Title: Colson v. Vermont League of Cities & Towns

State: vermont

Issuer: Vermont Supreme Court

Document:

Colson v. Town of Randolph, Vermont League of Cities and
Towns (2010-245)
 
2011 VT 129
 
[Filed 18-Nov-2011]
 
ENTRY ORDER
 
2011 VT 129
 
SUPREME COURT
  DOCKET NO. 2010-245
 
JUNE TERM, 2011 
 
Stacey Colson
}
APPEALED FROM:
 
}
 
  v.
}
Department of Labor
 
}
 
Town of Randolph, Vermont League
  of Cities and Towns
}
}
 
DOCKET NO. U-09762
 
 
 
 
In the above-entitled
cause, the Clerk will enter:
 
¶ 1.            
This is a case of avoidable error and its consequences.  The
Vermont League of Cities and Towns (VLCT), the workers' compensation insurance
carrier for the Town of Randolph, settled a compensation claim of claimant
Stacey Colson and paid the settlement amount to the Office of Child Support
(OCS) pursuant to a trustee process that OCS had issued to collect claimant's
back child support payments.  The error was that VLCT failed to deduct the
amount of an attorney's fee lien granted by the Commissioner of the Department
of Labor (DOL) to claimant's lawyer.  VLCT acted with the understanding
that the lawyer would not seek the fee if, as occurred, claimant was awarded a
lump-sum compensation amount.  The lawyer seeks her fee, but VLCT resists
double paying that amount, and the dispute has ended up here after two
decisions from the Commissioner and one from the Washington Superior Court.
Claimant appeals from the Commissioner's grant of summary judgment to
defendants,  in which the Commissioner concluded
that VLCT acted appropriately in paying over the entire proceeds of claimant's
workers' compensation award to OCS.  Claimant argues that his attorney's
lien had priority over OCS's claim for child support arrearages.  He
claims that the Commissioner's findings are incomplete and contradictory, that
the Commissioner erred when she determined his attorney's lien did not have
priority, and that DOL should be compelled to enforce his attorney's lien for
fees.  For the reasons discussed herein, we affirm.
¶ 2.            
The following material facts are not in dispute.  Claimant hired
his attorney to represent him in his workers' compensation proceeding against
VLCT, after he sustained a work-related injury as a fireman for the Town of
Randolph.  On June 8, 2005, claimant and his attorney agreed to terms of
representation including a fee agreement.  Under that agreement, the
attorney was to be paid 25% of the claimant's award.  
¶ 3.            
Claimant owed back child support in two pending family court proceedings
at the time he filed his workers' compensation claiman arrearage of $11,222.66
from a 1998 case and another arrearage of $8662.91 from a 2001 case.  On
April 8, 2005, OCS issued two "Summons to Trustee for Administrative Trustee
Process" to VLCT in accordance with 15 V.S.A. § 799, notifying VLCT of its
obligation "to secure and hold [claimant's] assets in its possession" up to the
amounts of the back child support.  If the trustee process was
uncontested, VLCT was to tender the assets to OCS.  On October 12, 2006,
OCS notified claimant's attorney that it had "filed liens" with VLCT "with
regard to [claimant's] two child support cases." 
¶ 4.            
In order to secure payment of her own fees, claimant's attorney obtained
an attorney's lien in the workers' compensation proceeding.  Prior to
securing her lien, claimant's attorney had a telephone conversation with an
attorney at OCS to ascertain whether OCS would honor an attorney's lien granted
by DOLallowing the attorney to collect her fees prior to disbursement of the
settlement funds to OCS.  OCS informed her that it was routine practice to
honor an attorney's lien in place prior to disbursement of a workers'
compensation settlement.  Claimant's attorney wrote to DOL on December 18,
2006, acknowledging that OCS had "perfected a lien on any settlement due"
claimant from the workers' compensation case and notifying DOL that OCS had
instructed her to file her fee agreement with DOL so that her fees could be
paid before a distribution was made to OCS.  The attorney failed to copy
VLCT on this letter.  
¶ 5.            
DOL granted the attorney's request for a lien, and it copied VLCT on a
letter sent January 4, 2007, stating that the lien had been granted.  To
enforce the lien, the attorney was required to present DOL "with an itemized
statement detailing both the work [she] performed and the hours billed." 
She complied with this requirement, sending itemized invoices to DOL on January
20, 2007.  
¶ 6.            
On April 13, 2007, claimant executed a DOL Form 22 Agreement for
Permanent Partial Disability Compensation.  In her cover letter sending
the agreement to VLCT, claimant's attorney noted that she was requesting a lump
sum payment and asked VLCT to inform DOL that it did not object to such a
payment.  Also on April 13, the attorney wrote to DOL, requesting a lump
sum distribution of claimant's settlement as follows:
 
I am writing to request that [claimant's] permanent partial settlement be
distributed in a lump sum.
 
