#24976-rev & rem-DG
2009 SD 78
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
* * * *
DAKOTA PLAINS AG CENTER, LLC,
and NATIONWIDE AGRIBUSINESS, Plaintiffs and Appellees,
v.
MARCIA SMITHEY, as personal
representative of the Estate
of Edward Smithey, Defendant and Appellant.
* * * *
APPEAL FROM THE CIRCUIT COURT OF
THE FIRST JUDICIAL CIRCUIT
HUTCHINSON COUNTY, SOUTH DAKOTA
* * * *
HONORABLE GLEN W. ENG
Judge
* * * *
MARK J. ARNDT of
May & Johnson, P.C.
Sioux Falls, South Dakota Attorneys for plaintiffs
and appellees.
KENNETH D. BERTSCH of
Bertsch Law Office, P.C.
Menno, South Dakota Attorneys for defendant
and appellant.
* * * *
ARGUED MARCH 24, 2009
OPINION FILED 08/26/09
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GILBERTSON, Chief Justice
[¶1.] Nationwide Agribusiness (Nationwide) petitioned for Declaratory
Judgment in which it sought to have the First Judicial Circuit Court determine its
rights under a workers’ compensation lien to proceeds from a wrongful death
settlement approved by an order of the Federal District Court for the District of
South Dakota. The federal district court’s order allocated damages between
pecuniary loss damages and economic loss damages, and approved attorney fees at
thirty percent of the total recovery. Nationwide subsequently petitioned for
Declaratory Judgment in state circuit court to determine its statutory lien and
moved for summary judgment on its petition. The circuit court granted
Nationwide’s motion and made all damages recovered in the federal wrongful death
action available to satisfy Nationwide’s lien without a determination of “like
damages.” The circuit court also set the attorney fees at twenty-five percent rather
than the thirty percent as approved by the federal district court. Marcia Smithey
(Marcia) appeals.
FACTS
[¶2.] On November 18, 2003, Edward Smithey (Edward) was killed in the
course of his employment with Dakota Plains Ag Center, L.L.C. Edward was
visiting a construction site maintained by Stueve Construction Co., and at which
Little Walls, L.L.C., was a subcontractor when he fell into a thirteen-foot open pit
and died of his injuries. Edward, age thirty-eight at the time of his death, left
behind a wife, Marcia, and two sons ages ten and six. Nationwide, the workers’
compensation carrier for Edward’s employer, paid benefits to Edward’s estate as
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follows: medical expenses of $15,377.19; funeral expenses of $5,600.81; death
benefits of $5,180.00; and the purchase price of a replacement annuity for future
death benefits of $460,715.00. Benefits paid by Nationwide totaled $486,873.00.
[¶3.] On May 10, 2004, Marcia, in her capacity as personal representative of
Edward’s estate, brought a tort claim in Federal District Court for the District of
South Dakota against Stueve Construction and Little Walls. Marcia alleged the
defendants were negligent in “failing to properly barricade, failing to provide
adequate lighting to prevent Smithey from falling in the hole on the construction
site, and failing to properly inspect the . . . [p]roject site for safety.” Smithey v.
Stueve Const Co., 2007 WL 172511, *2 (DSD 2007). The parties attempted to
mediate the matter prior to trial.
[¶4.] Nationwide refused to participate in the mediation attempts despite
being requested to attend by Marcia’s counsel and by letters from the mediator,
Michael Luce, dated April 23, 2007, and May 10, 2007. Marcia’s counsel also
requested Nationwide’s attendance by telephone on April 27, 2007. Nationwide and
Marcia were unable to reach a settlement regarding Nationwide’s lien, which
Nationwide refused to settle at less that the full $486,873.00 it paid in workers’
compensation benefits.
[¶5.] Shortly before the trial date and after two days of mediation, Marcia
and the defendants reached a settlement agreement in the federal district court
wrongful death action. On July 5, 2007, Marcia petitioned the federal district court
for approval of the settlement negotiated by the parties per the provisions of SDCL
21-5-6, as a portion of the settlement proceeds were allocated to Marcia and
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Edward’s two minor children. 1 The parties agreed to settle all claims in exchange
for $1,090,000.00. Marcia’s petition allocated $872,000.00, or eighty-percent, for
pecuniary loss damages (“the loss of [Edward’s] society, companionship, protection,
guidance, advice and assistance”) and the balance of $218,000.00, or twenty-
percent, as economic loss damages. Out of the non-economic loss damages of
$872,000.00, each of the two minor children received an allocation of $75,000.00,
and Marcia received an allocation of $541,404.90. Marcia also requested approval
of attorney fees of $352,703.58 or thirty percent of the proceeds, costs of $31,783.44,
and sales tax in the amount of $14,108.14.
[¶6.] On July 26, 2007, Nationwide moved to intervene in the federal district
court action. The federal district court found Nationwide’s motion to intervene was
untimely per Federal Rule of Civil Procedure Rule 24(a)(2).2 The court noted in its
1. SDCL 21-5-6 provides in relevant part:
Such personal representative may at any time before or after the
commencement of a suit for wrongful death settle with the
defendant the amount to be paid to him as damages for the
wrongful death of the decedent. If such personal representative
was appointed in this state and settlement is made before the
commencement of a suit such settlement must have the
approval of the court of the representative’s appointment. If
settlement is made at any time after the commencement of suit,
whether before or after judgment therein, such settlement must
have the consent and approval of the court wherein the action is
pending; provided, however, that if the personal representative
was appointed in this state he may make such settlement upon
the consent and approval of either the court wherein the action
is pending or the court of his appointment.
