PAOLO MARANO VS. CLIFFORD J. SCHOB, M.D. (L-6604-12, ESSEX COUNTY AND STAEWIDE)

189 A.3d 368, 455 N.J. Super. 283

• Court: New Jersey Superior Court Appellate Division
• Decided: June 20, 2018
• Docket: A-3915-16T2
• Status: Published

Opinion

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-3915-16T2

PAOLO MARANO,

Plaintiff-Appellant, APPROVED FOR PUBLICATION

v. June 20, 2018

APPELLATE DIVISION CLIFFORD J. SCHOB, M.D., and COMPREHENSIVE ORTHOPEDICS, PA,

Defendants. ________________________________

Argued June 4, 2018 – Decided June 20, 2018

Before Judges Sabatino, Ostrer and Firko.

On appeal from Superior Court of New Jersey, Law Division, Essex County, Docket No. L- 6604-12.

E. Drew Britcher argued the cause for appellant (Britcher Leone, LLC, attorneys; E. Drew Britcher, of counsel and on the brief; Daniel F. Nicholas, on the brief).

Christopher J. Carlson argued the cause for respondent PMA Companies (Capehart & Scatchard, PA, attorneys; Christopher J. Carlson, of counsel and on the brief).

The opinion of the court was delivered by

SABATINO, P.J.A.D.

In Pool v. Morristown Memorial Hospital, 400 N.J. Super.

572, 577 (App. Div. 2008), we held that a workers' compensation

lien under N.J.S.A. 34:15-40 attached to funds that an injured plaintiff received from a defendant physician in a medical

malpractice case pursuant to the terms of a "high/low"

agreement. We ruled that the money paid to plaintiff as the

negotiated "low" figure in accordance with the agreement was

subject to the statutory lien, even though a jury had rendered a

"no cause" verdict in favor of the physician and absolved him of

liability. Id. at 575-77.

Similarly, in the present case, despite a "no cause"

decision, an injured plaintiff recovered the "low" amount under

a high/low agreement he entered into with defendants who

provided medical treatment to him after a work-related accident.

Relying upon Pool, his employer's workers' compensation carrier

seeks to enforce its lien for compensation benefits it paid to

plaintiff. Plaintiff argues that N.J.A.C. 11:1-7.3(a)(1), a

regulation adopted by the Department of Banking and Insurance

exempting certain payments made under a high/low agreement from

physician reporting requirements, alters the analysis in Pool.

Plaintiff claims the regulation renders the compensation lien

unenforceable in this setting.

For the reasons that follow, we reject plaintiff's novel

argument. We concur with the trial court that the regulation

does not affect the validity and enforceability of the carrier's

Section 40 lien, and that the lien applies to the proceeds

2 A-3915-16T2 collected by plaintiff from the medical malpractice defendants.

We also reject plaintiff's alternative request that we repudiate

our decision in Pool. However, we remand this matter to the

trial court for the limited purpose of reconsidering a disputed

portion of the overall lien amount.

I.

The relevant facts and procedural history are essentially

undisputed. Plaintiff Paolo Marano was a police officer

employed by the Union Township Police Department. On July 12,

2010, he sustained injuries to his back in a work-related

incident.

Plaintiff sought treatment from an orthopedic surgeon,

Clifford J. Schob, M.D., at Comprehensive Orthopedics, PA

("Comprehensive"). According to plaintiff's unproven

allegations in the medical malpractice case, Dr. Schob did not

properly diagnose his condition and negligently failed to advise

him to visit the emergency room.

Plaintiff underwent extensive medical and rehabilitative

treatment for his injuries. Because the injuries were work-

related, plaintiff received workers' compensation benefits from

respondent PMA Companies ("PMA"), the third-party administrator

for Union Township. The amount of compensation benefits paid by

PMA from August 1, 2013 through March 29, 2016 totaled

3 A-3915-16T2 $51,779.81. That total included $5,403.07, which are

characterized as "case management" and non-treatment charges.

