United States Court of Appeals
For the First Circuit
No. 06-1417
ITT FEDERAL SERVICES CORP.
and PACIFIC EMPLOYERS INSURANCE COMPANY,
Plaintiffs, Appellants,
v.
HARRY ANDUZE MONTAÑO, HIS WIFE
MARIA DOLORES FERNÓS, AND THEIR
RESPECTIVE CONJUGAL PARTNERSHIP,
NOELMA COLÓN CORDOVÉS, HER HUSBAND JOHN DOE,
AND THEIR RESPECTIVE CONJUGAL PARTNERSHIP,
“LMN” INSURANCE COMPANY, “XYZ” INSURANCE COMPANY,
“ABC” INSURANCE COMPANY, and “EFG” INSURANCE COMPANY,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO
[Hon. Patti B. Saris, U.S. District Judge]
Before
Howard, Circuit Judge,
Baldock * and Stahl, Senior Circuit Judges.
Keith L. Flicker with whom Robert N. Dengler, Michelle
P. Cavalieri and Flicker, Garelick & Associates, LLP were on
brief for appellants.
Giancarlo Font Garcia with whom Rivera-Carrasquillo,
Martinez & Font were on brief for appellees.
January 26, 2007
*
Of the Tenth Circuit Court of Appeals, sitting by
designation.
BALDOCK, Senior Circuit Judge. The principal issue
in this appeal is whether the Longshore and Harbor Workers’
Compensation Act (LHWCA), 33 U.S.C. §§ 901-950, provides a
covered employer and its insurance carrier with a statutory
right to seek damages against an injured employee’s
attorneys for legal malpractice in pursuing the employee’s
claims against a responsible third party. We hold the LHWCA
provides no such right.
I.
Edgar O. Colón was an employee of Plaintiff ITT
Federal Services Corp. (ITT), stationed at a United States
naval installation in Puerto Rico. He was injured when a
Navy pilot errantly dropped two bombs near the control tower
where Colón was working as a target control specialist.
Colón suffered serious injuries. As a result, Colón,
through his attorneys, Defendants Harry Anduze Montaño and
Noelma Colón Cordovés, filed an administrative compensation
claim against ITT and its insurance carrier’s claim
administrator. ITT’s insurance carrier is Plaintiff Pacific
Employers Insurance Co. (PEI). Colón sought benefits under
the Defense Base Act, 42 U.S.C. §§ 1651-1654, which by its
terms incorporates the LHWCA. See id. § 1651. Colón
eventually settled his compensation claim with ITT and PEI
in exchange for a total benefit package exceeding $305,000.
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Prior to the aforementioned settlement, Defendant
Attorneys also filed suit in federal district court on
Colón’s behalf under the Federal Tort Claims Act (FTCA), 28
U.S.C. §§ 1346(b), 2401(b), 2671-80. The complaint, which
sought $12 million in damages, named the United States
Department of the Navy and ITT as defendants. The district
court dismissed the tort claims against the Navy because the
FTCA precludes suits against “military departments.” See
id. §§ 2671, 2679(a). Rather, the United States is the only
proper party defendant to a FTCA suit. See id. §§ 1346(b),
2674, 2679. The district dismissed the pendent tort claims
against ITT because the LHWCA provided Colón an exclusive
remedy (as against his employer) for his injuries See 33
U.S.C. § 905(a). In the meantime, Colón had settled his
administrative claim with ITT and PEI. Presumably satisfied
with his settlement, Colón did not seek to amend his
complaint to name the United States as a party defendant or
to appeal the district court’s judgment. That judgment
became final after the FTCA’s two year statute of
limitations had expired. See 28 U.S.C. § 2401(b).
II.
Over $305,000 in the hole, Plaintiffs ITT and PEI
subsequently filed the present suit alleging they had a
statutory right under the LHWCA to seek damages against
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Defendants for legal malpractice in pursuing Colón’s FTCA
action against the Government. 1 Relying on our decision in
Moores v. Greenberg, 834 F.2d 1105 (1st Cir. 1987), the
1
Plaintiffs further alleged Defendants breached a
legal duty owed to them under Puerto Rico law in pursuing
Colón’s FTCA action against the United States. We, like the
district court, reject any suggestion that Defendants owed
Plaintiffs such a duty under the circumstances of this case.