2. Federal Rule of Civil Procedure Rule 24(a)(2) provides:
(continued . . .)
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findings of fact accompanying its order on Nationwide’s motion that “Nationwide
was aware of the progress of the litigation at issue and deliberately chose not to
become involved until after the parties had reached a settlement agreement.” The
court also found Nationwide failed to provide an explanation for why it had declined
to participate in the litigation or mediation during the three years the case was
pending. The court further found that permitting Nationwide to intervene at that
juncture would result in substantial prejudice to all parties. Finally, the court
found that Nationwide’s untimely intervention threatened the resolution reached by
the parties, and would prejudice the beneficiaries of the wrongful death claim by
further delaying the receipt of proceeds. The court denied Nationwide’s motion to
intervene.
[¶7.] The federal district court approved the settlement as presented by the
parties. Based on the order as entered by the federal district court, Marcia
calculated Nationwide’s recovery under its statutory lien as follows:
Nationwide’s prorata recovery ($218,000.00/$1,090,000.00) = 20%
Economic loss damages $218,000.00
Attorney fees ($352,703.58 x 20%) ( 70,540.72)
Costs ($31,783.44 x 20%)) ( 6,356.69)
Sales Tax ($14,108.14 x 20%) ( 2,821.63)
________________________
(. . . continued)
On timely motion, the court must permit anyone to intervene
who:
...
(2) claims an interest relating to the property or transaction
that is the subject of the action, and is so situated that
disposing of the action may as a practical matter impair or
impede the movant's ability to protect its interest, unless
existing parties adequately represent that interest.
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Net recovery to Nationwide $138,280.96
[¶8.] Nationwide then moved the federal district court, pursuant to Rule
60(b)(1), to reconsider the court’s order denying as untimely Nationwide’s motion to
intervene and approving the settlement agreement reached by the parties. 3 The
court found Nationwide was a non-party to the action and, therefore, denied
Nationwide’s motion. The court also noted that Marcia was required to obtain
approval of the settlement under SDCL 21-5-6 because some settlement proceeds
were allocated to minor children. Otherwise, no court approval would have been
necessary for the settlement. See SDCL 21-5-6. The federal district court’s order
also provided: “the settlement agreement’s apportionment of a portion of damages
as ‘pecuniary’ does not necessary foreclose Nationwide from obtaining funds
designated as such.”
[¶9.] After the denial of its motions in federal district court, Nationwide
filed a declaratory judgment action in the First Judicial Circuit against Marcia in
her representative capacity. In its petition, Nationwide asserted it was entitled to
its full lien in the amount of the $486,873.00 it paid in workers’ compensation
3. Federal Rule of Civil Procedure Rule 60 provides the manner in which relief
from a judgment or order may be obtained. It provides in relevant part:
...
(b) Grounds for Relief from a Final Judgment, Order, or
Proceeding.
On motion and just terms, the court may relieve a party or its
legal representative from a final judgment, order, or proceeding
for the following reasons:
(1) mistake, inadvertence, surprise, or excusable
neglect[.]
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benefits. Nationwide also alleged attorney fees for the federal district court action
were statutorily limited by SDCL 62-7-36 to a maximum of twenty-five percent of
the settlement, from which Marcia was entitled to deduct Nationwide’s prorata
share. Nationwide further alleged that Marcia had not reached an agreement with
Nationwide regarding its lien amount, and had failed to file a declaratory judgment
action regarding the lien. Instead, Nationwide asserted that Marcia had petitioned
the federal district court for approval of the settlement with an apportionment of
the proceeds between pecuniary loss damages and economic loss damages, and no
allocation to Nationwide for its lien as a way to obtain a double recovery of workers’
compensation benefits and tort damages for the same losses.
[¶10.] Nationwide filed a motion for summary judgment in the matter. In its
statement of material facts, Nationwide stated that Marcia had included in her
petition to the federal district court for approval of the settlement a document
entitled “Preliminary Economic Loss Appraisal for Edward Smithey,” authored by
Dr. Ralph J. Brown. The report calculated the economic wage loss to Smithey’s
estate between $2,087,474.00 and $2,247,309.00. Nationwide alleged that the
settlement failed to allocate the pecuniary loss damages of $872,000.00 between
economic versus non-economic losses. Thus, it argued the entire amount allocated
to pecuniary loss damages plus the economic loss damages portion of the settlement
was subject to Nationwide’s lien.
[¶11.] Regarding the attorney fees awarded in the federal district court
settlement, Nationwide argued to the circuit court that the thirty-five percent
allocation exceeded the amount permitted by SDCL 62-7-36. SDCL 62-7-36
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provides in relevant part: “Attorneys’ fees may not exceed the percentage of the
amount of compensation benefits secured as a result of the attorney’s involvement
as follows: (1) Twenty-five percent of the disputed amount arrived at by settlement
of the parties[.]” Nationwide argued that the twenty-five percent limitation on
attorney fees in SDCL 62-7-36(1) applied to the wrongful death tort claim as the
thirty-five percent maximum attorney fee rate in SDCL 62-4-39 was modified by
virtue of the language “subject to SDCL § 62-7-36” contained in SDCL 62-4-39.
