Kelly v. Red Fox Companies of New Iberia Inc.

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
February 2, 2005
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
Clerk

No. 04-60538
Summary Calendar

GERALD A. KELLY,

Petitioner,

versus

RED FOX COMPANIES OF NEW IBERIA INCORPORATED;
LOUISIANA WORKERS’ COMPENSATION CORPORATION;
DIRECTOR, OFFICE OF WORKERS’ COMPENSATION PROGRAMS, U.S.
DEPARTMENT OF LABOR;

Respondents.

______________________

Petition for Review of an Order
of the Benefits Review Board
No. 03-0505
______________________

Before REAVLEY, JOLLY, and HIGGINBOTHAM, Circuit Judges.

PER CURIAM:*

Gerald Kelly was injured during the course of his employment

with Red Fox Companies, and received medical and disability

benefits under the Longshore and Harbor Workers Compensation Act

(“LHWCA”) from Red Fox’s insurance carrier, Louisiana Worker’s

Compensation Corporation (“LWCC”). Kelly then filed a tort suit

against Red Fox and Diamond Offshore Drilling (“Diamond”) in which

*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
LWCC intervened. Red Fox was dismissed from the suit on account of

its status in bankruptcy proceedings. Thereafter, LWCC filed a

motion to dismiss its intervention upon determining that Red Fox

had contractually waived its right of subrogation as to Diamond.

Following the dismissal of LWCC, Kelly and Diamond settled for

$25,000, and the court issued a full and final release and

dismissed the suit. LWCC subsequently terminated all benefits to

Kelly because he had failed to obtain LWCC’s prior written approval

for the third-party settlement.

Kelly challenged this termination of benefits, and the

administrative law judge granted Red Fox and LWCC’s motion for

summary judgment. On appeal, the Benefits Review Board affirmed,

finding that Kelly had failed to obtain written approval from

either Red Fox or LWCC for his settlement with Diamond as required

by 33 U.S.C. § 933(g)(1). In addition, the BRB found that LWCC was

not involved in the settlement negotiations to such an extent as to

render the requirements of § 933(g)(1) inoperative, and that Red

Fox’s waiver of its subrogation rights in its contract with Diamond

did not obviate LWCC’s § 933(g)(1) protections. We affirm.

Our review of a decision by the BRB is limited in scope to

“considering errors of law and making certain that the BRB adhered

to its statutory standard of review of factual determinations, that

is, whether the ALJ’s findings of fact are supported by substantial

2
evidence and [are] consistent with the law.”1 A person entitled to

compensation under the LHWCA may both recover compensation from his

or her employer, and pursue a separate negligence action against a

third party.2 If the person obtains damages from a third party,

the employer is entitled to a lien on the recovery or an offset

against such recovery.3 In the event that the person reaches a

settlement with a third party for an amount less than the person

would otherwise be entitled under the LHWCA, “written approval of

the settlement [must be] obtained from the employer and the

employer’s carrier, before the settlement is executed, and by the

person entitled to compensation.”4 If such written approval is not

obtained, “all rights to compensation and medical benefits under

[the LHWCA] shall be terminated, regardless of whether the employer

1
Ortco Contractors, Inc. v. Charpentier, 332 F.3d 283, 287
(5th Cir. 2003) (internal quotations marks and citations omitted).
2
33 U.S.C. § 933(a).
3
See Phillips v. W. Co. of N. Am., 953 F.2d 923, 931 n.9 (5th
Cir. 1992) (Under the LHWCA, “[t]he employer is compelled to pay
the benefits regardless of whether it was negligent or not. In
return, the employer takes a lien for the total amount of benefits
paid on any judgment or settlement the employee may later obtain.
Accordingly, the injured employee is fully – but not doubly –
compensated; the tortfeasor pays for the injuries for which it is
responsible and the employer recovers so much of its worker’s
compensation payments as is attributable to the tortfeasor’s
negligence.” (quoting Stifle v. Marathon Petroleum Co., 876 F.2d
552, 560 (7th Cir. 1989) (internal quotation marks omitted)); 33
U.S.C. § 933(f) (providing that an employer may offset an
employee’s third party recovery against its obligation to pay
compensation under the LHWCA).
4
33 U.S.C. § 933(g)(1).

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or the employer’s insurer has made payments or acknowledged

entitlements to benefits under [the LHWCA].”5

In his first point of error, Kelly contends that the BRB

erroneously determined that LWCC’s awareness of and discussions

about the settlement with Diamond did not render the § 933(g) bar

inapplicable. Specifically, Kelly contends that the settlement was

discussed with counsel for LWCC prior to its finalization, and that

counsel for LWCC was knowledgeable of the settlement throughout the

negotiation process. However, Kelly does not argue – nor does the

record suggest – that LWCC or Red Fox directly participated in the

settlement negotiations or approved the final agreement.