The general rule is that an attorney owes a duty of care to
a client. See One Nat’l Bank v. Antonellis, 80 F.3d 606,
609 (1st Cir. 1996). Obviously, Plaintiffs do not fit
within the general rule because they are not, nor have they
ever been to our knowledge, clients of Defendants. Instead,
Plaintiffs reference the foreseeable reliance exception to
the general rule as the basis of Defendants’ duty to them.
See id. (applying Massachusetts law). Under the exception,
a duty to a nonclient may arise if an attorney should
reasonably foresee that the nonclient will rely upon the
attorney’s rendering of legal services to the client. See
id. Assuming Puerto Rico law encompasses such exception,
however, no independent duty to a nonclient arises if such
duty “would potentially conflict with the duty the attorney
owes to his or her client.” Id. (internal quotations
omitted)(emphasis added). In granting summary judgment to
Defendants on Plaintiffs’ commonwealth claim, the district
court ably noted two sources of likely conflict between
Plaintiffs and Colón which foreclosed application of the
foreseeable reliance exception. In the administrative
action, Plaintiffs were adversaries of Colón. Defendants
had a duty to Colón to seek compensation from Plaintiffs ITT
and PEI. In the FTCA action, filed while the administrative
action was still pending, Colón named ITT (plus an unknown
insurance company) as a defendant. This again placed
Defendants’ client in a position adverse to Plaintiffs.
Lastly, we note that under Plaintiffs’ theory of the case,
an employee’s instruction to his attorney to discontinue
pursuing an action against a third party tortfeasor would
necessarily place that attorney in a quandary if the
attorney owed a concurrent duty to the nonclient employer
and its insurance company to continue pursuing the action
simply because the latter had met its legal obligation to
pay worker compensation benefits.
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district court dismissed Plaintiffs’ claim pursuant to Fed.
R. Civ. P. 12(b)(6), and Plaintiffs appealed. Our review is
de novo. See Isla Nena Air Serv., Inc. v. Cessna Aircraft
Co., 449 F.3d 85, 87 (1st Cir. 2006).
A.
Subsection 933(b) of the LHWCA, as amended,
provides a limited right of subrogation to the employer
where its employee recovers under the LHWCA for injuries
proximately caused by a third person:
Acceptance of compensation under an
award in a compensation order filed by a
deputy commissioner, an administrative law
judge, or the [Benefits Review] Board
shall operate as an assignment to the
employer of all rights of the person
entitled to compensation to recover
damages against such third person unless
such person shall commence an action
against such third person within six
months after such acceptance.
33 U.S.C. § 933(b). If the employee commences an action
against the third person as provided in the LHWCA, a
corresponding judicially created lien attaches in favor of
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the employer for benefits paid up to the amount of the
employee’s recovery. See Edmonds v. Compagnie Generale
Transatlantique, 443 U.S. 256, 269-70 (1979); Hartford
Accident & Indem. Co. v. Oceancarrier Shipholding, 799 F.2d
1093, 1095-96 (5th Cir. 1986). If the employee does not
institute suit within the six month period, the employer
then has ninety days to institute its own suit against the
third person. 33 U.S.C. § 933(b). If the ninety days
elapses without the employer having filed suit, the right of
action against the third person reverts to the employee.
Id. Where an employer’s insurance carrier has paid the
compensation due under the LHWCA, the Act subrogates the
employer’s rights to the carrier. Id. § 933(h).
B.
According to Plaintiffs, § 933(b) creates a
“subrogation lien” in their favor on any legal malpractice
claim Colón might have against Defendants. 2 Unfortunately
for Plaintiffs, neither § 933’s narrow language nor our
precedent construing it supports their position. 3 Section
2
Plaintiffs in reality claim a right of subrogation,
which they inartfully label a “subrogation lien,” to any
cause of action Colón might have against Defendants.
Plaintiffs’ purported lien remains inchoate because no
proceeds exist to which it may attach.
3
As a requisite to § 933(b)’s application, we assume
that Colón’s settlement with Plaintiffs for compensation
benefits resulted in an “order filed by the deputy
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933 is entitled “Compensation for injuries where third
persons are liable.” The LHWCA defines the term “injury” as
an “accidental injury. . . arising out of and in the course
of employment . . . .” Id. § 902(2); see also id. § 902
(22) (“The singular includes the plural . . . .”).