Under its theories on the issue of pecuniary loss damages and attorney fees,
Nationwide calculated its lien as follows:
Nationwide’s prorata recovery ($486,873.00/$1,090,000.00) = 43%
Economic losses paid by Nationwide $ 486,873.00
Attorney fees (1,090,000.00 x 25%) x 43% ( 116,590.00)
Costs ( 43% of costs) ( 6,356.69) 4
Net recovery to Nationwide $ 349,770.00
[¶12.] Marcia filed a response to Nationwide’s petition in which she alleged
that she settled for $218,000.00 or just ten-percent of the estimated preliminary
economic wage loss as contained in Dr. Brown’s report. She further argued that the
balance of the settlement was for pecuniary, meaning non-economic, losses. At the
hearing on Nationwide’s motion for summary judgment, Marcia argued she should
4. It appears that Marcia deducted a prorata share of sales tax from
Nationwide’s recovery in her scenario, but no allocation for sales tax was
included in Nationwide’s calculations before the circuit court. Furthermore,
Nationwide’s calculations appear at odds with the circuit court’s finding of
fact number twenty-six, in which it is noted that the parties stipulated that
expenses totaled $45,891.58 of which $31,783.44 represented costs, and
$14,108.14 represented sales tax. The circuit court set Nationwide’s share of
expenses at 44.7 percent of $45,891.58 for a total of $20,513.54.
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have the opportunity to present evidence as to the full value of the non-economic
losses. Marcia contended she would be able to show that the pecuniary losses
incurred by her and her children would exceed the economic losses incurred by
Edward’s estate as estimated by the expert witness in the federal action. Marcia
also argued that under SDCL 62-4-39, the federal district court had the discretion
to set attorney fees and expenses at a maximum of thirty-five percent. SDCL 62-4-
39 provides:
If compensation has been awarded and paid under this title and
the employee has recovered damages from another person, the
employer having paid the compensation may recover from the
employee an amount equal to the amount of compensation paid
by the employer to the employee, less the necessary and
reasonable expense of collecting the same, which expenses may
include an attorney’s fee not in excess of thirty-five percent of
compensation paid, subject to § 62-7-36.
She claimed that because the federal court approved attorney fees at thirty percent,
well below the maximum permitted under SDCL 62-4-39, the federal court’s order
should not have been modified by the circuit court.
[¶13.] The circuit court subsequently held a hearing on Nationwide’s motion
for summary judgment. The circuit court determined that under this Court’s
holding in Zoss v. Dakota Truck Underwriters, (Zoss II), 1999 SD 37, ¶11-15, 590
NW2d 911, 913-14, pecuniary losses include both economic and non-economic losses.
It further found that the federal district court did not allocate the $872,000.00 in
pecuniary loss damages between economic and non-economic loss damages. The
circuit court held that the entire amount of the pecuniary loss damages allocation
plus the portion allocated to economic loss damages were available to satisfy
Nationwide’s lien, less its prorata share of attorney fees and expenses incurred in
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the federal district court litigation against the third party tortfeasors. The circuit
court found that the provisions of SDCL 62-4-39 permitting a maximum of thirty-
five percent in attorney fees was modified by the provisions in SDCL 62-7-36. Thus,
it concluded that the maximum amount in attorney fees permitted in the federal
district court litigation was limited to twenty-five percent because the suit had
settled prior to trial. The circuit court’s calculations were as follows:
Nationwide’s lien of $486,873 = 44.7% of the $1,090.000.00 recovery
Step 1 of Zoss formula:
Economic losses paid by Nationwide $ 486,873.00
Less Nationwide’s share of expenses (44.7% x 45,891.58) ( 20,513.00) 5
Step 1 subtotal $ 466,360.00
Step 2 of Zoss formula:
Attorney fees (466,360 x 25%) ( 116,590.00)
Net recovery to Nationwide $ 349,770.00
Net recovery to Estate ($1,090,000.00 – $349,770.00) $740,230.00
The circuit court concluded that the Smithey Estate’s share of the settlement
proceeds was limited to $740,230.00 to prevent a double recovery of workers’
compensation benefits as precluded under Zoss v. Dakota Truck Underwriters, 1998
SD 23, 575 NW2d 285 (Zoss I), and Zoss II. The circuit court’s decision to grant
Nationwide’s motion for summary judgment was made without a full evidentiary
hearing, and no fact finding as to the allocation of economic versus non-economic
loss damages within the category of pecuniary loss damages in the federal
settlement, or the amount of actual pecuniary loss damages suffered by Marcia and
her two sons.
5. The circuit court rounded-up to the closest dollar amount.
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[¶14.] Although the circuit court entered summary judgment, it further
entered findings of fact and conclusions of law. Marcia objected to the circuit court’s
findings of fact and conclusions of law. Marcia appeals in her representative
capacity and raises the following issues:
1. Whether the federal district court’s approval of the settlement
proceeds between pecuniary loss damages and economic loss
damages was a final ruling as to what portions of the settlement
proceeds were “like damages” for purposes of SDCL 62-4-38.
2. Whether a state circuit court is required to hold a full
evidentiary hearing before determining the amount of pecuniary
loss damages obtained in a separate wrongful death tort action
available to satisfy a statutory workers’ compensation lien under
SDCL 62-4-38.
3. Whether attorney fees in a wrongful death tort claim for which
workers’ compensation benefits have been paid are limited by
SDCL 62-7-36(1) to twenty-five percent when the wrongful
death tort claim is settled prior to trial.