Our court has consistently found that failure to obtain

written approval of a settlement with a third party places an

absolute bar on the receipt of further compensation from an

employer or the employer’s carrier under the LHWCA.6 This approach

was questioned but not disavowed by the Supreme Court in Estate of

5
33 U.S.C. § 933(g)(2).
6
See Nicklos Drilling Co. v. Cowart, 907 F.2d 1552, 1554 (5th
Cir. 1990) (“[W]e hold that there are no exceptions whatever to the
‘unqualified’ language of § 933.”), aff’d on reh’g, 927 F.2d 828
(1991), aff’d Estate of Cowart v. Nicklos Drilling Co., 505 U.S.
469 (1992); Jackson v. Land & Offshore Servs., Inc., 855 F.2d 244,
246 (5th Cir. 1988) (finding that the language of § 933(g)(1) does
not support a “waiver of subrogation” exception to the written
approval requirement); Petroleum Helicopters, Inc. v. Collier, 784
F.2d 644, 647 (5th Cir. 1986) (finding that both the language of
§ 933(g)(1) and its legislative history “admits no exception to the
written approval requirement”).

4
Cowart v. Nicklos Drilling Co.,7 in which the Court refused to

decide whether participation by an employer or its carrier in a

third party settlement serves to fulfill or even eliminate the

written notice requirement. The Court noted, however, that

§ 933(g)’s forfeiture penalty creates “a trap for the unwary,” and

presents the “stark and troubling possibility that significant

numbers of injured workers or their families may be stripped of

their LHWCA benefits by this statute.”8

In I.T.O. Corp. of Baltimore v. Sellman, the Fourth Circuit

refused to impose a complete bar on future compensation in the

absence of a written approval, finding that an employer’s failure

to provide written approval of a third party settlement agreement

did not serve to terminate the employer’s obligation to provide

compensation under the LHWCA when the employer directly and fully

participated in both the third party action and the settlement

negotiations leading to the execution of what amounted to a “joint”

settlement agreement.9 In addition, the BRB has found that an

employer’s participation in a third party settlement agreement can

serve to obviate the need for written approval of the agreement

7
505 U.S. 469 (1992).
8
Id. at 483.
9
954 F.2d 239, 242 (4th Cir. 1992).

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under § 933(g)(1).10

We are compelled to abide by the precedent of this court.

Regardless, even if free to do so, the facts of this case would not

compel us to depart from our settled interpretation of § 933(g)(1).

Kelly has presented no evidence that LWCC directly participated in

the settlement negotiations with Diamond , or that LWCC approved of

the resulting agreement. Rather, Kelly alleges only that LWCC had

knowledge of the settlement negotiations, and that LWCC discussed

them with him on isolated occasions prior to their conclusion.

Assuming that these allegations are true, they fail to offer a

compelling reason for disregarding the clear and unambiguous

written notice requirement of § 933(g)(1).

In his second point of error, Kelly argues that § 933(g)(1)

should not apply in the present case because Red Fox contractually

waived its right to subrogation as to Diamond , and therefore was

not prejudiced by the settlement. Our court has held, however,

that § 933(g)(1) protects both the employer’s right to

reimbursement from any settlement fund created by the third party,

and a right to an off-set against compensation benefits for amounts

received by way of a third party settlement. An employer that has

waived its right to subrogation still has a significant interest in

the outcome of any third party settlement agreement as the proceeds

10
See Gremillion v. Gulf Coast Catering Co., 31 BRBS 163
(1997); Deville v. Oilfields Indus., 26 BRBS 123 (1992).

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from such a settlement would be off-set against the employer’s

compensation liability. As a result, an employer’s waiver of its

right to subrogation does not serve to eliminate the written notice

requirement of § 933(g)(1).11 Kelly’s second point is unavailing.

In his third point of error, Kelly claims that LWCC violated

his due process right to attempt to re-open his claim in the

district court based on the issues raised in connection with

severance of benefits when it failed to timely copy him with the

written notice of suspension of benefits that was sent to the

Department of Labor pursuant to statutory requirements.12 Kelly has

failed to demonstrate how this action by LWCC, a private insurance

carrier, deprived him of a protected property interest without due

process of law.13 In addition, Kelly’s fourth point or error, that

11
See Jackson, 855 F.2d at 246 (“The employer has a right to
set-off the amount of the settlement against future payments. This
provision is independent of the right of an employer to
subrogation. The right is also protected by the notice provision.”
(citations omitted)); Petroleum Helicopters, Inc., 784 F.2d at 647
(“[T]here is nothing in the language of § 933 to support a ‘waiver
of subrogation’ exception to the unqualified requirement that an
employee obtain the consent of the employer and carrier for an
settlement with a third party tortfeasor.”).
12
33 U.S.C. § 914(c) (“Upon making the first payment, and upon
suspension of payment for any cause, the employer shall immediately
notify the deputy commissioner, in accordance with a form
prescribed by the Secretary, that payment of compensation has begun
or has been suspended, as the case may be.”).
13
See In re Compensation Under the Longhore & Harbor Workers’
Compensation Act, 889 F.2d 626, 631 (5th Cir. 1990) (finding that
the review process for compensation orders issued under LHWCA
satisfied the requirements of due process); see also Kreschollek v.
S. Stevedoring Co., 223 F.3d 202, 206-7 (3d. Cir. 2000) (finding

7
the ALJ failed to consider his claim under equitable jurisdiction,

is without merit.

Finding no error in the judgment of the BRB, we AFFIRM.

that termination without notice by private insurer of LHWCA
benefits does not constitute a violation of employee-recipient’s
procedural due process rights).

8