In September 2012, plaintiff filed a complaint in the Law

Division, alleging medical negligence on the part of defendants

Dr. Schob and Comprehensive. After defendants filed an answer

denying liability, the parties entered into a high/low

agreement. In connection with their agreement, the parties

elected to have the medical malpractice claims resolved through

binding arbitration. They agreed that, following the

arbitrator's decision, plaintiff would receive from defendants

at least $250,000 (the "low") and no greater than $750,000 (the

"high").

The parties arbitrated the medical malpractice case before

a retired judge over two days in January 2016. In a letter

decision, the arbitrator found no cause of action and dismissed

the claims against defendants. Pursuant to the high/low

agreement, defendants (or their insurers) paid the low figure,

i.e., $250,000, in resolution of the claims. Out of that sum,

$88,000 was disbursed to plaintiff; $57,148.33 was paid to

plaintiff's counsel as reimbursement for expenses; and

$62,851.67 was paid to plaintiff's counsel as an attorney's fee.

In addition, by agreement of the parties, $42,000 was kept in

trust, with plaintiff's acknowledgment that the funds would not

4 A-3915-16T2 be disbursed until the issues regarding PMA's workers'

compensation lien were resolved. According to PMA, the amount

of its lien is approximately two-thirds of $51,779.81.

Plaintiff asserted that the workers' compensation lien had

been extinguished as a result of the "no cause" outcome of the

arbitration. PMA disagreed, asserting the $250,000 that

defendants paid to plaintiff constituted an improper "double

recovery" unless the lien was satisfied.

In November 2016, PMA moved before the Division of Workers'

Compensation to enforce the Section 40 lien. Several weeks

later, plaintiff filed an order to show cause and a verified

complaint in the Law Division, seeking a declaration that the

payment made to him pursuant to the high/low agreement was not

subject to PMA's lien. Although PMA was not a defendant named

in the verified complaint, it became aware of plaintiff's

application and filed opposition to the order to show cause.1

In January 2017, a hearing scheduled in the workers'

compensation court on PMA's motion in that forum was adjourned.

A few days later, Judge L. Grace Spencer, heard oral argument on

1 Given the rapid sequence of events, it appears that PMA did not file a motion to intervene in the Law Division case, but the trial court nevertheless heard PMA's arguments. Plaintiff acknowledges the lack of a formal motion by PMA to intervene in the Law Division is not an impediment to our consideration of the substantive issues posed on this appeal and PMA's participation in the appeal as a respondent.

5 A-3915-16T2 plaintiff's order to show cause and PMA's opposition.

Defendants in the medical malpractice case, having paid their

stipulated sum under the high/low agreement, did not

participate.

On March 6, 2017, Judge Spencer denied plaintiff's

application, issuing a detailed written statement of reasons.

The judge noted that a key purpose of the lien statute, N.J.S.A.

34:15-40(b), is to prevent double recovery by injured workers.

Citing our opinion in Pool, 400 N.J. Super. at 572, the judge

ruled that payments made pursuant to high/low agreements were to

be treated as settlements under the lien statute and were thus

subject to such liens.

The judge specifically rejected plaintiff's argument that

the change in physician reporting requirements, as set forth in

N.J.A.C. 11:1-7.3(a)(1), eliminated the enforceability of PMA's

lien in this high/low context. The judge instead found that

PMA's lien must be satisfied. The judge also ruled that the

workers' compensation court should make the determination of

which fees were associated with medical expenses and whether

they were lienable under Section 40.

Plaintiff's present appeal followed. He argues that, as a

matter of law, the changes in the physician reporting regulation

require the payment that he received as the "low" figure under

6 A-3915-16T2 the high/low agreement to be exempted from PMA's lien. In the

alternative, plaintiff respectfully contends that Pool was

wrongly decided and should be reconsidered by this panel.

Lastly, plaintiff asserts that, if we do find the lien to be

enforceable, the matter should be remanded to the Law Division

to reduce the lien amount by a disputed portion of the charges.

