Title: Yellow Freight v. Courtaulds

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
YELLOW FREIGHT SYSTEMS, INC. 
 
 
 
OPINION BY 
v.  Record No. 022244 
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
 
 
June 6, 2003 
COURTAULDS PERFORMANCE FILMS, INC., ET AL. 
 
FROM THE CIRCUIT COURT OF HENRY COUNTY 
David V. Williams, Judge 
 
 
In this appeal, we consider whether the trial court 
properly ruled that a petition filed under Code § 65.2-310 in a 
civil action by an employer seeking to enforce subrogation 
rights for workers’ compensation benefits paid was untimely. 
BACKGROUND 
 
The essential facts are not in dispute.  On January 28, 
1998, Milton Earl Oakley (Oakley), a driver for Yellow Freight 
Systems, Inc. (Yellow Freight), was injured when he was exposed 
to hazardous chemical fumes while making a delivery for his 
employer to the Fieldale facility of Courtaulds Performance 
Films, Inc. and CP Films, Inc. (collectively, Courtaulds).  
Yellow Freight, which self-insures for workers’ compensation 
coverage pursuant to Code § 65.2-305, paid to Oakley or on his 
behalf $56,256.69 in workers’ compensation benefits.1  In 
proceedings before the Workers’ Compensation Commission, 
Oakley’s benefits were terminated effective August 11, 1998. 
                     
 
1 Although the amount paid to Oakley or on his behalf is not 
disputed, the question whether all the benefits paid were 
 
On January 26, 2000, Oakley filed a motion for judgment in 
the Circuit Court of Henry County (the trial court) against 
Courtaulds seeking damages of $5,000,000 for his injuries under 
theories of premises liability and products liability.2  In 
letters to Oakley’s counsel dated July 26, 2000 and September 
27, 2000 from Jerry I. Campbell, Yellow Freight’s Subrogation 
Claims Coordinator, Yellow Freight asserted that it had a “lien” 
or “subrogation claim” of $56,256.69 against any monetary 
recovery Oakley might obtain from Courtaulds as the result of 
his lawsuit.  During this period of time, Yellow Freight did not 
file a petition or motion to enforce this claim in Oakley’s 
lawsuit as permitted by Code § 65.2-310. 
 
On June 1, 2001, Oakley entered into a settlement agreement 
with Courtaulds, accepting $450,000 in exchange for a full 
release of his claims against Courtaulds.  The settlement 
agreement provided, among other things, that “Oakley shall be 
legally responsible for satisfying all outstanding liens arising 
from or because of the injuries sustained by Oakley [on January 
                                                                  
required under the Virginia Workers’ Compensation Act was not 
resolved by the trial court and is not before us in this appeal. 
 
2 The motion for judgment named four additional defendants, 
all corporate entities associated with Courtaulds.  Two of these 
defendants were subsequently nonsuited by Oakley and two others 
were dismissed with prejudice upon a determination that those 
entities were not involved in the operation of the Fieldale 
facility.  These corporate entities are not parties to this 
appeal. 
 
 
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28, 1998].”  The agreement further provided that “while it is 
the belief and intention of the parties that the claims 
compensated herein are outside of those for which Oakley has 
received any compensation under the Virginia Workers’ 
Compensation Act (the ‘Act’), [Courtaulds] will nonetheless hold 
Oakley and his counsel harmless for any lien asserted by Yellow 
Freight, Inc. under the Act.” 
 
On June 7, 2001, Yellow Freight filed a petition, pursuant 
to Code § 65.2-310, seeking to have the trial court determine 
the amount of workers’ compensation benefits paid to Oakley or 
on his behalf and to order Courtaulds to pay Yellow Freight that 
amount from the proceeds of any judgment or compromise 
settlement Oakley might have from Courtaulds.  On June 8, 2001, 
the trial court, without consideration of Yellow Freight’s 
petition, entered an agreed order dismissing Oakley’s motion for 
judgment with prejudice. 
 
On June 22, 2001, Yellow Freight filed a motion to vacate 
the June 8, 2001 order.  Yellow Freight asserted that its 
petition barred dismissal of the action until the trial court 
had determined the amount of compensation paid by Yellow Freight 
and ordered payment to it of that amount from the settlement 
proceeds.  Courtaulds and Oakley opposed Yellow Freight’s 
motion. 
 
3
 
On June 29, 2001, the trial court issued an opinion letter 
indicating it had not been aware of Yellow Freight’s petition at 
the time the order of dismissal was entered and concluding that, 
because the petition had been filed before judgment was entered, 
the dismissal was inappropriate without a full consideration of 
Yellow Freight’s rights, if any.  By order of even date, the 
trial court vacated the June 8, 2001 order. 
 