STANDARD OF REVIEW
Our standard of review on summary judgment requires this
Court to determine whether the moving party has demonstrated
the absence of any genuine issue of material fact and
entitlement to judgment on the merits as a matter of law. The
circuit court’s conclusions of law are reviewed de novo.
However, all facts and favorable inferences from those facts
must be viewed in a light most favorable to the nonmoving
party. We will affirm the circuit court’s ruling on a motion for
summary judgment when any basis exists to support its ruling.
Weitzel v. Sioux Valley Heart Partners, 2006 SD 45, ¶16, 714 NW2d 884,
891 (internal citations omitted). We also review issues of statutory construction
under the de novo standard of review. Discover Bank v. Stanley, 2008 SD 111, ¶15,
757 NW2d, 756, 761 (citing Martinmaas v. Engleman, 2000 SD 85, ¶49, 612 NW2d
600, 611).
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ANALYSIS AND DECISION
[¶15.] 1. Whether the federal district court’s approval of the
settlement proceeds between pecuniary loss damages
and economic loss damages was a final ruling as to what
portions of the settlement proceeds were “like damages”
for purposes of SDCL 62-4-38.
[¶16.] Marcia argues on appeal that Nationwide filed its declaratory action in
state circuit court in order to modify the federal district court’s order allocating
settlement proceeds between pecuniary loss damages and economic loss damages.
Marcia contends that the federal district court’s order was a final determination as
to what damages were economic, and thus “like damages” for purposes of
Nationwide’s subrogation lien. Marcia further contends that the circuit court was
without jurisdiction to modify the federal district court’s order per the doctrine of
res judicata.
[¶17.] In response, Nationwide argues that the circuit court did not modify
the federal district court’s order. Instead, Nationwide argues that pecuniary loss
damages to which the federal district court allocated $872,000.00 included both
economic and non-economic loss damages. As such, Nationwide argues, the fact
that the federal district court did not allocate pecuniary loss damages between
economic and non-economic loss damages makes the entire amount available as
“like damages” under SDCL 62-4-38.
[¶18.] SDCL 62-4-38 provides:
If an injury for which compensation is payable under this title
has been sustained under circumstances creating in some other
person than the employer a legal liability to pay damages in
respect thereto, the injured employee may, at the employee’s
option, either claim compensation or proceed at law against such
other person to recover damages or proceed against both the
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employer and such other person. However, in the event the
injured employee recovers any like damages from such other
person, the recovered damages shall be an offset against any
workers’ compensation which the employee would otherwise
have been entitled to receive.
The question before this Court is whether the federal district court’s approval of the
settlement proceeds between pecuniary loss damages and economic loss damages
was a final ruling as to what portions of the settlement proceeds were “like
damages” for purposes of SDCL 62-4-38.
[¶19.] The doctrine of res judicata bars any “attempt to relitigate a cause of
action by the parties or one of the parties in privity to a party to an earlier suit.”
Speck v. Federal Land Bank of Omaha, 494 NW2d 628, 633 (SD 1993) (citing
Merchants State Bank v. Light, 458 NW2d 792 (SD 1990); Bank of Hoven v.
Rausch, 449 NW2d 263 (SD 1989)). The doctrine “embodies both merger and bar[.]”
Black Hills Jewerly Mfg. Co. v. Felco Jewel Indus., Inc., 336 NW2d 153, 157 (SD
1983) (citing Palma v. Powers, 295 FSupp 924 (NDIll 1969)). “Res judicata serves
as claim preclusion to prevent relitigation of an issue actually litigated or which
could have been properly raised and determined in a prior action.” Id. (citing Matter
of Estate of Nelson, 330 NW2d 151 (SD 1983); Schmidt v. Zellmer, 298 NW2d 178
(SD 1980); Gottschalk v. South Dakota State Real Estate Comm’n, 265 NW2d 905
(SD 1978))). Res judicata also requires that the court in which the matter was
litigated have had jurisdiction and have issued a final and unreversed decision. Id.
(citing Keith v. Willers Truck Serv., 65 SD 274, 266 NW2d 256 (1936)).
[¶20.] In order for res judicata to apply, the cause of action in the prior
litigation must be the same as the cause of action in the subsequent litigation. Id.
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This Court adopted the broad test in Hanson v. Hunt Oil Co., 505 F2d 1237 (8thCir
1974), for determining if both causes of action are the same. Id. A cause of action is
comprised of the facts that gave rise to, or established, the right the party seeks to
enforce. Id. (citations omitted). If the wrong sought to be redressed is the same in
both actions, then res judicata applies. Id. (citing Woodbury v. Porter, 158 F2d 194
(8thCir 1946)).
[¶21.] In the instant case, the facts that gave rise to Marcia’s wrongful death
claim in federal court were different from the facts that gave rise to Nationwide’s
lien for workers’ compensation benefits. Marcia’s claim hinged on the conduct of the
alleged tortfeasors and whether they were liable for any damages for Edward’s
death. In addition, Marcia’s claim for wrongful death accrued upon Edward’s death.
Nationwide’s claim arose under the statutory lien as provided in SDCL 62-4-38
after it first determined that Edward’s death occurred in the course of his
employment and it paid workers’ compensation benefits to Marcia. The issue of who
was legally responsible for Edward’s death, the issue in the federal district court
action, was not relevant to the determination of the amount of benefits Nationwide
was required to pay, or the amount it could recover under its statutory lien.
