Evans Financial Corp. v. Director, Office of Workers' Compensation Programs

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 20, 1998 Decided November 6, 1998

No. 97-1427

Evans Financial Corporation and

Property Casualty Insurance Guaranty Corporation,

a/s/a Ideal Insurance Company,

Petitioners

v.

Director, Office of Workers' Compensation Programs, et al.,

Respondents

On Petition for Review of an Order of the

Benefits Review Board

---------

Jeffrey W. Ochsman argued the cause and filed the briefs
for petitioners.

LuAnn Kressley argued the cause for respondents. With
her on the brief were Marvin Krislov, Deputy Solicitor, and
Carol A. De Deo, Associate Solicitor, U.S. Department of
Labor. Timothy D. O'Hara entered an appearance.

Before: Williams, Sentelle and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Garland.

Garland, Circuit Judge: Carolyn Lee O'Brien hurt her
back in the course of her work for petitioner Evans Financial
Corporation, a District of Columbia employer. She filed a
claim for workers' compensation and received an award of
permanent total disability benefits. The award required Ev-
ans Financial to pay both medical expenses and disability
benefits for a time, and thereafter to continue to pay
O'Brien's medical expenses. O'Brien also sued the owner of
the building in which she was injured and received a payment
in settlement of that litigation.

O'Brien would like to keep the settlement payment she
received from the building owner, while requiring her em-
ployer to continue to pay her medical expenses. Evans
Financial claims a credit against those expenses, up to the
amount of O'Brien's net recovery from the settlement. The
parties agree as to the law: the employer has a right to such
a credit unless it waived that right. Because there is no
evidence that a waiver occurred, we conclude the employer is
entitled to the credit.

Evans Financial, however, would like a bit more. It seeks
not only a credit, but complete relief from its obligation to
pay O'Brien's medical expenses. It is entitled to such relief,
the employer contends, because it has been prejudiced by
O'Brien's assertion that it waived its right to a credit. We
discern no such prejudice and decline to grant Evans Finan-
cial this additional relief.

I

The Longshore and Harbor Workers' Compensation Act,
33 U.S.C. ss 901-950 ("the LHWCA" or "the Act"), governs
workers' compensation claims made by private sector employ-
ees who were injured in the District of Columbia prior to
1982. Compensation awards for such claims are made by the
Office of Workers' Compensation Programs ("OWCP") of the
U.S. Department of Labor ("DOL"), with administrative re-
view by DOL's Benefits Review Board. Judicial review of a
Board order is available in this court. See 33 U.S.C.

s 931(b)-(c); Shea v. Director, OWCP, 929 F.2d 736, 737
(D.C. Cir. 1991).1

O'Brien injured her back in 1980. On January 10, 1986, the
OWCP's district director for Washington, D.C. awarded her
permanent total disability benefits under the LHWCA. Un-
der section 8(f) of the LHWCA, 33 U.S.C. s 908(f), after 104
weeks the responsibility to pay such benefits may, under
certain circumstances, be shifted from the employer to a
Special Fund established by the Act.2 Pursuant to section
8(f), the district director ordered Evans Financial3 to pay

__________
1 Congress, acting as legislative authority for the District of
Columbia, enacted the District of Columbia Workmen's Compensa-
tion Act of 1928, D.C. Code ss 36-501, et seq. (1973). That Act
made the provisions of the LHWCA applicable to private sector
workers' compensation claims in the District. Although the 1928
Act was repealed by the District of Columbia Workers' Compensa-
tion Act of 1979, D.C. Code ss 36-301, et seq., the 1928 Act
continues to govern claims arising from injuries that occurred
before July 26, 1982. DOL continues to administer such claims,
with judicial review in this court. The 1979 Act covers claims
arising from injuries occurring on or after July 26, 1982. Those
claims are administered by the District of Columbia Department of
Employment Services, with judicial review in the District of Colum-
bia Court of Appeals. See Shea v. Director, OWCP, 929 F.2d 736,
737, 739 (D.C. Cir. 1991); Keener v. Washington Metro. Area
Transit Auth., 800 F.2d 1173, 1175 (D.C. Cir. 1986); Durrah v.
Washington Metro. Area Transit Auth., 760 F.2d 322, 324 n.1 (D.C.
Cir. 1985); Railco Multi-Constr. Co. v. Gardner, 564 A.2d 1167,
1170-71 (D.C. 1989).

