Court Opinion

ID: 9781960
Source: CourtListenerOpinion
Date Created: 2023-08-30 17:44:58.082954+00
Date Added: 2024-06-11T12:14:18.097976
License: Public Domain

GEORGE, C. J.
I respectfully dissent. The result reached by the majority defeats the priority given by Labor Code section 3860, subdivision (e), to the *1096payment of an employee’s attorney fees, when attorneys for both the employer and the employee actively participate in obtaining a recovery against a negligent third party.
Labor Code section 3860, subdivision (e), gives priority to the payment of both the employer’s and the employee’s attorney fees: “Where both the employer and the employee are represented ... by separate attorneys in effecting a settlement, . . . prior to reimbursement of the employer . . . there shall be deducted from the amount of the settlement the reasonable expenses incurred by both the employer and the employee . . . together with reasonable attorneys’ fees . . . .” (Italics added.) The plurality opinion in Summers v. Newman (1999) 20 Cal.4th 1021, 1024 [86 Cal.Rptr.2d 303, 978 P.2d 1225] (plur. opn. of Kennard, J.), acknowledged this: “[Subdivision (e) of section 3860 . . . provides that the settlement proceeds are to be used first to pay litigation costs, including reasonable attorney fees incurred by the employer and the employee . . . .” (Italics added.) Giving priority to the payment of the employee’s attorney fees serves the purpose of “assuring the worker that he can obtain an attorney by guaranteeing that attorney priority in the event that the judgment recovered should not suffice both to recompense him and to satisfy the employer’s claim.” (Quinn v. State of California (1975) 15 Cal.3d 162, 170 [124 Cal.Rptr. 1, 539 P.2d 761], italics added.)
But the plurality in Summers v. Newman, supra, 20 Cal.4th 1021, suggested in dicta, and the majority in the present case holds, that this priority to the payment of the employee’s attorney fees applies only if the settlement or judgment is sufficiently large for the employee to share in the recovery. This interpretation defeats the statutory purpose, because it is only when the settlement or judgment is insufficient both to reimburse the employer and to provide a recovery for the employee that giving priority to the payment of attorney fees makes a difference.
As we said regarding the closely related provisions of Labor Code section 3856: “The rule giving priority to the claim for litigation expenses and attorney fees was created for cases like the present one in which the amount of the judgment is insufficient to pay reasonable litigation expenses and attorney fees and also fully reimburse the employer. [Citation.]” (Phelps v. Stostad (1997) 16 Cal.4th 23, 30-31 [65 Cal.Rptr.2d 360, 939 P.2d 760]; Gapusan v. Jay (1998) 66 Cal.App.4th 734, 742 [78 Cal.Rptr.2d 250] [“The implicit purpose of section 3860 is to prioritize payments when settlement funds are insufficient to satisfy all claims.”].) If the settlement or judgment exceeds the amount necessary to reimburse the employer, the employer will be reimbursed, both attorneys will be paid, and whatever remains will go to the employee. In these fortunate circumstances, the priority given to the *1097payment of attorney fees is of no consequence. The employer, the employee, and their attorneys all will join in the recovery. It does not matter who is paid first.
The priority for the payment of attorney fees matters only if the settlement or judgment does not exceed the amount required to reimburse the employer. Unless priority is given to the payment of attorney fees in these circumstances, the entire proceeds will be used to reimburse the employer, leaving the employee’s attorney unpaid. To prevent this, and thereby ensure that employees will be able to obtain attorneys, the Legislature stated that the proceeds first must be used to pay the attorney fees of “both the employer and the employee.” (Lab. Code, § 3860, subd. (e).)
The majority bases its conclusion—that the employee’s attorney is not entitled to attorney fees if the employee does not share in the proceeds of the settlement—on language in Labor Code section 3860, subdivision (e), providing that the “reasonable attorneys’ fees” that first must be deducted from the settlement, prior to reimbursement of the employer, are “based upon the respective services rendered in securing and effecting settlement for the benefit of the party represented.” The majority reads this phrase to mean that “ ‘the reasonable value of the employee’s attorney’s services is determined ... by reference to the actual benefit that the settlement confers on the attorney’s own client, the employee.’ ” (Maj. opn., ante, at p. 1092.) This is not the only, nor even the most reasonable, interpretation of this language.
