Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-04-03404/USCOURTS-ca8-04-03404-0/pdf.json

Parties Involved:
Arkansas Property and Casualty Guaranty Fund
Appellant
Jason Caldwell
Not Party
Karen Caldwell
Not Party
Carroll Deal
Not Party
Pattie Deal
Not Party
Fremont Indemnity Company
Appellant
Illinois Tool Works
Not Party
Karen Lamb Kirkham
Appellee
Caleb Lamb
Appellee
Joshua Lamb
Appellee
William David Lamb
Appellee
TACC Corporation
Not Party

Document Text:

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

________________

Nos. 04-2090/3404 

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Jason Caldwell; Karen Caldwell,

Plaintiffs,

Karen Lamb Kirkham, Individually

and as Personal Representative of

the Estate of William David Lamb,

deceased, and as next friend and on

behalf of Joshua Lamb and Caleb

Lamb, the minor children and

wrongful death beneficiaries of

William David Lamb; Caleb Lamb;

Joshua Lamb; William David

Lamb, 

Intervenor Plaintiffs/

Appellees,

Carroll Deal; Pattie Deal,

Intervenor Plaintiffs/

Appellees,

Fremont Indemnity Company;

Arkansas Property and Casualty

Guaranty Fund,

Intervenor Plaintiffs/

Appellants,

v.

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Appeals from the United States

District Court for the Eastern

District of Arkansas.

Appellate Case: 04-3404 Page: 1 Date Filed: 09/02/2005 Entry ID: 1947533
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The Honorable James M. Moody, United States District Judge for the Eastern

District of Arkansas.

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TACC Corporation; Illinois Tool

Works, Inc.,

Defendants.

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Submitted: April 14, 2005

 Filed: September 2, 2005 

________________

Before MELLOY, COLLOTON and GRUENDER, Circuit Judges. 

________________

GRUENDER, Circuit Judge.

Fremont Indemnity Company (“Fremont”) and the Arkansas Property and

Casualty Guaranty Fund (the “Fund”) appeal two separate decisions of the district

court.1

 In two separate orders, the district court concluded that because Carroll Deal

and Karen Lamb Kirkham were not “made whole” by their respective settlements

with TACC Corporation and Illinois Tool Works, Inc., Fremont and the Fund did not

have a right of subrogation with respect to the settlement proceeds. We affirm the

decisions of the district court. 

I. BACKGROUND

Jason Caldwell, Carroll Deal and David Lamb were employed by SeaARK

Marine, Inc. (“SeaARK”) in Monticello, Arkansas. On December 7, 2000, Deal,

Appellate Case: 04-3404 Page: 2 Date Filed: 09/02/2005 Entry ID: 1947533
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Ark. Code Ann. § 11-9-410(b)(1) provides that “[a]n employer or carrier liable

for compensation under this chapter for the injury or death of an employee shall have

the right to maintain an action in tort against any third party responsible for the injury

or death.” Under the statute, “the proceeds of any compromise settlement of a tort

claim are subject to the lien of the employer or the compensation carrier unless the

settlement has been approved by a court having jurisdiction or by the Workers’

Compensation Commission, after the compensation carrier has been afforded

adequate opportunity to be heard.” Travelers Ins. Co. v. O’Hara, 84 S.W.3d 419, 421

(Ark. 2002).

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Lamb and another employee were applying insulation to the hull of a 40-foot-long

cabin cruiser. The other employee, who was in the hull of the boat at the time of the

accident, imprudently decided to use his cigarette lighter. The flame from his

cigarette lighter caused the residual fumes from the insulation glue to ignite and

explode with such force as to propel the boat, which weighed approximately 15,000

pounds, through the 26-foot-high roof of SeaARK’s Marine Rigging Department.

Caldwell and Deal sustained severe leg injuries in the explosion. Lamb suffered

severe head injuries and died. 

Caldwell and his wife filed a products-liability suit in Arkansas state court

against the glue manufacturers, TACC Corporation (“TACC”) and Illinois Tool

Works, Inc. (“Illinois Tool Works”). TACC and Illinois Tool Works removed the

case to the United States District Court for the Eastern District of Arkansas based on

diversity jurisdiction under 28 U.S.C. § 1332. Lamb’s widow, Karen Lamb Kirkham,

intervened as a plaintiff on her own behalf and as personal representative of her

deceased husband’s estate and his wrongful-death beneficiaries. Deal and his wife,

Carol, later intervened as plaintiffs.

