Present: All the Justices
YELLOW FREIGHT SYSTEMS, INC.
OPINION BY
v. Record No. 022244 JUSTICE LAWRENCE L. KOONTZ, JR.
June 6, 2003
COURTAULDS PERFORMANCE FILMS, INC., ET AL.
FROM THE CIRCUIT COURT OF HENRY COUNTY
David V. Williams, Judge
In this appeal, we consider whether the trial court
properly ruled that a petition filed under Code § 65.2-310 in a
civil action by an employer seeking to enforce subrogation
rights for workers’ compensation benefits paid was untimely.
BACKGROUND
The essential facts are not in dispute. On January 28,
1998, Milton Earl Oakley (Oakley), a driver for Yellow Freight
Systems, Inc. (Yellow Freight), was injured when he was exposed
to hazardous chemical fumes while making a delivery for his
employer to the Fieldale facility of Courtaulds Performance
Films, Inc. and CP Films, Inc. (collectively, Courtaulds).
Yellow Freight, which self-insures for workers’ compensation
coverage pursuant to Code § 65.2-305, paid to Oakley or on his
behalf $56,256.69 in workers’ compensation benefits. 1 In
proceedings before the Workers’ Compensation Commission,
Oakley’s benefits were terminated effective August 11, 1998.
1
Although the amount paid to Oakley or on his behalf is not
disputed, the question whether all the benefits paid were
On January 26, 2000, Oakley filed a motion for judgment in
the Circuit Court of Henry County (the trial court) against
Courtaulds seeking damages of $5,000,000 for his injuries under
theories of premises liability and products liability. 2 In
letters to Oakley’s counsel dated July 26, 2000 and September
27, 2000 from Jerry I. Campbell, Yellow Freight’s Subrogation
Claims Coordinator, Yellow Freight asserted that it had a “lien”
or “subrogation claim” of $56,256.69 against any monetary
recovery Oakley might obtain from Courtaulds as the result of
his lawsuit. During this period of time, Yellow Freight did not
file a petition or motion to enforce this claim in Oakley’s
lawsuit as permitted by Code § 65.2-310.
On June 1, 2001, Oakley entered into a settlement agreement
with Courtaulds, accepting $450,000 in exchange for a full
release of his claims against Courtaulds. The settlement
agreement provided, among other things, that “Oakley shall be
legally responsible for satisfying all outstanding liens arising
from or because of the injuries sustained by Oakley [on January
required under the Virginia Workers’ Compensation Act was not
resolved by the trial court and is not before us in this appeal.
2
The motion for judgment named four additional defendants,
all corporate entities associated with Courtaulds. Two of these
defendants were subsequently nonsuited by Oakley and two others
were dismissed with prejudice upon a determination that those
entities were not involved in the operation of the Fieldale
facility. These corporate entities are not parties to this
appeal.
2
28, 1998].” The agreement further provided that “while it is
the belief and intention of the parties that the claims
compensated herein are outside of those for which Oakley has
received any compensation under the Virginia Workers’
Compensation Act (the ‘Act’), [Courtaulds] will nonetheless hold
Oakley and his counsel harmless for any lien asserted by Yellow
Freight, Inc. under the Act.”
On June 7, 2001, Yellow Freight filed a petition, pursuant
to Code § 65.2-310, seeking to have the trial court determine
the amount of workers’ compensation benefits paid to Oakley or
on his behalf and to order Courtaulds to pay Yellow Freight that
amount from the proceeds of any judgment or compromise
settlement Oakley might have from Courtaulds. On June 8, 2001,
the trial court, without consideration of Yellow Freight’s
petition, entered an agreed order dismissing Oakley’s motion for
judgment with prejudice.
On June 22, 2001, Yellow Freight filed a motion to vacate
the June 8, 2001 order. Yellow Freight asserted that its
petition barred dismissal of the action until the trial court
had determined the amount of compensation paid by Yellow Freight
and ordered payment to it of that amount from the settlement
proceeds. Courtaulds and Oakley opposed Yellow Freight’s
motion.
3
On June 29, 2001, the trial court issued an opinion letter
indicating it had not been aware of Yellow Freight’s petition at
the time the order of dismissal was entered and concluding that,
because the petition had been filed before judgment was entered,
the dismissal was inappropriate without a full consideration of
Yellow Freight’s rights, if any. By order of even date, the
trial court vacated the June 8, 2001 order.