PMA counters that we should affirm the trial court's

decision and reasoning, which are legally sound. As a separate

jurisdictional point, it contends that the question of the

enforceability of the lien should have been decided by the

compensation court, rather than by the Law Division. PMA also

disputes whether any reduction of the lien is warranted.2

II.

Generally, under the workers' compensation statutory

scheme, when a third party is liable to an employee or his

dependents for an injury or death, the employee or his

dependents can take action against the third party. N.J.S.A.

34:15-40. If the employee or his dependents are successful in

obtaining recovery from such a third party, then the employer

has a statutory right to a portion of that recovery. This right

is provided in N.J.S.A. 34:15-40, in pertinent part, as follows:

2 At oral argument on the appeal, both counsel expressed optimism that the reduction issue is likely to be resolved amicably.

7 A-3915-16T2 If the sum recovered by the employee or his dependents from the third person or his insurance carrier is equivalent to or greater than 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, as hereinafter provided, for the medical expenses incurred and compensation payments theretofore paid to the injured employee or his dependents less employee's expenses of suit and attorney's fee as hereinafter defined.

[N.J.S.A. 34:15-40(b) (emphasis added).]

The general intent of the statute is to prevent double recovery

and to preclude an injured employee from "recovering and

retaining workers' compensation payments, while at the same time

recovering and retaining the full damages resulting from a

third-party tort suit." Greene v. AIG Cas. Co., 433 N.J. Super.

59, 64 (App. Div. 2013). See also Frazier v. N.J. Mfrs. Ins.

Co., 142 N.J. 590, 597 (1995) (explaining that "[o]therwise,

tort recovery would be duplicating the workers' compensation

benefits").

A settlement obtained by an injured employee from a third

party qualifies under Section 40 as a reimbursable recovery to

the employer or workers' compensation carrier. See, e.g.,

Frazier, 142 N.J. at 595-602 (finding that a settlement for

legal malpractice was subject to a lien to reimburse workers'

compensation payments). "Section 40 [is] not to be so rigidly

8 A-3915-16T2 confined and [is] to apply to recoveries that were the

functional equivalent of a recovery from the actual third-party

tortfeasor." Id. at 598.

In Pool, 400 N.J. Super. at 577, we held that the right of

recovery of a compensation lien under N.J.S.A. 34:15-40

encompassed payments paid to injured workers pursuant to the

terms of high/low agreements. We noted that high/low agreements

fundamentally are a type of a settlement, because they are

offered and accepted as a means of resolving the parties'

differences. Ibid. "The general language of N.J.S.A. 34:15-40

clearly evinces the Legislature's intent to broadly expand the

type of payments to which the lien will attach." Id. at 576.

"No matter how atypical or novel the nature of a settlement

agreement, the lien will attach to a payment received by an

injured employee that is derivative of the employee's demand,

claim or suit against a third[-]party tortfeasor." Ibid. "In

short, the lien attaches regardless of the merit of the third-

party claim." Id. at 577.

Plaintiff contends that our analysis in Pool is negated,

or at least qualified, by the Department of Banking and

Insurance's adoption of N.J.A.C. 11:1-7.3(a)(1).

The related statute, N.J.S.A. 17:30D-17, prescribes that an

insurer must notify the Medical Practitioner Review Panel "of

9 A-3915-16T2 any medical malpractice claim settlement, judgment or

arbitration award . . . ." N.J.A.C. 11:1-7.3(a), the regulation

at issue here, provides:

(a) Any insurer or insurance association authorized to issue medical malpractice liability insurance in the State shall notify the Medical Practitioner Review Panel in writing of the following:

1. Any medical malpractice claim settlement, judgment or arbitration award involving any practitioner licensed by the State Board of Medical Examiners and insured by an insurer or insurance association.

i. The notification requirement set forth in (a)1 above shall not apply to payments made under agreements for minimum and maximum payments irrespective of the verdict (commonly referred to as high/low agreements) where there is a finding by an arbitrator or a verdict in a civil action of no liability on the part of the practitioner . . . .