In my request for lump sum distribution, pursuant to Rule 19, I suggest the
following as support for my request:
 
1) The settlement is going to be distributed to the Office of Child Support
toward Mr. Colson's child support arrearage.
 
2) If the Department determines that a lump sum is not appropriate, we request
that you distribute 20% of the lump sum payment for payment of Mr. Colson's
attorney's fees as he cannot pay these fees otherwise.
The attorney copied VLCT's adjuster on this
letter.  
¶ 7.            
On April 17, 2007, VLCT executed claimant's Form 22 and submitted it to
DOL with a letter stating that claimant's attorney "is requesting a lump sum
payment and asking that the check be made to the Office of Child
Support."  VLCT did not copy the attorney on this letter.  VLCT had
apparently interpreted the attorney's April 13 correspondences as indicating
that the attorney requested that her attorney's fees be paid from the
settlement money only if the full lump sum request was not granted.  DOL
subsequently approved the Form 22 agreement and the lump sum payment request,
and on May 22, 2007, VLCT wrote a check to OCS for the entire settlement amount
of $9784.63.  
¶ 8.            
Upon learning of VLCT's payment of the full settlement to OCS,
claimant's attorney requested that DOL enter an order against VLCT to enforce
her attorney's lien.  This request was denied.  In a formal hearing
on the issue, DOL again denied the attorney's request,
interpreting her April 13, 2007 letter to DOL as a constructive waiver of her
fees should the lump sum request be granted.  Claimant appealed to the
Superior Court, Washington Civil Division, which reversed the DOL ruling,[1] granting summary judgment to claimant on
the waiver issue and remanding the case to DOL to consider VLCT's other
defenses based on the priority of the attorney's lien compared to OCS's child
support arrearage claims.  
¶ 9.            
On remand, the DOL Commissioner again granted summary judgment in favor
of defendants.  The Commissioner held that OCS is not required by statute
to honor attorneys' liens and that by failing to ensure that VLCT was aware of
an alternative priority arrangement agreed to with OCS, claimant's attorney
failed to secure priority for her lien.  The Commissioner concluded that
"VLCT acted appropriately in paying over the entire proceeds of Claimant's
workers' compensation award in accordance with OCS' trustee process
summons."  Claimant appeals this decision.
¶ 10.         Our
review on appeal is limited to questions of law certified by the DOL
Commissioner.  21 V.S.A. § 672; Cyr v. McDermott's,
Inc., 2010 VT 19, ¶ 6, 187 Vt. 392, 996 A.2d 709.  We have held
that, under this limited review, "[w]e are bound by
the Commissioner's findings so long as they are supported by the evidence." Cehic
v. Mack Molding, Inc., 2006 VT 12, ¶ 6, 179 Vt. 602, 895 A.2d 167 (mem.). We will affirm if "the Commissioner's
conclusions are rationally derived from the findings and based on a correct interpretation
of the law."  Id.  We will overrule only if no evidentiary
support exists for the findings or if the decision is based on "evidence so
slight as to be an irrational basis for the result reached." Id.
(quoting Coburn v. Frank Dodge & Sons, 165 Vt. 529, 533, 687 A.2d 465, 467-68 (1996)).  The Commissioner certified two questions for our
review: (1) "Did the Commissioner err in concluding as a matter of law that
Defendant could not be held responsible for failing to withhold from its lump sum
payment of compensation benefits the fees due Claimant's attorney in accordance
with her approved lien against such compensation?"; and (2) "Did the
Commissioner err in concluding as a matter of law that Claimant was not
entitled to satisfaction of [the] approved attorney's lien out of the monies
held by Defendant?"  
¶ 11.         Although
claimant has stated his position in four arguments on appeal, they actually
reduce to two questions: (1) did the OCS lien take priority over the attorney's
lien?; and  (2) if yes, is this priority decision determinative since
VLCT's action was not based on priority but on a different, invalid reason?
¶ 12.        
We first address claimant's assertion that the Commissioner erred, as a
matter of law, when she determined that claimant's attorney's lien did not have
priority over OCS's lien created by the trustee process summons.  The
resolution of this question is determined by the timing of the actions that the
parties argue created the lien interests.  OCS issued its trustee process
in April 2005, and claimant has not disputed the effectiveness of the trustee
process to secure the workers' compensation proceeds as of that date.  The
attorney's interest, on the other hand, began with a fee agreement signed in
June 2005.  The attorney argues that her attorney's lien, which arose in
June 2005,[2]
takes precedence over security interests created thereafter, under the rule of Button's
Estate v. Anderson, 112 Vt. 531, 28 A.2d 404 (1942).  See Valley Disposal, Inc. v. Cent. Vt. Solid Waste
Mgmt. Dist., 113 F.3d 357, 363 (2d Cir. 1997) (explaining that federal
courts have recognized that the type of equitable lien adopted in Button's
Estate "relates back to the date the attorney commenced suit and has priority
over a claim that was created during the pendency of the suit").[3]  Even under this argument, however,
the attorney's interest arose two months after that of OCS.  
¶ 13.         The
common-law rule for the priority of liens is "first in time, first in right,"
