Opinion
CIVIL NO. 98-CV-2342 (JBS)
September 28, 1999
Michael A. Taylor, Esquire, Taylor, Boguski Greenberg, for Plaintiff.
Nancy S. Freeman, Esquire, Freeman, Barton Huber, P.A., for Defendant
O P I N I O N
In this declaratory judgment action, plaintiff Ella Riley-Turley asks the Court to determine whether, under New Jersey law, an insurer may assert a workers' compensation lien against the proceeds of a legal malpractice settlement. Presently before the Court are the parties' cross-motions for summary judgment. The primary questions to be answered in resolving these motions are 1) whether this Court has jurisdiction to decide this dispute under the Declaratory Judgment Act, 28 U.S.C. § 2201, 2) whether the May 4, 1993 order of the Honorable Joel B. Rosen, U.S.M.J., precludes defendant Liberty Mutual from asserting a workers' compensation lien against the proceeds of plaintiff's legal malpractice settlement, and 3) if Judge Rosen's 1993 order is not binding, whether under governing substantive law Liberty Mutual may assert a workers' compensation lien on the proceeds of the malpractice settlement. For reasons explained herein, the Court answers all three questions in the affirmative, and will grant defendants' motion for summary judgment.
I. BACKGROUND
The dispute underlying the present motions stems from plaintiff's efforts to receive compensation for work-related injuries suffered in October, 1987. On or about October 30, 1987 plaintiff suffered work-related injuries while working in New Jersey for her employer, Metalweld. (Stip. Facts at ¶ 2.) She filed a formal petition for benefits under New Jersey's Workers' Compensation Act on December 8, 1987, and was awarded benefits until further order on May 31, 1991. (Id. at ¶ 4.) At all relevant times, benefits were paid to plaintiff by Liberty Mutual, the insurer for Metalweld. (Id. at ¶ 5.)
The facts discussed herein are drawn from the parties' affidavits and certifications, and from the Stipulation of Facts dated January 6, 1999 (hereinafter "Stip. Facts").
In addition to collecting unemployment benefits, plaintiff employed the law firm of Ferrara and Waldman ("Ferrara") to pursue a third party negligence claim against the entity allegedly responsible for her injuries. (Id. at ¶ 6.) Her attorneys failed to file a negligence action within the applicable statute of limitations, barring plaintiff from recovering against the entity which she claimed was responsible for her injuries. (Id. at ¶ 7.) On May 3, 1991, plaintiff filed with this Court a legal malpractice action against Ferrara. Sometime before trial on the malpractice matter, a tentative settlement was reached between plaintiff's attorneys and Ferrara. (Id. at ¶ 8.) The parties did not finalize the settlement, however, out of concern for a potential workers' compensation lien which had not as yet been asserted by Liberty Mutual. (Id. at ¶¶ 9-10.)
While plaintiff's legal malpractice suit was pending, plaintiff's attorney Michael Paul informally notified Liberty Mutual of plaintiff's malpractice action, and, acknowledging Liberty Mutual's potentially large workers' compensation lien on any proceeds, pressed the insurer to participate and conclusively settle the lien issue. (Id. at ¶ 12.) Liberty Mutual never responded in writing to Paul's repeated letters, but neither did they nor Metalweld express an intention to abandon their right to pursue a workers' compensation lien under N.J.S.A. § 34:15-40 ("section 40"), a statute that prevents double recovery of amounts paid under the workers compensation program for medical expenses and compensation for workers' injuries.
Section 40 provides, in relevant part that:
Where a third person is liable to the employee . . . for an injury or death, the existence of a right of compensation from the employer or insurance carrier under this statute shall not operate as a bar to the action of the employee . . ., nor be regarded as establishing a measure of damages therein. In the event that the employee . . . shall recover and be paid from the said third person or his insurance carrier, any sum in release or in judgment on account of his or its liability to the injured employee . . ., the liability of the employer under this statute thereupon shall be only such as hereinafter in the section provided.
