Holbrook v. Andersen Corporation

• Court: Court of Appeals for the First Circuit
• Decided: July 2, 1993
• Docket: 92-1902
• Status: Published

Opinion

USCA1 Opinion

UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                                FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                 ____________________

        No. 92-1902

                         MARY A. HOLBROOK, MARY E. HOLBROOK,
                            INDIVIDUALLY AND AS MOTHER AND
                          NEXT FRIEND OF DANIEL M. HOLBROOK,

                               Plaintiffs, Appellants,

                                          v.

                            ANDERSEN CORPORATION, ET AL.,

                                Defendants, Appellees.

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                     APPEAL FROM THE UNITED STATES DISTRICT COURT

                              FOR THE DISTRICT OF MAINE

                       [Hon. Gene Carter, U.S. District Judge]
                                          ___________________

                                 ____________________

                                        Before

                                Boudin, Circuit Judge,
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                           Campbell, Senior Circuit Judge,
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                              and Stahl, Circuit Judge.
                                         _____________

                                 ____________________

            James  M. Campbell  with  whom  Michelle I.  Schaffer,  Ronald  M.
            __________________              _____________________   __________
        Davids and Campbell & Associates were on brief for appellants.
        ______     _____________________
            Margaret  D.  McGaughey, Assistant  United  States  Attorney, with
            _______________________
        whom  Richard S. Cohen, United  States Attorney, and  Paula D. Silsby,
              ________________                                _______________
        Senior Litigation Counsel, were on brief for appellees.

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                                    June 30, 1993
                                 ____________________

BOUDIN, Circuit Judge.   The Holbrooks'  two-and-a-half-
                         _____________

            year-old son, Daniel Holbrook, sustained severe and permanent

            injuries after  falling through a second-floor  window of the

            Holbrooks'  apartment.   Because plaintiff Mark  Holbrook was

            employed  by  the  United States  Navy  at  the  time of  the

            accident, the United States  paid 80 percent of the  costs of

            Daniel's medical treatment under the Dependent's Medical Care

            Act,  10 U.S.C.   1071 (the "Dependent's Act").  The Holbooks

            then  sued  Andersen  Corporation,  the  manufacturer of  the

            window and screen, alleging negligence and product liability.

            The Holbrooks notified the United States of the initiation of

            the suit, but the United States did not intervene.

                 Three  days before  trial,  the  Holbrooks and  Andersen

            settled the suit  for $725,000.1   This amount  was far  less

            than  the complaint  had  sought, and  the amount  presumably

            reflected the parties' judgment about likelihood  of success;

            Daniel Holbrook  had  been unsupervised  at the  time of  the

            accident, and there were no witnesses.  The United States was

            not  a  party  to  the  settlement, nor  did  the  settlement

            agreement provide that  any money should be paid  by Andersen

            to the United States in respect of the medical costs that the

            government  had  incurred.    The  settlement  agreement  did

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                 1Attorneys'  fees and expenses  absorbed a large portion
            of this amount ($391,505.50).  Of the balance,  the Holbrooks
            were allotted  a portion  ($50,000) for direct  expenses with
            the remainder to be held in trust for Daniel.

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provide, however, that the Holbrooks would indemnify Andersen

            if the latter were held liable to the United States.  

                 In  its order  approving  the settlement,  the  district

            court  sua sponte  ordered  that $139,028  of the  settlement
                   ___ ______

            proceeds be placed in an  escrow account to satisfy potential

            liens of the United States or others.2   Six months later the

            United States moved to compel disbursement to it of the funds

            held  in escrow,  and  shortly thereafter  the United  States

            formally  moved to  intervene  in the  action; the  Holbrooks

            opposed  both motions.    The court  ultimately granted  both

            motions and after a  recalculation of the government's actual

            payments  ordered   disbursement  to  the  United  States  of

            $122,834.   The  balance of  the escrow  was remitted  to the

            Holbrooks.     The  Holbrooks   appeal,  arguing   that  this

            disbursement was not authorized by law.

                 In  claiming  a right  to  a portion  of  the Holbrooks'

            settlement, the  United States  relies solely on  the Federal

            Medical Care  Recovery Act, 42  U.S.C.   2651  ("the Recovery

            Act").   This  statute grants  to the  government a  right to

            recover from a third-party tortfeasor the reasonable value of

            medical services that the  government has furnished under the

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                 2Local rules required  court approval of  settlements of
            claims brought  on behalf  of minor  children.   The  court's
            escrow  order  may  have  been  prompted  by  the  Holbrooks'
            statement  in   their  motion  for  court   approval  of  the
            settlement that the Navy  had paid 80 percent of  the medical
            bills  and  that  the  total  medical  expenses  amounted  to
            $139,028.  

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Dependent's   Act  (or   under   other   similar   statutes).

