Title: Eastman v. Messner

State: illinois

Issuer: Illinois Supreme Court

Document:

Docket No. 86857-Agenda 26-September 1999.
DENNIS EASTMAN, Appellee, v. STEVEN MESSNER, Appellee (Gates McDonald ex rel. Meyer Material Company,
Appellant).
Opinion filed December 2, 1999.
JUSTICE McMORROW delivered the opinion of the court:
The question presented in this appeal is whether, pursuant to section 5(b) of the Workers' Compensation Act (820 ILCS
305/5(b) (West 1996)), an employer who has paid workers' compensation benefits to an employee may assert a lien against
the employee's recovery in a legal malpractice suit where that suit is based upon the failure of the employee's attorney to
prosecute a personal injury action against a third-party tortfeasor allegedly responsible for the employee's injuries. The
appellate court concluded that, under these circumstances, an employer could not assert a lien. 302 Ill. App. 3d 526. For the
reasons that follow, we affirm the judgment of the appellate court.
Background
On January 21, 1991, the plaintiff, Dennis Eastman, was injured in an accident which occurred during the course of his
employment as a truck driver for Meyer Material Company. The accident took place while Eastman was driving his truck in
the gravel pit of a third party, Vulcan Materials Company. Meyer Material's workers' compensation insurance
administrator, Gates McDonald, has paid a total of $248,218.66 in workers' compensation benefits to Eastman as a result of
the accident.
Following the accident, Eastman hired the defendant, attorney Steven Messner, for the purpose of filing a personal injury
action against Vulcan Materials. After Messner allegedly failed to file the personal injury action within the applicable
limitations period, Eastman filed a legal malpractice suit against Messner. On November 24, 1997, Gates McDonald filed a
petition to intervene in the legal malpractice case on the behalf of Meyer Material, arguing that it had a right, pursuant to
section 5(b) of the Workers' Compensation Act (820 ILCS 305/5(b) (West 1996)) to assert a lien against any damages
which Eastman might recover from Messner. Following a hearing held on February 19, 1998, the circuit court of Cook
County denied the petition to intervene. The appellate court, relying primarily on Woodward v. Pratt, Bradford & Tobin,
P.C., 291 Ill. App. 3d 807 (1997), affirmed the judgment of the circuit court. 302 Ill. App. 3d 526. We allowed Gates
McDonald's petition for leave to appeal. 177 Ill. 2d R. 315(a).
Analysis
A lien is defined generally as "a charge upon property, either real or personal, for the payment or discharge of a particular
debt or duty in priority to the general debts or duties of the owner; an encumbrance upon property as security for the
payment of a debt; or a hold or claim on another's property as security for the payment or performance of a debt, duty, or
other obligation." Gaskill v. Robert E. Sanders Disposal Hauling, 249 Ill. App. 3d 673, 676 (1993), citing 51 Am. Jur. 2d
Liens §1 (1970). A lien cannot be created by a court "without an underlying explicit or implicit agreement between the
parties or some fixed rule of law usually found in a statute." Freer v. Hysan Corp., 108 Ill. 2d 421, 427 (1985). As there
was no agreement between the parties in the case at bar, the only issue presented is whether section 5(b) of the Workers'
Compensation Act grants Gates McDonald the right to assert a lien against any proceeds which Eastman recovers in his
malpractice action against Messner.
Section 5(b) of the Workers' Compensation Act provides, in pertinent part:
In arguing that it has a right to assert a lien against Eastman's potential malpractice damages, Gates McDonald initially
focuses on the first sentence of section 5(b). That sentence states that an employee who has received worker's compensation
benefits may file a third-party action "[w]here the injury or death for which compensation is payable under this Act was
caused under circumstances creating a legal liability for damages on the part of some person other than his employer to pay
damages."(Emphasis added.) 820 ILCS 305/5(b) (West 1996). Citing to Williams v. Katz, 23 F.3d 190 (7th Cir. 1994),
Gates McDonald contends that, except for the employer, section 5(b) does not limit the definition of the "some person" or
third party against whom action may be taken by the employee. See Katz, 23 F.3d  at 192. Gates McDonald further observes
that the third paragraph of section 5(b) allows the employer to assert a lien in the action brought by the employee against
the "person" or third party defined in the first sentence of section 5(b). Thus, according to Gates McDonald, an employer
who has paid workers' compensation benefits to an employee may assert a lien against any third-party recovery, including a
legal malpractice recovery, that an employee obtains as a result of his injury. We disagree.
