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Alaska National Insurance Co., v. Jones (12/10/99) sp-5215
Alaska National Insurance Co., v. Jones (12/10/99) sp-5215
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
ALASKA NATIONAL INSURANCE )
COMPANY, ) Supreme Court No. S-8519
)
Appellant, ) Superior Court No.
) 3AN-97-3344 CI
v. )
)
VINCENT CHAD JONES, ) O P I N I O N
ROBERT A. REHBOCK, ESQ., and )
PAUL W. PASLAY, ESQ., ) [No. 5215 - December 10, 1999]
)
Appellees. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, Third Judicial District, Anchorage,
Sen K. Tan, Judge.
Appearances: Trena L. Heikes, Law Office of
Trena L. Heikes, Anchorage, for Appellant. J. L. McCarrey III, Law
Offices of McCarrey & McCarrey, Anchorage, for Appellees.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
BRYNER, Justice.
I. INTRODUCTION
After sustaining a workplace injury, Vincent Jones
received workers' compensation benefits from his employer's
insurer, Alaska National Insurance Company (ANIC). Jones retained
attorneys Robert Rehbock and Paul Paslay to sue the third party who
caused his injury. They negotiated and collected a $450,000
settlement, then refused to reimburse ANIC's prior payments of
benefits to Jones. ANIC sued Rehbock, Paslay, and Jones, claiming
a right to share in Jones's recovery. The superior court dismissed
as to Rehbock and Paslay, ruling that ANIC could only sue Jones.
But we hold that AS 23.30.015(g) entitles ANIC to claim
reimbursement from the proceeds generated in the third-party
settlement and to enforce this claim as an equitable lien or under
the constructive trust doctrine. Because ANIC alleges that Rehbock
and Paslay are holding the settlement, the superior court erred in
ordering their dismissal.
II. FACTS AND PROCEEDINGS
Alaska National Insurance Company, the workers'
compensation insurer of Alaska Aquaculture Foundation, Inc.,
covered Vincent "Chad"Jones, an Alaska Aquaculture employee who
was injured as a result of an equipment malfunction. ANIC states
that its payments to Jones, which began in October 1993, have
totaled $118,985.61. Under AS 23.30.015(g), if Jones recovered
damages from a third person for his injuries, ANIC would be
entitled to reimbursement for the benefits it paid him. [Fn. 1]
Represented by attorneys Robert Rehbock and Paul Paslay,
Jones brought a tort suit in federal court in May 1995 against
Industrial Plastics, which manufactured the machine part that
allegedly malfunctioned and caused his injury. Throughout that
litigation, counsel for Jones and ANIC were in communication.
ANIC's counsel, Trena Heikes, provided Paslay with documents to
assist in the suit and informed him of ANIC's payments. Heikes
expected that ANIC would be compensated out of any proceeds
recovered from the suit against Industrial Plastics; she said in a
letter to Paslay: "Because the carrier is entitled [under AS
23.30.015(g)] to reimbursement of the monies from any third party
recovery, I would ask that you please keep me advised as litigation
and settlement negotiations proceed."
Rehbock called Heikes on January 10, 1997, informing her
that Industrial Plastics had offered a $450,000 settlement and
requesting ANIC to reduce its lien to $50,000. Paslay followed up
a short while later by sending Heikes a settlement calculation that
assessed ANIC's "carrier lien"at $76,129.06, after a deduction for
attorney's fees and costs. On January 22 Heikes rejected Rehbock's
request to reduce ANIC's lien: "I see no reason the carrier should
waive any portion of a lien to which it is fully, legally
entitled." According to Heikes, Rehbock called the next day to
offer $60,000; she responded that ANIC would accept nothing less
than the full amount it had paid Jones.
Rehbock and Paslay did not contact Heikes again until
March 20, 1997, when Rehbock called and promised that he would
explain Jones's legal position in a "long letter." That letter,
dated April 8, 1997, stated: " We reject the implicit legal
assumption that your client(s) have a 'lien' or any other equitable
or legal right to recover any benefits paid for Workers
Compensation except as created, defined and limited by the Workers
Compensation Act."
The letter went on to say that Jones had chosen to accept
a settlement without ANIC's approval, a course of action that would
entitle ANIC to cut off Jones's future benefits. [Fn. 2] The
letter offered ANIC one last chance to resolve its claim by
agreeing to approve Jones's settlement in return for a payment of
$35,000: "Should your clients wish to change their mind and
exercise their rights to approve the settlement and continue future
benefits according with [sic] the Act, [this] offer affords them a
final opportunity to do so."
In a telephone conversation that same day with Rehbock,
Heikes learned that Rehbock had settled the claim "some time ago."
Indeed, the federal court had dismissed the suit on February 5,
1997. Heikes asked Rehbock to put a portion of the disputed money
in a trust "to at least cover [ANIC's] lien pending the outcome of
this action"; Rehbock refused.