2 Section 44 of the LHWCA establishes a Special Fund financed
by, inter alia, assessments on employers or their insurers. See 33
U.S.C. s 944. Section 8(f) shifts partial responsibility to the Special
Fund when, among other things, an employee had a preexisting
permanent partial disability which, combined with the instant inju-
ry, results in permanent total disability. See id. s 908(f). See
generally Carter v. Director, OWCP, 751 F.2d 1398, 1399 (D.C. Cir.
1985).

3 The various insurance companies associated with the employer
included Ideal Insurance Company, Maryland Insurance Guaranty

permanent total disability benefits for 104 weeks, and direct-
ed the Special Fund to make the payments thereafter. The
order required Evans Financial, however, to continue to pay
O'Brien's medical expenses. Joint Appendix ("J.A.") 40-41
(Compensation Order).

In addition to providing compensation benefits, the
LHWCA permits an employee to sue a third party who
caused or contributed to her injury. See 33 U.S.C. s 933.
There is no dispute as to the law governing any recovery
obtained in such a suit. See Pet. Br. at 5-6; Resp. Br. at 6-
12. The employer has the right to reduce its liability by the
amount of the employee's net recovery from the third-party
tortfeasor. See 33 U.S.C. s 933(f). This includes the right
both to a recoupment lien for benefits the employer already
has paid, and to a setoff or credit against payments for which
it may be liable in the future. The lien and credit apply both
to compensatory disability benefits and to medical expenses.
Finally, the employer is entitled to exercise these rights
unless it waives them. See Evans Fin. Corp. v. Director,
OWCP, BRB No. 95-0783, at 4-5 (May 27, 1997) (J.A. 28-29);
see also Morauer & Hartzell, Inc. v. Woodworth, 439 F.2d
550, 552 (D.C. Cir. 1970); Perry v. Bath, 29 Ben. Rev. Bd.
Serv. (MB) 57, 61 (1995); Inscoe v. Acton Corp., 19 Ben. Rev.
Bd. Serv. (MB) 97, 98-99 (1986), aff'd, 830 F.2d 1188 (D.C.
Cir. 1987) (table). According to the OWCP, an employer
often will make such a waiver in order to give its employee
some benefit from the recovery, and hence an incentive to
enter into a settlement that will provide the employer with a
reduction in its liability. See Resp. Br. at 7, 11.

O'Brien pursued a third-party claim against the owner of
the building in which she was injured. The suit was settled
in 1987 for $275,000. From that total, $91,500.00 was sub-
tracted for attorney's fees, and $3,822.35 for other costs.

__________
Association, and petitioner Property Casualty Insurance Guaranty
Corporation. The employer's interests during most of the relevant
period were represented by the insurance companies and their
counsel. For ease of reference, we will refer to the employer and
its insurers collectively as "Evans Financial" or "the employer," and
to their counsel as "counsel for the employer."

Evans Financial asserted a recoupment lien of $92,950.00
against the remaining $179,677.65, based on the compensation
it had paid O'Brien for the first 104 weeks of her disability.
Evans Financial agreed, however, to reduce its lien by
$12,500 and to accept $80,450. After that amount was de-
ducted, $99,227.65 remained from the settlement. All agree
that $44,227.65 of that amount is subject to the Special Fund's
own setoff, see J.A. 51.

The instant controversy concerns the disposition of the
remaining $55,000. Following the settlement, O'Brien ac-
crued additional medical bills totaling $1,160.50, which the
OWCP submitted to Evans Financial for payment. The
employer refused to pay these bills, asserting that it was
entitled to a credit against them in the amount of the $55,000
O'Brien retained from the settlement.

The dispute between O'Brien and Evans Financial was
referred to an administrative law judge ("ALJ") in 1994. The
ALJ held that the employer was not entitled to a credit and
hence was liable for the medical bills. The ALJ also awarded
O'Brien's counsel attorney's fees, based on the successful
litigation against the employer. See J.A. 22-24. Evans
Financial appealed to the Benefits Review Board which,
under the LHWCA, must regard the ALJ's findings of fact as
"conclusive if supported by substantial evidence in the record
considered as a whole." 33 U.S.C. s 921(b)(3); see Burns v.
Director, OWCP, 41 F.3d 1555, 1562 (D.C. Cir. 1994). In a 2-
1 decision, the Benefits Review Board affirmed, holding that
the employer had waived its right to a setoff against future
medical expenses. See J.A. 25-30. Evans Financial then
filed the instant petition for review.