(a) The obligation of the employer or his insurance carrier under this statute to make compensation payments shall continue until the payment, if any, by such third person or his insurance carrier is made.
(b) If the sum recovered by the employee . . . from the third person or his insurance carrier is equivalent to or greater than the liability of the employer or his insurance carrier under this statute, the employer or his insurance carrier shall be released from such liability and shall be entitled to be reimbursed . . . for medical expenses incurred and compensation payments theretofore paid to the injured employee.
(c) If the sum recovered by the employee . . . is less than the liability of the employer . . . the employer or his insurance carrier shall be liable for the difference.N.J.S.A. § 34:15-40.
Ferrara, wishing to resolve the section 40 lien issue before settling plaintiff's malpractice suit, filed with this Court a Motion to Resolve Workers' Compensation Lien, a copy of which was delivered to Liberty Mutual and Paul. (Id. at ¶ 15.) In this motion, Ferrara argued that the workers' compensation lien statute only permitted liens to attach to third party tortfeasors that contributed to the injuries at issue. Ferrara also argued that Liberty Mutual's failure to assert a workers' compensation lien prevented them from doing so in the future. For these reasons, Ferrara asked the Honorable Joel B. Rosen, U.S.M.J., to bar any future lien by Liberty Mutual against any malpractice settlement proceeds.
On August 4, 1993, Judge Rosen granted Ferrara's motion to bar any future assertion by Liberty Mutual of a section 40 lien. In his order, Judge Rosen noted that he had considered Ferrara's submissions and had received no opposition thereto. Judge Rosen further concurred with Ferrara's uncontested argument that under the decision of the New Jersey Superior Court in Fuentes, a section 40 lien only may attach to a third party where that third party's conduct contributed to the happening of the workplace accident. Wausau Insurance Co. v. Fuentes, 215 N.J. Super. 476 (App.Div. 1986). Subsequent to Judge Rosen's decision barring assertion of a lien, plaintiff settled her malpractice claims with Ferrara for $240,000.00. (Stip Facts at ¶ 18.) The action having been reported as settled, this Court on July 1, 1993 entered an order dismissing the case without costs or prejudice.
Despite the malpractice settlement, there remained undecided issues concerning the extent of plaintiff's disability, and whether Liberty Mutual was precluded by Judge Rosen's order from asserting a lien on the settlement proceeds. Trial on these issues began on October 18, 1996, in the Camden Worker's Compensation Court. (Id. at ¶ 19.) Plaintiff testified at trial that she had settled her case against Ferrara based on her attorney's assurances that there was no workers' compensation lien on the settlement proceeds. (Id. at ¶ 21.)
Before the conclusion of the trial in the Workers' Compensation Court, plaintiff and Liberty Mutual settled the issue of permanent disability, leaving outstanding only whether Liberty Mutual may assert the section 40 lien in state court. The issue was briefed by both parties, but before the Workers' Compensation Judge could rule on the section 40 issue, plaintiff asked and received a stay in the proceedings so that he could bring before Judge Rosen the issue of the enforcement of his Order of August 4, 1993. (Id. at ¶ 25.) To this end, plaintiff filed a "Motion to Show Cause Why the Litigants Rights of Ella Riley Turley Should Not Be Enforced" returnable before Judge Rosen. This motion sought an order barring Liberty Mutual from asserting a section 40 lien in accordance with Judge Rosen's Order of August 4, 1993.
Judge Rosen took argument on this issue on May 1, 1998, and denied plaintiff's motion by Order dated May 4, 1998. In his order, Judge Rosen held that he had no authority to decide the motion because the issue of plaintiff's permanent disability was properly before the Workers' Compensation Court. Without an actual case or controversy before the court, Judge Rosen held, he could not render a decision on plaintiff's motion.
Within two weeks of Judge Rosen's order denying plaintiff's motion to preclude Liberty Mutual from asserting a section 40 lien, plaintiff filed the present Declaratory Judgment action, asserting that this Court is a preferable forum to the Workers' Compensation Court to determine the rights and liabilities of the parties under section 40 because the issue had twice been here before.
