Miller Truck Lines, LLC. v. Central Refrigerated Service, Inc.

Citations: 781 F. Supp. 2d 488; 2011 U.S. Dist. LEXIS 28544; 2011 WL 995936Docket: Civil Action No. 09-939-C

Court: District Court, W.D. Kentucky; March 17, 2011; Federal District Court

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In the case Miller Truck Lines, LLC v. Central Refrigerated Service, Inc., the United States District Court for the Western District of Kentucky addressed cross-motions for summary judgment regarding a motor vehicle accident that resulted in the death of David Thompson, an employee of Miller Truck Lines. The accident, caused solely by Tammie Biebel’s negligence, occurred in Jefferson County, Kentucky. Both parties involved are corporations based in different states, with no operations in Kentucky. Following the incident, Thompson's estate received workers' compensation benefits from Miller and settled claims against both Miller and CRS under a Confidential Mediation Agreement. 

The court's primary focus is the reimbursement amount CRS owes to Miller for the benefits paid to Thompson's estate, with a key issue being whether CRS can deduct Thompson's legal fees from this reimbursement. The court determined that Oklahoma law governs the reimbursement claim, as subrogation claims are treated as contract cases, and under Oklahoma law, there is no provision for such a set-off. Even if Kentucky law were applicable, CRS would still not be entitled to the set-off. The court ultimately granted Miller’s motion in part and denied CRS's motion, concluding CRS must reimburse Miller without deducting Thompson's legal fees.

A federal court sitting in diversity must apply the choice-of-law rules of the state in which it is located, as established in Klaxon Co. v. Stentor Elec. Manuf. Co., 313 U.S. 487 (1941). The classification of the case as either tort or contract is crucial, particularly in Kentucky, which employs a 'significant contact' test for tort cases and a 'most significant relationship' test for contract cases. Since there is no clear ruling from the Kentucky Supreme Court, the federal court must infer how it would classify the case, relying on lower court decisions, federal interpretations of state law, and other legal analyses.

In this case, the Kentucky Supreme Court would likely classify the matter as a contract issue, leading to the application of Oklahoma law, despite the underlying tort aspect of the accident. The dispute centers on the allocation of rights under the employment contract between Thompson and Miller, a contractual issue even if the right to recover under workers' compensation laws may be triggered by tortious actions.

Supporting this classification, the Sixth Circuit in Harris Corp. v. Comair, Inc. determined that an employer's subrogation claim against a third-party tortfeasor was a contract case governed by the law of the state where workers' compensation benefits were paid. In Harris, the court found that Ohio's law applied, as the employment agreement was formed there, despite the accident occurring in Kentucky. The ruling emphasized the need to separate issues of negligence from contractual rights, rejecting attempts to argue that Thompson's connections to Kentucky were more substantial than those of the employee in Harris. Both employees were in Kentucky solely for business purposes, lacking broader ties to the state.

CRS's argument that Kentucky is the center of the parties' relationship is incorrect, as it conflates the location of the injury with the relationship's center. The case of MacDonald v. General Motors Corp. establishes that the relationship center must be more than merely the accident site, and CRS fails to cite relevant Kentucky authorities supporting its position. Notably, the 'relationship center' concept comes from the Restatement (Second) of Conflict of Laws, which Kentucky has not adopted. CRS's claim that recent Kentucky decisions undermine the Harris case regarding subrogation is also flawed, as the principle of derivative subrogation existed prior to Harris. The case of Bearden v. Beeler reinforces that the core issue is contractual, not tort-related, and that Georgia law should apply, highlighting Kentucky courts' tendency to favor local law yet recognizing that choice-of-law rules favored Georgia due to the nature of the employment contract. The Kentucky Court of Appeals in Employer's Liability Corp. v. Webb supported this view, ruling that Indiana law governed a subrogation claim arising from an accident in Kentucky, as the relevant employment contract was established in Indiana. This precedent indicates that subrogation claims are treated as contract claims for choice-of-law purposes, as noted by legal scholars.

The case revolves around a contract activated by an accident in Kentucky, but lacks sufficient Kentucky connections to warrant the application of its laws. The court concludes that Kentucky law would categorize this matter as a contract case, applying the 'most significant relationship' test. Given the facts, Oklahoma law is deemed applicable since none of the parties were from Kentucky, despite the accident occurring there. In a similar case, the court favored the law of the state where workers' compensation benefits were provided, leading to the conclusion that Oklahoma has the most significant relationship to the claim.

Miller, an Oklahoma corporation, established its employment relationship with Thompson under Oklahoma law, and Thompson sought benefits under the Oklahoma Workers Compensation Act, which were duly paid. The only link to Kentucky was the location of the injury. Strong policy reasons support the application of Oklahoma law, particularly regarding subrogation rights, which are determined by the state statute governing workers' compensation. Uniformity and predictability in legal outcomes necessitate the application of the law of the state where benefits were distributed, as endorsed by various courts. 