Fremont, SeaARK’s workers’ compensation carrier, also intervened as a

plaintiff for the express purpose of seeking subrogation. Fremont claimed that, under

Arkansas law, it was entitled to a subrogation lien on the proceeds of any recovery

from the glue manufacturers because it had paid workers’ compensation benefits.2

Appellate Case: 04-3404 Page: 3 Date Filed: 09/02/2005 Entry ID: 1947533
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Under the made-whole doctrine: “The lien right does not rise until after an

insured has been made whole by a judgment or settlement against a third-party

tortfeasor. This conclusion ensures that an insured is wholly compensated for

damages incurred as the result of a work-related accident, but does not receive a

double payment.” S. Cent. Ark. Elec. Coop. v. Buck, 117 S.W.3d 591, 596 (Ark.

2003).

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Fremont subsequently entered liquidation, and the Fund assumed liability for

Caldwell’s, Deal’s and Kirkham’s workers’ compensation claims. The Fund,

therefore, later intervened and joined in Fremont’s claim to a lien.

The Caldwells, the Deals and Kirkham eventually agreed to settle their claims

against TACC and Illinois Tool Works. On January 26, 2004, the Caldwells and the

Deals filed a motion to approve their settlements and authorize distribution of

settlement funds. Kirkham filed a similar motion on March 31, 2004. Both motions

argued that Fremont was not entitled to subrogation liens because Caldwell, Deal and

Lamb were not “made whole” by the settlements.3

 After holding hearings on the

motions, the district court agreed with the Caldwells, the Deals and Kirkham and

approved the settlements. The district court, in reaching its decision, relied heavily

on the Arkansas Supreme Court’s opinion in General Accident Insurance Co. of

America v. Jaynes, 33 S.W.3d 161 (Ark. 2000). In Jaynes, the Arkansas Supreme

Court held that an insurance carrier’s statutory lien under Ark. Code § 11-9-410 is not

absolute. Id. at 167. The court affirmed the trial court’s ruling that the workers’

compensation carrier was not entitled to a subrogation lien on the settlement proceeds

because the plaintiff had not been “made whole” by the settlement amount. Id.

The Caldwells resolved their differences with Fremont and the Fund

(“Appellants”). Kirkham and the Deals (“Appellees”), however, did not. Appellants

now raise several issues on appeal regarding the district court’s approval of

Appellees’ settlements with TACC and Illinois Tool Works. First, Appellants

contend that the Arkansas Supreme Court’s application of the made-whole doctrine

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is contrary to the legislative intent of the Arkansas General Assembly to provide

workers’ compensation carriers a subrogation lien on settlement proceeds. Next,

Appellants argue that the district court’s application of the made-whole doctrine

violated the “non-retroactivity rule” under Arkansas law. They also raise various

state and federal constitutional arguments that largely mirror their prior arguments.

Lastly, Appellants contend that the district court erred in holding that Appellees were

not made whole by their settlements. For the reasons discussed below, we reject each

of these arguments.

II. DISCUSSION

Appellants’ first argument on appeal essentially challenges the propriety of the

Arkansas Supreme Court’s decision in Jaynes. Specifically, they contend that by

applying the made-whole doctrine to § 11-9-410, the Arkansas Supreme Court

usurped the intent of the Arkansas legislature to grant workers’ compensation carriers

an “unequivocal” right to a lien against recovery. Appellant’s argument fails because

in diversity cases, federal courts “must follow state law as announced by the highest

court in the state.” Bennett v. Hidden Valley Golf & Ski, Inc., 318 F.3d 868, 874 (8th

Cir. 2003) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938)). Therefore, we

must decline Appellants’ invitation to substitute our view of Arkansas state law for

that of the Arkansas Supreme Court. This is because “our duty is to ‘ascertain and

apply’ Arkansas law, ‘not to formulate the legal mind of the state.’” David v.

Tanksley, 218 F.3d 928, 930 (8th Cir. 2000) (quoting R.W. Murray Co. v.

Shatterproof Glass Corp., 697 F.2d 818, 826 (8th Cir.1983). Based on these

principles, we conclude that the district court’s application of Jaynes to the issues in

this case was not only appropriate, but imperative.

Next, Appellants contend that the district court’s application of the made-whole

doctrine violated Arkansas’s non-retroactivity rule because Appellees’ workers’

compensation claims accrued one week prior to the Arkansas Supreme Court’s

Appellate Case: 04-3404 Page: 5 Date Filed: 09/02/2005 Entry ID: 1947533
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Appellants also raise a panoply of state and federal constitutional arguments

involving separation of powers and the due process, takings and contract clauses of

the Arkansas and United States Constitutions. These are essentially Appellants’

previous arguments in the guise of alleged constitutional violations. Because we will

not sit in judgment of a state supreme court’s interpretation of its own constitution,

see David, 218 F.3d at 930, and because we have already rejected Appellant’s

retroactivity claim, we conclude that these constitutional claims are without merit.

