34-2018-00237190

American Alternative Ins. Corp. vs. Dean Lagoe

Nature of Proceeding: Hearing on Demurrer to Plaintiff’s Complaint for Declaratory Relief

Filed By: Diamond, Craig A.

Defendant Dean Lagoe’s demurrer to the complaint is SUSTAINED without leave to amend.

This case follows Lagoe’s industrial accident in 2001. The Plaintiffs are American Alternative Insurance Corporation (AAIC) and Tristar Risk Management (Tristar) (collectively “Plaintiffs”). According to Plaintiffs, AAIC was Lagoe’s employer’s workers’ compensation insurance carrier and provided benefits to Lagoe after the accident.

In 2008, Lagoe underwent hip-replacement surgery related to the accident. He subsequently sued nonparties for damages arising from the hip replacement (the “Lawsuit”). At that point, AAIC’s claims administrator filed a notice and application for lien. Tristar acquired the claims administrator in 2012.

In 2017, Lagoe settled the Lawsuit. Plaintiffs an the nonparties signed the settlement agreement (Settlement), a copy of which is attached to Plaintiffs’ complaint. (See Opp., Exh. 1.) Although the copy of the Settlement in the court’s files is somewhat difficult to read at points, it appears AAIC “waive[d] any subrogation claims to the settlement funds.” It also appears that “upon distribution of the settlement funds,” Lagoe’s attorney was required to “send [a] letter to [Plaintiffs’] counsel outlining the breakdown of the…settlement, including the net recovery of funds by Mr. Lagoe.” In addition, there is a sentence that reads, “The terms of a third party compromise & release between Lagoe and [Plaintiffs], including all offsets for the third party credit, shall be finalized once CMS has responded to the submitted MSA.” An attachment defines the term “MSA” as a “set aside fund.” The Settlement provides that it “may be enforced by a motion under Code of Civil Procedure § 664.6 or by any other procedure

permitted by law in the applicable state or federal court.”

Plaintiffs allege that Lagoe ultimately refused to release his workers’ compensation claims. Plaintiffs further allege that Lagoe contends Plaintiffs waived their right to any third party credit.

In August 2017, Plaintiffs filed with the Workers’ Compensation Appeals Board (WCAB) a Petition for Credit under Labor Code § 3861 (the “Petition”). (See Opp. Exh. 1.) Plaintiffs aver in the Petition that they are “entitled under California Labor Code sections 3858 and 3861 to be relieved from the obligation pay further compensation, and to a credit, to the extent of [Lagoe’s] net recovery” by way of the Settlement. Plaintiffs set the amount of the credit at $447,688.95. (Id., Exh. 1.) Lagoe filed an Objection to the Petition. He contends, among other things, that a credit would violate the Settlement. The WCAB proceeding is ongoing.

By their current complaint against Lagoe, Plaintiffs seek a judicial declaration that, despite their waiver of subrogation rights, the Settlement does not contain their waiver of a third party credit. In the complaint, Plaintiffs acknowledge the pending WCAB proceeding. They allege that this civil action does not encroach on the WCAB’s jurisdiction:

It should be made clear that this declaratory relief complaint in no way seeks to impose this court’s jurisdiction on the workers’ compensation proceedings. This action seeks a court’s determination of whether, by objective rather than subjective criteria, whether a reasonable person would believe that these Plaintiffs intended to waive their credit rights by entering into the Stipulation for Settlement in the Lawsuit.

(Compl., ¶ 20, emphasis in original.)

Lagoe now demurs on the ground that the court lacks jurisdiction. He also demurs on grounds Plaintiffs failed to join indispensable parties. Plaintiffs oppose.

Discussion

Jurisdiction

Lagoe argues that Plaintiffs’ entitlement vel non to a credit against funds Lagoe received in the Settlement is an issue within the WCAB’s exclusive jurisdiction. He cites several provisions in the Labor Code to support his position:

All the following proceedings shall be instituted before the appeals board and not elsewhere, except as otherwise provided in Division 4:

(a) For the recovery of compensation, or concerning any right or liability arising out of or incidental thereto.

(Lab. Code § 5300(a).)

The appeals board is vested with full power, authority and jurisdiction to try and determine finally all the matters specified in Section 5300 subject only to the review by the courts as specified in this division.

(Id., § 5301.)

The appeals board is empowered to and shall allow, as a credit to the employer to be applied against his liability for compensation, such amount of any recovery by the employee for his injury, either by settlement or after judgment, as has not theretofore been applied to the payment of expenses or attorneys’ fees, pursuant to the provisions of Sections 3856, 3858, and 3860 of this code, or has not been applied to reimburse the employer.

(Id., § 3861.)

In addition, Lagoe cites Hughes v. Argonaut Insurance Company (2001) 88 Cal.App.4th 517. Hughes involved an employee injured in a car accident. The workers’ compensation carrier provided benefits. The employee then sued the driver who injured her and obtained a settlement without having to file suit. The carrier asserted a lien against the settlement, and a dispute arose over the amount the carrier was entitled to receive. Specifically, the parties disputed whether the lien applied to the amount of attorney’s fees incurred during the settlement. The employee sued the carrier for various torts as well as declaratory relief. The carrier demurred, and the court dismissed the action on grounds the WCAB had exclusive jurisdiction. The Court of Appeal affirmed.

