The opinion of the court was delivered by: President Judge Leadbetter
BEFORE: HONORABLE BONNIE BRIGANCE LEADBETTER, President Judge, HONORABLE BERNARD L. McGINLEY, Judge, HONORABLE DORIS A. SMITH-RIBNER, Judge, HONORABLE DAN PELLEGRINI, Judge, HONORABLE ROBERT SIMPSON, Judge, HONORABLE MARY HANNAH LEAVITT, Judge, HONORABLE JOHNNY J. BUTLER, Judge.
Employer Good Tire Service petitions for review of the March 27, 2008 order of the Workers' Compensation Appeal Board (Board) that reversed in part and modified in part the order of the Workers' Compensation Judge (WCJ) granting Employer's petition to review benefit offset. This case presents a novel issue under Section 319 of the Workers' Compensation Act (Act), Act of June 2, 1915, P.L. 736, as amended, 77 P.S. § 671:*fn1 whether an employer's pro-rata share of attorney's fees from a third-party settlement arising out of a work injury should be calculated based upon counsel's original contingent-fee agreement with the claimant or upon the actual amount ultimately paid, where counsel has reduced his fee. Characterizing the waived portion of the fee as a "gift," the Board ruled that Employer's share of the fee was to be calculated on the contractual amount rather than the amount actually retained by counsel from the settlement proceeds. Because we conclude that there is no principled or legal distinction between a fee that is refunded and one that is never taken in the first place, we reverse the Board's order.
The facts as found by the WCJ are as follows. In April 2004, Timothy Wolfe (Claimant) suffered a broken right leg as a result of an automobile accident that occurred while he was in the course and scope of his employment. Employer's insurer, Cincinnati Insurance Company, recognized the injury via the issuance of a notice of temporary compensation payable, which later converted to a notice of compensation payable. Based on an average weekly wage of $820.21, Claimant received weekly benefits of $547.21.
Claimant subsequently filed a third-party lawsuit arising out of the work injury. In September 2006, Claimant settled the lawsuit for a total of $75,000, having incurred litigation costs of $727.25. As of the date of the settlement, employer's insurer had paid $13,289.39 in wage loss benefits*fn2 and $34,969.93 in medical benefits, thereby bringing its total accrued lien against the third-party settlement recovery to $48,259.32.
Claimant and his counsel had entered into a contingent-fee agreement for forty percent of any amount recovered in the third-party lawsuit. Having received the settlement check at the conclusion of the lawsuit, Claimant's counsel deposited the forty-percent fee, $30,000, and then remitted $9,205.92 of that fee to Claimant when the proceeds were distributed. The record contains the following Settlement Distribution Statement:
Claimant's counsel took the position that the forty-percent contingent fee applied to the calculation of Employer's pro-rata recovery of its compensation lien, regardless of counsel's voluntary decision to refund a waived portion of the fee to Claimant. Accordingly, Claimant's counsel paid $28,478.67 to Employer's insurer from the $75,000 recovery.
The insurer, however, did not accept $28,478.67 as full payment. Instead, it calculated the recovery of its accrued lien and future grace period using an attorney's fee of $20,974.08, what the attorney kept as a fee after deducting the refunded amount of $9,205.92. It also took into account the $725.25 in litigation costs. Employer filed the petition to review benefit offset at issue, alleging that the subrogation claim had not been paid in full.
In granting Employer's petition, the WCJ concluded that "[t]he waived and refunded fee amount is not a reasonable attorney fee incurred in obtaining the recovery from a third party, within the meaning of Section 319 . . . ." WCJ's Conclusion of Law No. 1. Accordingly, the WCJ directed Claimant's counsel to reimburse the insurer $34,485.67 in satisfaction of the subrogation lien, allowing credit for a previous payment of $28,478.67. Claimant appealed from the WCJ's decision.
The Board reversed, characterizing the fee waiver as a "gratuity." Specifically, the Board noted:
[Employer] who has received reimbursement of its subrogation lien now seeks to receive an additional benefit of a gratuity that counsel extended to its client in light of the severe injuries not to mention pain and suffering that the client sustained. We hold that to recalculate the subrogation amount to reduce the third party recovery to the Claimant under these facts would be contrary to the humanitarian purposes of the ... Act in addition to the contractual rights of the parties.
Board's Decision at 6. Employer's timely petition for review to this Court followed.
In support of its position, Employer contends that the Board's determination that insurer's subrogation lien should be reduced by the full forty-percent fee, regardless of the fact that the full amount was not retained by counsel, contradicts well-established law that the statutory right of subrogation is an absolute right that cannot be altered or made subject to equitable principles. Thompson v. Workers' Comp. Appeal Bd. (USF&G Co.), 566 Pa. 420, 781 A.2d 1146 (2001); Stout v. Workers' Comp. Appeal Bd. (Pennsbury Excavating, Inc.), 948 A.2d 926 (Pa. Cmwlth.), appeal denied, ___ Pa. ___, 960 A.2d 457 (2008). Employer emphasizes that the only attorney's fees actually paid in this matter were $20,794.08, almost $10,000 less than the amount set forth in the fee agreement. Employer, therefore, urges this Court to reject the Board's erroneous ...