Furthermore, the amount of Nationwide’s lien was never at issue in the federal
district court wrongful death action.
[¶22.] The process by which to determine how much a workers’ compensation
carrier may recover under its statutory lien after an employee or the employee’s
estate is able to recover tort damages for ”like damages” is set out in Zoss I, 1998
SD 23, ¶13, 575 NW2d at 262. The holding in Zoss I requires the employee or
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personal representative to proceed under one of two alternative courses of action:
either obtain an express allocation in the settlement or a judicial determination of
the non-economic losses to which a workers’ compensation lien cannot attach. Id. A
settlement will be given legal effect as to portions subject to the workers’
compensation insurer’s lien when “the issue is fully and fairly tried before an
impartial fact finder or where the insurance carrier is invited to participate in
settlement negotiations.” Id., 1998 SD 23, ¶14 n4, 575 NW2d at 263 n4.
[¶23.] The issue of how much of the damages recovered by Edward’s estate
could be used to satisfy Nationwide’s lien could not have been litigated before the
jury in the federal district court wrongful death action. That issue would have
needed to come before the federal district court as a declaratory judgment action
and not a wrongful death tort action as it did in this instance. See Zoss I, 1998 SD
23, ¶13, 575 NW2d at 262 (holding a declaratory judgment action is one of two
possible methods to be used in determining a workers’ compensation insurer’s right
to proceeds from a suit or settlement with third party tortfeasors). Furthermore,
the issue of Nationwide’s lien was never addressed by the federal district court in
its order approving the settlement between Marcia and the alleged tortfeasors.
Instead, the federal court acknowledged its approval of the settlement did not
“foreclose Nationwide from obtaining funds” designated as pecuniary loss damages.
[¶24.] All that Marcia obtained from the federal district court was an express
allocation between pecuniary loss damages and economic loss damages as part of its
approval of the terms of the settlement of the wrongful death action and approval of
the proceeds allocated to her children. Marcia did not obtain an express allocation
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of what portion, if any, of the settlement proceeds were “like damages” for purposes
of SDCL 62-4-38 as required under Zoss I. Nor did the federal court, as it
specifically noted, attempt such an allocation in an effort to settle all accounts
including the workers’ compensation lien.
[¶25.] Hence, res judicata did not apply to the issue before the circuit court
and the determination of Nationwide’s lien was properly before it. The circuit court
did not err when it considered the declaratory action brought by Nationwide as it
did not attempt to modify an order issued by the federal district court.
[¶26.] 2. Whether a state circuit court is required to hold a full
evidentiary hearing before determining the amount of
pecuniary loss damages obtained in a separate wrongful
death tort action available to satisfy a statutory workers’
compensation lien under SDCL 62-38.
[¶27.] Nationwide argued at the hearing on its motion for summary judgment
that under this Court’s holding in Zoss II, 1999 SD 37, 590 NW2d 911, pecuniary
damages include both economic loss damages and non-economic loss damages. The
circuit court accepted Nationwide’s argument. It then found that because the
federal district court did not allocate the pecuniary loss damages awarded to Marcia
as either economic or non-economic in nature, the entire $872,000.00 in pecuniary
loss damages plus the $218,000.00 in economic loss damages were “like damages”
for purposes of SDCL 62-4-38.
[¶28.] Marcia argues on appeal that the circuit court was required to hold a
full evidentiary hearing on the issue. Marcia argues that the report submitted by
her damages expert in the federal court proceedings did not provide any calculation
of the non-economic losses. Instead, it estimated only the economic damages.
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Marcia acknowledges that the amount of economic losses for Edward’s death were
between $2,087,474.00 and $2,247,309.00. Marcia contends that she may well have
been able to establish that the entire amount allocated as pecuniary damages was
for non-economic loss damages incurred by her and her two minor children. Marcia
argues the non-economic loss damages were potentially six to eight times the
amount of the economic loss damages.
[¶29.] Nationwide relies on one line in Zoss II in support of its argument that
the pecuniary loss damages included both economic and non-economic losses:
“pecuniary injury encompasses more than strictly economic losses . . . .” See id.,
1999 SD 37, ¶11, 590 NW2d at 913. However, the full sentence was not quoted by
Nationwide in its brief, which reads as follows:
pecuniary injury encompasses more than strictly economic
losses in that it includes “the loss of decedent’s companionship
and society as expressed by, but not limited to, the words
‘advice,’ ‘assistance,’ and ‘protection,’ but without consideration
for the grief and mental anguish suffered by the beneficiaries
because of the wrongful death.”
Id., 590 NW2d at 913-14.
[¶30.] The narrow holding of that case was that “the terms ‘loss of
consortium’ and ‘pecuniary loss’ are not co-extensive and must not be used
interchangeably.” Id. ¶15. We also held that a surviving spouse “should have the
opportunity to prove the amount, if any, of the settlement that compensates her for
such pecuniary loss” damages that are not “like damages” within the meaning of
SDCL 62-4-38. Id. ¶16. We then remanded the issue to the circuit court to separate
the damages that were not like damages from “like damages” after a full evidentiary
hearing. Id. ¶18.