Plaintiff seeks summary judgment as to each of the three counts of her complaint. Count One seeks a declaratory judgment as to the existence of a compensation lien under N.J.S.A. § 34-15-40 on behalf of Liberty Mutual and/or Metalweld at the time when plaintiff's legal malpractice action was settled in 1993. Count Two seeks a declaratory judgment as to whether defendant Liberty Mutual and/or Metalweld has a subrogation interest, either by lien or set-off, to any recovery made by plaintiff on a determination of permanent disability in the present workers' compensation proceeding. Count Three seeks a declaratory judgment as to whether Liberty Mutual is collaterally estopped by Judge Rosen's 1993 Order from asserting a workers' compensation lien or right to set-off, if that order extinguished any rights to a subrogation interest or set-off.
Liberty Mutual's cross-motion seeks dismissal of plaintiff's Complaint, arguing that this court lacks jurisdiction or, even if jurisdiction exists, that this Court should abstain. Secondly, Liberty Mutual argues that the proceeds of the legal malpractice recovery are subject to section 40 of the Workers' Compensation Act.
To the extent that defendant Liberty Mutual's motion to dismiss relies upon or addresses factual matters outside the pleadings, it is deemed converted to a cross-motion for summary judgment by force of Rule 12(b), Fed.R.Civ.P.
This Court first addresses the jurisdictional and abstention issues, and then will determine the effect of the 1993 and 1998 orders entered by Judge Rosen. The Court then will turn to the merits of the parties' positions about the existence or not of Liberty Mutual's section 40 lien at the time of plaintiff's 1993 malpractice settlement and continuing to date.
II. DISCUSSION
A. Jurisdiction Over Motion for Declaratory Judgment
This Court has jurisdiction over the subject matter due to diversity of citizenship, 28 U.S.C. § 1332(a), and New Jersey's laws provide the rules of decision.
Defendants argue that this Court should abstain from exercising jurisdiction over this action because of the pendency of a state court action which will address Liberty Mutual's claims. Specifically, defendants contend that this Court should not entertain the present declaratory judgment action because it is duplicative of state court proceedings, and plaintiffs are merely seeking to circumvent the authority of the Workers' Compensation Court to decide whether Liberty Mutual may assert a section 40 lien on the proceeds of plaintiff's malpractice settlement. For reasons explained below, however, the Court will exercise jurisdiction over the plaintiff's motion for declaratory judgment.
Preliminarily, it should be noted that the Declaratory Judgment Act is not a grant of jurisdiction to the federal courts. It merely makes available an additional remedy in cases in which they have jurisdiction by virtue of diversity and amount in controversy, or because of the presence of a federal question. 10B Charles Alan Wright, et al.,Federal Practice and Procedure, Jurisdiction 3d §§ 2766, 2767. In this case, the Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. Because plaintiff has asked the Court to rule on an issue pending in a state court, however, the Court must consider whether to abstain from exercising jurisdiction over the present motion.
The decision to abstain from exercising jurisdiction over a declaratory judgment action pending the resolution of state court proceedings is discretionary and is not limited to cases involving exceptional circumstances. See Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (reaffirming the holding in Brillhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942), that a discretionary standard applies to abstention decisions in declaratory judgment actions); see also NYLife Distributors, Inc. v. Adherence Group, Inc., 72 F.3d 371, 378 (3d Cir. 1995), cert. denied, 517 U.S. 1209 (1996). This discretion is not unbounded, and the Third Circuit has indicated that in exercising this discretion, district courts should lean toward allowing declaratory judgment actions to proceed. See United States v. Commonwealth of Pa., 923 F.2d 1071, 1073 (3d Cir. 1991).