Part of the Hughes decision does not apply to the case at bench. Statutory provisions governing the allocation of attorney’s fees incurred reaching a settlement do not apply to the instant case. (Compare Hughes, p. 522 [allocation of fees was the central question].) Elsewhere, however, the Hughes court held that Labor Code § 5300–upon which Lagoe relies–independently deprived the lower court of jurisdiction. It based this holding on § 5300(a), which vests the WCAB with exclusive jurisdiction over proceedings “for the recovery of compensation, or concerning any right or liability arising out of or incidental thereto.” The Hughes court applied these provisions in light of Charles J. Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th 800.

Vacanti announced a test to determine the types of legal claims an employee proceeding against a worker’s compensation carrier may assert in a court, rather than in the WCAB. The two-part test first asks whether the alleged injury is “collateral to or derivative of an injury compensable by the exclusive remedies” of the Workers Compensation Act. If so, then the Vacanti test asks “whether the alleged acts or motives that establish the elements of the [employee’s] cause of action fall outside the risks encompassed within the compensation bargain.” (Hughes, p. 528.) Applying the two-part test to the facts before it, the Hughes court determined that the employee’s dispute with the carrier was collateral to or derivative of the claims process because the carrier’s right to reimbursement–whether rightly or wrongly asserted–only existed because it had paid workers’ compensation benefits. (Id., p. 529; see id., p. 530 [“the perfecting of reimbursement rights is fairly typical, routine activity for a compensation carrier where, as here, a third party is responsible for the injury…[t]hus the activity is but an extension of the benefits claim process itself”].)

Turning to the second prong of the Vacanti test, the Hughes court concluded the employee’s claims against the carrier were not outside the risks encompassed within the compensation bargain because the carrier never stepped outside its “normal role

of an insurer within the overall workers’ compensation scheme.” (Id., p. 530.) The court wrote, “an employee may maintain a private cause of action against the insurer only when the insurer commits wrongful acts that are independent of its role as insurer of workers’ compensation benefits.” (Id.) And the court rejected the argument that the WCAB’s exclusive jurisdiction does not extend to claims in equity, as opposed to claims for damages. (Id., p. 531.)

Despite differences between Hughes and this case, Hughes compels an order sustaining Lagoe’s jurisdictional demurrer. Like the dispute in Hughes, the current dispute only exists because Plaintiffs provided Lagoe with workers’ compensation benefits. Moreover, neither the Settlement nor anything else before the court suggests that Plaintiffs stepped outside their normal role as workers’ compensation insurers. Hence, application of the Vacanti test supports a conclusion that the WCAB has exclusive jurisdiction.

The court recognizes that Hughes involved a claimant suing an insurer. The roles are reversed in the instant case, and Plaintiffs emphasize the distinction. Yet Vacanti itself did not involve claimants suing insurers or employers. (See Vacanti, p. 807 [medical providers sued insurers].) Furthermore, it is difficult to understand why the Legislature would have intended to compel employees suing workers’ compensation insurers to do so before the WCAB while allowing insurers to resolve the same disputes in court. Plaintiffs have not cited any case holding as much, and the court rejects such an argument.

The court also rejects Plaintiffs’ argument that the Settlement, which refers to enforcement in the superior court, confers jurisdiction. The WCAB has jurisdiction over the subject matter, and subject matter jurisdiction cannot be conferred by consent. (Hughes, p. 527.)

Finally, even if this court could entertain Plaintiffs’ declaratory relief cause of action, it would decline to do so pursuant to CCP § 1061. That section authorizes the court to refuse to make a judicial declaration where not necessary or proper at the time and under the circumstances. Whether Plaintiffs are entitled to a credit pursuant to the Settlement is an issue pending before the WCAB. There is no need for a second proceeding. (See Girard v. Miller (1963) 214 Cal.App.2d 266, 277 [“The availability of another form of relief that is adequate will usually justify refusal to grant declaratory relief”].)

Leave to amend is denied.

Because the jurisdictional demurrer is sustained, Lagoe’s other demurrers are dropped as moot.

Disposition

Lagoe’s demurrer on the ground the court lacks jurisdiction is sustained without leave to amend.

Pursuant CRC 3.1312, Lagoe is directed to lodge a judgment of dismissal for the court’s signature.

The notice of motion does not provide notice of the court’s tentative ruling system, as

required by Local Rule 1.06(D). Counsel for moving party is directed to contact counsel for opposing party forthwith and advise counsel of Local Rule 1.06 and the court’s tentative ruling procedure. If counsel for moving party is unable to contact counsel for opposing party prior to hearing, counsel for moving party shall be available at the hearing, in person or by telephone, in the event opposing party appears without following the procedures set forth in Local Rule 1.06(B).