Appeal from the Order entered on January 21, 1988, in the Court of Common Pleas of Dauphin County, Civil Division, at No. 3233-S-1985.
Richard C. Angino, Harrisburg, for appellants (at 96) and appellees (at 139).
Dennis J. Bonetti, Harrisburg, for appellant (at 139) and appellee (at 96).
Beck, Kelly and Hester, JJ.
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This case presents a question not previously addressed in our appellate case law. The issue is: Where an attorney for an injured employee who has been paid worker's compensation benefits negotiates a structured settlement on behalf of the injured employee in the employee's action against a third party tortfeasor, and the initial payment under the settlement is not sufficient to pay both the attorney's fee and the subrogation claim of the employer's compensation carrier under Section 319 of the Workmen's Compensation Act, Pa.Stat.Ann. tit. 77, § 671 (Purdon 1989), is the attorney or the carrier entitled to first payment?
Section 319 states in pertinent part:
Where the compensable injury is caused in whole or in part by the act or omission of a third party, the employer shall be subrogated to the right of the employe, his personal representative, his estate or his dependents,
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against such third party to the extent of the compensation payable under this article by the employer; reasonable attorney's fees and other proper disbursements incurred in obtaining a recovery or in effecting a compromise settlement shall be prorated between the employer and employe, his personal representative, his estate or his dependents. The employer shall pay that proportion of the attorney's fees and other proper disbursements that the amount of the compensation paid or payable at the time of recovery or settlement bears to the total recovery or settlement. Any recovery against such third person in excess of the compensation theretofore paid by the employer shall be paid forthwith to the employe, his personal representative, his estate or his dependents, and shall be treated as an advance payment by the employer on account of any future instalments of compensation.
Pa.Stat.Ann. tit. 77, § 671 (Purdon Supp.1988).
The issue arises from the following facts and procedural history. On December 19, 1981, appellant Ronald Wolfe suffered injuries from a fall on the parking lot of Weis Markets. At the time of the injury, Wolfe was engaged in making a delivery for his employer, Allegheny Beverage Corporation. Allegheny's worker's compensation carrier, appellee/cross-appellant Pennsylvania Manufacturers' Association Insurance Company ("PMA"), soon began paying Wolfe compensation benefits.
On December 18, 1983, Wolfe instituted a personal injury action against Weis Markets, the alleged third party tortfeasor. Wolfe was represented in this action by co-appellant, the law firm of Angino & Rovner, P.C. ("Angino"). Angino and Wolfe executed a contingent fee agreement whereby Wolfe agreed to pay Angino a fee equal to forty percent (40%) of the amount recovered.
There is a factual dispute between the parties as to whether Angino also agreed to represent PMA's subrogation interest in the Wolfe personal injury suit. The parties exchanged various letters and otherwise communicated with each other both prior to institution of the personal injury
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suit and thereafter. PMA argues these communications form a contract between PMA and Angino pursuant to which Angino agreed to represent PMA's interest. Angino denies that such a contract was formed.
In April 1985, serious settlement negotiations between Weis Markets and Wolfe began. The result was an agreement that the case would be resolved via a structured settlement whereby the total value of the settlement would not be paid upfront, but rather spread out over a number of years. The structure envisioned an initial payment of $110,000 to Wolfe, which Wolfe orally agreed to pay Angino as full payment for Angino's contingent fee, plus monthly payments to Wolfe of $1,250 for life. Wolfe was also to receive sizeable lump sum payments every five years for the next twenty-five years.
PMA objected to this proposal on the ground that it did not provide a sufficient upfront payment to reimburse PMA for compensation it had already paid Wolfe as provided by Section 319 of the Workmen's Compensation Act. PMA also immediately retained separate counsel to protect its interests in this matter.
Weis Markets refused to consummate the settlement without PMA's approval, obviously fearing that it would be subject to an action by PMA if the settlement was unsatisfactory to it. In order to preserve the settlement, PMA and Angino agreed to hold their dispute over the priority of their respective claims in abeyance. PMA withdrew its objection to the settlement and a settlement agreement was executed between Weis Markets and Wolfe. This agreement began with the following recital:
Plaintiffs and Defendants entered into an agreement whereby Defendants agreed to pay to Plaintiffs $110,000 in a lump sum and periodic payments of $1,250 per month for life (20 year guarantee) with additional periodic balloon payments at five (5) year intervals commencing in 1990 and continuing to 2010. Said settlement has a present value of approximately $274,000. Following said agreement Pennsylvania Manufacturers' Association
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(PMA) asserted a Worker's Compensation lien interest in the settlement. Plaintiffs contend that the $110,000 lump sum payment is to cover Plaintiffs' 40% attorney's fees contract and expenses. PMA contends that it has a legal right to half of the lump sum because of its Worker's Compensation lien. Being unable to resolve the issue existing between PMA and Plaintiffs, PMA, Plaintiffs and Defendant have agreed to escrow $55,000 of the $110,000 lump sum payment. Defendants are to be released from future litigation between PMA and Plaintiffs and from any future obligations in this regard.
The Settlement Agreement further recited that PMA would execute a release of the defendants in the Wolfe action and that defendants would then issue a check in the amount of $55,000 (one-half of the initial payment) jointly payable to PMA and appellants. The check was to be deposited in an escrow account. Although PMA was not a signatory to this Agreement, the check was issued as the ...