Saint Paul-Mercury Indemnity Co. v. Lanza (131 F. Supp. 684, 1955)

JOHN E. MILLER, District Judge.

The present proceeding arises upon a petition for distribution of money paid in satisfaction of the judgment heretofore entered in this case. 116 F.Supp. 491. The primary question raised by the petition relates to the proper disposition of attorneys’ fees, and the determination of this question requires a reference to the proceedings heretofore had in the case.

In January, 1953, Lonnie Sisney, Virgil C. Carroll, and Paul A. Jennings were employed by Harry B. Hogan, a contractor. On January 26, 1953, Sisney, Carroll and Jennings were injured by the negligence of a third party while they were acting within the scope of their employment with Hogan in Arkansas. Saint Paul-Mercury Indemnity Company, the workmen’s compensation insurance carrier for Hogan, was notified of the accident and the Company in turn notified Messrs. Allen, Woolsey & Fisher, its attorneys in Springfield, Missouri. On January 27, 1953, Mr. Fisher, accompanied by Hogan, went to the Bull Shoals Dam where the accident occurred and made a preliminary examination of the incident. On January 28 and 29, another attorney associated with said law firm visited the site of the accident and took the statements of several witnesses.

All three of the injured workmen had been admitted to Saint John’s Hospital in Springfield, Missouri, and Mr. Fisher, and other members of his firm, had a number of conferences with them concerning their compensation benefits. Saint Paul admitted its liability to all three of the injured employees for compensation benefits, and there was never any dispute concerning said compensation.

About two weeks after the accident Mrs. Sisney contacted Mr. Arthur N. Wood, an attorney in Yellville, Arkansas, and informed him of the accident and of the fact that Sisney was worrying about everything. At that time the Sisneys were living in a house owned by Mr. Wood’s father-in-law, and were acquainted with Mr. Wood. Mr. Wood told Mrs. Sisney that her husband should not be worrying and that the most important thing was for him to get well first.

In the meantime, on February 25, 1953, Carroll and Jennings employed the firm of Allen, Woolsey & Fisher to represent them in a third party suit against M. Lanza, doing business as Lake Charles Electric Company. On March 2, 1953, Carroll and Jennings, through their attorneys, filed separate suits against Lanza in the Circuit Court of Baxter County, Arkansas.

On March 7, 1953, after having talked to Mrs. Sisney several times, Mr. Wood wrote a letter for Mrs. Sisney to take to her husband. He advised Sisney not to worry about the bills and other matters, not to sign any papers, but to accept the compensation payments. He air so told Sisney that if anyone talked to him (Sisney) about the accident, to send them to him (Wood). Mr. Wood then arranged for some of Sisney’s creditors to give him further credit at that time.

On March 20, 1953, the Carroll and Jennings cases were removed to this Court by the defendant.

In April, 1953, Sisney conferred with Mr. Wood and they reached an oral agreement for Wood to represent Sisney for a fee of one-third of the amount, if any, recovered by Sisney from Lanza over and above the amount that would have to be repaid to the workmen’s compensation carrier, if any. Mr. Wood talked to several witnesses about the accident, and did some research of the law pertaining to Sisney’s rights, but in view of Sisney’s poor physical condition Wood did not feel that the time was ripe for filing suit against Lanza. In this connection it should be noted that Sisney was in and out of the hospital five times from the time of the accident until June 3, 1953, and even at the time of the trial on November 5 and 6, he was still required to have medical treatment every two weeks, and was still emotionally disturbed. See, Finding of Fact No. 8 in Carroll v. Lanza, D.C.Ark., 116 F.Supp. 491, at page 500.

In May, 1953, Messrs. Goodwin & Riffel, attorneys in Little Rock, Arkansas, were employed by Saint Paul to take action on its claim for compensation it was then paying to Sisney. A conference was had with Messrs. Allen, Woolsey & Fisher in Springfield, Missouri, and it was decided that the Goodwin firm would be associated with the Allen firm in representing Saint Paul, Carroll and Jennings. It was also decided that suit should be filed by Saint Paul and Hogan, with Sisney being joined as a plaintiff, against Lanza to recover the compensation payments made by Saint Paul to Sisney. In the Sisney case the Allen firm was to be associated with the Goodwin firm.

