Overhead Door Co. of Norfolk v. Lewis

COURT OF APPEALS OF VIRGINIA

Present: Judges Elder, Lemons and Senior Judge Cole
Argued at Richmond, Virginia

OVERHEAD DOOR COMPANY OF NORFOLK AND
HARTFORD FIRE INSURANCE COMPANY
OPINION BY
v. Record No. 0597-98-2 JUDGE LARRY G. ELDER
JANUARY 26, 1999
DANIEL LEE LEWIS

FROM THE VIRGINIA WORKERS' COMPENSATION COMMISSION
S. Vernon Priddy, III (Sands, Anderson,
Marks & Miller, on brief), for appellants.

No brief or argument for appellee.

Overhead Door Company of Norfolk and Hartford Fire Insurance

Company (collectively referred to as employer) appeal from a

decision of the Workers' Compensation Commission denying

employer's request to terminate or suspend an award of benefits

payable by employer to Daniel Lee Lewis (claimant). Employer

contends that claimant, who sustained his compensable injuries as

a result of third-party negligence, failed to consult employer

before settling a legal malpractice claim with an attorney whose

negligence prevented claimant from recovering on the third-party
1
claim. Employer contends the commission erred (1) in failing to

1
Employer filed an earlier application for hearing seeking
to terminate claimant's benefits on grounds not directly related
to this appeal. In Overhead Door Co. of Norfolk v. Lewis, 22 Va.
App. 240, 468 S.E.2d 700 (1996), a panel of this Court held that
the negligence of claimant's attorney in the third-party suit,
which resulted in employer's loss of its subrogation rights,
could not be imputed to claimant and, therefore, would not serve
as a basis for termination of benefits.
exercise its equitable powers to prevent claimant from realizing

a double recovery; (2) in holding that employer had to have a

valid lien on the malpractice settlement proceeds before the

commission had power to grant the termination or credit employer

sought; (3) in applying res judicata and/or collateral estoppel,

based on prior circuit court rulings regarding employer's

entitlement to a lien, to bar the application for termination or

suspension of benefits; (4) in refusing to terminate claimant's

claim after he settled his legal malpractice claim without

employer's authorization; and (5) in issuing an opinion under the

names of Commissioners Tarr, Dudley and Diamond, when the panel

before which the parties argued consisted of Commissioners Tarr

and Dudley and Chief Deputy Commissioner Link. For the reasons

that follow, we affirm the commission's ruling.
I.

FACTS

While working for employer in 1990, claimant was injured in

a motor vehicle accident in North Carolina due to the negligence

of a third party. The commission entered an award for benefits,

and claimant hired an attorney to pursue an action against the

third party tortfeasor. The attorney failed to have the suit

served in a timely fashion, and claimant's negligence action was

dismissed with prejudice.

Claimant filed a malpractice action in the Virginia Beach

Circuit Court against the attorney and his law firm. Employer

- 2 -
filed a notice of lien on the malpractice proceeds in that same

court, alleging that it had paid over $120,000 in disability and

medical benefits for claimant and that the Workers' Compensation

Act (Act) entitled it to such a lien. Claimant and the attorney

filed a joint motion to quash employer's notice of lien. They

contended that Code §§ 65.2-309 and 65.2-310 provide an employer

with subrogation rights when the injured employee recovers from a

third party who caused the injury but that those code sections do

not provide subrogation rights when the employee seeks damages

from a party who did not cause the employee's injury. After

considering the parties' pleadings and arguments, the trial court

granted the motion to quash, 2 and claimant and the attorney

settled the malpractice suit.

Employer petitioned the Virginia Supreme Court for an appeal

of the trial court's order quashing the lien. On September 8,

1995, the Court denied the petition on the merits, finding "no

reversible error."

While awaiting the outcome of its appeal, employer pursued

two other potential avenues for recovery. It filed an

independent action for malpractice against the attorney in the

Richmond Circuit Court, which was dismissed on the attorney's
3
motion for summary judgment. It also filed an application for
2
No transcript of any proceedings before the Virginia
Beach Circuit Court appears in the record.
3
Employer indicates on brief to this Court that the
Supreme Court also refused its petition for appeal on this
ruling.

