Hartford Accident & Indemnity Company v. Janery Francois

Court of Appeals of Texas·Decided May 23, 2023·No. 05-21-00981-CV·Published

Opinion

Reversed, Rendered, and Opinion Filed May 23, 2023

In The

Court of Appeals

Fifth District of Texas at Dallas No. 05-21-00981-CV

HARTFORD ACCIDENT & INDEMNITY COMPANY, Appellant V.

JANERY FRANCOIS, Appellee

On Appeal from the 68th Judicial District Court Dallas County, Texas

Trial Court Cause No. DC-17-08336

MEMORANDUM OPINION

Before Justices Partida-Kipness, Nowell, and Wright1 Opinion by Justice Partida-Kipness This appeal involves a dispute over the allocation of a third-party settlement

in a workers’ compensation case. Appellant Hartford Accident & Indemnity Company, the workers’ compensation carrier, appeals the trial court’s judgment following a bench trial. Hartford challenges the trial court’s allocation of the settlement amount and award of additional attorney’s fees of $10,000. We conclude the trial court’s allocation was erroneous and the additional award of attorney’s fees

1 The Hon. Carolyn Wright, Justice, Assigned

was an abuse of discretion. We reverse the judgment and render the judgment the trial court should have rendered.

BACKGROUND

Appellee Janery Francois sustained a work-related injury in 2015. Hartford

paid Francois $356,669.73 in medical and indemnity benefits under her employer’s workers’ compensation policy. Francois sued the owner and operator of the building where she sustained her injury, Parmenter Realty & Investment Company, Inc., and settled that claim for $150,000. Hartford then intervened in the lawsuit and asserted its subrogation rights. Hartford and Francois disagreed on how the $150,000 settlement should be allocated in relation to the workers’ compensation lien. At the center of the dispute was the parties’ disagreement of how to calculate “the net amount recovered” by Francois under section 417.002(a) of the Texas Labor Code. See TEX. LAB. CODE § 417.002(a) (“The net amount recovered by a claimant in a third-party action shall be used to reimburse the insurance carrier for benefits, including medical benefits, that have been paid for the compensable injury.”). The dispute proceeded to a bench trial.

At trial, Francois’s counsel maintained the “net recovery”2 is determined after counsel’s 40% contingency fee is taken out of the gross settlement. Using this framework, Francois calculated the “net recovery” to be $85,206.03 as follows:

2 Francois’s counsel referred to the “net amount recovered” of section 417.002(a) as the “net recovery”

at trial. These terms are not interchangeable. To accurately reflect the parties’ arguments, however, we will use the term “net recovery” in this opinion when that is the term used by Francois below.

$150,000 (𝑔𝑟𝑜𝑠𝑠 𝑠𝑒𝑡𝑡𝑙𝑒𝑚𝑒𝑛𝑡)

− $60,000 (40% 𝑐𝑜𝑛𝑡𝑖𝑛𝑔𝑒𝑛𝑐𝑦 𝑓𝑒𝑒)

−$4,793.97 (𝑝𝑟𝑜 𝑟𝑎𝑡𝑎 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠)

$85,206.03 (𝑛𝑒𝑡 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦)

Counsel next argued that the trial court could award him additional attorney’s fees under section 417.003 because Hartford did not participate in the lawsuit against Parmenter Realty. See TEX. LAB. CODE § 417.003(a).3 Francois’s counsel agreed any fees awarded under section 417.003 could not exceed one-third of the “net recovery.” See id. § 417.003(a)(1). Using that formula, counsel concluded he was entitled to an award of $28,117.98 as section 417.003 attorney’s fees, which was one-third of the net recovery of $85,206.03. By subtracting the section 417.003 fees from the net recovery, Francois’s counsel argued Hartford’s recovery should be $58,088.05:

$85,206.03 (𝑛𝑒𝑡 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦)

−$28,117.99 (§ 417.003 𝑓𝑒𝑒𝑠)