On June 13, 1953, a suit was filed by Saint Paul and Hogan against Lanza, and Sisney was made a party plaintiff. On the previous day, June 12, Messrs. Goodwin & Riffel had written Sisney advising him of thé filing of the suit and enclosing a copy of the complaint.

On June 27, 1953, Hogan and. Saint Paul were permitted to intervene in the Carroll and Jennings cases. In August, 1953, several letters were written to Sisney, in addition to two telephone calls, regarding the taking of Sisney’s discovery deposition. Sisney informed Mr. Wood that someone wanted to take his deposition for use in the Carroll and Jennings cases, and Wood told Sisney that would be all right since later he might want the cooperation of Carroll and Jennings in the trial of his case.

The date for the taking of the deposition was finally set for August 27, 1953. On August 26, Messrs. Goodwin, Riffel, Fisher, Carroll and Koonce, Saint Paul’s claims manager, went to Sisney’s home and discussed the accident with him. Sisney then accompanied them to the site of the accident and he and Carroll pointed out the relevant locations. They then went by the' home of a witness, David P. York, and discussed the case with him. Sisney’s discovery deposition-was taken on- August 27, 1953, the defendant being represented by Messrs. Wright, Harrison, Lindsey & Upton and the plaintiffs being represented by Messrs. Goodwin & Riffel and Mr. Fisher.

A pre-trial conference was held on August 31, 1953, and at that time the three cases were consolidated for trial. On September 1, 1953, upon consent of the attorneys present the Court entered an order striking the cases from the trial calendar in the Harrison Division and transferring the case to Fort Smith for trial to the Court, without a jury. Mr. Wood had no notice of the pre-trial conference and was not present.

Early in October, 1953, Mr. Riffel and Mr. Koonce made a trip to the scene of the accident to contact other witnesses. On October 7, 1953, Goodwin & Riffel wrote to Sisney requesting that he fill out blank withholding forms showing his past income. On October 26, they went to Sisney’s home, discussed the case further with him, and picked up the withholding forms.

Up until this time, Sisney had not told anyone, except possibly Carroll, that he had employed Mr. Wood to represent him. Neither had he told Wood of the fact that he had been contacted by Messrs. Goodwin & Riffel or that a suit to which he was a party had been filed.

On October 27, 1953, Mr. and Mrs. Sisney went to Mr. Wood’s home and wanted to talk to him about Sisney’s compensation payments and the suit that had been filed. Since the 27th was on' Sunday, Mr. Wood asked that they wait until the next day to discuss the matter. On Monday morning, October 28, Sisney told Wood that Messrs. Goodwin & Riffel had been to see him on the 26th, and that his case was coming up soon. Sisney also told Wood that he had no previous knowledge of having a case coming up, and that he had not been notified of such action being taken. This was the first information Wood had concerning' the suit, and he immediately placed ¿ long distance telephone call to Messrs. Goodwin & Riffel and was advised of the suit, the work that had been done in the case, and that Sisney had been notified of the suit. After the call Wood asked Sisney to collect all the correspondence he had concerning the matter. The next day Sisney brought several letters to Wood, including the letter of June 12, 1953, advising of the filing of the suit. Wood asked Sisney why he hadn’t advised him (Wood) about the letter and Sisney replied that he did not know what the letter meant.

On October 30 or 31, 1953, Wood and Sisney went to Little Rock for a conference with Goodwin & Riffel. The attorneys discussed the case and Wood suggested that he would have Sisney examined by another doctor to determine the extent of his permanent disability. However, it was finally decided that it would be better to have Sisney brought to Fort Smith, Arkansas, prior to the trial for examination at the Holt-Krock Clinic. Wood also suggested that he would go to Springfield and interyiew the two doctors who had examined Sisney, but he was told that Mr. Fisher was going to bring the doctors to Fort Smith to testify in the three cases and the doctors could be interviewed at that time. Wood agreed to and did bring either three or four of the witnesses to Fort Smith on November 4, 1953, the day before the trial.

Sisney had been brought to Fort Smith on November 3 by Mr. Riffel and Mr. Koonce, and was examined in the HoltKrock Clinic. On November 4, the day before the trial, all the counsel and witnesses stayed at the Ward Hotel in Fort Smith and all of the counsel interviewed all the witnesses at that time. That evening it was decided that Mr. Goodwin and Mr. Fisher would take the active roles in the trial. At that time Mr. Wood was prepared to try Sisney’s case, but felt that in view of the circumstances he should defer to the suggestions of the other attorneys that Mr. Goodwin and Mr. Fisher try the cases,

The case was tried to the Court, without a jury, on November 5 and 6, 1953, and on November 13, 1953, the Court entered judgments in favor of the plain- ’ tiffs in the following amounts: Sisney’s case, $22,500; Carroll’s case, $18,000; Jennings’ case, $6,000. See Carroll v. Lanza, supra, 116 F.Supp. 491.