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[¶31.] In the instant case, Nationwide paid Edward’s estate for economic loss
damages including medical expenses, burial expenses, death benefits, and future
death benefits. Nationwide did not pay benefits to the estate for the loss of
Edward’s society and companionship, or the loss of his protection, guidance, advice
and assistance. An action for these damages “‘is not brought by the spouse as the
personal representative of the employee, but is an independent action to recover for
injuries the spouse has suffered, such as loss of support and loss of society.’” Zoss I,
1998 SD 23, ¶12, 575 NW2d at 262 Thus, “the workers’ compensation lien does not
attach to that portion of the settlement proceeds designated as a settlement of [a]
widow’s claim for loss of consortium.” Id. There is nothing in our workers’
compensation code that permits an insurer to recover its workers’ compensation lien
from damages that were recovered by the spouse in an independent action for
injuries the spouse suffered.
[¶32.] This view is illustrated in the United States Supreme Court’s analysis
in its 2006 decision in Arkansas Dep’t. of Health and Human Serv. v. Ahlborn, in
the context of ERISA subrogation. 547 US 268, 288, n19, 126 SCt 1752, 1755, n19,
164 LEd2d 459 (2006) (quoting Flanigan v. Dep’t of Labor and Indus., 869 P2d 14,
17 (Wash 1994)). An insurer may not recover its statutory right of reimbursement
under ERISA for medical bills it paid on behalf of an employee from funds recovered
from a third party tortfeasor for other damages incurred by the spouse or child. Id.
Allowing an ERISA plan to recover its lien from damages obtained from a third
party tortfeasor that were intended to compensate the employee’s family for non-
medical damages incurred by the employee’s family would permit the insured a
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“share in damages for which it has provided no compensation.” Id. (quoting
Flanigan, 869 P2d at 17)). Such a result would be “absurd and fundamentally
unjust.” Id.
[¶33.] While in the context of an ERISA claim, the point is also well taken in
the context of workers’ compensation benefits. As the Supreme Court of
Washington noted in Flanigan, payment of workers’ compensation benefits to an
employee who then recovers from a third party responsible for the injuries incurred
by the employee does not automatically result in a “double recovery” by the
employee. 869 P2d at 17. “[T]he employee receives a double recovery only if the
third party recovery is for damages which are already compensated for by workers’
compensation benefits.” Id. The Washington court went on to hold that if the
department were allowed to recover from damages paid by a third party that were
intended to compensate the employee or his family for injuries other than those for
which the department paid workers’ compensation benefits, the department would
receive a windfall. Id.
[¶34.] In the instant case if we were to do as Nationwide argues, and as the
circuit court did below, we would allow Nationwide a windfall to which it is not
entitled. Moreover, our statutory scheme does not permit Nationwide a recovery
against any portion of the non-economic loss damages obtained by Marcia and her
sons in a suit against third party tortfeasors, as Nationwide did not pay workers’
compensation benefits that represented an award for these damages. See SDCL 62-
4-38 (limits recovery against only “like damages.”) The circuit court’s order allowed
Nationwide to “share in damages for which it ha[d] provided no compensation” to
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Edward’s estate. Such an “absurd and fundamentally unjust” result is against the
provisions of SDCL 62-4-38.
[¶35.] There was no opportunity for Marcia to present evidence and to argue
in a declaratory judgment action what portion of the pecuniary loss damages were
for the loss of Edward’s society and companionship, including the loss of his
protection, guidance, advice and assistance, as opposed to economic losses. The
amount of “like damages” remained a disputed material fact after the circuit court
hearing. The amount was never determined by settlement or in a declaratory
judgment action. Instead, Nationwide was able to prevail on its motion for
summary judgment while the material fact as to the proper allocation remained in
dispute.
[¶36.] Given that Nationwide refused to enter into a binding settlement
agreement regarding its lien, the only other avenue available to the parties to
determine the lien amount under Zoss I was for the issue to be tried “fully and fairly
before an impartial fact finder.” See Zoss I, 1998 SD 23, ¶14, n4, 575 NW2d at 263,
n4. While Marcia argues that Nationwide’s failure to participate in the negotiations
should preclude it from obtaining its full lien, we do not agree. Nationwide
responded to the invitation by stating clearly it would not compromise its
subrogation claim. It would have been expedient, and in keeping with our preferred
method as stated in Zoss I, to have Nationwide at the table and to have resolved all
issues via settlement negotiations. The holding in Zoss I, however, clearly allows
the alternative method of trial before an impartial finder of fact, instead of
settlement negotiations, to be used to determine the amount of “like damages.” Id.
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[¶37.] While this Court stated its preference in Zoss I that a declaratory
judgment action occurs prior to settlement or suit with the tortfeasor, that sequence
is not required by any statute or court rule. We also note that it may not be possible
to determine the workers’ compensation lien prior to knowing the amount of
recovery from a third party tortfeasor. Step three of the Zoss I formula assumes
that the amount recovered from a third party tortfeasor is known and the allocation
between “like damages” and other types of damages from which a workers’
compensation lien may not be satisfied is also known. See id. ¶17, 575 NW2d at 263
(each step of the formula assumes the amount of the third party recovery is known).
It is not possible to calculate any steps of the Zoss I formula if the declaratory
judgment action to determine the workers’ compensation insurer’s lien is filed
before any negotiations or settlement with the third party tortfeasor has been
attempted. The better course of conduct is for the insurer to participate in the
negotiations with the third party tortfeasor and for all interested parties to attempt
resolution after the amount of any third party recovery is known.