Furthermore, under Oklahoma law, there is no allowance for deducting Thompson's legal fees, meaning CRS cannot claim a setoff.

Miller is entitled to reimbursement for workers' compensation benefits paid under Oklahoma law, specifically 85 Okla. Stat. Ann. 44, which allows employers to recover from third-party tortfeasors the amounts paid in death benefits. The Oklahoma Supreme Court has confirmed that this statute protects the subrogation rights of employers and their insurers, preventing double recovery by the employee. Key cases, including McBride v. Grand Island Exp. Inc., affirm Miller's right to full reimbursement.

In contrast, even if Kentucky law applied, the fee set-off would be inappropriate. KRS 342.700(1) permits employers to recover compensation paid, minus the employee's legal fees. However, Kentucky courts interpret this statute differently than the parties' expectations. Historically, Kentucky courts have allowed claimants to set off legal fees when reimbursing employers for workers' compensation benefits, a principle recognized as early as 1950. This approach ensures that employers do not benefit from the employee’s legal efforts without sharing the associated costs, as established in cases such as Southern Quarries Contracting Co. v. Hensley and Stacy v. Noble.

The policy established in Kentucky case law regarding KRS 342.055 and KRS 342.700(1) emphasizes equitable principles in the allocation of attorney fees when an employee recovers damages from a third party after receiving workers' compensation. In Noble, the Court asserted that it would be unfair for an employee to bear attorney fees on amounts owed to the employer or insurer. Norris reiterated that the compensation carrier should cover recovery costs that benefit it. This policy was further validated in cases like Mastin and Davidson, which underscored that if an employee's attorney incurs costs to secure recovery, those benefiting from the recovery should contribute to the fees. 

The Supreme Court of Kentucky reaffirmed this in AIK Selective Self-Insurance Fund v. Minton, allowing employees to deduct legal fees from the employer's subrogation credit. The interpretation of KRS 342.700(1) aligns with KRS 342.055, mandating that employers or insurers benefiting from a successful recovery share the associated costs. In this situation, the court determined that applying KRS 342.700(1) would not be appropriate since Miller did not receive an inequitable windfall from the recovery. The lack of specificity in the Confidential Mediation Agreement complicated the application of KRS 342.700(1); however, it was confirmed that Miller had paid $439,441.83 in workers' compensation benefits, which the Oklahoma Workers Compensation Court approved. Both parties acknowledged that Thompson owed nothing to either Miller or CRS. 

The court concluded that applying a set-off under KRS 342.700(1) would contradict the statute's goals, as it would prevent Miller from recouping his benefits and affect the damages CRS would otherwise owe. Additionally, it was agreed that Biebel's negligence resulted in $24,990.13 in property damage, which Miller is entitled to recover, confirming CRS's liability due to Biebel's actions within the scope of her employment.

The parties involved in the case are in disagreement regarding the appropriateness and governing law for prejudgment interest. The court determines that Oklahoma law applies to the prejudgment interest award, particularly concerning the $439,441.83 benefits paid to Thompson. Despite indications from the Kentucky Supreme Court that it would apply Oklahoma law for determining prejudgment interest, the court finds the parties' briefing on the interest rate insufficient for a decision. Kentucky law, as interpreted by its Supreme Court, treats prejudgment interest as substantive, which aligns with the court's requirement to apply Kentucky's choice-of-law rules. 

In a related case, Felix v. Lykins Enterprises, the Kentucky Court of Appeals ruled that the law governing the underlying claim also governs prejudgment interest. The majority view among states supports that prejudgment interest should be governed by the law that determines substantive legal questions. The court notes that while Miller argued for Kentucky law to apply, this argument lacks support and does not align with choice-of-law principles. 

Oklahoma law suggests a method for calculating prejudgment interest based on the prime rate, but there is no fixed rate. The court grants Miller's motion for summary judgment for reimbursement of workers compensation benefits and property damage. However, as the proper rate of prejudgment interest under Oklahoma law remains unaddressed, the court orders the parties to submit supplemental briefs to clarify the appropriate interest rate and the propriety of prejudgment interest on Miller's property damage claim.

Briefs are limited to ten pages and must be filed by April 15, when Miller will submit a motion for prejudgment interest. Responses and replies will follow Local Rules. CRS's Motion for Summary Judgment (R. 16) is denied. The court distinguishes this case from Bryant v. Jericol Mining, Inc., citing that Section 185 of the Restatement Second, Conflict of Laws, pertains to the determination of interest in recovery related to workers' compensation awards. CRS argues that Oklahoma law's tort principles, such as comparative fault, apply, but this is unnecessary to address since both parties agree that Tammie M. Biebel's negligence solely caused the injury and death of David Thompson. Additionally, the case's context differs from typical workers' compensation subrogation cases, where employers typically seek reimbursement from employees. Notably, since the property damage claim falls under Kentucky law, prejudgment interest on this claim will also be governed by Kentucky law.