On April 23, 1997, ANIC filed the complaint in this
action, naming Jones, Rehbock, and Paslay as defendants. ANIC
claimed that under AS 23.30.015(g) and Alaska case law, it was
entitled to reimbursement out of Jones's settlement with Industrial
Plastics, for $80,161.22 in benefits payments, plus prejudgment
interest. ANIC further asserted that it "is informed and believes
that some or all of said settlement funds are being held by
defendants Rehbock and or Paslay."
Acting in their capacity as named defendants, Rehbock and
Paslay moved to dismiss ANIC's complaint under Alaska Civil Rule
12(b)(6), claiming that AS 23.30.015(g) did not support a claim for
relief against them. [Fn. 3] The superior court granted this
motion, ruling that in the event of a third-party settlement,
AS 23.30.015 gives an employer or its carrier a cause of action for
reimbursement only against the employee, not against the settlement
proceeds or the employee's attorneys. The court also ruled that,
as Jones's attorneys, Rehbock and Paslay owed ANIC no fiduciary
duty requiring them to surrender the settlement funds; their only
duty was to hold the funds on behalf their client. ANIC appeals
this ruling.
III. DISCUSSION
A. Standard of Review
The superior court dismissed ANIC's complaint under Civil
Rule 12(b)(6) for failure to state a claim upon which relief can be
granted. Motions to dismiss under this rule are to be sparingly
granted; courts considering such motions "are obliged to construe
complaints liberally and give [them] the benefit of the doubt."
[Fn. 4] It is enough that a complaint sets forth allegations of
fact consistent with some enforceable cause of action on any
possible theory. [Fn. 5]
ANIC argues that in ruling on the dismissal motion in
this case, the superior court improperly considered facts outside
the pleadings. As this court has stated, "Civil Rule 12(b)
requires the trial court affirmatively to exclude outside materials
if it does not consider the conversion of a Rule 12(b)(6) motion to
one for summary judgment to be desirable."[Fn. 6]
Here, the superior court did not explicitly exclude the
outside materials. And in addressing the issue of fiduciary duty
it stated, "the defendants did not agree to represent the interests
of the plaintiff. In fact, as the plaintiff has shown, the
evidence is that the defendants did just the opposite." (Emphasis
added.) But this in itself does not dictate reversal. We may
review the superior court's dismissal order as if the court had
excluded the outside materials, or we may review it as if the court
had converted the motion to dismiss into one for summary judgment.
[Fn. 7] We choose to treat the court's order as a dismissal
excluding outside evidence; addressing the complaint alone, we find
that there is a colorable cause of action that merits a remand.
B. Alaska Statute 23.30.015(g) Gives ANIC a Colorable Cause
of Action To Recover Its Share of the Third-Party Settlement from
Rehbock and Paslay.
Upon Jones's successful recovery of third-party damages
in the federal tort litigation, AS 23.30.015(g) required him to
"promptly pay to [ANIC] the total amounts paid by [ANIC as workers'
compensation benefits] insofar as the recovery is sufficient after
deducting all litigation costs and expenses."[Fn. 8] The parties
dispute whether this provision gives ANIC the right to proceed
against the settlement fund that ANIC alleges to be in Rehbock's
and Paslay's possession. ANIC asserts that AS 23.30.015(g) allows
it to proceed not just against Jones, but directly against the
settlement fund itself, as it might in enforcing a lien. But
Rehbock and Paslay contend that "[t]he statute imposes no more than
an employee's duty to repay compensation benefits"and "does not
create a pool of funds from which [ANIC] may extract payment."
They insist that "[w]hile the employee may repay subrogation claims
from the third-party recovery, he is not required to do so. Put
differently, the statute does not dictate the financial source for
subrogation repayment; only that it should be repaid."
Rehbock's and Paslay's arguments are unpersuasive. In
providing for reimbursement after a third-party recovery,
AS 23.30.015(g) requires that "the employee . . . promptly pay"the
employer "insofar as the recovery is sufficient." This language
explicitly identifies the third-party "recovery"as the source that
enables and limits the reimbursement. It also implicitly looks to
the settlement as a source for payment by requiring that employees
"promptly pay"after settling third-party claims. Rehbock and
Paslay argue that this language merely "requests the employee to
'promptly pay.'" But the legislature ordinarily includes language
in a statute for a purpose; [Fn. 9] we thus decline to read the
prompt payment requirement as a mere invitation for employees to
act without delay. Had the legislature intended nothing more than
to encourage good behavior, it might as well have asked employees
to pay cheerfully as well as promptly.
Moreover, construing AS 23.30.015(g) to imply a cause of
action enforceable against the third-party settlement fund comports
with the statute's primary goal of preventing an injured employee
from obtaining a double recovery at the employer's expense. As we
have stated in previous cases, "[t]he clear purpose of this section
is to allow employees to seek damages from third-party tortfeasors
without jeopardizing their compensation while, at the same time,
allowing employers to share in damage awards up to the limit of
their exposure under the workers' compensation law."[Fn. 10]
Denying ANIC a cause of action enforceable against the settlement
proceeds would frustrate this statutory purpose, allowing Jones,
through his attorneys, to retain funds that the statute directs to
insurers.
