BURUM v. STATE COMPENSATION INS FUND

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District Court of Appeal, Fourth District, California.

BURUM et al. v. STATE COMPENSATION INS. FUND.

Civ. 3200.

Decided: May 22, 1946

R. Y. Burum, of Bakersfield, and John Shortridge, in pro. per., of San Francisco, for appellants. Robert W. Kenny, Atty. Gen., and Wilmer W. Morse, Deputy Atty. Gen., for respondent.

A judgment for defendant was entered following the sustaining of a demurrer to a second amended complaint without leave to amend.

This action was brought by plaintiffs, a firm of attorneys, against the State Compensation Insurance Fund, hereinafter referred to as ‘The Fund,’ to recover the sum of $1450, as attorneys' fees alleged to have been earned under a written contract with The Fund by which the plaintiffs agreed to represent it in a certain action for the recovery of damages brought by the widow and minor children of one E. E. Davis, deceased, whose death arose out of and in the course of his employment with an employer for whom The Fund was the insurance carrier, and ‘to recover the amount of its lien against any judgment obtained or amount paid in settlement of said case.’

The contract itself is not set out in full, but it is alleged that under its terms it was agreed that the plaintiffs should receive for their services 25 per cent of any sum or amount recovered or obtained for The Fund by virtue of said litigation.

The second amended complaint further alleges that on an award of the Industrial Accident Commission The Fund paid the widow for herself and as guardian ad litem of the three children, $6,300. It further recites that Davis was killed on January 3, 1944; that plaintiffs were duly employed by the widow and minor children to commence and did commence an action against the defendants there named; that The Fund, on account of the payment of $6,300, claimed a right to recover said amount against said defendants, either in a separate suit brought in its own name, or by lien imposed upon any judgment obtained by the widow and minors. It is then alleged that the claimed right of The Fund against third parties was subject to enhancement if enforced by a lien filed in her action; that The Fund elected to proceed by filing a lien because The Fund, as an insurer claiming through subrogation, would be likely to encounter prejudice on the part of the jury, while an action prosecuted in the name of the widow and minor children would be likely to excite a sympathetic consideration of all of the evidence on the part of the jury; that on the date of the contract here involved, neither the widow nor The Fund knew of the existence of any income or property from which a judgment in excess of $5,000 could be satisfied; that The Fund was entitled to $6,300 before any damages were payable to the widow, and that in view of the priority, no incentive existed for the widow to continue the prosecution of her action; that under the contract, an incentive for her attorneys, plaintiffs herein, existed to obtain a judgment and explore the possibility of discovering additional assets subject to execution if the attorneys for the widow could look to The Fund as well as to the widow for a fee; that through the services of her attorneys, performed simultaneously with the interest of The Fund, it would have a better prospect of obtaining damages than would the services of attorneys in the Civil Service employed by defendant Fund. That The Fund, as a result thereof, then entered into the agreement here sued upon; that plaintiffs fully performed their part of the agreement and obtained a judgment for and actually collected and caused to be paid to The Fund the sum of $5,800, and that plaintiffs are entitled to recover $1,450 under the contract.

It is then alleged that the services contracted for were of such a nature that they could not be performed adequately or satisfactorily by an attorney selected under the provisions of the Civil Service Act of the State; that plaintiffs were at all times actively in charge of the litigation; that as a result of their efforts The Fund was reimbursed to the extent noted; that the widow and minor children entered into an agreement, approved by the court, to pay plaintiffs herein, a percentage of any amount received over and above the amount of the lien claimed by The Fund; that under the circumstances The Fund could not be adequately represented by one of its attorneys selected under Civil Service, and consequently it employed plaintiffs; that plaintiffs demanded from The Fund their fee which remains unpaid.

Demurrers, both general and special, were sustained without leave to amend, with the notation ‘on the ground that The Fund has no authority to make the contract sued on in this case.’

