The opinion of the court was delivered by: EGAN
This is an action brought under the Federal Declaratory Judgment Act, 28 U.S.C.A. § 2201, asking the Court to declare the rights, duties and obligations of the plaintiff and the defendants under the Longshoremen's & Harbor Workers' Compensation Act, 33 U.S.C.A. 901 et seq.
The plaintiff, Leonard, is a longshoreman who was employed by the defendant, Morris Boney, Inc., (Boney). Defendant, Liberty Mutual Insurance Company (Liberty) is the compensation carrier for the employer. On February 27, 1957, while working aboard the S.S. 'La Fleche', plaintiff was injured when he fell through a bilge board which broke in half. Subsequent to the accident, the defendant insurance carrier, under its contract with Boney, initiated the payment of compensation benefits to the plaintiff.
On July 12, 1957 Liberty filed a 'Notice to the Deputy Commissioner that Claim will be Controverted.' (Form US-207). There it stated that the case would be controverted because:
'Claimant has retained counsel to press a third party action. Carrier is filing U.S. 207 suspending compensation in accordance with Section 14(c) of the Act, which has been paid since 2/28/57. Carrier requests an election under Section 33(a).'
The deputy commissioner also advised Liberty that it was expected to continue compensation and medical payments in accordance with its obligations under the Act. The carrier failed to make such payments and a conference before the deputy commissioner ensued at which the parties stated their positions.
Liberty stated that it has a right to require Leonard to elect to sue the third party tortfeasor, S.S. 'La Fleche,' or take compensation benefits. The compensation payments were suspended and the claim controverted pending an election to sue or the granting of a formal award by the deputy commissioner.
Plaintiff maintained that the notice of controversion was improper and that he would not make an election to sue or take his benefits by way of an award. He maintains that the carrier has an obligation under the Act to pay compensation without a formal award, unless the liability to pay is controverted, and if so, it must be done within fourteen days.
It should be pointed out that the acceptance of compensation under a formal award made by the deputy commissioner assigns to the employer all the right that the employee had to recover damages against the third party, here S.S. 'La Fleche.' 33 U.S.C.A. § 933(b). And where the employer is insured, its insurance carrier becomes subrogated to this right. 33 U.S.C.A. § 933(i). Also, the employee's election to sue the third party tortfeasor suspends the compensation payments pending the outcome of the third party action, causing plaintiff to waive his right to receive immediate compensation benefits as provided for by the Act. 33 U.S.C.A. 914(a), §§ 933(f).
It therefore becomes obvious why this action is before the Court. By attempting to force Leonard into an election, Liberty will either pay its compensation liability in return for the assignment of the cause of action -- if Leonard takes a formal award -- or if he elects to sue the third party, Liberty will cease its payments and then await the joinder of Boney as a third party defendant in the suit be Leonard against S.S. 'La Fleche.' See, Ryan Stevedoring Co. v. Pan-Atlantic Steamship Corp., 1956, 350 U.S. 124, 76 S. Ct. 232, 100 L. Ed. 133. In Johnson v. Sword Line, Inc., 3 Cir., 1958, 257 F.2d 541, the Court of Appeals, Biggs, Ch. J., succinctly stated what can happen when a longshoreman sues the third party:
'Applying the doctrine of Ryan, if the cause of the longshoreman's injury is the stevedoring company's negligence, the shipowner would be entitled to maintain a separate action against the stevedoring company for indemnification, and this may be so in some instances even though the shipowner was also negligent. Since any recovery by the injured employee against the shipowner could be recouped in an action by the shipowner against the stevedoring company, the practical effect of the Ryan case is to cause the employer-stevedoring companies, who may anticipate a shipowner's claim to indemnity to resist the making of any payment to the injured stevedore until an award is made, it which time the assignment of the cause of action by reason of the provisions of the statute takes place. When the statutory assignment has taken place the employer-stevedoring company will then refuse to bring an action against the shipowner, and by the same token would also refuse to re-assign the cause of action to the injured stevedore, for to do so might result in an eventual high award by way of indemnification against the stevedoring company and hence against the insurance carrier.'
By virtue of Czaplicki v. Hoegh Silvercloud, 1956, 351 U.S. 525, 76 S. Ct. 946, 100 L. Ed. 1387, and the two Sword Line cases, 3 Cir., 1957, 240 F.2d 954, and 3 Cir., 1958, 257 F.2d 541, above, the resulting prejudice from the above situation has virtually been removed. It now seems that whenever a conflict of interest exists, the longshoreman is adequately protected. See also, D'Amante v. Isthmian Lines, D.C.E.D.N.Y.1958, 159 F.Supp. 468. However, plaintiff is apparently concerned not with Liberty's future inaction if the statutory assignment takes place, but rather with Liberty's power to compromise the third party action, with or without the formal institution of suit. This could be done whether or not a conflict of interests is present. 33 U.S.C.A. 933(d) and (e). For this reason, further interpretation of the Act is important. The question before the Court, therefore, is narrowed to whether or not Liberty as carrier for Boney wrongfully filed the controversion notice, thus placing Leonard in the dilemma in which he must make an election to sue or accept a formal award.
Defendants move for a dismissal of this action on the grounds that the Court is without jurisdiction to determine this controversy; that the proper authority is the deputy commissioner in that he can make an award which will force Liberty to continue the compensation payments. The motion must be denied.
While normally the doctrine of exhaustion of administrative remedy applies in this situation, we feel that the administrative remedy here is inadequate to protect the plaintiff's rights. To pursue it would require the forfeiture or waiver of the very right which is the subject matter of this litigation as it is apparent that even in view of § 14(h), 33 U.S.C.A. § 914(h),
the only power that the deputy commissioner has in such a situation is to suggest that ...