Saunders v. Woolard

Opinions

Opinion

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA25-182

Filed 5 August 2026

Pasquotank County, No. 21CVS000496-690

RICHARD SAUNDERS, Plaintiff,

v.

PHILLIP E. WOOLARD d/b/a WOOLARD’S WELDING SERVICE, Defendant.

Appeal by respondents-appellants from orders entered 22 May 2024 and 9

August 2024 by Judge Andrew Womble in Pasquotank County Superior Court. Heard

in the Court of Appeals 10 September 2025.

Lewis & Roberts, PLLC, by Matthew D. Quinn, Neil K. Sanyal, and Roy G. Pettigrew, for respondents-appellants Orano USA, LLC and Liberty Mutual Insurance Group.

Hardison & Cochran, PLLC, by Benjamin T. Cochran, for plaintiff-appellee.

PER CURIAM.

On appeal, Orano USA LLC and Liberty Mutual Insurance Group argue the

trial court improperly eliminated their subrogation lien on settlement proceeds

Plaintiff Richard Saunders (“Employee”) obtained from Defendant Phillip E.

Woolard. Based on binding precedent from our Court, we must vacate the orders and

remand for additional proceedings.

I. Background

Opinion of the Court

Employee suffered an injury while working on a job site for Orano, USA, LLC.

Liberty Mutual Insurance Group is the workers compensation carrier for Orano.

They are hereinafter referred to collectively as “Employer.”

Defendant is a welding contractor, not affiliated with Employer, performing

welding work on the same job site. In this action, Employee alleges his injuries were

caused by the negligence of Defendant.

Prior to filing this action, Employee filed a workers’ compensation claim

Employer for the same injuries, which Employer accepted and has continued to pay,

providing Employee with temporary total disability and medical compensation.

Employee subsequently filed this suit against Defendant alleging negligence.

Defendant answered, denying liability. During discovery, evidence was uncovered

tending to show Employer may have been negligent in causing Employee’s injuries.

In any event, at some point of this litigation, Employee and Defendant agreed

to settle Employee’s claims for $450,000.00. Before finalizing the settlement, though,

they sought the consent of Employer, as required by G.S. 97-10.2(h). Employer had

paid well over $400,000.00 to Employee in workers’ compensation benefits for the

injuries Employee suffered.

Employer, however, refused to consent to the settlement. Therefore, Employee

moved in this action pursuant to subsection (j) of G.S. 97-10.2 for the court to

determine the amount of Employer’s subrogation lien, if any.

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After a hearing on the matter, the trial court entered an order, determining

the amount of Employer’s subrogation lien in the $450,000.00 settlement between

Employee and Defendant to be zero ($0.00). Employer appeals.

II. Analysis

On appeal, Employer argues the trial court lacked subject-matter jurisdiction

to enter its order and, therefore, the order should be set aside. Employer essentially

contends that, under subsection (j) of G.S. 97-10.2, a trial court does not have

jurisdiction to determine an employer’s subrogation lien rights in a settlement

between its employee and a third-party tortfeasor unless and until the settlement is

final. And to be “final,” the settlement agreement between the employee and the

third-party tortfeasor must not be subject to a trial court’s determination of the

employer’s subrogation lien rights in that settlement under subjection (j). Since,

here, the agreement between Employee and Defendant was contingent on the trial

court’s determination regarding the Employer’s subrogation lien, Employer argues

that settlement was not “final” and, therefore, the trial court lacked jurisdiction in

this case to enter any order determining Employer’s subrogation lien rights.

The resolution of this appeal hinges largely on the interplay between

subsections (h) and (j) of G.S. 97-10.2. Subsection (h) provides a lien to “every party

to the claim for compensation” (i.e., employers and insurance carriers) on certain

funds (those obtained by judgment, settlement, etc.) “against any person receiving

such funds” (most likely the employee). N.C.G.S. § 97-10.2(h). Subsection (h) goes on

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to state that “[n]either the employee . . . nor the employer shall make any settlement

with or accept any payment from the third party without the written consent of the

other and no release to or agreement with the third party shall be valid or enforceable

for any purpose unless both employer and employee . . . join” and is subject to two

exceptions, one of which being that a “party follows . . . subsection (j)[.]” Id. Relatedly,

if an employee and a third-party tortfeasor reach a settlement agreement, subsection

(j) permits a trial court to determine the amount of an employer’s subrogation lien,

irrespective of the employer’s consent to the settlement agreement. Id. § 97-10.2(j).

As explained below, because of a decision by a panel of our Court in 2004—Ales

v. T.A. Loving Co., 163 N.C. App. 350 (2004)—we must conclude the trial court lacked

jurisdiction under subsection (j) to determine Employer’s subrogation rights. Based

on the reasoning of that case, we must conclude Employee and Defendant had not

reached a “settlement” under subsection (h), which is required to trigger the trial

court’s jurisdiction to act under subsection (j).

Our Workers Compensation Act was enacted as a compromise-type legislation.