[¶38.] We decline Nationwide’s invitation to punish the estate by subjecting
all proceeds to Nationwide’s lien for the estate’s failure to file a declaratory
judgment action first to determine the amount of Nationwide’s lien before pursing
the wrongful death action against the tortfeasors in federal district court. We will
not penalize the estate for going forward with a settlement or suit against the
tortfeasor when the insurer refused to participate in settlement negotiations to
which the insurer received ample notice and multiple invitations. To do as
Nationwide suggests is to allow an insurer to hold the estate hostage. An insurer
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could refuse to litigate against the tortfeasor directly under SDCL 62-4-40; refuse to
enter into settlement negotiations with the estate; wait until the litigation between
the estate and the tortfeasors is completed, and then move to collect its lien against
all proceeds obtained by the estate from the tortfeasor. If we allow Nationwide’s
argument to prevail and allow it to enforce its subrogation lien against all damages
regardless of whether they are “like damages,” we in effect would punish the estate
for not filing the declaratory action first before proceeding against the tortfeasor
when we have noted there are two options for determining the insurer’s lien.
[¶39.] Moreover, this is not a matter of equitable division based on the
conduct of the parties. We are engaged in an issue of statutory construction. Again,
we reiterate that the preferred method is to determine the lien value before final
settlement with a third party tortfeasor. When that is not possible due to the
resistance of one party or the other to settlement negotiations, the sequencing of
declaratory action and the action against a third party cannot be the determining
factor for deciding what are “like damages” under SDCL 62-4-38.
[¶40.] The circuit court erred when it found that Marcia’s failure to request a
further sub-allocation from the federal district court of the pecuniary loss damages
between economic and non-economic loss damages made the entire amount
available as “like damages” for purposes of SDCL 62-4-38. Instead, a genuine issue
of material fact existed as to amount of economic losses versus non-economic losses
included in the damages labeled as “pecuniary loss damages,” which required a full
and fair hearing on the issue.
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[¶41.] 3. Whether attorney fees in a wrongful death tort claim for
which workers’ compensation benefits have been paid
are limited by SDCL 62-7-36(1) to twenty-five percent
when the wrongful death tort claim is settled prior to
trial.
[¶42.] The federal district court approved a settlement between Marcia and
the tortfeasors that included an allocation of thirty percent for attorneys’ fees. That
court did not consider what portion of those attorney fees should be setoff against
the subrogation lien because the amount of Nationwide’s lien was never before that
court. It merely approved the application as presented by Marcia.
[¶43.] Nationwide argued to the circuit court that the attorneys’ fees for the
workers’ compensation claim and the subrogation issue should have been limited to
twenty-five percent based on the language of SDCL 62-7-36(1). SDCL 62-7-36
provides:
Except as otherwise provided, fees for legal services under this
title shall be subject to approval of the department.
Attorneys’ fees may not exceed the percentage of the amount of
compensation benefits secured as a result of the attorney’s
involvement as follows:
(1) Twenty-five percent of the disputed amount arrived at by
settlement of the parties;
(2) Thirty percent of the disputed amount awarded by the
Department of Labor after hearing or through appeal to
circuit court;
(3) Thirty-five percent of the disputed amount awarded if an
appeal is successful to the Supreme Court.
Attorneys’ fees and costs may be paid in a lump sum on the
present value of the settlement or adjudicated amount.
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(Emphasis added). Marcia argued to the circuit court that the language in SDCL
62-4-39 allowed for a maximum of thirty-five percent for attorneys’ fees:
If compensation has been awarded and paid under this title and
the employee has recovered damages from another person, the
employer having paid the compensation may recover from the
employee an amount equal to the amount of compensation paid
by the employer to the employee, less the necessary and
reasonable expense of collecting the same, which expenses may
include an attorney’s fee not in excess of thirty-five percent of
compensation paid, subject to § 62-7-36.
SDCL 62-4-39. The circuit court used the twenty-five percent limitation in SDCL
62-7-36(1) and rejected Marcia’s arguments in support of the thirty percent
attorneys’ fee approved by the federal district court.
[¶44.] Marcia argues on appeal that the circuit court erred when it limited
attorneys’ fees to twenty-five percent of the settlement amount. She contends that
the last clause in SDCL 62-4-39, “subject to § 62-7-36” pertains only to the last
sentence of SDCL 62-7-36, which provides “[a]ttorneys’ fees and costs may be paid
in a lump sum on the present value of the settlement or adjudicated amount[.]” She
argues that the limitation in SDCL 62-7-36 is triggered only when a settlement
between the employee, or the estate of the employee, and the third party tortfeasor
is to be paid out over a period of years. In the event of a multi-year payout of
settlement proceeds, the limitation would permit a maximum of thirty-five percent
for attorneys’ fees times the “present value” of the sum total of the payments rather
than thirty-five percent of each payment to be received in the future. Marcia argues
that because the settlement she arrived at with the third party tortfeasors was for a
lump sum payment, the limitation in SDCL 62-7-36 on using the “present value” of
a multi-year settlement did not apply to the fact of this case.