This interpretation also comports with our decision in
Forest v. Safeway, where we recognized that an employer has an
interest in an injured employee's third-party claims but held that
this interest depends on the employee's prosecution of the claim.
[Fn. 11] When an employee does prosecute and prevail on a third-
party claim, it follows that the employer's dependent interest in
the suit ripens into an interest in the employee's recovery. And
under AS 23.30.015(g), this interest no longer depends on anything
other than the sufficiency of the recovery.
Because AS 23.30.015(g) gave ANIC an interest in and a
right to seek reimbursement from Jones's third-party federal tort
settlement, ANIC's position can fairly be likened to that of the
insurer in Rice v. Denley. [Fn. 12] In that case, the insurer,
Colonial, paid subrogated medical expenses to its insured, Denley,
and Denley pursued those expenses in a third-party action. [Fn. 13]
We held that Colonial "had a claim on [the settlement] funds to the
extent of its payment . . . [that] could be enforced either as a
constructive trust or as an equitable lien."[Fn. 14]
Likewise we conclude that ANIC's complaint on its face
states a colorable cause of action that could be enforced as a
constructive trust or equitable lien against Rehbock and Paslay,
who, the complaint alleges, collected and now hold "some or all of"
Jones's settlement funds.
IV. CONCLUSION
Because we hold that ANIC's claim states a cause of
action for which relief can be granted under AS 23.30.015(g), we
REVERSE the judgment and REMAND the case to the superior court for
further proceedings.
FOOTNOTES
Footnote 1:
AS 23.30.015 (g) provides, in relevant part:
If the employee or the employee's
representative recovers damages from the third person, the employee
or representative shall promptly pay to the employer the total
amounts paid by the employer under (e)(1)(A)-(C) of this section
insofar as the recovery is sufficient after deducting all
litigation costs and expenses. Any excess recovery by the employee
or representative shall be credited against any amount payable by
the employer thereafter.
Under AS 23.30.015(i), ANIC stood in the shoes of Alaska
Aquaculture because ANIC assumed payment of Jones's benefits: "If
the employer is insured and the carrier has assumed the payment of
compensation, the carrier shall be subrogated to all the rights of
the employer." AS 23.30.015(i).
Footnote 2:
See AS 23.30.015(h):
If compromise with a third person is made
by the person entitled to compensation . . . of an amount less than
the compensation to which the person . . . would be entitled, the
employer is liable for [further payment of] compensation . . . only
if the compromise is made with the employer's written approval.
Footnote 3:
Rehbock and Paslay did not move to dismiss on behalf of Jones.
ANIC had initially attempted to serve the complaint on Jones at his
residence in Wrangell but was unsuccessful; Rehbock had informed
Heikes that by then "Chad Jones live[d] outside the country
continuing his education in Middle Eastern studies,"in Ahman,
Jordan.
Footnote 4:
See Reed v. Municipality of Anchorage, 741 P.2d 1181, 1184
(Alaska 1987) (reiterated on remand, Reed v. Municipality of
Anchorage, 782 P.2d 1155, 1156 (Alaska 1989)); 2A J. Moore, Moore's
Federal Practice sec. 12.08 (1985); 5 C. Wright & A. Miller,
Federal
Practice and Procedure sec. 1357, at 598 (1969), quoted in Knight
v.
American Guard & Alert, Inc., 714 P.2d 788, 791 (Alaska 1986).
Footnote 5:
See Reed, 741 P.2d at 1184.
Footnote 6:
Id. at 1183-84; see also Martin v. Mears, 602 P.2d 421, 426
(Alaska 1979) ("[I]n the future all trial courts must expressly
state whether they have in fact excluded or considered such
materials in reaching their decisions.").
Footnote 7:
See Reed, 741 P.2d at 1184 (citing Martin, 602 P.2d at 427).
Footnote 8:
See supra note 1 (quoting text of AS 23.30.015(g)).
Footnote 9:
See Rydwell v. Anchorage Sch. Dist., 864 P.2d 526, 530-31
(Alaska 1993).
Footnote 10:
Forest v. Safeway Stores, Inc., 830 P.2d 778, 781-82 (Alaska
1992).
Footnote 11:
See id. at 780 n.4.
Footnote 12:
944 P.2d 497 (Alaska 1997).
Footnote 13:
See id. at 498-99.
Footnote 14:
Id. at 500; see also McKnight v. Rice, Hoppner, Brown &
Brunner, 678 P.2d 1330, 1334-35 (Alaska 1984) (quoting G. Bogert,
Trust and Trustees sec. 471, at 3 (rev. 2d ed. 1978)) (defining the
constructive trust doctrine and recognizing that a court order
requiring the assignment of insurance proceeds created a
constructive trust in the funds).