The Act was enacted to provide a quick remedy to employees against their employers

for injuries occurring on the job without having to prove fault and, at the same time,

“reduce[ ] unpredictability of loss and put[ ] it on an actuarial basis[.]” Barber v.

Minges, 223 N.C. 213, 216 (1943).

The Act has been amended over time to deal with situations where an employee

is injured on the job by a third-party tortfeasor. Our Supreme Court has provided a

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good history of the changes made through the years to the Act regarding this issue in

Easter-Rozzelle v. City of Charlotte, 370 N.C. 286 (2017). Indeed, our General

Assembly has been grappling with balancing an employee’s desire to seek relief

beyond the Act from a third-party tortfeasor for his injuries and an employer’s desire

to recover from the tortfeasor for the employee’s injuries for which the employer has

provided benefits. See generally id.

Consider, for example, a scenario where an employee suffers an injury at work

which is caused, in part, by the actions of a third-party tortfeasor. It may be that, in

tort, the employee could recover $1 million in damages. However, under the Act, he

might only be able to recover $600,000 from his employer. In such case, he may desire

to sue the third-party tortfeasor, where he might be able to obtain a $1 million verdict

if he proceeds to trial on a common law tort claim. The employer, however, may desire

to recover from any judgment or settlement monies it has paid. So, in such case, it is

difficult for an employee to agree to any settlement with a third-party tortfeasor

where the employee does not know how much of the settlement will be subject to a

subrogation lien of his employer who has paid benefits.

As our Supreme Court notes, the Act as originally enacted in 1929 “required

an employee to choose between recovering compensation from [the] employer under

the Act or recovering damages against the third-party tortfeasor.” Id. at 294 (citation

omitted). So, under the original statute, in the above hypothetical, the injured

employee would have to choose between seeking the $600,000 from his employer

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under the Act (without the need to prove fault) or rolling the dice and suing the

tortfeasor in the hope of recovering $1 million. This “election of remedies” language,

though, was removed in 1933, to allow an employer who had paid benefits under the

Act the exclusive right for six months to sue the tortfeasor, after which the employee

would have the right to sue the tortfeasor. Id. at 294–95.

In 1959, our General Assembly enacted G.S. 97-10.2, which is the key statute

in the present case. Id. at 297.

In 1989, our Supreme Court construed the interplay between subsections (h)

and (j) as it existed at that time, holding that the trial court lacked authority under

(j) to determine an employer’s subrogation rights in a “settlement” between the

employee and a third-party tortfeasor, reasoning that no “settlement” had been

reached under subsection (h) because the employer did not consent to the settlement.

Williams v. International Paper Co., 324 N.C. 567, 572 (1989). In so holding, the

Court noted that the language in subsection (h) at that time provided that no

settlement with a third-party tortfeasor would be valid or enforceable “unless both

employer and employee [ ] join therein.” Id. (citation omitted). Therefore, the Court

reasoned, subsection (j)—which authorizes a trial court to determine the subrogation

rights of an employer in a settlement with a third-party tortfeasor—is not triggered

unless the employer consents to the settlement, as there can be no valid “settlement”

under subsection (h) without the consent of the employer. Id. (holding subsection (j)

was to be read in pari materia with subsection (h)).

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In 1991, two years after Williams, our General Assembly amended subsections

(h) and (j), effectively superseding our Supreme Court’s 1989 holding in Williams.

Easter-Rozzelle, 370 N.C. at 298–99. The new language provided that in some

circumstances a settlement between an employee and a tortfeasor may be valid under

subsection (h) even without the consent of the employer. Id. at 299. In such cases, a

trial court would now be authorized under subsection (j) to determine an employer’s

subrogation rights in such settlement reached without the employer’s consent. Id. at

299–300 (“[I]t is clear [under the 1991 amendments] consent is no longer required for

a valid settlement and that either party can avail itself of subsection (j).”).

We now turn to Ales v. T.A. Loving Co., 163 N.C. App. 350 (2004), which we

conclude controls the resolution of the case before us. In that case, an employee

entered into an agreement with a third-party tortfeasor without the employer’s

consent to settle the case for $145,000, subject to a trial court’s determination under

subsection (j) that the employer would not be entitled to any of the proceeds. Id. at

351. At the trial court, the employer argued it was entitled to a lien for the full

amount of the settlement, as it had paid over $200,000 in workers compensation

benefits; however, the trial court determined the employer was not entitled to any

lien on the settlement proceeds. Id.

On appeal, the employer argued that the trial court lacked jurisdiction to

conduct a subsection (j) inquiry, as the “settlement” reached by the employee and the

tortfeasor was not a true settlement under subsection (h) because of the contingency

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in the agreement that it was subject to the outcome of the subsection (j) inquiry. Id.

at 351–52. We held that a trial court does not have jurisdiction under subsection (j)

“if the agreement between the [employee and the third-party tortfeasor] has been

finalized so that only performance of the agreement is necessary to bind the parties.”

Id. at 353. The Court noted that a contract which contains a condition precedent–

which, in that case, was the condition that the trial court must determine the

employer would not be entitled to any lien—will not give rise to any contractual

obligations between the parties until the condition is met. Id.