District courts retain broad discretion to abstain from deciding declaratory judgments irrespective of the merits of the controversy before them. In Brillhart, the Supreme Court stated that district courts have the discretion to dismiss declaratory judgment actions when "it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Brillhart, 316 U.S. at 495. In considering whether to abstain, the court should "ascertain whether the questions in controversy between the parties to the federal suit . . . can be better settled in the proceeding pending in state court", assess "the scope of the pending state proceeding and the nature of the defenses open there", and evaluate "whether the claims of all parties in interest can satisfactorily be adjudicated in that proceeding, whether necessary parties have been joined, [and] whether such parties are amenable to process in that proceeding, etc." Id. However, the mere pendency of a similar action in state court does not require, or even permit, the federal court to refuse to hear or stay an action that is properly within its jurisdiction.NYLife, 72 F.3d at 376.
In this case, it is inappropriate for the Court to abstain from determining the effect of Judge Rosen's Order of August 4, 1993. Abstention is improper because plaintiff's present motion plaintiff asks this Court for a declaration of the effect of its previous orders on the assertion of a section 40 lien. In his August 4, 1993 order, Judge Rosen determined that no lien may be asserted against plaintiff's legal malpractice suit. As this determination had the effect of precluding Liberty Mutual from asserting a section 40 lien, it should be regarded as a final judgment of a federal court. It has long been established that the effect of judgments of the federal courts is a question of federal law, and these judgments must be accorded full faith and credit in a state court. Restatement, Second, Judgments § 87 at 314-316. As plaintiff is requesting a declaration of the effect of this Court's own Order, this Court is best equipped to make such a declaration. Thus, in its discretion, this Court will not abstain from declaring the effect of the order in question.
B. Summary Judgment Standard
Having determined that exercise of jurisdiction over this matter is proper, the Court turns to consideration of the parties' cross-motions for summary judgment. Generally, the Court may grant summary judgment only when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c).
The standard by which the court decides a summary judgment motion does not change when the parties file cross-motions. Southeastern Transp. Auth. v. Pennsylvania Pub. Utility Comm'n, 826 F. Supp. 1506, 1512 (E.D.Pa. 1993), aff'd, 27 F.3d 558 (3d Cir. 1994). When ruling on cross-motions for summary judgment, the court must consider the motions independently, Williams v. Philadelphia Hous. Auth., 834 F. Supp. 794, 797 (E.D.Pa. 1993), aff'd, 27 F.3d 560 (3d Cir. 1994), and view the evidence on each motion in the light most favorable to the party opposing the motion. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).
In this case, the facts are uncontested. (See Stip. Facts ¶¶ 1-32.) Thus, all that remains is for the Court to determine whether Liberty Mutual is as a matter of law barred by the prior orders of this Court from asserting a section 40 lien on the proceeds of plaintiff's malpractice settlement.
C. Effect of Judge Rosen's Order of August 4, 1993
1. Joinder of Necessary Parties
The Court next considers the effect of Judge Rosen's Order of August 4, 1993. The parties agree that at the time Judge Rosen barred assertion of a section 40 lien, Metalweld and Liberty Mutual were not joined as parties. Defendants maintain that, in order to accomplish a full and fair hearing on the propriety of a section 40 lien, Liberty Mutual and Metalweld must have been joined. (Def's Br. at 17.) Plaintiff responds that the Court should be satisfied that defendants were given a full and fair opportunity to be heard on the matter, but failed to participate. As support, plaintiff cites Judge Rosen's Order of May 4, 1998, which states that "Liberty Mutual was given a full and fair opportunity to respond to [Ferrara's] motion in 1993 and affirmatively chose not to respond." For reasons explained below, the Court agrees with defendants that Liberty Mutual and Metalweld should have been joined as indispensable parties, and, absent their joinder, Judge Rosen had no authority to bar them from asserting a section 40 lien.
When Judge Rosen addressed the section 40 lien issue in Turley v. Ferrara Waldman, Civil No. 91-2055, at issue was whether plaintiff's employer Metalweld, and its insurer, Liberty Mutual, by law could set-off any settlement proceeds against past and future workers' compensation paid to plaintiff. Clearly, when Judge Rosen issued an order barring these entities from asserting such a set-off, the order affected their rights.