A more reasonable interpretation is that the phrase “for the benefit of’ means “on behalf of,” so that the employee’s attorney is entitled to a fee based upon the services rendered on behalf of the employee. This is a more reasonable interpretation because it recognizes that if the employee’s attorney, working for the benefit of the employee, secures a settlement, the circumstance that the amount of this settlement is insufficient to provide a share for the employee does not necessarily mean that the reasonable value of the attorney’s services is zero. This interpretation also is more reasonable because it gives effect to the statutory priority granted to the payment of attorney fees by permitting the employee’s attorney to be paid a reasonable fee “in the event" that the judgment [or settlement] recovered should not suffice both to recompense [the employee] and to satisfy the employer’s claim.” (Quinn v. State of California, supra, 15 Cal.3d 162, 170.)
The effect of the majority opinion will be to permit an employer to enjoy the fruits of a settlement secured, in part, by the efforts of the employee’s attorney, without paying a penny to the employee’s attorney. The majority *1098states that its decision does not give the employer “an unfair advantage or a ‘free ride’ ” because the employer must pay a fee to its own attorney. (Maj. opn., ante, at p. 1095.) This ignores the reality that, although the employer remains obligated to pay its own attorney, the employer enjoys the fruits of the labors of the employee’s attorney for free. This is so even if the employee’s attorney performed most of the work that resulted in the settlement.
In order for the employer to avoid having a portion of the settlement used to pay the employee’s attorney under the majority’s holding, the employer’s attorney need only be “active” in the litigation. In determining whether the employer’s attorney was “active,” the court does not “weigh the relative contributions of counsel” but simply determines whether the employer was “a passive beneficiary.” (Kavanaugh v. City of Sunnyvale (1991) 233 Cal.App.3d 903, 914 [284 Cal.Rptr. 698].) The employer’s attorney need only “participate” in the litigation by making more than “a token appearance.” (Id. at p. 915.) This means that the employee’s attorney may perform the vast majority of the work that results in the settlement and yet be denied attorney fees altogether. Unlike the majority, I believe this gives the employer “an unfair advantage” and, to the extent that the unpaid services of the employee’s attorney contributed to the settlement, “a ‘free ride.’ ” (Maj. opn. ante, at p. 1095.)
The majority raises a red herring by asserting that its decision “prevents substantial unfairness” to the employer because the employee’s attorney in the present case claimed one-third of the amount of the settlement as his fee. (Maj. opn., ante, at p. 1095.) This is what the attorney claimed, but it is not necessarily what he is entitled to under the statute. The statute does not entitle the attorneys for the employer and the employee to whatever fee they claim, but provides that they are entitled to “reasonable attorneys’ fees.” (Lab. Code, § 3860, subd. (e).) In the event one-third of the settlement amount would be an unreasonable fee, as the majority asserts, the employee’s attorney is not entitled to that amount. But it does not follow that the employee’s attorney is entitled to no fee at all.
In determining what constitutes a reasonable fee, the trial court may take into account whether the employee’s attorney accepted the case on a contingency fee basis. A court reasonably could conclude that an employee’s attorney who chose to gamble on the outcome of the litigation, by agreeing to a fee dependent upon the amount of the employee’s recovery, is entitled to a reduced fee, or even no fee at all, if the employee does not share in the proceeds of the settlement. But the majority errs in basing its interpretation *1099of the statute, in part, on the circumstance that the present case involves a contingency fee. The type of fee agreement that happens to be involved in the present case is irrelevant to the proper interpretation of Labor Code section 3860, subdivision (e).
For these reasons, and the reasons explained in my concurring opinion in Summers v. Newman, supra, 20 Cal.4th 1021, 1036 (conc. opn. of George, C. J.), I respectfully dissent.
Werdegar, J., concurred.