The three cases were appealed by the defendant, Lanza, to the Court of Appeals for this Circuit. After a. conference between Mr. Wood and Goodwin & Riffel in Little Rock, and a conference between Wood, Fisher, Goodwin and Riffel in Harrison, it was decided that Mr. Goodwin would write the brief on appeal. The cases were consolidated for submission and were submitted to the Court of Appeals on May 7, 1954. Mr. Wood was present and prepared to argue the case for Sisney, but it was agreed that Mr. Goodwin and Mr. Fisher would argue the ease, which they did.

In the meantime, in February, 1954, Mr. Wood took Sisney to Little Rock and appeared before the Workmen’s Com'pensation Commission. At that time the parties worked out a complete settlement of Saint Paul’s compensation liability to Sisney. Mr. Wood neither asked for nor received any payment for his services in ’ representing Sisney before the Commission.

On July 30, 1954, the Court of Appeals affirmed the Sisney and Jennings cases, but reversed the Carroll ease. Lanza v. Carroll, 8 Cir., 216 F.2d 808. Lanza filed a petition for rehearing in . the Sisney and Jennings cases, and Carroll filed a petition for rehearing in his case. The petition for rehearing in the Carroll case was denied August 24, 1954, and on November 8, 1954, the Supreme Court of the United States granted certiorari, 348 U.S. 870, 75 S.Ct. 113, in said Carroll case. The case is now pending in the Supreme Court.

After the petition for rehearing was filed in the Sisney and Jennings cases, and after Mr. Goodwin had submitted plaintiffs’ response to the petitions, it was brought to the attention of the Court of Appeals that a case involving the same legal issue, i. e., the right of the employee of an insured subcontractor to sue the prime contractor in tort as a third party under the Arkansas Workmen’s Compensation Act, was pending in the Arkansas Supreme Court. The Court of Appeals then deferred action on the petitions for rehearing in the Sisney and Jennings cases pending the decision of the Arkansas Supreme Court in the case of The Baldwin Co. v. Maner.

Mr. Goodwin, realizing that the outcome of the Baldwin case would be determinative of the issue urged in the petition for a rehearing in the Sisney and Jennings cases, offered his services to Messrs. Cole & Epperson, the attorneys representing Judge Maner in the Baldwin case. (The Baldwin case was in the Supreme Court upon a petition for a writ of prohibition alleging that the Circuit Court was without jurisdiction to try a case brought by an employee of an insured subcontractor against the prime contractor.) Thereafter Mr. Goodwin prepared the brief of respondent in the Baldwin case and argued the case before the Arkansas Supreme Court. On December 6, 1954, the Arkansas Supreme Court denied the writ of prohibition. The Baldwin Co. v. Maner, Ark., 273 S.W.2d 28. Mr. Goodwin neither asked for nor received any remuneration for the services he performed in the Baldwin case.

On December 15, 1954, the Court of Appeals denied the petitions for rehearing in the Sisney and Jennings cases. On the same date the defendant Lanza gave said plaintiffs and their attorneys drafts in payment of the judgments. The draft in the Sisney case was in the sum of $23,968.36, and said draft has been paid into the registry of this Court.

On January 20, 1955, the petition of the plaintiff, Lonnie Sisney, for distribution of the money paid on the judgment, came on for hearing before the Court. At the hearing the parties stipulated that the unrecoverable court costs and other expenses attributable to the prosecution of the Sisney case amounted to $674.09; that said amount had been paid by Saint Paul; and that said amount should be first deducted from the amount of the draft and paid to Saint Paul. The parties also stipulated that the total sum of $9,107.73 had been paid by Saint Paul on behalf of Sisney for compensation and medical expenses, and that Saint Paul’s liability to Sisney had been exhausted.

Mr. Wood spent $415 of his own money and drove more than 3,000 miles in connection with his representation of Sisney. To date Wood has received no remuneration for any of the services he has performed for Sisney. Neither, has he been reimbursed for expenses.