Subsection (a) of § 933 speaks of third person liability “on
account of a disability . . . for which compensation is
payable under this chapter . . . .” Id. § 933(a).
Subsection (b) provides under specified circumstances “an
assignment to the employer of all rights of the person
entitled to compensation to recover damages against such
third person . . . .” Id. § 933(b).
The only “injury” § 933 addresses is the harm Colón
sustained in “the course of employment” – that is, the harm
caused by the Navy pilot’s errant bombing of Colón’s
position in the control tower. The third person liability
§ 933 addresses is the liability of the person or entity
causing the disability “for which compensation is payable”
under the LHWCA – that is, the liability of the United
States under the FTCA for the Navy pilot’s negligence.
Simply put, the injury, if any, for which Colón’s attorneys,
Defendants, are responsible in no sense occurred in the
commissioner, an administrative law judge, or the Board”.
The record is silent on this matter and neither party raises
the point.
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course of Colón’s employment. Nor in any sense did
Defendants’ purported misfeasance entitle Colón to
compensation under the LHWCA. Thus, § 933(b)’s limited
assignment of rights to an employer does not encompass
Plaintiffs’ present claim against Defendants.
The result we reach is consistent with First
Circuit precedent. Albeit in a factually different context,
we reasoned in Moores, 834 F.2d at 1113, that a maritime
employer’s compensation lien for benefits paid an employee
under the LHWCA “died of natural causes when the supposedly
culpable third parties . . . were exonerated” in a third
party action. Id. In upholding an instruction directing
the jury to reduce any malpractice award by the amount of
compensation benefits paid the employee (an instruction
designed to prevent double recovery), we rejected the
argument that the employee might “take a double dip from his
exchequer” because, according to the employee, such lien
would attach to the proceeds of the employee’s award against
his former attorney. Id. We explained that a physical
injury arising in the course of a covered worker’s
employment “is separate and distinct” from a legal injury
arising out of an attorney’s misfeasance in pursuing a third
party tortfeasor responsible for such injury. Id.
Consistent with § 933(b)’s narrow language, we concluded the
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employer’s right to reimbursement for compensation paid
extends only to damages recovered for the injury sustained
in the course of employment – “and no further.” Id.
To be sure, two recognized purposes of § 933 are to
protect employers who incur absolute liability under the
LHWCA and to place ultimate responsibility upon the
tortfeasor whose negligence directly resulted in such
liability. See Louviere v. Shell Oil Co., 509 F.2d 278, 283
(5th Cir. 1975) (Wisdom, J.). 4 That our decision might
ostensibly frustrate these purposes, however, is
insufficient reason to ignore the language of § 933 and our
prior precedent. Prior to the dismissal of Colón’s FTCA
suit, to which Plaintiff ITT was a party, ITT could have
sought to protect its interests in a number of ways. Among
the alternatives available under the rules of procedure,
Plaintiffs could have (1) filed a third party complaint
against the United States, (2) filed a cross complaint
against the Navy and then moved to substitute the United
4
Section 933 also reflects a policy of avoiding double
recovery. See Ingalls Shipbuilding, Inc. v. Director,
Office of Workers’ Comp. Programs, 519 U.S. 248, 261 (1997).
The possibility of double recovery in this case, however,
appears remote. Colón has forfeited his right under the
FTCA to pursue damages against the United States and, to our
knowledge, has not sought to recoup his loss through a
malpractice action against Defendants. Thus, § 933’s policy
against double recovery remain inviolate.
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States as the proper defendant, or (3) asked the court to
join the United States as a defendant and realign the
parties to reflect their real interests. At the same time,
to protect its interest, Plaintiff PEI could have sought to
intervene in Colón’s suit and accompany ITT in its pursuit
of the United States. That Plaintiffs chose not to protect
their interests in one or more of these ways but instead
chose to sue Colón’s attorneys does not provide us license
to reach the result they desire. 5
AFFIRMED.
5
We also note that Plaintiffs may have had other
rights of recoupment apart from § 933. See Louviere, 509
F.2d 278, 282-84 (holding § 933 does not preempt
nonstatutory rights of action an employer may have for
compensation payments made to an employee).
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