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Dakota Plains AG Center, LLC v. Smithey

August 26, 2009



The opinion of the court was delivered by: Gilbertson, Chief Justice


[¶1.] Nationwide Agribusiness (Nationwide) petitioned for Declaratory Judgment in which it sought to have the First Judicial Circuit Court determine its rights under a workers' compensation lien to proceeds from a wrongful death settlement approved by an order of the Federal District Court for the District of South Dakota. The federal district court's order allocated damages between pecuniary loss damages and economic loss damages, and approved attorney fees at thirty percent of the total recovery. Nationwide subsequently petitioned for Declaratory Judgment in state circuit court to determine its statutory lien and moved for summary judgment on its petition. The circuit court granted Nationwide's motion and made all damages recovered in the federal wrongful death action available to satisfy Nationwide's lien without a determination of "like damages." The circuit court also set the attorney fees at twenty-five percent rather than the thirty percent as approved by the federal district court. Marcia Smithey (Marcia) appeals.


[¶2.] On November 18, 2003, Edward Smithey (Edward) was killed in the course of his employment with Dakota Plains Ag Center, L.L.C. Edward was visiting a construction site maintained by Stueve Construction Co., and at which Little Walls, L.L.C., was a subcontractor when he fell into a thirteen-foot open pit and died of his injuries. Edward, age thirty-eight at the time of his death, left behind a wife, Marcia, and two sons ages ten and six. Nationwide, the workers' compensation carrier for Edward's employer, paid benefits to Edward's estate as follows: medical expenses of $15,377.19; funeral expenses of $5,600.81; death benefits of $5,180.00; and the purchase price of a replacement annuity for future death benefits of $460,715.00. Benefits paid by Nationwide totaled $486,873.00.

[¶3.] On May 10, 2004, Marcia, in her capacity as personal representative of Edward's estate, brought a tort claim in Federal District Court for the District of South Dakota against Stueve Construction and Little Walls. Marcia alleged the defendants were negligent in "failing to properly barricade, failing to provide adequate lighting to prevent Smithey from falling in the hole on the construction site, and failing to properly inspect the . . . [p]roject site for safety." Smithey v. Stueve Const Co., 2007 WL 172511, *2 (DSD 2007). The parties attempted to mediate the matter prior to trial.

[¶4.] Nationwide refused to participate in the mediation attempts despite being requested to attend by Marcia's counsel and by letters from the mediator, Michael Luce, dated April 23, 2007, and May 10, 2007. Marcia's counsel also requested Nationwide's attendance by telephone on April 27, 2007. Nationwide and Marcia were unable to reach a settlement regarding Nationwide's lien, which Nationwide refused to settle at less that the full $486,873.00 it paid in workers' compensation benefits.

[¶5.] Shortly before the trial date and after two days of mediation, Marcia and the defendants reached a settlement agreement in the federal district court wrongful death action. On July 5, 2007, Marcia petitioned the federal district court for approval of the settlement negotiated by the parties per the provisions of SDCL 21-5-6, as a portion of the settlement proceeds were allocated to Marcia and Edward's two minor children.*fn1 The parties agreed to settle all claims in exchange for $1,090,000.00. Marcia's petition allocated $872,000.00, or eighty-percent, for pecuniary loss damages ("the loss of [Edward's] society, companionship, protection, guidance, advice and assistance") and the balance of $218,000.00, or twenty-percent, as economic loss damages. Out of the non-economic loss damages of $872,000.00, each of the two minor children received an allocation of $75,000.00, and Marcia received an allocation of $541,404.90. Marcia also requested approval of attorney fees of $352,703.58 or thirty percent of the proceeds, costs of $31,783.44, and sales tax in the amount of $14,108.14.

[¶6.] On July 26, 2007, Nationwide moved to intervene in the federal district court action. The federal district court found Nationwide's motion to intervene was untimely per Federal Rule of Civil Procedure Rule 24(a)(2).*fn2 The court noted in its findings of fact accompanying its order on Nationwide's motion that "Nationwide was aware of the progress of the litigation at issue and deliberately chose not to become involved until after the parties had reached a settlement agreement." The court also found Nationwide failed to provide an explanation for why it had declined to participate in the litigation or mediation during the three years the case was pending. The court further found that permitting Nationwide to intervene at that juncture would result in substantial prejudice to all parties. Finally, the court found that Nationwide's untimely intervention threatened the resolution reached by the parties, and would prejudice the beneficiaries of the wrongful death claim by further delaying the receipt of proceeds. The court denied Nationwide's motion to intervene.