            Specifically, the Recovery Act provides:

                 In  any  action  in  which  the  United  States  is
                 authorized or required by  law to furnish hospital,
                 medical, surgical, or dental care and treatment . .
                 .  to a person who is injured or suffers a disease,
                 after  the   effective  date  of  this  Act,  under
                 circumstances creating a  tort liability upon  some
                 third person  . . .  to pay  damages therefor,  the
                 United States  shall have  a right to  recover from
                 said third person the  reasonable value of the care
                 and treatment  so furnished or to  be furnished and
                 shall, as to this right be subrogated  to any right
                 or  claim that the injured person . . . has against
                 such third  person to the extent  of the reasonable
                 value of the care and  treatment so furnished or to
                 be furnished.

            42  U.S.C.   2651(a).  The statute then sets forth procedures

            for the  government's enforcement of this  right of recovery.

            The United States  may "intervene  or join in  any action  or

            proceeding brought by the injured  or diseased person" or, if

            such an  action  is  not  commenced within  six  months,  may

            "institute and prosecute legal proceedings against  the third

            person  who  is liable  for the  injury or  disease."   Id.  
                                                                    __

            2651(b).  

                 The parties direct their  arguments in this case chiefly

            at the procedural component  of the statute, section 2651(b).

            The  Holbrooks  argue  that  the  United  States'  motion  to

            intervene came too late, because it was not filed until after

            the   Holbrooks'  suit  against   Andersen  was  resolved  by

            settlement.   The United States responds  by pointing to case

            law  providing  that  the  procedural devices  set  forth  in

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section  2651(b)  are  not exclusive  and  that  a motion  to

            intervene may be  filed "at  any time," even  after entry  of

            judgment.  United  States v.  Merrigan, 389 F.2d  21, 25  (3d
                       ___________________________

            Cir. 1968); see  also United  States v. York,  398 F.2d  582,
                        ___  ____ ______________________

            585-86 (6th Cir. 1968).  We  think that the crucial issue  is

            not  when the government may intervene but rather whom it may
                 ____                                         ____

            proceed against once it makes an appearance in the case.  

                 The statute  grants  to the  United  States a  right  to

            recover "from [the] third  person" who is liable in  tort for

            the injury.  It  makes no provision for the  United States to

            recover   against   the   injured   party   or   from   funds

            unconditionally paid to the  injured party by the tortfeasor.

            Moreover,  the  United States'  right  to  recover under  the

            statute  is contingent  upon "circumstances  creating a  tort

            liability  upon some  third  party."   42  U.S.C.    2651(a);

            Thomas  v.  Shelton,  740  F.2d  478,  481  (7th  Cir.  1984)
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            (tortfeasors' "liability under the Medical Care Recovery  Act

            depends on their being found liable  . . . under the tort law

            of the pertinent state"); United States  v. Trammel, 899 F.2d
                                      _________________________

            1483,  1488 (6th Cir.  1990) (same).  There  has been no such

            determination in this case.

                 "All  courts  which have  considered  the  question have

            agreed  that   the  statute   gives  the  United   States  an

            independent right of recovery against the tortfeasor . . . ."

            United  States v.  Housing Authority  of Bremerton,  415 F.2d
            __________________________________________________

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239, 241 (9th Cir 1969).  Thus, the government's right is not

            extinguished  by the injured  person's settlement and release

            with the tortfeasor.  See,  e.g., United States v. Theriaque,
                                  ___   ____  __________________________

            674 F. Supp. 395  (D. Mass. 1987).  Indeed,  the government's

            right against  the tortfeasor under  the Recovery Act  is not

            defeated  even by  certain  restrictions that  might bar  the

            injured  person's own recovery.3   There is thus no necessity

            for  the  United  States  to  look  to  the  injured  party's

            settlement for compensation.

                 If the United States  wishes to invoke the  Recovery Act

            to recover its medical  payments in this case, we  think that

            under  the plain  language  of the  statute  it must  proceed

            against  Andersen  and  seek  to  establish  Andersen's  tort

            liability.   The language of  the statute does  not authorize

            the government to  collect under  the Recovery Act  out of  a

            settlement negotiated  between  the injured  person  and  the

            tortfeasor.  Nor  is there any case  law that permits such  a

            recovery  absent  an express  agreement  designating for  the

            government a portion of the settlement.

                 This  case  does  not  involve  the  peculiar  facts  of

            Cockerham  v. Garvin,  768  F.2d 784,  787  (6th Cir.  1985).
            ____________________

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                 3See Heusle v. National  Mutual Ins. Co., 628 F.2d  833,
                  ___ ___________________________________
            837 (3d Cir. 1980)  (procedural restrictions); United  States
                                                           ______________
            v. Moore, 469 F.2d 788, 790 (3d Cir. 1972) (state doctrine of
            ________
            interspousal immunity),  cert. denied,  411 U.S.  905 (1973);
                                     ____  ______
            United  States v. Gera, 409  F.2d 117, 119-20  (3d Cir. 1969)
            ______________________
            (state statute of limitations).  