Our review is limited to determining whether the Board
adhered to its authorized scope of review and whether it
committed any errors of law. See Brown v. I.T.T./Continen-
tal Baking Co., 921 F.2d 289, 292-93 (D.C. Cir. 1990). "In
order to decide whether the Board has properly adhered to
its scope of review ... we must conduct an independent
review of the record to determine whether the ALJ's findings

are supported by substantial evidence." Id. at 293 (quoting
Stark v. Washington Star Co., 833 F.2d 1025, 1027 (D.C. Cir.
1987)). As we have said many times before, " 'substantial
evidence' means more than a 'scintilla,' but less than a
preponderance of the evidence." Burns, 41 F.3d at 1562 n.10
(quoting Whitmore v. AFIA Worldwide Ins., 837 F.2d 513,
515 (D.C. Cir. 1988)).

II

The parties agree that absent a waiver, an employer is
entitled to both a lien for its past payments and a credit
against future payments, in the amount of any net recovery
received by an employee from a third party. The employer's
lien rights are not at issue here, as Evans Financial agreed to
a $12,500 reduction in those rights and received a lien for the
remainder. The only question is whether Evans Financial
waived its right to a credit against future medical payments.
And the only question for this court is whether there was
substantial evidence to support the conclusion that there was
such a waiver.

The OWCP, which defends the decision of the Board in this
court, contends that the evidence of waiver is contained in the
"paper trail" that was before the ALJ and the Board. Resp.
Br. at 13. We follow that paper trail below.

A

On January 12, 1987, counsel for O'Brien wrote counsel for
the employer to "confirm ... discussions" in which Evans
Financial had agreed to reduce its right to a lien on the
recovery O'Brien expected to receive from her third-party
lawsuit. J.A. 44. The letter stated:

To enable my client, Carolyn Lee O'Brien, to reach a
tentative settlement ... , your client agreed to reduce its
claimed lien by the sum of $12,500.00.... The amount
of the lien claimed ... is $92,950.00. We have agreed
that the amount to be placed in escrow shall be the sum

of $92,950.00 less the $12,500.00 compromise, for a total
of $80,450.00.

Id. Counsel for the employer signified its confirmation by
counter-signing the letter. Id. at 45.

All agree that by this letter, and its confirmation, the
employer waived its right to a lien for past payments in
excess of the agreed-upon $80,450. It is clear that a lien and
a credit are separate entitlements, and that an employer may
waive one without waiving the other. See, e.g., I.T.O. Corp. v.
Sellman, 954 F.2d 239, 244 (4th Cir. 1992), vacated and
superseded on other grounds, 967 F.2d 971 (4th Cir. 1992);
Perry, 29 Ben. Rev. Bd. Serv. at 61; Kaye v. California
Stevedore & Ballast, 28 Ben. Rev. Bd. Serv. (MB) 240, 251-52
(1994); Treto v. Great Lakes Dredge & Dock Co., 26 Ben.
Rev. Bd. Serv. (MB) 193, 198-99 (1993). The parties agree
that both attorneys well understood the difference between
the two. Accordingly, because the January 12, 1987 letter
mentioned the waiver of the employer's lien but did not
mention the credit, the Board did not contend and the OWCP
does not argue that the January 12 letter evidenced a waiver
of the credit. We therefore must move on to the next
document in the paper trail.

B

On January 30, 1987, O'Brien's counsel again wrote counsel
for the employer, this time to obtain its final consent to the
settlement of the third-party lawsuit, as required by section
33(g) of the LHWCA, 33 U.S.C. s 933(g). See J.A. 48. The
cover letter noted that a standard DOL consent form, Form
LS-33, was enclosed for the employer's signature and return.
The letter also stated that "the net proceeds due my client
are laid out" in an attached January 13, 1987 letter O'Brien's
counsel had sent to the Special Fund. Id. Nothing in the
January 30 cover letter mentioned a waiver of the employer's
credit.

Nor did the enclosed consent form contain any evidence of
a waiver. It merely stated that the employer had been
advised of, and had approved, the settlement of the third-

party case for "the gross amount of $275,000 and the net
amount of $99,227.65." J.A. 49. The form said nothing about
the disposition of the $99,227.65, and it is quite clear that no
one thought the entire amount was destined for O'Brien. At
a minimum, the attached January 13, 1987 letter indicated, as
discussed below, that $44,227.65 of that amount was subject to
a setoff for the benefit of the Special Fund.