- 3 -
hearing before the commission, the same application on which the

current appeal is based, alleging that claimant's failure to

obtain employer's consent prior to settling the malpractice claim

prejudiced employer's "statutory assignment and subrogation

rights" and seeking termination or suspension of benefits.

Claimant contended that employer raised the same issue already

ruled on by the Virginia Beach Circuit Court and that res

judicata and/or collateral estoppel therefore barred employer's

application. Following briefs submitted by the parties in

December 1995, the deputy commissioner issued an opinion adopting

employer's arguments and suspending claimant's benefits. On

appeal, following oral argument, the full commission issued an

opinion reversing the deputy commissioner's suspension of

benefits. It held that (1) absent a lien, the commission could

not enforce any subrogation rights and that res judicata and
collateral estoppel applied to bar any credit or suspension of

benefits because the circuit courts already had concluded that no

valid lien existed, and (2) because of the circuit courts'

rulings, employer had no legally enforceable right which was

prejudiced when claimant settled the malpractice claim without

consulting employer.

II.

ANALYSIS

A.

COMMISSION'S AUTHORITY TO TERMINATE OR SUSPEND BENEFITS

- 4 -
 Code § 65.2-309(A) provides, in relevant part, as follows:
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,
his personal representative or other person
may have against any other party for such
injury or death, and such employer shall be
subrogated to any such right and may enforce,
in his own name or in the name of the injured
employee or his personal representative, the
legal liability of such other party.

"The purpose of the statute is to reimburse an employer who is

compelled to pay compensation as a result of the negligence of a

third party and to prevent an employee from obtaining a double

recovery of funds." Tomlin v. Vance Int'l, Inc., 22 Va. App.

448, 452, 470 S.E.2d 599, 601 (1996). Under Code § 65.2-310, an

employer may petition the court for a lien against the

third-party judgment in the amount of compensation and other

benefits employer has paid. If the employee impairs the

employer's right of subrogation by settling the claim without the

employer's knowledge and consent, even when the employer has

general knowledge that the third-party action is pending,

employer may be entitled to a termination of the employee's

benefits under the Act. See Green v. Warwick Plumbing & Heating,

5 Va. App. 409, 411, 364 S.E.2d 4, 6-7 (1988).

We hold that the commission did not err in concluding it

lacked authority to provide the requested relief pursuant to Code

§§ 65.2-309 and 65.2-310. In employer's earlier appeal of the

circuit court's denial of its request for a lien, the Virginia

- 5 -
Supreme Court denied employer's petition on the merits. See

Harward v. Commonwealth, 5 Va. App. 468, 476, 364 S.E.2d 511, 515

(1988) (noting that "'decision to . . . refuse a petition for

writ of error is based upon . . . the merits of the case'"

(quoting Saunders v. Commonwealth, 214 Va. 697, 700, 204 S.E.2d

421, 424 (1974))). This denial constituted a ruling that Code

§§ 65.2-309 and 65.2-310 do not permit any employer to obtain a

lien on proceeds from a legal malpractice suit under the facts of

this case. See id. (noting that "doctrine . . . appl[ies] even

when 'the precise issue involved' resulted in denial of a

petition for a writ of error in a separate case'" (quoting

Stillwell v. Commonwealth, 219 Va. 214, 226, 247 S.E.2d 360, 368

(1978))). But see Williams v. Katz, 23 F.3d 190, 192-94 (7th

Cir. 1994) (holding, under similar Illinois statute, that

employer was entitled to lien on legal malpractice proceeds,

which had been awarded in lieu of damages for medical malpractice

resulting from treatment for compensable injury); Bongiorno v.
Liberty Mut. Ins. Co., 630 N.E.2d 274, 277-78 (Mass. 1994)

(holding, under similar statute, that general intent of

legislature permitted employer to obtain lien on legal

malpractice proceeds recovered by employee in lieu of damages

from third-party tortfeasor); see also Toole v. EBI Cos., 838

P.2d 60, 65-66 (Or. 1992) (en banc); Frazier v. New Jersey Mfrs.

