Jack Nelson Jones Professional Association

May 21-27, 2018

Public Employees Claims Div. v. Clark, 2018 Ark. App. 215 (March 28, 2018)

This appeal comes from the Carroll County Circuit Court, Honorable Scott Jackson presiding. This case concerns whether an entity paying workers’ compensation benefits to a public employee is limited in its right to recover subrogation by the “make whole” doctrine.

In 2010, appellee Gary Clark was seriously injured while working as a veterinary livestock inspector for the Arkansas Livestock and Poultry Commission (“Commission”). Clark was paid workers’-compensation benefits for his injuries. In 2013, Clark filed a negligence suit against North Arkansas Livestock Auction, Inc. (NALA), the entity responsible for the facility where he was working when injured. The Public Employee Claims Division (PECD), which paid workers’ compensation benefits to Clark, subsequently intervened alleging that as the workers’-compensation-claims administrator for the Commission, it had paid benefits to Clark and was entitled by statute to an absolute lien against two-thirds of the net proceeds of any settlement or judgment in Clark’s favor on his complaint against NALA.

Clark’s case against NALA was ultimately settled for $325,000. Clark’s attorney subsequently deposited $75,000 into the registry of the court. A “post settlement hearing” between Clark and PECD was held in May 2016. In describing the issue before the court, Clark’s attorney stated that “at the time we settled this case we deposited into the registry of the court $75,000, and of course they are trying to establish a lien on that amount. We are trying to establish that he will not be made whole, even by receiving that money.”

PECD introduced evidence at the hearing showing that Clark had received more than $66,000 in benefits for temporary total disability and permanent partial disability and that more than $154,000 in medical expenses had been paid on his behalf but that his claim was still open and that PECD continued to pay for medical treatment. Clark agreed that he had received these benefits but noted that he did not receive his full wages while off work. Clark testified that he agreed to settle his case against NALA for $325,000; he said that $100,000 of this sum went to attorneys’ fees, $10,000 went to costs, $75,000 was deposited into the registry of the court, and he received the balance. Although Clark had eventually returned to work full time after his injury, he testified that he still suffered from pain and mental anguish.

PECD calculated that $126,666.67 should have been available for statutory subrogation. Because more than $220,000 had been paid to Clark or on Clark’s behalf in his workers’-compensation claim, PECD argued that it was entitled to receive the entire balance available for subrogation.

Clark argued that PECD could not recover anything because he had not been made whole by the settlement and workers’-compensation payments he had received. PECD contended that its entitlement to a lien was absolute under the statute and that the made-whole doctrine did not apply. Arkansas Code Ann. § 21-5-605(f)(3)(B) provides that in the event of a public employee’s tort action against a third party, “the rights of the public employer … to amounts received from the third party by the injured public employee, or his or her dependents, as a result of either settlement with or judgment against the third party shall be absolute.”

The circuit court took the matter under advisement and subsequently entered an order finding that PECD was entitled to receive two-thirds of the $75,000 in deposited funds after payment of costs of collection and calculated this amount to be $23,345. PECD appealed from this determination arguing that the statute provides that the right to recover subrogation from a public employee is absolute and not subject to the make-whole doctrine.

According to PECD, the proper calculation should have started with the settlement amount of $325,000 and deducting $100,000 for attorneys’ fees and $10,000 for costs of collection leaving a net amount of $215,000. One-third of that amount, $71,666.66, should have been awarded to Clark, and the remaining two-thirds, or $143,333.34, should have been available for subrogation. PECD argued that, because more than $220,000 in workers’-compensation benefits were expended on Clark’s claim, it was entitled to receive the total balance available for subrogation which would be calculated as two-thirds of $215,000 or $143,333.34.

However, instead of finding that PECD was entitled to up to two-thirds of “the net proceeds recovered in the action” as provided in the statute, the circuit court found that PECD was entitled only to two-thirds of “the deposited funds.” Thus, the circuit court calculated PECD’s award from $75,000 as opposed to the entire settlement amount of $325,000. Clark contends that this was proper because there was an agreement by PECD to limit its recovery to a portion of $75,000.

The Court of Appeals, however, noted that, although the $75,000 deposit was referenced by Clark at the hearing and in the circuit court’s order, the record contained no reference to such an agreement by PECD. Moreover, in the discussion of the alleged agreement in his brief, Clark made no reference to anything in the abstract or addendum supporting this contention, and PECD was simply silent on the alleged agreement. On the other hand, as acknowledged by Clark, PECD had submitted into evidence its calculations based on the entire amount of the settlement proceeds. Additionally, while Clark noted below that the amounts PECD listed for attorneys’ fees and costs needed to be adjusted, he failed to assert that PECD had agreed to be limited to a portion of the $75,000. Thus, although the parties and the circuit court acknowledged that only $75,000 was deposited with the court, there was no reason on the record that PECD’s recovery should be limited to an amount calculated from the deposited sum as opposed to the entire settlement of $325,000.

Given the language in the statute, the Court of Appeals reversed the circuit court’s order and remanded the case for further proceedings consistent with this opinion.