Although the Board did not regard the consent form itself
as a waiver, it concluded that the employer waived its credit
by consenting to the settlement and signing the form "[a]fter
being notified of the specific agreement between claimant and
the Special Fund" contained in the attached January 13, 1987
letter. Accordingly, we must now direct our attention to that
letter.

In his January 13 letter to the Special Fund, O'Brien's
counsel described the "settlement [that] has been reached in
the third party case." J.A. 46. The letter explained that the
total amount of the settlement was $275,000, which was
"reduced to net proceeds to the claimant of $99,227.65" as a
consequence of various deductions, including "the $80,450.00
employer escrow/lien." Id. The letter then went on to state:

Based on the proposal which we discussed, my under-
standing is that the Special Fund would have the
$99,227.65 treated as follows:

1. $55,000.00 free and clear to client with no setoff.

2. The remainder of $44,227.65 being treated as sums
subject to setoff with credit to the Special Fund
taken prospectively for the next approximately 3
1/2 years. This prospective setoff includes the ap-
proximately $13,000 paid by the Special Fund to
the claimant to date.

Id. at 46-47. The Board concluded that because the employ-
er consented to the third-party settlement, knowing the Janu-
ary 13 letter stated that the $55,000 would be "free and clear
to client with no setoff," that consent constituted a waiver of
the employer's right to subject the $55,000 to a setoff.

The problem with this analysis is that the January 13, 1987
letter was nothing more than an agreement between the

Special Fund and O'Brien with respect to the Special Fund's
setoff rights. By its express terms, the letter recounted a
"proposal" discussed between counsel for O'Brien and counsel
for the Special Fund. It stated O'Brien's understanding
"that the Special Fund would have the [net proceeds] treated
as follows": $44,227.65 subject to a setoff with credit to the
Special Fund and "$55,000 free and clear to client with no
setoff." Id. (emphasis added). The letter thus recounted
what the Special Fund wanted with respect to its own setoff,
and what the claimant agreed to about that setoff. The
bottom line was that the claimant was to receive $55,000, free
and clear as far as the Special Fund was concerned. The
letter said nothing, however, about the employer's claims to
that $55,000.

Two aspects of the letter's timing further confirm this
reading. First, the letter recorded an agreement between
O'Brien and the Special Fund in which the employer had not
participated. Indeed, the OWCP concedes there is no evi-
dence that counsel for the employer ever saw the January 13
letter before it was forwarded to him on January 30, 1987.
Nor did the letter suggest that the agreement it contained
was contingent upon subsequent agreement by the employer.
Accordingly, O'Brien and the Special Fund could not have
contemplated that they were agreeing to anything other than
the disposition of their own respective claims. And the
employer's counsel, upon reading the letter, would have had
the same impression.

Second, O'Brien's counsel wrote the January 13 letter to
the Special Fund just one day after writing the January 12
letter to employer's counsel. As discussed above, the Janu-
ary 12 letter sought to confirm an agreement that had been
reached between O'Brien and her employer. The only point
mentioned in that letter, however, was the employer's agree-
ment to reduce its lien. Surely O'Brien's counsel would also
have mentioned a waiver of the employer's credit if he had
believed it to be covered by the agreement with the employer.
And surely he would have mentioned it if he believed it
covered by the document he was simultaneously negotiating
with the Special Fund.

Both the language of the January 13, 1987 letter and its
temporal context make clear that it was not intended to, and
did not, waive the employer's right to its credit against future
medical payments. As far as the employer was concerned,
the agreement between O'Brien and the Special Fund left the
majority of the net settlement proceeds, $55,000, free and
clear of any setoff for the Fund--and thus fully available for
the employer's setoff. Accordingly, Evans Financial had no
reason to withhold its consent to the settlement, and no
waiver can be deduced from the granting of that consent.

C

The last document in the paper trail before the Board was
a modification of the OWCP's original Compensation Order.
On August 24, 1987, after being notified of the third-party
settlement, the district director modified her previous award
to reflect the terms of that settlement. The findings of fact in
the Modified Compensation Order included the following:

1.That ... the employer ... and the Special Fund
have paid compensation to the claimant for perma-
nent total disability ... ; that as of March 5, 1987
the Director in [sic] behalf of the Special Fund
approved and authorized a third party settlement of
the action instituted against a third party allegedly
liable for the injury, as a result of which the claimant
received a gross amount of $275,000.00; that after
paying an attorney's fee ... and court cost ... the
amount of $80,450.00 has been placed in escrow to
cover the employer's ... lien;

2.that the claimant realized a net recovery of
$44,227.65 which shall be applied against the liability
of the Special Fund....