Ins. Co., 667 A.2d 670, 674-76 (N.J. 1995). Therefore, claimant

had no duty under the Act to consult with employer prior to

- 6 -
settling the malpractice claim, and the commission had no

authority under the Act to terminate claimant's benefits or give

employer a credit for the amount of the malpractice proceeds.

See also Code § 65.2-310 (providing that, in any third-party

action by an employee which results in a judgment, the court

shall ascertain the amount of benefits paid by employer under the

Act and order the third party to pay this amount directly to

employer prior to paying the employee); Jones v. Arlington Hosp.,

61 O.I.C. 252, 253 (1982) (holding that whether employer has a

valid lien on judgment against third-party tortfeasor is

determination for court, not commission).
Because we affirm the commission's ruling based on the

precedential impact of the Supreme Court's ruling, we need not

consider whether the commission erroneously applied the doctrines

of res judicata or collateral estoppel to bar employer's request

for relief. See, e.g., Dziarnowski v. Dziarnowski, 14 Va. App.

758, 762, 418 S.E.2d 724, 726 (1992) (upholding right result on

appeal, even if reached for wrong reason).

Employer nevertheless contends that the commission had, and

wrongly failed to exercise, the equitable power to award employer

such a credit even in the absence of a lien. We reject this

argument. On appeal to this Court, employer cites various cases

from this Court and the Virginia Supreme Court, asserting the

"ample power [of the commission] to do complete justice in each

- 7 -
case." 4 These cases deal with the doctrine of imposition, which

has evolved as a method by which the commission may exercise its

equitable power, 5 although employer did not expressly mention

this doctrine as a basis for its request. As we have noted

repeatedly, the doctrine of imposition focuses on a party's or

the commission's "use of superior knowledge [of, or] experience

with[,] the . . . Act or use of economic leverage, which results

in an unjust deprivation" of benefits under the Act or an unjust

application of the Act's provisions. See Butler v. City of
4
Employer also cites two commission cases. We find those
decisions factually distinguishable and, in any event, they would
not be binding on this Court.
5
The Supreme Court discussed these equitable principles in
Harris v. Diamond Construction Co., 184 Va. 711, 36 S.E.2d 573
(1946). In that case, the Court was presented with the issue of
whether the commission had the implied power to review and vacate
an award upon a petition presented after expiration of the normal
statutory review period. It concluded that

when the General Assembly established the
[commission] for the summary disposition of
cases arising out of industrial accidents, it
intended that that tribunal should have
jurisdiction to do full and complete justice
in each case. It granted to the [c]ommission
the power and authority not only to make and
enforce its awards, but to protect itself and
its awards from fraud, imposition and
mistake.
Id. at 720, 36 S.E.2d at 577. As a result, the Court held that
"the [commission] has the implied power, incidental to those
[powers] expressly granted [by the legislature], to entertain and
hear an application, seasonably presented, to vacate and set
aside an award procured through fraud or mistake." Id. at 721,
36 S.E.2d at 578. It also held that "[w]hether an application is
seasonably made must necessarily depend upon the facts and
circumstances of the particular case" and is not dependent upon a
statutory period for reconsideration or review. Id.

- 8 -
Virginia Beach, 22 Va. App. 601, 605, 471 S.E.2d 830, 832 (1996).

