Court Opinion

ID: 3038710
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:59:15.874067+00
Date Added: 2024-06-11T12:46:37.943896
License: Public Domain

United States Court of Appeals
                             FOR THE EIGHTH CIRCUIT
                                ________________

                                Nos. 04-2090/3404
                                ________________

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,                                   *
                                        *     Appeals from the United States
             Intervenor Plaintiffs/     *     District Court for the Eastern
             Appellees,                 *     District of Arkansas.
                                        *
Carroll Deal; Pattie Deal,              *
                                        *
             Intervenor Plaintiffs/     *
             Appellees,                 *
                                        *
Fremont Indemnity Company;              *
Arkansas Property and Casualty          *
Guaranty Fund,                          *
                                        *
             Intervenor Plaintiffs/     *
             Appellants,                *
                                        *
      v.                                *
                                        *
TACC Corporation; Illinois Tool           *
Works, Inc.,                              *
                                          *
      Defendants.                         *

                               _________________

                            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,

      1
       The Honorable James M. Moody, United States District Judge for the Eastern
District of Arkansas.
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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

      2
        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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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

      3
        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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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

                                          -5-
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

      4
        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.
                                          -6-
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

                                           -7-
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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