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There the  Sixth Circuit  allowed recovery out  of settlement

            proceeds   where  "[t]he  [injured   person]  and  tortfeasor

            specifically agreed that part  of the money paid over  to the

            [injured person] would be  held in escrow pending a  claim by

            the [United  States] for specific medical bills . . . ."  The

            court   treated  the   escrow   as   giving  the   government

            "beneficiary" status akin to  that enjoyed by the third-party

            beneficiary of a contract.   See id. at 784.  The  court also
                                         ___ __

            decided  that  on  remand   the  government's  share  of  the

            settlement    should    be    determined     by    "equitable

            considerations," taking account of any  discounted settlement

            accepted by the victim and the litigation costs he had borne.

            Id. at 787.  The government does not argue that  in this case
            __

            there was  any third-part  beneficiary agreement  between the

            Holbrooks and Andersen.

                 Rather, the  United States  says that its  present claim

            has  been  misunderstood.    It argues  that  its  attempt to

            recover  from the escrow is not a claim against the Holbrooks

            but  rather,  consistent with  the Recovery  Act, is  a claim

            against Andersen, which supplied  the funds.  This is  a word

            game  that does  not reflect  the reality  of the  situation:

            Andersen has  paid the settlement amount to  the Holbrooks in
                          ____

            exchange  for  a release  of claims  against  it.   The money

            belongs to the Holbrooks and  their son quite as much  as Mr.

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Holbrook's salary paid to him by the Navy belongs  to him and

            not to the Navy which is the source of the funds.

                 The  best argument  for the  United States  is based  on

            policy considerations.   Andersen's payment to  the Holbrooks

            is not technically  an admission of liability,  Fed. R. Evid.

            408, but  in reality the  settlement reflects  a judgment  by

            Andersen that there is a risk of liability and that the  case

            is worth  that  much  to  settle.   But  to  the  extent  the
                                                     _______________

            tortfeasor  is liable  to  the Holbrooks  under tort  law--an

            issue  mooted  by the  settlement--it is  also liable  to the

            United States for any medical costs paid by the latter.

                 Of course the  United States  still has a  right to  sue

            independently and, if it can prove liability, to collect  its

            full  medical expenses  with no  settlement discount  at all.

            But  everyone  knows  that  if  fault  is  debatable and  the

            tortfeasor settles  with the  injured party, the  chances for

            the United States to recover may be much reduced.  Any lawyer

            would prefer to try a tort case in which the co-plaintiff  is

            an   injured  two-and-a-half-year  old,  especially  where  a

            verdict for the child virtually requires an award for the co-

            litigant.

                 What is  even more troubling is that  the tortfeasor has

            an  incentive in  such  a  case  to  pay  the  injured  party

            something extra in settlement  precisely in order to uncouple

            the two claims.   Once the United States is  left to litigate

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on its own, it not only has no sympathetic victim to take the

            lead before  the  jury  but  must  bear  its  own  litigation

            expenses.   And, if (as  here) the alleged  tortfeasor has an

            indemnity  agreement  with  the  victim,  making  the  latter

            responsible for any award to the United States, the victim or

            witnesses  associated with  the victim  now have  an economic

            incentive to minimize the  tortfeasor's fault when the United

            States sues.

                 These policy concerns are  not overwhelming:  the United

            States is not without  litigation resources, in this  case it

            has the  benefit  of  much  discovery  already  done  by  the

            Holbrooks, and perjury laws  cabin the witnesses'  testimony.

            Had  it anticipated  the  problem, Congress  might well  have

            provided  a  legislative  solution  along the  lines  of  the

            Cockerham case:  The Recovery Act could easily have said that
            _________

            if the tortfeasor  and victim settle,  the United States  can

            claim for  its  medical costs  an  "equitable" share  of  the

            settlement to be determined  by the court.  But  Congress did

            not  to so--it  cannot anticipate  every problem--and  so the

            question posed  is whether  the courts should  do the  repair

            work themselves.

                 The answer here, we think, is  no.  The statute does not

            literally forbid this "equitable share" solution, but neither

            do the provisions of this reasonably detailed statute provide

            for any such  recovery against the  victim or the  settlement

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fund.   Nor can we  be certain  that Congress  would wish  to

            impose an "equitable share" solution; perhaps it might pick a

            quite different solution or no solution  at all.  There is no

            magic formula to say when courts should do patch-work repairs

            to legislation, but in our view this is not such a  case.  If

            Congress wants a  solution, it is best  for it to tailor  its

            own.

                 The judgment of the district court is reversed.
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