In every case in which this Court or the Virginia Supreme Court

has applied the doctrine of imposition, however, the commission

either (1) could have exercised jurisdiction under the Act to

render the requested result but did not formally obtain it due to

the failure of a party to perform some act in a timely fashion 6

or (2) actually exercised its jurisdiction under the Act to enter

an award but later learned that the award was erroneous due to

some misinformation. 7 We are unaware of any Virginia appellate

cases applying the doctrine of imposition to permit the

commission to exercise jurisdiction or to grant a form of relief

never authorized by the Act under any circumstances, and we are

unwilling to give the doctrine such an interpretation under the

facts of this case. In any event, the doctrine would be

inapplicable because the benefit accruing to the claimant in this

case did not result from his use of superior knowledge or

6
In Avon Products, Inc. v. Ross, 14 Va. App. 1, 7-8, 415
S.E.2d 225, 228-29 (1992), we applied the doctrine to permit
entry of an award on an application for change in condition where
the employer mistakenly represented to the claimant that it
timely had filed all documents necessary to assure entry of the
award. See also Odom v. Red Lobster # 235, 20 Va. App. 228,
234-35, 456 S.E.2d 140, 143-44 (1995) (applying imposition to
permit claimant's late filing of claim where acts of employer and
commission had led her to believe timely claim had been filed).
7
In John Driggs Co. v. Sommers, 228 Va. 729, 734-35, 324
S.E.2d 694, 697-98 (1985), the Court applied the doctrine to
modify an award in order to relieve the claimant of an erroneous
average weekly wage calculation prepared by the employer because
the calculation "substantially deviate[d] from the statutory
guidelines."

- 9 -
experience with the Act or economic leverage. Finally, employer

has cited no other statute or legal principle supporting the

result it seeks. In the absence of such citation, we conclude

that the commission did not err in failing to exercise equitable

authority separate from Code §§ 65.2-309 and 65.2-310 to

terminate claimant's benefits or award employer a credit against

any future benefits.

B.
DISCREPANCY IN COMPOSITION OF COMMISSION PANEL
HEARING ARGUMENT AND ISSUING OPINION

Lastly, employer contends that Commissioner Diamond

improperly joined the opinion in this matter because Commissioner

Diamond was not present at oral argument. According to a

certified copy of the docket sheet from the commission's November

10, 1997 oral arguments, Chief Deputy Commissioner Link sat in

lieu of Commissioner Diamond. Although acknowledging the

commission's authority under Code § 65.2-704(B) to permit a

deputy commissioner to participate for an absent commissioner,

employer contends that inclusion, in the resolution of a matter,

of a commissioner who did not hear oral argument constitutes a

denial of due process.

We see no indication in the record that employer presented

this argument for the commission's consideration. Based on the

record before us, we have no way of ascertaining whether

Commissioner Diamond improperly participated in the deliberations

after argument for which she was not present or whether the

- 10 -
inclusion of her name and initials on the opinion was a mere

oversight. We recognize that employer was unaware of this

alleged problem until the commission issued its written opinion

and could not have raised the issue prior to that point, but we

see no reason why employer could not have given the commission an

opportunity to correct this alleged error prior to appeal. See

Code § 65.2-706 (providing that party may appeal award by filing

notice within thirty days after entry or receipt of award); Rule

5A:11; see also Anthony v. Coppedge Hauling, Inc., No. 131-71-63
(Va. Workers' Comp. Comm'n June 15, 1995) (on motion for

rehearing, vacating full commission's order and referring matter

to hearing docket); Cline v. Shenandoah Presbytery Corp., No.

145-59-79 (Va. Workers' Comp. Comm'n Feb. 25, 1994) (same).

Employer conceded this fact at oral argument but contended it

should be allowed either option--to present the issue to the

commission or simply to raise the issue on appeal to this Court.

Under Rule 5A:18,
[n]o ruling of the trial court or the
Virginia Workers' Compensation Commission
will be considered as a basis for reversal
unless the objection was stated with the
grounds therefor at the time of the ruling,
except for good cause shown or to enable the
Court of Appeals to attain the ends of
justice.

This procedural bar applies even to constitutional claims. See,

e.g., Deal v. Commonwealth, 15 Va. App. 157, 161, 421 S.E.2d 897,

900 (1992). Under these principles, we hold that our review of

this issue is barred.

- 11 -
For these reasons, we affirm the commission's ruling.

Affirmed.

- 12 -