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[¶45.] Instead, Marcia argues the only limitation on attorneys’ fees when an
estate recovers damages from a tortfeasor after workers’ compensation benefits
have been paid by an insurer is contained in SDCL 62-4-39, which limits the
estate’s attorneys’ fees to a maximum of thirty-five percent of the total settlement
with the tortfeasor. She further argues that the twenty-five percent limitation on
attorney fees when settlement has been reached as found in SDCL 62-7-36(1)
pertains only to the attorney fees expended by an employee, or his or her estate, in
obtaining workers’ compensation benefits from an employer and its insurer. Marcia
further contends that reading the twenty-five percent limitation found in SDCL 62-
7-36(1) that pertains to attorney’s fees expended in obtaining a settlement for
workers’ compensation benefits from an employer and its insurer into the provisions
in SDCL 62-4-39, which pertains to the recovery of damages from a third party after
workers compensation benefits have been paid, renders the language in SDCL 62-4-
39 “which expenses may include an attorney’s fee not in excess of thirty-five percent
of compensation paid” superfluous.
[¶46.] Nationwide contends that the language in SDCL 62-4-39, “subject to §
62-7-36” pertains to the percentage limitations provided in SDCL 62-7-36. It argues
that the circuit court was correct when it limited the deduction for attorney fees
expended in obtaining the settlement with the third party tortfeasors to twenty-five
percent.
[¶47.] “Statutory construction is employed to discover the true intent of the
legislature in enacting laws, which is ascertained primarily from the language
employed in the statute. We give words their plain meaning and effect, and read
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statutes as a whole, as well as enactments relating to the same subject.” Chapman
v. Chapman, 2006 SD 36, ¶11, 713 NW2d 572, 576 (SD 2006) (quoting State v. Myrl
& Roy’s Paving, Inc., 2004 SD 98, ¶6, 686 NW2d 651, 653). We construe statues in
their entirety. Discover Bank, 2008 SD 111, ¶21, 757 NW2d at 762 (citing Jensen v.
Turner County Bd. of Adjustment, 2007 SD 28, ¶12, 730 NW2d 411, 415). We also
read statutes with the underlying assumption that the Legislature did not insert
surplusage into its enactments. National Farmers Union Property and Cas. Co. v.
Universal Underwriters Ins. Co., 534 NW2d 63, 65 (SD 1995) (citing Revier v.
School Bd. of Sioux Falls, 300 NW2d 55, 57 (SD 1981)). Furthermore,
Since statutes must be construed according to their intent, the
intent must be determined from the statute as a whole, as well
as enactments relating to the same subject. But, in construing
statutes together it is presumed that the legislature did not
intend an absurd or unreasonable result. When the question is
which of two enactments the legislature intended to apply to a
particular situation, terms of a statute relating to a particular
subject will prevail over the general terms of another statute.
State v. I-90 Truck Haven Serv., Inc., 2003 SD 51, ¶3, 662 NW2d 288, 290 (quoting
Martinmaas, 2000 SD 85, ¶49, 612 NW2d at 611).
[¶48.] The language in SDCL 62-7-36 that limits attorney’s fees to a
percentage based on what stage of litigation is required to achieve an award of
workers’ compensation benefits, provides that the limitations pertain to legal
services rendered “under this title” and further requires “approval of the
department.” See SDCL 62-7-36. The words “under this title” indicate that the
limitations apply to legal services used by an employee to obtain workers’
compensation benefits from his or her employer and its insurer under Chapter 62,
Title 7. SDCL 62-7-36.
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[¶49.] The language in SDCL 62-4-39 that limits attorneys’ fees to thirty-five
percent indicates that it applies to the recovery of damages from a third party when
workers’ compensation benefits have also been awarded to an employee under
Chapter 62, Title 4. SDCL 62-4-39. See also Zoss I, 1998 SD 23, ¶17, 575 NW2d at
263. There is no differentiation contained within the language of SDCL 62-4-39 as
to the maximum rate of attorney fees that may be charged based on whether the
tort claim against a third party is settled prior to trial, at trial, or is resolved on
appeal. Id.
[¶50.] If we were to graft the three levels of attorney fees contained in SDCL
62-7-36 onto the provisions of SDCL 62-4-39 as suggested by Nationwide, the result
would be absurd. SDCL 62-4-39 would then indicate that attorney fees of thirty
percent could only result when a disputed amount was awarded by the Department
of Labor – something that cannot happen in a tort claim, as such a claim would
never be heard by the Department of Labor. In addition, it would also render the
maximum limitation language in SDCL 62-4-39 superfluous as the maximum rate
is also contained in SDCL 62-7-36. Finally, our holding in Zoss I indicates that
thirty-five percent is the maximum percentage for attorney fees as provided under
SDCL 62-4-39 when a workers’ compensation lien is involved, but contains no
differentiation for damages obtained via settlement, trial, or appeal. Id. (holding
that thirty-five percent was the maximum range for attorney fees in a wrongful
death suit that resulted in a settlement between Zoss’s estate and a third party
tortfeasor).
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[¶51.] The circuit court erred when it limited attorney fees from the federal
tort claim action to twenty-five percent. Those attorney fees were set by the federal
district at thirty percent, and were within the statutory maximum of thirty-five
percent as limited by SDCL 62-4-39.
[¶52.] The circuit court’s order is reversed and remanded with direction to
hold a full hearing on the issue of economic versus non-economic loss damages
included in the $1,090,000.00 settlement. After that amount is determined and the
prorata shares determined for each party, the circuit court must use the thirty
percent attorney fee rate approved by the federal district court in determining the
funds available to satisfy Nationwide’s lien using the formula detailed in this
Court’s holding in Zoss I and Zoss II.
[¶53.] Reversed and remanded.
[¶54.] KONENKAMP, ZINTER, and MEIERHENRY, Justices, and SABERS,
Retired Justice, concur.
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