[¶7.] The federal district court approved the settlement as presented by the parties. Based on the order as entered by the federal district court, Marcia calculated Nationwide's recovery under its statutory lien as follows:

Nationwide's prorata recovery ($218,000.00/$1,090,000.00) = 20%

Economic loss damages $218,000.00

Attorney fees ($352,703.58 x 20%) ( 70,540.72)

Costs ($31,783.44 x 20%)) ( 6,356.69)

Sales Tax ($14,108.14 x 20%) ( 2,821.63)

Net recovery to Nationwide $138,280.96

[¶8.] Nationwide then moved the federal district court, pursuant to Rule 60(b)(1), to reconsider the court's order denying as untimely Nationwide's motion to intervene and approving the settlement agreement reached by the parties.*fn3 The court found Nationwide was a non-party to the action and, therefore, denied Nationwide's motion. The court also noted that Marcia was required to obtain approval of the settlement under SDCL 21-5-6 because some settlement proceeds were allocated to minor children. Otherwise, no court approval would have been necessary for the settlement. See SDCL 21-5-6. The federal district court's order also provided: "the settlement agreement's apportionment of a portion of damages as 'pecuniary' does not necessary foreclose Nationwide from obtaining funds designated as such."

[¶9.] After the denial of its motions in federal district court, Nationwide filed a declaratory judgment action in the First Judicial Circuit against Marcia in her representative capacity. In its petition, Nationwide asserted it was entitled to its full lien in the amount of the $486,873.00 it paid in workers' compensation benefits. Nationwide also alleged attorney fees for the federal district court action were statutorily limited by SDCL 62-7-36 to a maximum of twenty-five percent of the settlement, from which Marcia was entitled to deduct Nationwide's prorata share. Nationwide further alleged that Marcia had not reached an agreement with Nationwide regarding its lien amount, and had failed to file a declaratory judgment action regarding the lien. Instead, Nationwide asserted that Marcia had petitioned the federal district court for approval of the settlement with an apportionment of the proceeds between pecuniary loss damages and economic loss damages, and no allocation to Nationwide for its lien as a way to obtain a double recovery of workers' compensation benefits and tort damages for the same losses.

[¶10.] Nationwide filed a motion for summary judgment in the matter. In its statement of material facts, Nationwide stated that Marcia had included in her petition to the federal district court for approval of the settlement a document entitled "Preliminary Economic Loss Appraisal for Edward Smithey," authored by Dr. Ralph J. Brown. The report calculated the economic wage loss to Smithey's estate between $2,087,474.00 and $2,247,309.00. Nationwide alleged that the settlement failed to allocate the pecuniary loss damages of $872,000.00 between economic versus non-economic losses. Thus, it argued the entire amount allocated to pecuniary loss damages plus the economic loss damages portion of the settlement was subject to Nationwide's lien.

[¶11.] Regarding the attorney fees awarded in the federal district court settlement, Nationwide argued to the circuit court that the thirty-five percent allocation exceeded the amount permitted by SDCL 62-7-36. SDCL 62-7-36 provides in relevant part: "Attorneys' fees may not exceed the percentage of the amount of compensation benefits secured as a result of the attorney's involvement as follows:

(1) Twenty-five percent of the disputed amount arrived at by settlement of the parties[.]" Nationwide argued that the twenty-five percent limitation on attorney fees in SDCL 62-7-36(1) applied to the wrongful death tort claim as the thirty-five percent maximum attorney fee rate in SDCL 62-4-39 was modified by virtue of the language "subject to SDCL § 62-7-36" contained in SDCL 62-4-39. Under its theories on the issue of pecuniary loss damages and attorney fees, Nationwide calculated its lien as follows:

Nationwide's prorata recovery ($486,873.00/$1,090,000.00) = 43%

Economic losses paid by Nationwide $486,873.00

Attorney fees (1,090,000.00 x 25%) x 43% ( 116,590.00)

Costs ( 43% of costs) ( 6,356.69)*fn4

Net recovery to Nationwide $349,770.00

[¶12.] Marcia filed a response to Nationwide's petition in which she alleged that she settled for $218,000.00 or just ten-percent of the estimated preliminary economic wage loss as contained in Dr. Brown's report. She further argued that the balance of the settlement was for pecuniary, meaning non-economic, losses. At the hearing on Nationwide's motion for summary judgment, Marcia argued she should have the opportunity to present evidence as to the full value of the non-economic losses. Marcia contended she would be able to show that the pecuniary losses incurred by her and her children would exceed the economic losses incurred by Edward's estate as estimated by the expert witness in the federal action. Marcia also argued that under SDCL 62-4-39, the federal district court had the discretion to set attorney fees and expenses at a maximum of thirty-five percent. SDCL 62-4-39 provides:

If compensation has been awarded and paid under this title and the employee has recovered damages from another person, the employer having paid the compensation may recover from the employee an amount equal to the amount of compensation paid by the employer to the employee, less the necessary and reasonable expense of collecting the same, which expenses may include an attorney's fee not in excess of thirty-five percent of compensation paid, subject to § 62-7-36.

She claimed that because the federal court approved attorney fees at thirty percent, well below the maximum permitted under SDCL 62-4-39, the federal court's order should not have been modified by the circuit court.

[¶13.] The circuit court subsequently held a hearing on Nationwide's motion for summary judgment. The circuit court determined that under this Court's holding in Zoss v. Dakota Truck Underwriters, (Zoss II), 1999 SD 37, ¶11-15, 590 NW2d 911, ...

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