Our holding in Ales is not without criticism. Mere months after that decision,

another panel of our Court decided Wilkerson, relying on Ales in holding the

“settlement” reached in that case was not final and thus did not satisfy G.S. 97-

10.2(j)’s jurisdictional prerequisite—namely, having a final settlement agreement.

Wilkerson v. Norfolk Southern Ry. Co., 167 N.C. App. 607, 609–10 (2004). There, we

explained the agreement was not final because it was conditioned on the resolution

of the employer’s workers’ compensation lien. Id. at 610. Specifically, we noted “that

had the judge not extinguished the lien, there would be no settlement[,] and the

parties would return to the negotiating table or trial” and therefore concluded the

agreement contained a condition precedent. Id.

Our panel in Wilkerson, though concluding it was bound by Ales, criticized Ales

in two important respects. First, the panel noted that Ales hinders the ability of the

“common practice [of] employees and third[-]parties to come to tentative settlement

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agreements in which the only contingency is that of satisfactory resolution of the

workers’ compensation lien.” Wilkerson, 167 N.C. App. at 611. Indeed, it is less likely

an employee will settle with a third-party tortfeasor if the employee cannot be certain

he will get to keep the money. Consider the above example where the employee

suffers potentially $1 million in damages but is only eligible to receive $600,000 from

his employer under the Act. The employee may be willing to settle with the tortfeasor

for $400,000 but will be understandably reluctant to do so where there is a risk the

$400,000 will be taken by the employer, invoking its subrogation rights.

Second, the Wilkerson panel noted that “[i]nterpreting the Ales decision, along

with subsection (h), seems to render litigants unable to get to (j) without a final

settlement and unable to settle without the consent of all parties[,]” a scenario

contrary to legislative intent. Id. at 612. This is so, because:

Section 97-10.2(h) is the statutory authority for the lien[,] [a]nd[ ] it is clear that no release or settlement is binding unless the employee, the employer, and the third party all consent. So[,] by its very nature, subsection (h) prevents a settlement from occurring without the consent of everyone involved. The only way to settle a claim without the consent of all the parties is to proceed under subsection (j), which with the Ales decision is inapplicable absent a final settlement before invoking the provision.

Id. at 611–12 (emphasis omitted).

Our holding in Ales seems to cut against our public policy that encourages

settlement of disputes. See, e.g., Bromhal v. Stott, 341 N.C. 702, 705 (1995) (“We

conclude that the public policy of this State encourages settlement agreements[.]”);

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Penn Dixie Lines, Inc. v. Grannick, 238 N.C. 552, 555 (1953) (“The law favors the

settlement of controversies out of court.” (citations omitted)); Menard v. Johnson, 105

N.C. App. 70, 73 (1992) (“[I]t is well settled that North Carolina public policy

encourages prompt settlement of disputed claims.” (citation omitted)). And it may be

true that Ales interprets the term “settlement” in subsection (h) too narrowly, as a

contract with a condition precedent is still a “valid contract.” See Farmers Bank v.

Michael T. Brown Distribs., Inc., 307 N.C. 342, 350 (1983) (describing a condition

precedent as “facts and events, occurring subsequently to the making of a valid

contract” (citation omitted)).

Based on the record before us, we must conclude no “final” settlement (as

defined by Ales) had been reached. Specifically, we note the only evidence offered on

the issue of whether Employee and Defendant reached a settlement agreement were

emails between the attorneys which indicated “the parties have come to a settlement

at $450,000” but that the parties were “sit[ting] tight as it pertains to acquiring

consent from [Employer’s counsel]” and that Employee’s counsel “need[ed]

[Employer’s] consent in writing to settle the claim[.]”

And despite Employee’s current position on appeal, Employee’s amended

motion for the trial court to make a subsection (j) determination suggests that no

“final” agreement without a condition precedent had been reached. Specifically, in

paragraph 12 of that motion, Employee states that he and Defendant “would like to

agree to a settlement of [Employee’s claim] that would require approval by the [c]ourt

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and setting of the lien as the settlement amount agreed to is less than the potential

lien claimed by [Employer].”

We note at the hearing Employee’s counsel argued there was an unconditional

settlement agreement; however, arguments of counsel are not evidence. See Blue v.

Bhiro, 381 N.C. 1, 6 (2022) (citation omitted).

Therefore, as pointed out in Wilkerson, we are bound by Ales. See In re Civil

Penalty, 324 N.C. 373 (1989). We, as a panel, cannot rule contrary to that decision.

Only our General Assembly, through a statutory amendment; or our Supreme Court,

by decision; or our Court sitting en banc can reconsider our Court’s holding in Ales.

III. Conclusion

Based on the record before us, we conclude the trial court lacked jurisdiction

to enter its order. We, therefore, vacate the order and remand for further

proceedings. Of course, the trial court may act under G.S. 97-10.2(j) should evidence

be offered that Employee and Defendant have entered an agreement without a

condition precedent and which otherwise complies with subsection (h).

VACATED AND REMANDED.

Panel consisting of Chief Judge DILLON and Judges ZACHARY and

FREEMAN.

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