and priority is based on the time a lien attaches and becomes perfected.  First Twinstate Bank v. Hart, 160
Vt. 613, 613, 648 A.2d 820, 821 (1993) (mem.). 
Vermont has followed federal law that says "a lien becomes choate when nothing
more needs to be done to perfect it and make it enforceable."[4]  Id.  Trustee process
itself imposes a lien on the funds to which it attaches.  State v.
Rogers, 123 Vt. 422, 426, 193 A.2d 920, 923 (1963) ("[S]ince
the claim . . . does not arise out of a right associated with the withheld
funds themselves, the only claim that it can have must derive from the lien
imposed by the trustee process.  But that lien applies only to funds
reached by the operation of the process as an attachment.").  Here, OCS
perfected its lien by following the dictates of 15 V.S.A. § 799,[5] and claimant has not contested that it
became effective on the date OCS served the summons on VLCT.  Determining
priority between trustee process and other liens follows the "first in time,
first in right" ruleother liens have priority over trustee process if
perfected and recorded prior to the date of trustee process and vice
versa.  See Sherburne Corp. v. Carter, 133 Vt. 411, 415, 340 A.2d 82, 85 (1975) (concluding that trustee process issued by creditors against
debtor prior to bank recording assignment of rights against debtor operated to
give creditors priority over bank because assignment to bank was a security
agreement that had to be filed to be perfected).  Here, the OCS lien was
first in time and took priority over the attorney's lien.  
¶ 14.         Our
holding that the OCS lien had priority requires us to reach the second
issue.  Claimant argues that the lien priority determination is irrelevant
because OCS waived the priority of its lien and would have accepted the
workers' compensation settlement amount minus the amount of the attorney's
lien, in full discharge of VLCT's obligation.[6]  Further, claimant points out that
VLCT knew of the attorney's lien when it paid OCS and it failed to pay the lien
amount because it misread the letter of claimant's attorney as waiving the lien
to pay her fee.  Thus, claimant argues, in failing to pay the attorney's
fee VLCT did not rely upon the priority of the OCS liena priority that did not
exist in factand cannot rely upon it now.  In claimant's view, the
court's decision that the attorney did not waive her fee ended this case.
¶ 15.         The
deficiency in claimant's argument is that there is no evidence that VLCT knew
that OCS would waive its priority to allow VLCT to pay the lien amount to
claimant's attorney.  This is the basis of the Commissioner's decision,
and we conclude that it is correct.  Under 15 V.S.A. § 799(e), VLCT was
required to "tender to [OCS] . . . the assets of the obligor in its possession
up to the amount specified in the summons."  VLCT did exactly as the law required. 
The fact that VLCT did this for the wrong reason is not the point.  Nor is
it determinative that OCS would have waived its priority over the attorney's
lien amount.  Claimant never took the final step to bring the waiver to
fruition, obtaining an official waiver ruling from OCS, and never informed
VLCT, or had OCS notify VLCT, that OCS would waive its priority.  As a
result, VLCT followed the law, based on the information that it had, and the
Commissioner correctly ruled that VLCT could not be required to make a double
payment of the attorney's fee amount to claimant's attorney.
¶ 16.         Both
sides point to the routine steps that the other could have taken to avoid the
mistake that occurred.  The mistake was avoidable because VLCT could have
clarified its obligation to pay claimant's attorney and claimant's attorney
could have taken the final steps to memorialize that OCS would allow the
attorney's fee to be paid and communicate that decision to VLCT.  Because
claimant bears the burden of proving that VLCT violated its legal obligation in
paying the full workers' compensation amount to OCS, claimant's attorney bears
the economic consequences of the mistakes.
¶ 17.         Claimant
argues that giving preference to the OCS lien is poor public policy because workers
will not have access to compensation without assistance of counsel, and counsel
will be unavailable if he or she cannot be paid for services.  Claimant's
point is well taken, but OCS's willingness to respect attorney's liens appears
to implement the policy, irrespective of the priority determined by the
law.  We stress that this case does not implement a debatable policy
choice, but instead resolves the consequences of avoidable mistakes in the
unique context of its facts.  Indeed, the Commissioner has attempted to
prevent this kind of mistake in the future by an amendment to the DOL rules, that reads: "An employer/carrier with notice of an
acknowledged lien shall notify the claimant's attorney prior to issuing payment
to the claimant."  Workers' Compensation Rules §
10.4012, 3 Code of Vt. Rules 24 010 003 (effective June 15, 2010), available at
http://www.michie.com/vermont.  While the language does not
explicitly state that the obligation to notify claimant's attorney is also
present if the payment is made to a third party on behalf of the claimant, it
should be read broadly to include such a situation.  Under the new
language, the burden of the mistake would fall on the employer or carrier, and,
as a result, the employer or carrier will be more careful to insure that
attorney's liens are honored.   
Affirmed.
 