The parties filed briefs addressing the amount of Yellow 
Freight’s claim and its enforceability in Oakley’s action 
against Courtaulds.  Relevant to the issue raised in this 
appeal, Courtaulds and Oakley contended that the execution of 
the settlement agreement and release on June 1, 2001 terminated 
any claim Oakley might have had against Courtaulds and, 
consequently, any right of subrogation of Yellow Freight.  
Yellow Freight maintained that Code § 65.2-310 provided it with 
the right to enforce a claim against any recovery by Oakley from 
Courtaulds at anytime prior to the entry of judgment. 
 
The trial court heard oral argument on March 20, 2002.  In 
an opinion letter dated March 26, 2002, the trial court opined 
that “Yellow Freight’s petition under § 65.2-310 is untimely 
because [Oakley’s] release of [Courtaulds] extinguished Yellow 
Freight’s unmatured claim.”  In a final order dated June 27, 
2002 and incorporating by reference the rationale of the March 
26, 2002 opinion letter, the trial court denied Yellow Freight’s 
 
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petition and dismissed Oakley’s motion for judgment.  We awarded 
Yellow Freight this appeal. 
DISCUSSION 
 
This appeal involves the statutory scheme embodied in Code 
§§ 65.2-309 and 65.2-310, parts of the Virginia Workers’ 
Compensation Act, which together afford an employer certain 
rights to recover amounts paid to or on behalf of an injured 
employee from a third party responsible for the injury.  As 
previously noted, the focus of the issue to be resolved is 
whether Yellow Freight, the employer, timely asserted its 
statutory rights as provided in this statutory scheme. 
 
In relevant part, Code § 65.2-309(A) provides that “[a] 
claim against an employer under this title for injury or death 
benefits shall operate as an assignment to the employer of any 
right to recover damages which the injured employee . . . may 
have against any other party for such injury or death, and such 
employer shall be subrogated to any such right.”  Subsection (A) 
further provides that the employer may enforce the legal 
liability of the responsible party in an independent action 
against that party.  Code § 65.2-309(C) provides that any 
“compromise settlement . . . made by the employer in the 
exercise of such right of subrogation” must be approved by “the 
[Workers’ Compensation] Commission and the injured employee.” 
 
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Code § 65.2-310 provides protection to the employer by 
allowing recovery of compensation paid to its employee and other 
expenses paid on behalf of the employee when the employee files 
an independent action against the responsible third party.  In 
relevant part, this statute provides that “[i]n any action by an 
employee . . . against any person other than the employer, the 
court shall, on petition or motion of the employer at any time 
prior to verdict, ascertain the amount of compensation paid 
. . . and, in event of judgment against such person . . . 
require that the judgment debtor pay [the amount of] such 
compensation” to the employer from the judgment with the balance 
paid the employee.3
 
Yellow Freight contends that the resolution of this appeal 
is controlled by our decision in Liberty Mutual Insurance Co. v. 
Fisher, 263 Va. 78, 557 S.E.2d 209 (2002).  Specifically, Yellow 
Freight relies upon our holding that “[t]he language of Code 
§ 65.2-310 does not limit the lien rights created by Code 
§ 65.2-309 when a compromise settlement is reached in a third-
party action brought by an injured employee or her personal 
representative.  The trial court’s duty to compute the amount 
that an employer may recover under its lien is not limited to 
                     
 
3 Both statutes contain provisions for apportionment of 
attorneys’ fees and costs between the employer and the employee, 
but these provisions are not relevant to the issue raised in 
this appeal. 
 
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actions in which a verdict is reached and a judgment is 
obtained.”  Id. at 85, 557 S.E.2d at 212.  Yellow Freight 
asserts that, upon its payment of Oakley’s claims for workers’ 
compensation benefits, the rights afforded to it under Code 
§ 65.2-309 constituted a lien against any recovery Oakley might 
have against Courtaulds, whether by judgment or settlement.  
Thus, Yellow Freight further asserts that under Code § 65.2-310, 
the trial court was required to enforce those rights because 
Yellow Freight filed its petition in the action filed by Oakley 
consistent with the statutory provision that it do so “at any 
time prior to verdict.”  We disagree.  Yellow Freight interprets 
Liberty Mutual too broadly. 
 
The holding of Liberty Mutual, while clearly instructive 
regarding the statutory scheme considered here, is not 
dispositive of the specific issue raised in this appeal and is 
distinguished on two grounds.  First, there was no question in 
Liberty Mutual that the employer had timely asserted its right 
of subrogation.  Rather, the question was whether the employer 
could recover benefits from persons who did not participate in 
the settlement of a wrongful death action.  Second, Liberty 
Mutual involved the settlement of a wrongful death action and, 
accordingly, the settlement was subject to approval by the trial 
court under Code § 8.01-55.  There is no corresponding 
 
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requirement for trial court approval of a compromise settlement 
by a plaintiff who, as in this case, is sui juris. 
 
