoreman does not sue the third party within six months of the date of the award, the right of action against the third party is assigned to the employer or his insurance carrier, who then is empowered to file suit. 33 U.S.C. §§ 933(b) & (h). If the employer or carrier recovers damages in a suit filed pursuant to § 933(b), the recovery must be allocated according to the formula contained in § 933(e). Under this scheme the employer retains not only the amount of all compensation previously paid and the present value of all amounts payable in the future under the award, but a reasonable attorney's fee and one fifth of any amount recovered in the suit in excess of the payments made, the present value of future payments, and its costs and attorney's fees.4

Shortly after the amendment to the Act which allowed the injured longshoreman to sue a third party as well as receive compensation payments, the courts found that the employer had an equitable right to reimbursement for compensation paid upon the worker's recovery from the third party. The Etna, 138 F.2d 37 (3d Cir. 1943). Formal intervention in the third party action is not necessary to protect this right. E.g., Russo v. Flota Mercante Grancolombiana, 303 F.Supp. 1404, 1406 (S.D.N.Y.1969).

When allocating the recovery obtained in an employee-plaintiff suit, some courts found that attorney's fees should not be charged so as to reduce the reimbursement amount returned to the employer. Because they were not so charged when the employer sued under § 933(b), these courts reasoned that it should make no difference who brought the suit in distributing the recovered sums, Davis v. United States Lines Co., supra; Fontana v. Pennsylvania R.R., supra at 464; see Ashcraft & Gerel v. Liberty Mutual Ins. Co., 120 U.S.App.D.C. 51, 343 F.2d 333 (1965). More fundamentally, the courts found that the liability of the employer should be strictly limited to providing a guaranteed level of compensation. Once the employee is assured of receiving from a third party an amount not less than the minimum amount of the compensation set by the Act the employer's liability was considered to be terminated.5 Full reimbursement of the employer's without any reduction for litigation expenses, was 'an important object of Congressional policy.' Ashcraft & Gerel, supra at 336; Accord, Davis v. United States Lines Co., 153 F.Supp. 912, 915--17 (E.D.Pa.1957), aff'd, 253 F.2d 262 (3d Cir. 1958).

The fourth circuit, however, has adopted a different analytical approach which, after the 1972 amendments, led it to an opposite result. Prior to the amendments it had held that the § 933(e) distribution scheme did not control the allocation of an employee-plaintiff suit recovery. Rather, it ruled that proration of attorney's fees would be inappropriate under established principles of equity. Ballwanz v. Jarka Corp., 382 F.2d 433 (4th Cir. 1967.6 At the time of Ballwanz, a third party suit by a longshoreman often resulted in the imposition of liability upon a stevedore employer in an amount greater than the recovery of the injured longshoreman. A longshoreman could recover against a shipowner for breach of the warranty of seaworthiness. Seas Shipping Co. v. Sieracki, 328 U.S. 85, 66 S.Ct. 872, 90 L.Ed. 1099 (1946). The shipowner, in turn, could hold the stevedore-employer liable for the damages and the costs of defense resulting from the longshoreman's suit on the theory of breach of the stevedore's warranty of workmanlike performance, or through a contractual indemnity clause. Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956). The longshoreman's successful suit did not create a benefit for the employer; rather, it subjected the employer to a greater liability than that it owed for compensation under the Act.

In a recent case, Swift v. Bolten, 517 F.2d 368 (4th Cir. 1975), the fourth circuit found that the 1972 amendments, by overriding these judicial doctrines, altered the equities between the longshoreman and his employer so substantially, that the stevedore should be taxed an appropriate attorney's fee. Id. at 370. Under the amendments, the longshoreman must prove negligence to recover from the shipowner, thus making a third party action more difficult to win. More importantly, the shipowner is unable to pass on its liability to the stevedore. 33 US.C. § 905(b). Under recent decisions, the stevedore receives full reimbursement of its compensation payments even if it was currently negligent in causing the longshoreman's injuries, Dodge v. Mitsui Shintaku Ginko K. K. Tokyo, 528 F.2d 669 (9th Cir. 1975), and cannot otherwise be compelled to contribute to the longshoreman's recovery. Shellman v. United States Lines, Inc., 528 F.2d 675 (9th Cir. 1975); Landon v. Lief Hoegh & Co., 521 F.2d 756 (2d Cir. 1975). The stevedore-employer is no longer in the position of an adversary to an injured longshoreman in a third party suit. The employer benefits from a successful suit but risks no further liability because of it.

Were we to follow the fourth circuit and hold that the normal dictates of equity control the allocation of attorney's fees in this case, we might be more disposed to find that it would be appropriate to award fees out of that portion of the settlement that goes to reimburse Cella's employer.7 But this case arises in the context of the Longshoremen's and Harbor Workers' Compensation Act. While the statutory provisions do not govern the distribution of the recovery of an employee suit, we think that the allocation of attorney's fees in such a suit must conform to the purposes and policies of the Act.

The 1972 amendments described above were enacted as a compromise between shipowners and stevedore-employers in order to provide increased statutory compensation payments. For years the scale of compensation payments had been insufficient. Elimination of the unseaworthiness cause of action against the shipowner, and the indemnity action against the stevedore was necessary to ensure adequate funds for the increased benefits. In particular, the drain on the employer's resources by the attorney's fees and expenses required to litigate the third party indemnity actions was cited as an obstacle to funding adequate compensation payments. H.Rep. No. 92--1441, 92d Cong., 2d Sess. in 3 U.S.Code Cong. & Admin.News, pp. 4698, 4702 (1972). S.Rep. No. 92--1125, 92d Cong., 2d Sess. 9 (1972). We conclude that the overriding purpose of the 1972 amendments was to strictly limit the liability of the stevedore in order to husband its resources, and its insurance carrier's resources, for payment of the increased benefits under the Act.

An award of attorney's fees out of that portion of a third party tort settlement which goes to reimburse the employer or its carrier would contravene this fundamental purpose. It would cause a reduction in the amounts which the employer can legitimately call upon to fund its obligation towards injured workmen under the Act. As Congress was aware of the then unanimous judicial rule that the reimbursement portion of a longshoreman's recovery ordinarily is not reduced by attorney's fees, see S.Rep. No. 428, 86th Cong., 1st Sess. in 2 U.S.Code Cong. & Admin.News, pp. 2134, 2135 (1959), a change in this rule which would conflict with the purposes of its enactments should come from that body.8 We conclude, in accordance with the intent of Congress, that reimbursement funds undiminished by attorney's fees should be available to fund the compensation of workmen whose injuries cannot be charged to the tortious conduct of third parties.

Finally, we are not convinced that the longshoreman and his attorney are unfairly treated by this system of distribution. True, the attorney is forced to forego part of his fee which he would receive in an ordinary suit. His client, however, is in an advantageous position in comparison with ordinary tort plaintiffs. Because the longshoreman is guaranteed an absolute minimum in compensation and medical benefits, the attorney should be in a tactically superior position to negotiate a favorable settlement. Since the attorney's fee for this type of litigation is a percentage of the recovery, a larger settlement will result in a larger fee.

The decision of the District Court is affirmed.