Under Rule 19(a)(2), Fed.R.Civ.P., necessary parties are defined as those who will suffer an impairment of their interest as a result of an action's subject matter. That rule provides, in relevant part:
A person who is subject to service of process and whose joinder will not deprive the court of jurisdiction over the subject matter shall be joined as a party in the action if . . . (2) the person claims an interest relating to the subject of the action and is so situated that disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest. If the person has not been joined, the court shall order that the person be made a party . . . [or] an involuntary plaintiff.
In this case, although Liberty Mutual was notified of the pending motion to settle the section 40 lien issue, neither the movants nor the court made them a party to the action. Liberty Mutual's interests were therefore not represented when the court decided the August, 1993 motion to bar assertion of the section 40 lien. Rather, because all parties present hoped for a speedy settlement unimpeded by a section 40 lien, the parties were instead hostile to Liberty Mutual's interests. The lack of representation of Liberty Mutual's interests violates the directives of Rule 19, which requires that Liberty Mutual be joined as a party to an action purporting to settle their interest in the settlement proceeds. The Court therefore finds that the failure to join Liberty Mutual was a clear violation of Rule 19, Fed.R.Civ.P, and this violation impaired or impeded Liberty Mutual's ability to assert their interest in plaintiff's settlement proceeds. The Court holds, therefore, that Judge Rosen's order of August 4, 1993 did not and does not currently affect the ability of Liberty Mutual to assert a section 40 lien.
2. Lack of Consent Under 28 U.S.C. § 636(c)
In addition to the procedural error noted above, the Court finds that Judge Rosen lacked jurisdiction to bar Liberty Mutual from asserting a section 40 lien. Although the issue has not been raised by the parties, Judge Rosen's August, 1993 order is subject to the limitations set by 28 U.S.C. § 636(c), which provides that a United States Magistrate Judge may only order entry of judgment in a case upon specific, written consent of the parties and the approval of the district court. 28 U.S.C. § 636(c)(1).
Without consent of the parties, the Magistrate Judge has no jurisdiction to enter judgment upon the dispositive issue before him. When the magistrate enters judgment pursuant to 28 U.S.C. § 636(c)(1), absence of the appropriate consent and reference order (or special designation) results in a lack of jurisdiction. Mendes Junior Int'l Co. v. M/V Sokai Maru, et al., 978 F.2d 920, 924 (5th Cir. 1992) (citingGomez v. United States, 490 U.S. 858, 871 (1989). Generally, consent of the parties must be definite and express, and cannot be implied from conduct. Silberstein v. Silberstein, 859 F.2d 40 (7th Cir. 1988). If the parties do not consent to the Magistrate Judge's authority, then his authority is limited to submission of proposed report and recommendation for the District Court's de novo review. See Reynaga v. Cammisa, 971 F.2d 414 (9th Cir. 1992). Thus, if Judge Rosen's Order of August 1993 was a final order on the issue of whether Liberty Mutual may assert a section 40 lien, then Liberty Mutual must have expressly consented to be bound by such order, for it is dispositive of its rights. In the absence of § 636(c) consent, such a dispositive matter may proceed only upon the basis of the Report and Recommendation procedure of § 636(b)(1)(C), which was not followed here.
There is no evidence in the record before the Court that Liberty Mutual consented to be bound by Judge Rosen's determination of the section 40 lien issue. Although Liberty Mutual received multiple letters notifying it of the legal malpractice action, it never expressly consented to be bound by Judge Rosen's determination of the section 40 lien issue. As explained above, without the parties' consent to be bound, the District Court must approve any final judgments. Here, although the District Court on July 1, 1993 dismissed the case as settled, there was no District Court approval of the unconsented-to finding that Liberty Mutual was after August 4, 1993 barred from asserting a section 40 lien. Because it lacked the consent of affected parties and the approval of the District Court, Judge Rosen's August 1993 order must be vacated.
