Rivas v. Industrial Accident Commission

Citations: 170 Cal. App. 2d 673; 339 P.2d 624; 1959 Cal. App. LEXIS 2264Docket: Civ. No. 23613

Court: California Court of Appeal; May 26, 1959; California; State Appellate Court

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The proceeding involves Fred M. Rivas seeking review of an award from the respondent commission regarding workmen’s compensation. The central issue is whether the commission can allow a compensation insurance carrier, under section 3861 of the Labor Code, to deduct attorneys’ fees paid by Rivas from the credit due to the carrier when the carrier has contracted with Rivas' attorney for subrogation recovery. The conclusion reached is that the commission cannot allow such deductions.

The facts reveal that Rivas sustained a work-related injury on November 3, 1955, and received compensation from his employer’s carrier, Industrial Indemnity Company. Rivas hired an attorney on a contingent fee basis to sue a third party for negligence related to his injury. Industrial subsequently contracted with Rivas' attorney to represent it in seeking subrogation for its lien claim, agreeing to a fixed fee of one-third of its lien claim.

Following a settlement where the third party paid $8,397.82, Industrial received $3,262.33, and paid Rivas' attorney $1,087.44 plus $134.10 for costs. Rivas received $5,135.49 from the settlement and paid his attorney $1,795.16. Rivas later filed for permanent disability compensation and was awarded $32.78 per week for 182 weeks. However, Industrial was credited with the full amount received by Rivas from the settlement, which he contests, arguing that the credit should reflect only the net amount retained after paying attorney fees and costs, totaling $3,340.33.

Petitioner argues that Industrial should be liable for both the attorney's fees it agreed to pay and those paid by the petitioner under his contract. The rights of the parties are governed by sections 3860 and 3861 of the Labor Code, as amended in 1957. Section 3860 requires notice to both employer and employee before any release or settlement is valid, allowing the employer to seek reimbursement for compensation paid. It stipulates that if the employer does not pursue a claim or fails to participate in an action initiated by the employee, the commission can set a reasonable attorney's fee for the employee’s attorney, which will be deducted from amounts due to the employer. Section 3861 allows the commission to credit the employer for any recovery by the employee, provided that such amounts have not previously reimbursed the employer or covered attorney's fees. Prior to the amendments, the Supreme Court ruled that the commission could not deduct litigation costs or attorney’s fees from the employer's credit. The current statute maintains that such deductions are only permissible when the employer has not pursued an action or arranged representation with the employee’s attorney. Petitioner contends that no fee arrangements were made beyond the recovery related to Industrial's lien on a judgment against a tortfeasor. However, the text indicates that Industrial was subrogated to all of petitioner’s rights, which could have been enforced through its own action or by joining the employee’s prosecution, thus maintaining its entitlement to enforce its lien on any judgment.

Petitioner was entitled to credit against any liability for compensation payments that were not fulfilled by the judgment debtor, specifically the total amount received from the judgment debtor. The rights of the parties remained intact despite the action being compromised rather than tried, as the petitioner had engaged in the action and arranged for attorney representation. The arrangement established the attorney's fees as a percentage of the total amount expended by Industrial for the benefit of the petitioner up to the compromise date. 

If the fee arrangement had been a fixed sum, such as $100, the outcome would not have differed, as the commission lacked the authority to dictate terms between Industrial and the attorney. Any inequity experienced by the petitioner stemmed from the contract with the attorney. The petitioner was not compelled to accept the compromise and could have refused unless Industrial agreed to cover a portion of the attorney's fee based on the benefits received from the compromise or the attorney agreed to accept the full contracted fee with Industrial. 

If the compromise primarily benefited Industrial and the attorney's fee was deemed unreasonable, this issue was a matter for the petitioner and the attorney to resolve legally, outside the jurisdiction of the Industrial Accident Commission. Ultimately, Industrial had the discretion to pursue its rights through its own or the petitioner's attorney and to negotiate fees accordingly, leaving the commission without authority to impose additional fees. The award is affirmed, with concurrence from White, P.J. and Fourt, J., and the excerpt reflects amendments made in 1957, while maintaining the prior statutory framework.