The parties filed briefs addressing the amount of Yellow
Freight’s claim and its enforceability in Oakley’s action
against Courtaulds. Relevant to the issue raised in this
appeal, Courtaulds and Oakley contended that the execution of
the settlement agreement and release on June 1, 2001 terminated
any claim Oakley might have had against Courtaulds and,
consequently, any right of subrogation of Yellow Freight.
Yellow Freight maintained that Code § 65.2-310 provided it with
the right to enforce a claim against any recovery by Oakley from
Courtaulds at anytime prior to the entry of judgment.
The trial court heard oral argument on March 20, 2002. In
an opinion letter dated March 26, 2002, the trial court opined
that “Yellow Freight’s petition under § 65.2-310 is untimely
because [Oakley’s] release of [Courtaulds] extinguished Yellow
Freight’s unmatured claim.” In a final order dated June 27,
2002 and incorporating by reference the rationale of the March
26, 2002 opinion letter, the trial court denied Yellow Freight’s
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petition and dismissed Oakley’s motion for judgment. We awarded
Yellow Freight this appeal.
DISCUSSION
This appeal involves the statutory scheme embodied in Code
§§ 65.2-309 and 65.2-310, parts of the Virginia Workers’
Compensation Act, which together afford an employer certain
rights to recover amounts paid to or on behalf of an injured
employee from a third party responsible for the injury. As
previously noted, the focus of the issue to be resolved is
whether Yellow Freight, the employer, timely asserted its
statutory rights as provided in this statutory scheme.
In relevant part, Code § 65.2-309(A) provides that “[a]
claim against an employer under this title for injury or death
benefits shall operate as an assignment to the employer of any
right to recover damages which the injured employee . . . may
have against any other party for such injury or death, and such
employer shall be subrogated to any such right.” Subsection (A)
further provides that the employer may enforce the legal
liability of the responsible party in an independent action
against that party. Code § 65.2-309(C) provides that any
“compromise settlement . . . made by the employer in the
exercise of such right of subrogation” must be approved by “the
[Workers’ Compensation] Commission and the injured employee.”
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Code § 65.2-310 provides protection to the employer by
allowing recovery of compensation paid to its employee and other
expenses paid on behalf of the employee when the employee files
an independent action against the responsible third party. In
relevant part, this statute provides that “[i]n any action by an
employee . . . against any person other than the employer, the
court shall, on petition or motion of the employer at any time
prior to verdict, ascertain the amount of compensation paid
. . . and, in event of judgment against such person . . .
require that the judgment debtor pay [the amount of] such
compensation” to the employer from the judgment with the balance
paid the employee. 3
Yellow Freight contends that the resolution of this appeal
is controlled by our decision in Liberty Mutual Insurance Co. v.
Fisher, 263 Va. 78, 557 S.E.2d 209 (2002). Specifically, Yellow
Freight relies upon our holding that “[t]he language of Code
§ 65.2-310 does not limit the lien rights created by Code
§ 65.2-309 when a compromise settlement is reached in a third-
party action brought by an injured employee or her personal
representative. The trial court’s duty to compute the amount
that an employer may recover under its lien is not limited to
3
Both statutes contain provisions for apportionment of
attorneys’ fees and costs between the employer and the employee,
but these provisions are not relevant to the issue raised in
this appeal.
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actions in which a verdict is reached and a judgment is
obtained.” Id. at 85, 557 S.E.2d at 212. Yellow Freight
asserts that, upon its payment of Oakley’s claims for workers’
compensation benefits, the rights afforded to it under Code
§ 65.2-309 constituted a lien against any recovery Oakley might
have against Courtaulds, whether by judgment or settlement.
Thus, Yellow Freight further asserts that under Code § 65.2-310,
the trial court was required to enforce those rights because
Yellow Freight filed its petition in the action filed by Oakley
consistent with the statutory provision that it do so “at any
time prior to verdict.” We disagree. Yellow Freight interprets
Liberty Mutual too broadly.
The holding of Liberty Mutual, while clearly instructive
regarding the statutory scheme considered here, is not
dispositive of the specific issue raised in this appeal and is
distinguished on two grounds. First, there was no question in
Liberty Mutual that the employer had timely asserted its right
of subrogation. Rather, the question was whether the employer
could recover benefits from persons who did not participate in
the settlement of a wrongful death action. Second, Liberty
Mutual involved the settlement of a wrongful death action and,
accordingly, the settlement was subject to approval by the trial
court under Code § 8.01-55. There is no corresponding
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requirement for trial court approval of a compromise settlement
by a plaintiff who, as in this case, is sui juris.