It is intimated in the briefs that it has been the practice of The Fund for some years to enter into similar agreements with attorneys in some cases where it has elected to rely upon a lien upon the judgment obtained; that there is no quarrel between the plaintiffs and the defendant, but that out of caution, the attorney general has advised the defendant to refuse to pay the claim.

Defendant's argument, in support of the judgment, is based upon three separately stated contentions. The first is that the Civil Service provision of the State Constitution, Article XXIV, and the Statutes passed pursuant thereto, embrace and control all services of the character contemplated by the contract referred to, so as to require such services to be rendered by persons employed pursuant to such Civil Service provisions; that it was not within the power of The Fund to contract independently for services of such character and without observation of Civil Service requirements; and that there is no allegation that any of these requirements were complied with.

In support of the first argument defendant cites State Compensation Insurance Fund v. Riley, 9 Cal.2d 126, 69 P.2d 985, 111 A.L.R. 1503, often called the McNab case. In that case The Fund entered into an agreement with Mr. McNab, an attorney, by which he was to represent The Fund in respect to certain taxation questions, at a fixed fee. After the agreement was made the State Controller refused to draw a warrant in favor of Mr. McNab. An action in mandamus resulted. The Supreme Court denied the writ and discussed the history of the Constitutional amendment here involved and the statutes enacted relating thereto and affected thereby. A repetition of that discussion will serve no beneficial purpose. Suffice it to say, the court there stated, 9 Cal.2d at page 130 et seq., 69 P.2d at page 987, 111 A.L.R. 1503:

‘The Attorney General is not required to represent the fund in this or other cases. Section 473a of the Political Code, adopted in 1933 * * *, provides that: ‘No department * * * commission * * * of the State, except the * * * State Compensation Insurance Fund * * * shall employ and legal advisor or attorney other than the Attorney General * * * in any matter in which such department * * * commission * * * is interested.’

‘* * * There is no express prohibition in any statute forbidding the employment of additional or special counsel, nor is there any statutory provision making it the duty of the regular attorneys for the fund to represent the fund in an emergency such as is here presented. Under such circumstances, and without now considering the effect of article 24 of the Constitution dealing with civil service, it seems clear that the fund has the power to employ special counsel to protect its rights in pending litigation. The law is well settled that a public agency may employ special counsel to protect its rights, unless specifically prohibited from so doing by statutory or charter provision, and that it possesses this power whether or not such public agency has a regularly appointed attorney, if such regularly appointed attorney is not specifically charged with the particular duty involved. This problem has been frequently presented in reference to the employment by municipal corporations of special counsel to assist the regularly appointed or elected city attorney in special litigation. This subject is discussed at length in an annotation appearing in 83 A.L.R. 135. * * *

‘From these cases, and many others that could be cited, it is clear that the fund has the power to employ special counsel to protect its interests in the Gallagher action. However, a determination of this question is not decisive of the problem presented by this petition. The question still remains as to whether or not the fund must employ such counsel through the state personnel board under civil service.’

The court then traces the history and purpose of the State Civil Service Constitutional Amendment, reciting that:

‘Section 4(a) provides: ‘The provisions hereof shall apply to and the term ‘State civil service’ shall include, every officer and employee of this State'', with 14 exceptions not here involved. ‘* * * This court is without power to create additional exceptions by implication.’

In that action it was alleged that the services to be rendered were urgent, temporary, and required expert knowledge and ability. However, it was not alleged, as it is in the instant case, that the services involved could not be rendered by one selected under the provisions of the Civil Service Act. The court stated that the constitution and statute makes no distinction between urgent, temporary employment, or between skilled and nonskilled employees, or between professional and nonprofessional services, and that the employment of Mr. McNab was not as an ‘independent contractor.’ It was, however, specifically pointed out, 9 Cal.2d at page 135, 69 P.2d at page 989, 111 A.L.R. 1503, that:

‘There undoubtedly is a field in which state agencies may enter into contracts with independent contractors. But the true test is, not whether the person is an ‘independent contractor’ or an ‘employee,’ but whether the services contracted for, whether temporary or permanent, are of such a nature that they could be performed by one selected under the provisions of civil service. If the services could be so performed, then in our opinion it is mandatory upon such appointing power to proceed in accordance with the provisions of the Constitution and statute above summarized. As already stated, the petition does not allege that the services here involved could not be performed satisfactorily by an attorney selected under civil service. The services contracted for are the services of an attorney. Attorneys are included within civil service, and in the absence of a showing to the contrary we must assume that such services could be adequately and competently performed by one selected in accordance with the mandate of the Constitution.' (Italics ours.)