D. Determination of Availability of Worker's Compensation Lien
1. Appropriateness of Abstention
Having determined that Judge Rosen's Order of August 4, 1993 must be vacated, the Court must next decide whether it should itself rule on the current availability of a section 40 lien in this case. As noted above, defendants argue that this Court should abstain from deciding the section 40 lien issue because the present declaratory judgment action is duplicative of state court proceedings, and plaintiffs are allegedly seeking to circumvent the authority of the Workers' Compensation Court to decide whether Liberty Mutual may assert a section 40 lien on the proceeds of plaintiff's malpractice settlement. For reasons explained below, however, the Court will exercise jurisdiction over the issue of whether Liberty Mutual may assert a section 40 lien on plaintiff's malpractice proceeds.
The first reason that the Court will decide this issue is that the preferable venue for deciding this issue is here, not the state Worker's Compensation Court. Although both this action and the pending state court suit address the assertion of a section 40 lien on plaintiff's malpractice proceeds, the evidence presented by the parties in this Court is more complete than the evidence presented to the Workers' Compensation Court. In state court, no testimony nor affidavits were admitted concerning the 1993 communications between the plaintiff and Liberty Mutual. Such evidence may prove relevant in deciding whether Liberty Mutual is prevented by laches or collateral estoppel from asserting the lien. There is no reason why this federal court will not fully serve the needs and conveniences of the parties and provide a comprehensive solution of the general conflict, see Provident Tradesmens Bank Trust Co. v. Patterson, 390 U.S. 102 (1968), and abstention on the section 40 lien issue is improper. The second reason that the Court will not abstain is that the state Workers' Compensation Court does not have at its disposal the equitable powers as this Court. The Workers' Compensation Court is a statutory court that may only exercise those powers expressly allocated to it or powers fairly implied as incident to its granted powers. These powers cannot be expanded by "consent, waiver, estoppel or judicial inclination." Hajnas v. Englehard Min. Chem. Co., 231 N.J. Super. 353, 361 (App.Div. 1989). Under its enabling statute, the Worker's Compensation Court has not been granted equitable powers. N.J.S.A. § 34:15-49. Here, plaintiff's complaint seeks a review and enforcement of two prior orders by this Court, the effect of these orders, and requests a declaration that the equitable remedies of laches and collateral estoppel prevent Liberty Mutual's assertion of a section 40 lien. As plaintiff's case extends beyond a determination of disability, this Court's broader jurisdiction enables it to determine what, if any, remedies are necessary. For these reasons, the Court will not abstain from exercising jurisdiction, and will proceed to a determination of whether Liberty Mutual may assert a section 40 lien on the proceeds of plaintiff's malpractice settlement.
3. Whether Liberty Mutual Has a Subrogation Interest
In her complaint, plaintiff argues that for several reasons Liberty Mutual does not have section 40 lien rights to the proceeds of her malpractice settlement. Plaintiff maintains that she is not bound by the controlling decision in Frazier, which permits section 40 liens on the proceeds of malpractice claims. Moreover, plaintiff argues, even ifFrazier controls, Liberty Mutual is prevented by the doctrines of collateral estoppel and laches from asserting these rights today, over six years after they first arose.
When the section 40 lien issue was before Judge Rosen in August, 1993, plaintiff relied on the decision of the Appellate Division of the New Jersey Superior Court in Wausau v. Fuentes, 215 N.J. Super. 476 (App. Div. 1986), which held that no section 40 liens existed when the third party action was an attorney's malpractice suit. Based on Fuentes, plaintiff agreed to settle her claims against Ferrara, believing that Liberty Mutual had no rights to any proceeds from the settlement.
Although Judge Rosen ruled that a section 40 lien could not be asserted by Liberty Mutual, defendants were not bound by this determination for reasons discussed above. Thus, there was never a conclusive determination of defendants' section 40 rights under past or present law.