 
BY THE COURT:
 
 
 
 
 
 
 
Paul L. Reiber,
  Chief Justice
 
 
 
 
John A. Dooley, Associate
  Justice
 
 
 
 
 
Denise R. Johnson,
  Associate Justice
 
 
 
 
 
Marilyn S. Skoglund, Associate Justice
 
 
 
 
 
Brian L. Burgess, Associate
  Justice
 
 
 

[1]  Although the court reversed the Commissioner's
decision, concluding that it did not contain a waiver of the attorney's fee, it
described the letter from the claimant's attorney as puzzling and confusing.
[2]  The injury for which compensation was
sought occurred in 2003.  The record does not show when the claim was
filed.  In any event, the attorney's involvement could not be earlier than
June 2005 when the retainer was signed.
 
[3]  Claimant relies primarily on 21 V.S.A.
§ 682, which authorizes the Commissioner to create attorney's liens against
compensation awards.  Neither the statute, nor the DOL rules in effect at
the time, nor the Commissioner's order granting the lien purport to specify
when the lien is effective or its priority with respect to other claims on the
compensation settlement.  See Workers' Compensation Rules §§
10.0000-10.8000, 3 Code of Vt. Rules 24 010 003 (2001) (subsequently amended
2010) (including nothing addressing lien priority).  Thus, the statutory
attorney's lien does not answer the issues in this case.
 
[4]  This holding unfortunately used the
word "choate," which is, as the Oxford English Dictionary explains, "[a]n erroneous
word, framed to mean finished', or complete', as if the in- of inchoate
were the Latin negative."  (2d ed. 1989). 
We are not the first court to have stumbled into this linguistic pitfall. 
Oliver Wendell Holmes once noted, "Several of the State Courts have left
equally amusing slips in the Reports. . . . I have read in a California volume
that the wife on marriage acquires an inchoate right of dower which by the
death of the husband becomes choate."  Id. 
In fact, the mistake may be widespread enough to make it acceptable.  The
New York Times explains that "choate developed a momentum all its own, at least in American legal circles . . . [and] now
appears in most major U.S. law dictionaries."  B. Zimmer, On
Language, N.Y. Times, Dec. 31, 2009.  We decline to reach the question
of the permissibility of "choate."
[5]  Noting that 15 V.S.A. § 780(9) defines
"wages" as including "periodic payments under . . . workers'
compensation," VLCT argues that the trustee process was a wage withholding
order that has "priority over other legal process against the same wages" under
15 V.S.A. § 789(b).  While it appears that OCS did send a notice to VLCT
to wage withhold in June 2005, that notice was directed at
periodic workers' compensation payments.  As the facts reflect,
claimant's workers' compensation claim was paid in a lump sum so that the wage
withholding provisions appear inapplicable.  In any event, VLCT relied
upon the trustee process summons to make its payment to OCS.  We do not
rely on § 789(b) in this decision.
 
[6]  OCS is not a party in this proceeding,
and accordingly this decision does not address whether claimant's attorney
might recover from OCS.