Defendant also cites Stookburger v. Riley, 21 Cal.App.2d 165, 68 P.2d 741; Entremont v. Whitsell, 13 Cal.2d 290, 89 P.2d 392; Pinion v. State Personnel Board, 29 Cal.App.2d 314, 84 P.2d 185; and Noce v. Department of Finance, 45 Cal.App.2d 5, 113 P.2d 716.

The pivotal question here presented, then, is whether, from the allegations of fact set forth in the amended complaint, it can be said that the services contracted for were of such a nature that they could have been performed by one selected under the provisions of the Civil Service. If they could not have been so performed, then this State agency had the power and right to enter into the field described by the Supreme Court and employ special counsel to protect its interests without the requirement of Civil Service classification, and it could select someone who could furnish such service. Under section 11783 of the Insurance Code The Fund may enter into any contracts or obligations relating to the State Compensation Insurance Fund, which are authorized or permitted by law, as fully and completely as the governing body of a private insurance carrier. As pointed out by defendant, if the employer is insured against Workmen's Compensation liability, the insurer has the same right of action as the employer, or is subrogated to the employer's right. Labor Code sec. 3850, subd. (b); Insurance Code, sec. 11662. The insurer may enforce its cause of action by (1) a suit in its own name. Labor Code secs. 3851 and 3852. Or (2) join as party plaintiff in a suit filed previously by an employee. Labor Code sec. 3853. Or (3) it may abstain from suit and claim as a first lien against the entire amount of any judgment recovered by the employee, the amount of his expenditures for compensation. Labor Code sec. 3856.

In the present action, according to the facts pleaded, The Fund refused or failed to enforde its cause of action by bringing a suit in its own name through its own attorneys. It likewise failed or refused to join as party plaintiff through its own attorneys, in a suit filed previously by the widow and minor children of the employee. Instead of pursuing these remedies it elected to abstain from suit and to file a claim as a first lien against the entire amount of any judgment recovered by them for the amount of its expenditures for compensation. It is apparent that The Fund then elected only to claim an interest in any judgment that might be recovered. It had, at that time, no legal right to substitute its attorneys or any other attorney selected by Civil Service examination in the place of the attorneys selected by the widow, to prosecute the action in her name and that of the minor children. The only interest The Fund had in that action, at the time, was the claim of lien upon any judgment that might be obtained and, a fortiori, to see that its interest was protected to that extent. A claim of lien upon a judgment, where The Fund elected to abstain from suit itself, surely is such an interest in the damage action as would warrant The Fund in employing outside counsel to protect. The Supreme Court, in the McNab case, 9 Cal.2d at page 131 et seq., 69 P.2d at page 987, 111 A.L.R. 1503, discussed the rights of boards of supervisors, without specific statutory authority, to employ special counsel, to assist the district attorney, not only in cases in which the county was a party, but in any case in which the county was interested, and cited Smith v. Mayor, etc., of Sacramento, 13 Cal. 531, 533. See, also, Evans v. Superior Court, 14 Cal.2d 563, 96 P.2d 107, in which action it was held that the Building and Loan Commissioner had the power to employ special counsel and assistants to assist in the duties in connection with the liquidation of the Pacific States Building and Loan Company. It was held that such attorneys and assistants were not employees of the State and not permanent appointments and were therefore not bound by the provisions of Article XXIV of the Constitution relating to Civil Service.