It is relevant to this discussion that, after this matter was before Judge Rosen, the Fuentes decision was overruled by the New Jersey Supreme Court in Frazier v. New Jersey Manufacturer's Insurance Company, 142 N.J. 590 (1995). Unfortunately for plaintiff, Frazier held that section 40 liens do exist when the third party action was an attorney's malpractice suit. Moreover, the Frazier court held this interpretation of section 40 to be retroactive. Governed by this retroactive holding inFrazier, the Court finds that plaintiff was in 1993 subject to a section 40 lien against her settlement.
Anticipating such a finding by the Court, plaintiff argues in the alternative that equity precludes Liberty Mutual from now asserting its section 40 rights. As defendants slept on their rights, plaintiff contends, they now are barred by laches and collateral estoppel from doing so now.
The doctrine of laches is an equitable principle that provides that an unexplained or unexcused delay in asserting one's rights, that causes severe prejudice to the other party, operates as a bar against a later assertion of those rights. Fleming Companies, Inc. v. Thriftway Medford Lakes, Inc., 913 F. Supp. 837 (D.N.J. 1995). In order to establish laches in this case, plaintiff must establish (1) that Liberty Mutual inexplicably delayed in asserting their section 40 rights and (2) that this delay prejudiced her.
Here, Liberty Mutual neither unreasonably delayed asserting its section 40 rights nor prejudiced plaintiff by waiting until trial to assert its section 40 rights. The Workers Compensation case was on-going the entire time, with benefits being duly paid by Liberty Mutual, pursuant to various Orders for medical and temporary benefits. At the point where plaintiff, in Workers' Compensation Court, seeks to finalize her claim for permanent disability, Liberty Mutual has asked that court to apply section 40. This is the timing anticipated by the statute. By waiting until the beginning of trial in the Worker's Compensation Court on the issue of plaintiff's section 40 rights, defendants waited until its obligation to plaintiff became an issue. As noted by defendants, section 40 does not set a time frame for assertion of a workers' compensation lien. Instead, the statute simply provides that the employee must reimburse the employer for any double recovery received. Thus, defendants were not beyond the the time during which they could reasonably assert their section 40 rights.
Plaintiff's assertion that defendants were obliged to participate in the motion before Judge Rosen is similarly misplaced. As stated by the New Jersey Supreme Court in Frazier, neither employers nor their insurers are required to participate in third party litigation. Frazier, 142 N.J. at 607. Mere awareness of an on-going motion affecting its rights did not oblige Liberty Mutual to participate. As explained above, had plaintiff wished to bind defendants to Judge Rosen's determination of section 40 rights, she should have joined them as parties, or as in Frazier itself, she should have filed a declaratory judgment action in a court of competent jurisdiction, naming Liberty Mutual as a defendant. A mere invitation to participate is inadequate.
Finally, plaintiff has not established that she was prejudiced by any delay by Liberty Mutual is asserting its rights. Plaintiff has not presented evidence showing that she would have sought or obtained more money from Ferrara had she known that Liberty Mutual would assert a section 40 lien. Moreover, after the settlement, plaintiff continued to receive workers' compensation benefits unreduced by any set-off from her prior recovery. If plaintiff has suffered the detriment of consummating the legal malpractice settlement without having first obtained a binding adjudication of Liberty Mutual's lien rights against the proceeds, it is, unfortunately, a detriment of her own making. Liberty Mutual's decision not to seek reimbursement from the settlement proceeds allowed plaintiff for the past six years to continue to receive compensation for her injuries, and to make full use of the settlement funds. This allowed her, rather than Liberty Mutual, the opportunity to increase the settlement's value through investment. For the above reasons, plaintiff's laches argument fails.
Plaintiff also argues that equitable estoppel bars defendants from asserting a section 40 lien. Equitable estoppel operates to prevent a party from disavowing its previous conduct if such repudiation would violate the demands of justice. Carlsen v. Masters, Mates Pilots Pension Plan Trust., 80 N.J. 334, 339 (1979). In order to be established, the doctrine requires that the litigant establish a detrimental change in position based on reasonable reliance on any type of conduct of the opposing party, including that party's spoken words, positive acts, or negative omissions. State v. U.S. Steel Corp., 22 N.J. 341, 358 (1956) (quoting 3 Pomeroy on Equity Jurisprudence § 802 (5th ed. 1941)).