Although we recognize that in Liberty Mutual reference is
made to “the lien rights created by Code § 65.2-309,” in context
it is clear that the opinion was referring to rights that had
matured in the course of the legal proceedings of that case. It
is also clear that Code § 65.2-309 does not refer to “lien
rights” but, rather, to a “right of subrogation” in favor of the
employer who has paid benefits to or on behalf of an injured
employee. Our use of the term “lien rights” in Liberty Mutual
was merely a generic reference to the employer’s rights under
Code § 65.2-309. Moreover, as we will subsequently explain
herein, we are of opinion that to the extent that an employer
has subrogation rights created by Code § 65.2-309 against the
proceeds of a recovery from a third party responsible for an
employee’s injury, such rights must be perfected by adherence to
the provisions of Code § 65.2-310 when they are asserted under
that statute.
The General Assembly clearly contemplated that an employer,
in pursuing an independent action as a subrogee, could unfairly
prejudice the rights of an employee by entering into a
compromise settlement with the third party responsible for the
employee’s injuries. Accordingly, Code § 65.2-309(C) provides
that the employer receive the approval of the Workers’
8
Compensation Commission and the employee before entering into a
settlement of the employer’s claims under its right of
subrogation. This provision is mandatory and requires no
affirmative action on the part of the employee to protect his
rights. By contrast, Code § 65.2-310 makes no provision for
restricting the right of the employee to make a compromise
settlement of his claims against a third party without notice to
or approval from his employer. See Safety-Kleen Corp. v. Van
Hoy, 225 Va. 64, 70, 300 S.E.2d 750, 754 (1983). Thus, Code
§ 65.2-310 contemplates that the employer undertake affirmative
action to perfect its right of subrogation in cases in which the
employee has brought suit against a third party.
Subrogation is, in its simplest terms, the substitution of
one party in the place of another with reference to a lawful
claim, demand, or right so that the party that is substituted
succeeds to the rights of the other. See, e.g., Centreville Car
Care, Inc. v. North American Mortgage Co., 263 Va. 339, 345, 559
S.E.2d 870, 872 (2002); Reynolds Metals Co. v. Smith, 218 Va.
881, 883, 241 S.E.2d 794, 796 (1978). Thus, under Code § 65.2-
309, the payment of workers’ compensation benefits by an
employer merely substitutes the employer in the place of the
employee with respect to any right of recovery the employee may
have against a third party to the extent of the employer’s
payment of such benefits. However, the right of subrogation
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granted by this statute does not mature into an enforceable
claim or lien unless, and until the right is perfected by the
employer in accordance with the further provisions of this
statute or those of Code § 65.2-310.
In the context of an action by the employer under Code
§ 65.2-309, the filing of an action against the responsible
third party perfects the employer’s right of subrogation and,
thus, protects the employer from a subsequent settlement by the
employee/subrogor and the third party. In the context of an
action filed by the employee against the responsible third
party, the employer’s right of subrogation is perfected under
Code § 65.2-310 by the filing of a petition or a motion “at any
time prior to [a] verdict.” In the latter circumstance,
however, the employer’s claim against the proceeds of a recovery
from the third party is dependent upon the employee having a
viable claim against the third party at the time the petition or
motion is filed. The holding in Liberty Mutual is entirely
consistent with this conclusion. Cases involving voluntary
settlements by the parties to a suit negate the applicability of
a verdict as contemplated by Code § 65.2-310.
In the present case, at the time Yellow Freight filed its
petition to enforce its right of subrogation in Oakley’s action
against Courtaulds, Oakley had already entered into a compromise
settlement of his claims in exchange for a complete and absolute
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release of Courtaulds from any liability on those claims. As a
result, although Oakley’s motion for judgment was still pending
before the trial court, he no longer had an enforceable right of
recovery against Courtaulds on the claims asserted in that
pleading. Even though Yellow Freight’s petition was filed
“prior to [a] verdict,” its right of subrogation, arising from
Oakley’s released claims, was also no longer enforceable in that
action. Accordingly, we hold that the trial court did not err
in ruling that Yellow Freight’s petition was untimely and in
dismissing Oakley’s motion for judgment with prejudice.
CONCLUSION
For these reasons, we will affirm the judgment of the trial
court.
Affirmed.
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