Both Gates McDonald and the decision in Katz fail to heed the clear language of section 5(b). As the appellate court in
Woodward explained:
Section 5(b) explicitly refers to the "injury or death" suffered by an employee that gives rise to payment of workers'
compensation benefits. An attorney who commits malpractice cannot be considered the person liable for the employee's
"injury or death." The attorney who commits malpractice is legally liable to the employee only because of his or her failure
to prosecute the employee's third-party suit. Thus, section 5(b) cannot reasonably be interpreted to support Gates
McDonald's position that it has a right to assert a lien against the proceeds of Eastman's legal malpractice case. Woodward,
291 Ill. App. 3d 807; Mosier v. Warren E. Danz, P.C., 302 Ill. App. 3d 731 (1999); see also In re Worker's Compensation
Lien, 231 Mich. App. 556, 562, 591 N.W.2d 221, 224-25 (1998) (construing statutory language similar to section 5(b) and
holding that "[the employee's attorneys] did not cause the injury that led to the compensation payments. Put differently, the
circumstances that allegedly caused plaintiff's injury did not 'create' a legal liability in the defendant lawyers"); see
generally 6 A. Larson, Workers' Compensation Law §71.10, at 14-1 (1997) (explaining that third-party actions are
permitted in worker's compensation situations because of the "moral idea that the ultimate loss from wrongdoing should
fall upon the wrongdoer," i.e., the one who tortiously caused the employee's injury).
Gates McDonald further argues that section 5(b) must be construed so as to allow an employer to assert a lien against an
employee's malpractice recovery because, otherwise, the employee would receive a double recovery for his injury, and a
principal purpose of section 5(b) would thus be thwarted. See Scott v. Industrial Comm'n, 184 Ill. 2d 202, 217 (1998) ("the
general principle [is] that an employee is not entitled to a double recovery"); Reno v. Maryland Casualty Co., 27 Ill. 2d 245,
248 (1962) ("The underlying basis of the employer's right to subrogation is the prevention of an unjust enrichment on the
part of the employee in the form of a double recovery for the same injury"). Gates McDonald reasons that a double recovery
would occur because of the nature of the damages which a plaintiff recovers in a malpractice action. According to Gates
McDonald, the measure of damages in a malpractice action brought against an employee's attorney is equal to the total
damage award which the employee would have collected from the third-party tortfeasor in the underlying suit. Given this
fact, Gates McDonald maintains that if an employer is not allowed to assert a lien, then the employee who receives a legal
malpractice recovery will be placed in a better position than the employee who recovers directly from the tortfeasor and
who must reimburse his employer for any workers' compensation benefits received. See Frazier v. New Jersey
Manufacturers Insurance Co., 142 N.J. 590, 601-02, 667 A.2d 670, 676 (1995). Gates McDonald maintains that there is no
justification for such a result and, therefore, that an employer should be allowed to assert a lien against the employee's
malpractice recovery.
In order to recover damages in a legal malpractice action in Illinois, a plaintiff must establish what the result would have
been in the underlying action which was improperly litigated by the plaintiff's former attorney. See, e.g., Nika v. Danz, 199
Ill. App. 3d 296, 308 (1990) (malpractice plaintiff must litigate a " 'suit within a suit' " or " 'trial-within-a-trial' "), quoting
2 R. Mallen & J. Smith, Legal Malpractice §27.7, at 641 (3d ed. 1989). The basis of the legal malpractice claim is that the
plaintiff would have been compensated for an injury caused by a third party, absent negligence on the part of the plaintiff's
attorney. Nika, 199 Ill. App. 3d at 308; Glass v. Pitler, 276 Ill. App. 3d 344, 349 (1995). The injuries resulting from legal
malpractice are not personal injuries but, instead, are pecuniary injuries to intangible property interests. Glass, 276 Ill. App.
3d at 349, citing Gruse v. Belline, 138 Ill. App. 3d 689 (1985). The plaintiff must affirmatively prove that he suffered actual
damages as a result of the attorney's malpractice (Glass, 276 Ill. App. 3d at 349), and a plaintiff who obtains recovery in a
malpractice suit can be "in no better position by bringing suit against the attorney than if the underlying action against the
third-party tortfeasor had been successfully prosecuted" (Bloome v. Wiseman, Shaikewitz, McGivern, Wahl, Flavin & Hesi,
P.C., 279 Ill. App. 3d 469, 478 (1996)). Thus, a plaintiff's damages in a malpractice suit are limited to the actual amount
the plaintiff would have recovered had he been successful in the underlying case.
Gates McDonald's argument that a double recovery would occur in a legal malpractice case is unpersuasive because it fails
to account for the fact that, in the underlying tort action, there is a difference between the damages which an employee may
initially collect from the third-party tortfeasor and the damages which the employee is ultimately entitled to keep. See 6 A.