$58,088.04 (𝐻𝑎𝑟𝑡𝑓𝑜𝑟𝑑 ′ 𝑠 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦)

Finally, Francois’s counsel argued he was entitled to attorney’s fees of $10,000 defending the intervention and participating in the bench trial. He sought

3 Section 417.003(a) of the labor code provides:

(a) An insurance carrier whose interest is not actively represented by an attorney in a third-party action shall pay a fee to an attorney representing the claimant in the amount agreed on between the attorney and the insurance carrier. In the absence of an agreement, the court shall award to the attorney payable out of the insurance carrier's recovery:

(1) a reasonable fee for recovery of the insurance carrier’s interest that may not exceed one-third of the insurance carrier’s recovery; and (2) a proportionate share of expenses.

TEX. LAB. CODE § 417.003(a).

those fees under section 37.009 of the Texas Civil Practice and Remedies Code and maintained he was entitled to such fees because Hartford refused to negotiate a lesser recovery. Francois characterized Hartford’s unwillingness to negotiate a lower subrogation lien as an improper tactic and intentional failure to follow established law.

Hartford, in contrast, argued that under the “first money” rule, Hartford’s recovery is calculated by subtracting section 417.003 fees and expenses from the gross settlement. Hartford’s calculation was simple:

$150,000 (𝑔𝑟𝑜𝑠𝑠 𝑠𝑒𝑡𝑡𝑙𝑒𝑚𝑒𝑛𝑡)

−$50,000 (§ 417.003 𝑓𝑒𝑒𝑠)

−$4,793.97 (𝑝𝑟𝑜 𝑟𝑎𝑡𝑎 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠)

$95,206.03 (𝐻𝑎𝑟𝑡𝑓𝑜𝑟𝑑 ′ 𝑠 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦)

The trial court adopted Francois’s proposed allocation. Following a bench trial, the trial court rendered judgment on Hartford’s declaratory judgment claim and awarded $57,088.04 of the settlement to Hartford, and $92,911.96 to Francois and her counsel. The $92,911.96 awarded to Francois and her counsel was comprised of the following: (1) attorney’s fees of $60,000, which was 40% of the gross settlement, (2) reasonable and necessary expenses of $4,793.97, and (3) section 417.003 fees of $28,117.99, which was one-third of the “net recovery” calculated by the court. The trial court also awarded Francois’s counsel additional attorney’s fees of $10,000 pursuant to TEX. CIV. PRAC. & REM. CODE § 37.009. This appeal followed.

ANALYSIS

Hartford brings two issues on appeal. First, Hartford challenges the trial

court’s allocation of the settlement amount. Second, Hartford contends the trial court abused its discretion by awarding Francois’s counsel $10,000 in additional attorney’s fees.

I. Allocation of Settlement In its first issue, Hartford contends the trial court’s settlement allocation failed

to award Hartford the statutorily-required “first money” from Francois’s third-party settlement. Hartford maintains it should have recovered $95,206.03, not $57,088.04 as awarded in the judgment. We review this issue de novo because it presents the Court with a question of law concerning statutory interpretation and application. Empower Texans, Inc. v. Dallas Cnty., 648 S.W.3d 664, 669 (Tex. App.—Dallas 2022, pet. denied) (citing Bush v. Lone Oak Club, LLC, 601 S.W.3d 639, 647 (Tex. 2020)).

An employee may seek damages from a third party who is liable for an injury that is compensable under the labor code. TEX. LAB. CODE § 417.001(a). When a benefit is claimed by an injured employee, the insurance carrier is subrogated to the rights of the injured employee. Id. § 417.001(b). The distribution of the proceeds recovered from third parties is governed by section 417.002, which provides:

(a) The net amount recovered by a claimant in a third-party action shall be used to reimburse the insurance carrier for benefits, including medical benefits, that have been paid for the compensable injury.

Id. § 417.002(a).

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