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decision in Jaynes. The rule has been expressed as follows: “Retroactivity is a

matter of legislative intent. Unless it expressly states otherwise, we presume the

legislature intends for its laws to apply only prospectively.” Bean v. Office of Child

Support Enforcement, 9 S.W.3d 520, 526 (Ark. 2000).

Appellants’ argument fails because the issue of retroactivity is not implicated

in the present case. The issue before the district court was not whether a newly

enacted state statute should apply to a claim that accrued prior to such enactment.

Rather, the district court was called upon simply to apply an existing state statute as

interpreted by the Arkansas Supreme Court. Furthermore, the Arkansas Supreme

Court’s decision in Jaynes did not “create” the made-whole doctrine. Rather, the

Jaynes court merely interpreted the Arkansas workers’ compensation statutes and

associated case law and concluded that the subrogation lien provided under such

statutes was not absolute. The Arkansas Supreme Court concluded that the

subrogation lien was subject to the made-whole doctrine, which has firm footing in

Arkansas law. See, e.g., Franklin v. Healthsource of Ark., 942 S.W.2d 837 (Ark.

1997); Shelter Mut. Ins. Co. v. Bough, 834 S.W.2d 637 (Ark. 1992). The Jaynes

court, therefore, simply announced what the law had always been.4

Finally, Appellants contend that the district court improperly concluded that

Appellees were not made whole by their settlements with TACC and Illinois Tool

Works. First, they argue that the settlements estop Appellees from asserting that they

were not made whole. Second, Appellants challenge the district court’s application

Appellate Case: 04-3404 Page: 6 Date Filed: 09/02/2005 Entry ID: 1947533
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of the made-whole doctrine. Third, Appellants claim that the district court improperly

avoided the issue of credit for future claims of workers’ compensation. We reject all

three arguments.

First, Appellants argue that the fact that Appellees settled for less than the

limits set forth in TACC’s and Illinois Tool Works’ insurance policy should give rise

to a presumption that Appellees have been made whole. This argument fails because,

under Arkansas law, an insured is not estopped from asserting that he was not made

whole from a settlement simply because he settled for less than the policy’s limits.

S. Farm Bureau Cas. Ins. Co. v. Tallant, — S.W.3d —, 2005 WL 914615 (Ark. Apr.

21, 2005). 

Next, Appellants assert that the district court erred in finding Appellees were

not made whole by their settlements with TACC and Illinois Tool Works because it

incorrectly applied the made-whole formula set forth in Franklin. In particular,

Appellants argue that the district court failed to exclude damages incurred by Lamb’s

mother and that the evidence does not support the district court’s conclusion. Under

the so-called Franklin formula, “the precise measure of reimbursement is the amount

by which the sum received by the insured from the [third party], together with the

insurance proceeds, exceeds the loss sustained and the expense incurred by the

insured in realizing on his claim.’” Buck, 117 S.W.3d at 597 (quoting Franklin, 942

S.W.2d at 839-40). We review the district court’s factual finding that Appellees were

not made whole for clear error. Schueck v. Burris, 957 S.W.2d 702, 706 (Ark. 1997);

see also Santucci v. Allstate Life Ins. Co., 221 F.3d 1045, 1047 (8th Cir. 2000). 

After reviewing the district court’s order, it is clear that the district court

properly excluded from consideration damages suffered by Lamb’s mother. Beyond

this issue, Appellants do not identify any other basis for error, but rather merely assert

that the district court erred. After carefully reviewing the record, however, we

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disagree and find no basis for Appellants’ argument that the district court clearly

erred in applying the Franklin formula.

Finally, Appellants contend that the district court failed to take into account

future workers’ compensation benefits to be paid by Appellants to Appellees. They

assert that the district court “improperly deferred to the Arkansas Supreme Court the

determination of whether Appellants are entitled to a credit against future claims for

workers’ compensation benefits under Arkansas law.” Appellants both

mischaracterize the district court’s order and misconstrue Arkansas law. A dispute

involving “[t]he lien right does not arise until after an insured has been made whole

by a judgment or settlement against a third-party tortfeasor.” Buck, 117 S.W.3d at

596. The district court was not avoiding the issue of credit for future payment but

rather properly held that the issue is not ripe for decision until after Appellees are

made whole. Moreover, even if the issue were ripe for a decision, dismissal was

proper because Appellants failed to make any record in the district court regarding

future benefits to be paid to Appellees.

III. CONCLUSION

Accordingly, we affirm the district court.

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Appellate Case: 04-3404 Page: 8 Date Filed: 09/02/2005 Entry ID: 1947533