Where a party appears in court by an attorney at law, such attorney has the exclusive control of the case, and the court has no power or authority of law to recognize anyone in conducting or in the disposition of the case except the attorney of record. In re Estate of Cowell, 167 Cal. 228, 139 P. 84; Boca, etc., R. Co. v. Superior Court, 150 Cal. 153, 88 P. 718.

The defendant Fund was not a party to the damage action nor was it or its attorneys or any attorney that might have been selected by the Civil Service examination entitled, as a matter of right or law, to appear in that action or prosecute it under the pleadings and facts presented. Therefore, the allegation in the amended complaint here under attack, that under the circumstances The Fund could not be adequately represented by one of its attorneys selected under Civil Service, is supported by the facts alleged and is sufficient, on demurrer, to bring plaintiffs' case within the exception noted in State Compensation Insurance Fund v. Riley (McNab case), supra.

It is next argued that the ethics of employing the widow's attorneys to do the work necessary to recover the amount of The Fund's lien against her judgment, placed the plaintiffs in a position of representing adverse interests, citing Anderson v. Eaton, 211 Cal. 113, 293 P. 788, which was an action in which plaintiff undertook to represent both the defendant employee and the employer's insurance carrier. The court held that the contract with the employee was clearly against public policy and void. In that case there was a direct finding of fraud and no explanation was given to the client by the attorney showing wherein the two employments of the same attorney were adverse. It was held that it was an attorney's duty to protect his client in every possible way, and it was a violation of that duty for him to assume a position adverse or antagonistic to his client without the latter's free and intelligent consent given after full knowledge of all of the facts and circumstances.

The pleadings in the instant case show that it was to The Fund's advantage to have plaintiffs continue the prosecution of the action to a successful conclusion. Otherwise, its lien would be subject to a total loss. They also show that there was a full disclosure to the widow and minor children of the full facts in relation to plaintiffs' employment by The Fund. They even entered into a written agreement, approved by the trial court, showing all of the surrounding facts. Under such circumstances it cannot be successfully argued that Anderson v. Eaton, supra, has any application. The pleadings do not show nor indicate any undisclosed conflicting interest, nor that any advantage was taken of any of the parties, nor that plaintiffs were required to choose betwen conflicting duties or to reconcile conflicting interests, rather than enforce, to their full extent, the rights or the interests which they alone should represent.

The last contention is that plaintiffs failed to allege that they had filed a claim with the State Board of control pursuant to sections 667 and 688 of the Political Code; that the filing of such claim was a condition precedent before a court could acquire jurisdiction to entertain the cause for trial, citing Bekins Van & Storage Co. v. State of California, 135 Cal.App. 738, 28 P.2d 61.

Sec. 11783 of the Insurance Code provides that the Industrial Accident Commission may, on behalf of The Fund, in the name of The Fund, sue and be sued in all actions arising out of any act or omission in connection with The Fund, or in connection with its business or affairs. It clearly appears from the Insurance Code, sec. 11771, that there is not and could not be any liability against the State beyond the assets of The Fund, for the payment of any such claim as is here involved. All business and affairs of The Fund are conducted in the name of The Fund and its assets are applicable to the payment of losses, salaries and other expenses. Section 11778 gives general authority for it to prosecute Workmen's Compensation business to the same extent as any other insurer.

Sections 667 and 688 of the Political Code are general in their application. The Workmen's Compensation law, the Insurance Code, and the Labor Code are special statutes.

In Brill v. County of Los Angeles, 16 Cal.2d 726, 732, 108 P.2d 443, it was held that a special statute dealing expressly with a particular subject controls and takes priority over a general statute. See, also, Birch v. County of Orange, 186 Cal. 736, 200 P. 647.

We therefore conclude that the entire framework of The Fund, its organization, its powers, its duties, and its obligations, shows that it was designed to be self-operating, and of a special and unique character, and as such it may be sued, upon the claim here presented, without a previous filing of such claim with the State Board of Control. The order sustaining both demurrers without leave to amend was erroneous.

Judgment reversed.

GRIFFIN, Justice.

BARNARD, P. J., and MARKS, J., concur.

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