Larson, Workers' Compensation Law §71.20, at 14-13 (1993). The law in Illinois is clear that " '[t]he employee is entitled
to retain only that portion of a recovery from the tortfeasor which exceeds the benefits received under the [Workers'
Compensation] Act from the employer.' " McNamee v. Federated Equipment & Supply Co., 181 Ill. 2d 415, 421 (1998),
quoting Ullman v. Wolverine Insurance Co., 48 Ill. 2d 1, 7 (1970). An employee must reimburse his employer for the
workers' compensation benefits received even if the employer does not assert a lien. Scott v. Industrial Comm'n, 184 Ill. 2d 202, 216 (1998) ("section 5(b) provides the employer with a right to recover certain amounts paid or to be paid to an
employee where the employee has obtained a third-party judgment or settlement, regardless of whether a lien has been
asserted"). Further, any judgment or settlement received from the third party must be offset by the amount of worker's
compensation benefits received, even when the employer has waived the right to assert its workers compensation lien.
Wilson v. Hoffman Group, Inc., 131 Ill. 2d 308 (1989). Because the damages the employee would be legally entitled to
retain in the underlying tort action equals the total damage award reduced by the amount of the workers' compensation
benefits paid, there would be no double recovery in a legal malpractice suit. The legal malpractice plaintiff is entitled to
recover only the property interest lost as a result of the alleged malpractice, an amount necessarily limited to the net amount
the plaintiff would have ultimately recovered in the underlying tort case.
A hypothetical example illustrates why a double recovery will not occur in the legal malpractice case. Assume that, in a
legal malpractice suit, an injured employee succeeds in proving that if his attorney had sued a third-party tortfeasor, the
employee would have been entitled to collect $100,000 from that tortfeasor. Assume too that the employee has previously
received $80,000 in workers' compensation benefits from his employer. Gates McDonald's position in the case at bar is
that, under these hypothetical facts, if the employer is not allowed to assert a lien against the malpractice recovery, the
employee would be overcompensated by $80,000. Under Gates McDonald's reasoning, the employee would receive
$100,000 in damages from the attorney and $80,000 in workers' compensation benefits. This result, however, is legally
impossible under the Workers' Compensation Act.
In the underlying tort case in the hypothetical, the employee would not be entitled to keep the entire damage award of
$100,000. Instead, the employee could legally retain only the excess above the workers' compensation benefits paid, or
$20,000. Thus, the employee's damages in the legal malpractice case would be only $20,000 because this is the amount the
employee lost as a result of the attorney's malpractice. Therefore, contrary to Gates McDonald's argument, in the absence
of an employer's lien, the employee would not receive a double recovery or be unjustly enriched from the malpractice
action. The employee would receive $80,000 in workers' compensation benefits and $20,000 in malpractice damages for a
total recovery equal to his assessed damages of $100,000. See Mosier 302 Ill. App. 3d at 733-34; see also Moores v.
Greenberg, 834 F.2d 1105, 1114 (1st Cir. 1987).
We note, moreover, that construing section 5(b) so as to grant an employer the right to assert a lien under the facts of this
case would raise serious attorney-client issues. Under section 5(b), an employer has a right to assert a lien on the
employee's recovery against the "person" or third party defined in the statute. Section 5(b) also grants the employer the
right to directly sue that "person" within three months of the expiration of the applicable limitations period if the employee
does not. 820 ILCS 305/5(b) (West 1996); see also Joseph Schlitz Brewing Co. v. Chicago Rys. Co., 307 Ill. 322, 327
(1923) ("the right of the employer to sue is not a new cause of action created by [the Workers' Compensation Act] but is the
employee's right of action taken from him and transferred to the employer"). If Gates McDonald's position that the third
party or "person" defined in section 5(b) includes the employee's negligent attorney then, under the plain language of
section 5(b), the statute would also grant the employer the right to initiate a legal malpractice suit against the employee's
attorney for failing to file suit, despite the fact that no attorney-client relationship existed between the employer and the
attorney. Such a result would be at odds with the well-established principle that a malpractice plaintiff must prove that the
attorney owed the plaintiff a duty of care arising from the attorney-client relationship (Sexton v. Smith, 112 Ill. 2d 187, 193
(1986)). See Woodward, 291 Ill. App. 3d at 814-15. We must presume that in enacting section 5(b), the legislature did not
intend to produce absurd, inconvenient or unjust results. Baker v. Miller, 159 Ill. 2d 249, 262 (1994). Accordingly, we
conclude that section 5(b) does not allow an employer to assert a lien against an employee's recovery in a legal malpractice
suit.
Conclusion
For the foregoing reasons, the judgment of the appellate court is affirmed.
Affirmed.