[N.J.A.C. 11:1-7.3(a) (emphasis added).]

The portion of the present regulation excluding certain

payments made pursuant to high/low agreements from reporting to

the Review Panel was added in 2009 after Pool was decided. See

41 N.J.R. 3302(a). The high/low agreement exclusion was

proposed because "[w]here there is a finding or verdict of no

liability on the part of the practitioner, the reporting of

payments made in accordance with a 'high/low agreement' . . .

could be misleading, in that it would indicate that the

10 A-3915-16T2 practitioner had committed malpractice when, in fact, no finding

had been made in a legal proceeding to that effect." 41 N.J.R.

1650(a) (emphasis added). However, claims payments are still

reported to the Department, which monitors the medical

malpractice liability insurance market, because no identifying

information is included. Ibid.

Neither the rule proposal nor its adoption in the New

Jersey Register mention any impact of the regulation upon the

ability of an employer or insurer to enforce a workers'

compensation lien. 41 N.J.R. 1650(a); 41 N.J.R. 3302(a). In

fact, the proposal explicitly noted the amendment would "have

little or no economic impact on insurers." 41 N.J.R. 1650(a).

Further, typical settlements outside of a high/low context,

whether a defendant's liability has been admitted or not, would

continue to trigger the reporting requirements.

Plaintiff asserts that certain public policies underlying

the adoption of the revised regulation are thwarted by allowing

payments of the "low" amount under a high/low agreement to be

subject to Section 40 liens. Plaintiff asserts a main reason

the regulation was adopted was to incentivize doctors sued for

malpractice and their insurers to enter into high/low

agreements. Such agreements enable doctors to be free from

reporting requirements where no liability on their part is found

11 A-3915-16T2 but the plaintiff will still receive the "low" stipulated sum to

cover litigation expenses and perhaps a modest remainder.

Plaintiff posits that fewer high/low agreements will be

negotiated if the result in this case is affirmed, because

future plaintiffs will have to demand higher "low" figures to

take into account lien obligations. In essence, plaintiff wants

a lien-free "low." We are unpersuaded by these arguments.

In adopting the regulatory change, the Department was

manifestly concerned about not misleading the public about the

nature of a "low" payment paid on behalf of a physician under a

high/low agreement after a "no-cause" at trial or arbitration.

That concern has no relationship to a compensation carrier's

rights under Section 40 to impose a lien on the recovery.

Moreover, even if we were to accept plaintiff's premise

that fewer high/low agreements will be negotiated if the "low"

award is deemed subject to a Section 40 lien, that premise does

not negate the strong public policies underlying Section 40,

which we recognized in Pool. 400 N.J. Super. at 576-77. The

ability of the employer or insurer to apply a Section 40 lien on

recovery does not depend on whether the settlement involves the

alleged tortfeasor admitting liability.

As we have already noted, and continue to stress here, the

rationale for the statutory right to a compensation lien is

12 A-3915-16T2 centered upon the public policy preventing double recovery. See

e.g., Frazier, 142 N.J. at 597. None of the reported cases

interpreting and applying the statute take into account the

actual liability of the alleged tortfeasor. Therefore, whether

an alleged tortfeasor is ultimately held to be liable does not

affect the enforceability of a lien. Pool therefore remains

good law, unaffected by the subsequent regulation.

We therefore affirm the trial court's ruling concerning the

enforceability of the lien, and reaffirm our opinion in Pool.

We do remand the matter to the Law Division3 to address the

limited issue concerning the disputed portion of the lien. See

Aetna Life & Cas. v. Estate of Engard, 218 N.J. Super. 239, 245

(Law Div. 1986) (finding that the Superior Court has

jurisdiction to decide the extent of Section 40 liens).

Affirmed in part and remanded in part. We do not retain

jurisdiction.

3 Both counsel agreed at oral argument before us that we can presume the trial court has concurrent jurisdiction to resolve the lien calculation dispute on remand. See Estate of Kotsovska v. Liebman, 221 N.J. 568, 587-88 (2015).

13 A-3915-16T2