There is little dispute between the parties as to the material facts heretofore stated by the Court. There is, however, a substantial dispute as to the proper application of the law to those facts.

The first question for determination is whether the attorneys’ fees are a part of the “cost of collection” and must be deducted from the total amount recovered by Sisney from Lanza before the remainder of said amount is distributed. Section 81-1340, Ark.Stats.1947, Annotated, provides as follows:

“* * * (b) Subrogation. An employer or carrier liable for compensation under this Act for the injury or death of an employee shall have the right to maintain an action in tort against any third party responsible for such injury or death. After reasonable notice and opportunity to be represented in such action has been given to the compensation beneficiary, the liability of the third party to the compensation beneficiary shall be determined in such action as well as the third party’s liability to the employer and carrier. After recovery shall be had against such third party, by suit or otherwise, the compensation beneficiary shall be entitled to any amount recovered over and above the amount that the employer and carrier have paid or are liable for in compensation, after deducting reasonable costs of collection, and in no event shall the compensation beneficiary be entitled to less than one-third of the amount recovered from the third party, after deducting the reasonable cost of collection.”

Petitioner, Lonnie Sisney, contends that the “cost of collection” referred to in the Statute does not include attorneys’ fees. Contrarily, respondents contend that said “cost of collection” does include attorneys’ fees, and in support of said contention respondents cite, inter alia, the. ease of Boulden v. Herring, D.C. Ark., 126 F.Supp. 885, 893, where this Court said:

“While it is true that the Workmen’s Compensation Acts vary from state to state, nevertheless it is generally held that attorney’s fees are to be deducted before the lien of the insurance carrier attaches. * * *»

However, a reading of this sentence in context discloses that it is merely a statement of the reason for the Court’s original decision in the case. It is true that this Court originally was of the opinion that attorneys’ fees were part of the cost of collection, and so held in the Boulden case, supra, when it was first before the Court (at that time no written opinion was filed). But that decision was appealed, and on the basis of the intervening decision of the Arkansas Supreme Court in Winfrey & Carlile v. Nickles, Ark., 270 S.W.2d 923, the Court of Appeals in Hope Flooring & Lumber Co. v. Boulden, 8 Cir., 215 F.2d 731, remanded the Boulden case to this Court for further proceedings. After further proceedings in the case this Court allowed the plaintiff’s attorney a fee based upon the whole recovery, not because the Court considered the attorney’s fee to be a part of the cost of collection, but because plaintiff’s attorney did all the work in the case “with no assistance or apparent cooperation from the Intervenors”, and because the Intervenors’ interests were antagonistic to those of plaintiff at the crucial stage of the proceedings (when plaintiff was attempting to establish that decedent’s death was caused by the accident rather than by tuberculosis; at that time Intervenor had not admitted workmen’s compensation liability for said death). Boulden v. Herring, supra, at page 897 of 126 F.Supp.

Stated differently, formerly this Court was of the opinion that attorneys’ fees were a part of the cost of collection, but in view of the decision in Winfrey & Carlile v. Nickles, which this Court must follow, the Court is convinced that attorneys’ fees are not a part of the cost of collection under the Arkansas statute. In the Nickles case the Court, inter alia, said [270 S.W.2d 927]:

“Had it not been for St. Paul’s dual liability the employment of counsel would have come about in this fashion: Nickles, as administrator, retained the Hardin firm as his attorneys, for an agreed fee of half of his interest in the recovery. St. Paul would then have had a genuine interest in the case, since it stood to recoup its entire compensation .liability from the third-party tort-feasor. Accordingly St. Paul might either have retained the Hardin firm as its counsel, for a compensation mutually agreed upon, or have employed another attorney of its own choice. In either event the present question would not have been likely to arise, for ordinarily the court would simply have apportioned the recovery between the two plaintiffs, leaving each to pay his own counsel. Thus in the normal situation St. Paul would incur liability for an attorney’s fee in the course of pursuing the tort-feasor.” (Emphasis added.)

It is true that the Court allowed the Hardin firm an attorney’s fee based upon the entire recovery, but not because said attorney’s fee was a part of the cost of collection. The allowance was made because the Hardin firm did all the work in the case, due to the fact that St. Paul had conflicting interests and its attorney could not assist the Hardin firm.

In the instant case the petitioner, Sisney, employed Mr. Wood to represent him and the respondent, Saint Paul, employed Messrs. Goodwin