J.A. 50-51. The employer was served with a copy of the
order.

The Board concluded that the employer waived its right to
a credit by failing to object to this order which, the Board
noted, provided in paragraph 2 that the $44,227.65 "net
recovery" was to be applied solely against the Special Fund's

liability. But the employer's failure to object to the modified
order cannot constitute a waiver because, once again, the
employer had no reason to object. It had no reason to object
because paragraph 2 of the order, like the January 13, 1987
letter, did nothing more than adjust the relationship between
O'Brien and the Fund.

Paragraph 2 of the Modified Compensation Order correctly
stated that $44,227.65 of O'Brien's recovery was to be applied
against the liability of the Special Fund. It did not, however,
say anything at all about the disposition of the remaining
$55,000. Indeed, unlike the January 13 letter, it did not even
say the $55,000 was to be "free and clear" to O'Brien.
Moreover, although paragraph 1 of the order did mention the
disposition of the employer's "lien," it made no mention of its
credit. Yet, like counsel for the parties, the OWCP was well
aware of the difference between the two. See, e.g., Perry, 29
Ben. Rev. Bd. Serv. at 59; Kaye, 28 Ben. Rev. Bd. Serv. at
251-52; Treto, 26 Ben. Rev. Bd. Serv. at 198-99.

In sum, we agree with the view of the dissenting Board
member, who concluded that the Modified Compensation
Order "simply does not address the issue now presented, viz.
whether employer may offset future medical bills from the
proceeds received by claimant." J.A. 31. And because noth-
ing in the order compromised the employer's right to an
offset, the employer had no reason to challenge it. There is,
therefore, not a scintilla of evidence to support the conclusion
that Evans Financial waived its right to a credit against its
liability for future medical expenses.

III

Finally, we consider Evans Financial's claim that it is
entitled not only to a credit, but to complete relief from its
obligation to make additional medical payments. The Board
rejected that claim and so do we.

Section 33(g) of the LHWCA provides that if an employee
settles with a third party for an amount less than the
compensation to which the employee is entitled under the Act,
and does so without prior written approval from her employ-

er, the employee loses the right to any further recovery of
compensation or medical benefits from the employer. See 33
U.S.C. s 933(g); Morauer & Hartzell, 439 F.2d at 552. The
purpose of the section is to "prevent[] the claimant from
acting unilaterally to the detriment of the employer by ac-
cepting less in settlement than it might be entitled to and
thus reducing the employer's offset." I.T.O. Corp., 954 F.2d
at 242; see Estate of Cowart v. Nicklos Drilling Co., 505 U.S.
469, 482-83 (1992).

Evans Financial contends that O'Brien did something anal-
ogous here. It contends O'Brien entered into a settlement
with the Special Fund that compromised the employer's right
to offset its liability against her $55,000 net recovery. That,
Evans Financial contends, violated the "spirit and purpose" of
section 33(g) and caused it prejudice. The appropriate reme-
dy, it urges, is complete relief from future liability.

But O'Brien violated neither the letter nor the spirit of
section 33(g). She did not violate the letter of the law,
because she fully complied with its express requirement that
she obtain written approval prior to settlement. Her coun-
sel's letter of January 30, 1987 notified Evans Financial of the
settlement, and the employer signified its approval by signing
the standard Form LS-33.

Nor did O'Brien violate the spirit of the section by compro-
mising Evans Financial's right to a credit without its approv-
al. Indeed, such a conclusion would be inconsistent with our
determination that Evans Financial still retains that credit.
As we held above, the January 13, 1987 letter from O'Brien's
counsel to the Special Fund was not intended to, and did not,
effect a waiver of the employer's credit right. For that
reason, the employer's right to a credit was not prejudiced.
There is, therefore, nothing to support Evans Financial's
claim to complete relief from liability for O'Brien's medical
expenses.

IV

For the foregoing reasons, we conclude that substantial
evidence does not support the determination that Evans

Financial waived its right to a $55,000 credit against its
liability for O'Brien's medical expenses. At the same time,
we reject the employer's claim that it should be relieved of all
such liability. We grant the petition for review, vacate the
decision of the Board including its affirmance of the award of
attorney's fees, and remand the case for further proceedings
consistent with this opinion.