In this case, plaintiff argues that she settled her case based on her belief that there was no section 40 lien. She further argues that this belief was based on Liberty Mutual's failure to positively assert a lien prior to the time she settled her claim against Ferrara. Liberty Mutual responds that plaintiff merely relied on her counsel's assurances there was no lien pending, and that it cannot be penalized for a misunderstanding by plaintiff's counsel that Liberty Mutual had no plans to assert a lien. Indeed, it is uncontroverted that Liberty Mutual never said that it would claim no lien, nor did it say it would abandon any lien claim.
The Court finds that Liberty Mutual has presented undisputed evidence that its representatives informed plaintiff's counsel Michael Paul that it was Liberty's position that it had a lien on any potential settlement proceeds. (Certification of Lois Francisci at ¶ 12.) Because Liberty Mutual did not fail to inform plaintiff of its position on the lien, and was not misleading as to its intent, the Court finds that the doctrine of equitable estoppel does not apply to this case.
D. Summary of Declarations
As applied to the causes of action asserted in plaintiff's Complaint, it is useful to recap this Court's declarations of the parties' rights based upon the above discussion.
As to Count One, the Court declares that Liberty Mutual, on behalf of itself and Metalweld, had a subrogation interest in the third-party attorney malpractice action at the time that action was resolved in 1993. The Court further denies plaintiff's claim that seeks a declaration that Liberty Mutual and Metalweld are barred from asserting such lien due to their failure, at the time the malpractice action was resolved, to perfect written notice of such lien.
As to Count Two, the Court declares that Liberty Mutual, on behalf of itself and Metalweld, may duly assert its present subrogation or set-off interest or right to funds recovered in the plaintiff's pending workers' compensation action, and that the assertion of such a right has not been lost by any delay in its assertion, nor by waiver, estoppel or laches.
As to Count Three, the Court declares that the Order of the Honorable Joel B. Rosen, filed August 4, 1993, does not bar the assertion of a workers' compensation lien by Liberty Mutual against the plaintiff.
This Court does not determine the amount of such lien nor does it address the means of set-off or reimbursement by plaintiff with respect to the lien, which matters are in the domain of the Workers' Compensation Court in the on-going compensation case.
III. CONCLUSION
For the foregoing reasons, the Court finds that it should not abstain from deciding the present motions, that Judge Rosen's Order of August 4, 1993 did not bind these defendants which were non-parties, and that equity does not bar Liberty Mutual from asserting a workers' compensation lien pursuant to N.J.S.A. § 34:15-40. Defendant Liberty Mutual's motion for summary judgment therefore will be granted and plaintiff's motion for summary judgment will be denied. The accompanying order is entered, declaring judgment for defendant Liberty Mutual upon the questions presented and dismissing plaintiff's Complaint.
O R D E R
This matter having come before the Court upon the cross motions of plaintiff, Ella Riley-Turley, and defendant Liberty Mutual Insurance Company for summary judgment pursuant to Fed.R.Civ.P. 56(c); and the Court having considered the submissions of the parties; and for the reasons expressed in the Opinion of today's date;
ORDERED that plaintiff's motion for summary judgment is DENIED and defendant's motion for summary judgment is GRANTED, and plaintiff's claims for declaratory relief in each of Counts One, Two, and Three of the Complaint are DENIED; and
IT IS FURTHER ORDERED that this declaratory judgment action is therefore DISMISSED and that defendant Liberty Mutual Insurance Company (on behalf of itself and/or defendant Metalweld) may assert its workers' compensation lien against any recovery made by plaintiff on a determination of permanent disability in the on-going workers' compensation proceeding; nothing herein determines, nor does it preclude the Workers' Compensation Court from determining, the amount of any lien or set-off under the New Jersey Workers' Compensation Act.
No costs.