Although we recognize that in Liberty Mutual reference is 
made to “the lien rights created by Code § 65.2-309,” in context 
it is clear that the opinion was referring to rights that had 
matured in the course of the legal proceedings of that case.  It 
is also clear that Code § 65.2-309 does not refer to “lien 
rights” but, rather, to a “right of subrogation” in favor of the 
employer who has paid benefits to or on behalf of an injured 
employee.  Our use of the term “lien rights” in Liberty Mutual 
was merely a generic reference to the employer’s rights under 
Code § 65.2-309.  Moreover, as we will subsequently explain 
herein, we are of opinion that to the extent that an employer 
has subrogation rights created by Code § 65.2-309 against the 
proceeds of a recovery from a third party responsible for an 
employee’s injury, such rights must be perfected by adherence to 
the provisions of Code § 65.2-310 when they are asserted under 
that statute. 
 
The General Assembly clearly contemplated that an employer, 
in pursuing an independent action as a subrogee, could unfairly 
prejudice the rights of an employee by entering into a 
compromise settlement with the third party responsible for the 
employee’s injuries.  Accordingly, Code § 65.2-309(C) provides 
that the employer receive the approval of the Workers’ 
 
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Compensation Commission and the employee before entering into a 
settlement of the employer’s claims under its right of 
subrogation.  This provision is mandatory and requires no 
affirmative action on the part of the employee to protect his 
rights.  By contrast, Code § 65.2-310 makes no provision for 
restricting the right of the employee to make a compromise 
settlement of his claims against a third party without notice to 
or approval from his employer.  See Safety-Kleen Corp. v. Van 
Hoy, 225 Va. 64, 70, 300 S.E.2d 750, 754 (1983).  Thus, Code 
§ 65.2-310 contemplates that the employer undertake affirmative 
action to perfect its right of subrogation in cases in which the 
employee has brought suit against a third party. 
 
Subrogation is, in its simplest terms, the substitution of 
one party in the place of another with reference to a lawful 
claim, demand, or right so that the party that is substituted 
succeeds to the rights of the other.  See, e.g., Centreville Car 
Care, Inc. v. North American Mortgage Co., 263 Va. 339, 345, 559 
S.E.2d 870, 872 (2002); Reynolds Metals Co. v. Smith, 218 Va. 
881, 883, 241 S.E.2d 794, 796 (1978).  Thus, under Code § 65.2-
309, the payment of workers’ compensation benefits by an 
employer merely substitutes the employer in the place of the 
employee with respect to any right of recovery the employee may 
have against a third party to the extent of the employer’s 
payment of such benefits.  However, the right of subrogation 
 
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granted by this statute does not mature into an enforceable 
claim or lien unless, and until the right is perfected by the 
employer in accordance with the further provisions of this 
statute or those of Code § 65.2-310. 
 
In the context of an action by the employer under Code 
§ 65.2-309, the filing of an action against the responsible 
third party perfects the employer’s right of subrogation and, 
thus, protects the employer from a subsequent settlement by the 
employee/subrogor and the third party.  In the context of an 
action filed by the employee against the responsible third 
party, the employer’s right of subrogation is perfected under 
Code § 65.2-310 by the filing of a petition or a motion “at any 
time prior to [a] verdict.”  In the latter circumstance, 
however, the employer’s claim against the proceeds of a recovery 
from the third party is dependent upon the employee having a 
viable claim against the third party at the time the petition or 
motion is filed.  The holding in Liberty Mutual is entirely 
consistent with this conclusion.  Cases involving voluntary 
settlements by the parties to a suit negate the applicability of 
a verdict as contemplated by Code § 65.2-310. 
 
In the present case, at the time Yellow Freight filed its 
petition to enforce its right of subrogation in Oakley’s action 
against Courtaulds, Oakley had already entered into a compromise 
settlement of his claims in exchange for a complete and absolute 
 
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release of Courtaulds from any liability on those claims.  As a 
result, although Oakley’s motion for judgment was still pending 
before the trial court, he no longer had an enforceable right of 
recovery against Courtaulds on the claims asserted in that 
pleading.  Even though Yellow Freight’s petition was filed 
“prior to [a] verdict,” its right of subrogation, arising from 
Oakley’s released claims, was also no longer enforceable in that 
action.  Accordingly, we hold that the trial court did not err 
in ruling that Yellow Freight’s petition was untimely and in 
dismissing Oakley’s motion for judgment with prejudice. 
CONCLUSION 
 
For these reasons, we will affirm the judgment of the trial 
court. 
Affirmed. 
 
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