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QUINN v. Insurance Company of North America, Intervener and Respondent.

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Court of Appeal, Third District, California.

Thomas QUINN, Plaintiff and Appellant, v. STATE of California, Defendant and Respondent, Insurance Company of North America, Intervener and Respondent.

Civ. 13604.

Decided: May 10, 1974

Boccardo, Blum, Lull, Niland, Teerlink & Bell by Edward J. Niland, San Jose, for plaintiff-appellant. Hardy, Erich & Brown by John R. Ball, Sacramento, for defendant-intervenor-respondent.

Appeal following denial of plaintiff's motion for a court order apportioning costs and attorney's fees out of a workmen's compensation lien.

The sole ground advanced on appeal is that Labor Code section 3856, subdivision (b), is unconstitional. It is contended that the subdivision violates both prongs of the last clause of section 1 of the XIVth Amendment to the Constitution of the United States: ‘No State shall . . . deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.’

We set forth the allegedly offensive Labor Code section in the margin.1

In the complaint filed July 7, 1966, plaintiff sought damages in the sum of $200,000, for personal injuries proximately caused by negligence. The defendants were the State of California and a joint venture comprising eight corporations engaged on a public project. The complaint alleged that plaintiff, while employed and acting in the course and scope of his employment for McNamara-Fuller, a subcontractor, had sustained severe personal injuries as a direct and proximate result of the negligence of the several defendants.2 The State's answer denied the charging allegations and raised affirmative defenses not necessary to be discussed herein—including a defense, ultimately withdrawn, based upon Witt v. Jackson (1961) 57 Cal.2d 57, 17 Cal.Rptr. 369, 366 P.2d 641. Also pending trial, plaintiff dismissed the action against the members of the joint venture. The case went to jury trial with the State defended by its personal injury insurer, Insurance Company of North Ameria (INA) as sole remaining defendant. On the first day of trial INA, which was also the workmen's compensation carrier for plaintiff's employer, filed, against any possible settlement or judgment in favor of plaintiff, its notice of lien in the full sum of all compensation benefits paid to the employee—$13,942.43. The jury returned a verdict in favor of plaintiff-employee in the sum of $91,000. Judgment in that amount plus $1,314.99, assessed costs, was entered. Motions for new trial and for judgment n. o. v. were denied.

On October 13, 1971, the State sent plaintiff's attorneys a draft for $80,231.06, a sum which represented the amount of the judgment (with costs and interest to date) less the compensation lien of $13,942.43, the full amount of the outlay for compensation benefits of the employer's compensation carrier and the amount for which the lien had been filed.


Plaintiff appealed, as we have pointed out, solely on the constitutional ground. The theory of the appeal, stated in terms of ‘equal protection,’ is that an employee-plaintiff suing a third party tortfeasor suffers an unjust and inequitable deduction from his recovery—that of having to bear an attorney's fee for services rendered his employer or its compensation carrier3 whereas his counterpart, the ordinary personal injury plaintiff, faces no such reduction.

Development of plaintiff's argument (as we interpret it in his brief) progresses in this order: when an employee-plaintiff sues a third party tortfeasor for personal injuries and there have been workmen's compensation benefits paid, he and the employer (or compensation carrier) have a common interest in establishing the negligence of the third party and, of course, in negating any defense that third party might claim, such as the plaintiff's contributory negligence or assumption of risk. Their interests, however, also may diverge and even become adverse.

To require that the employee, however, must pay out of his share of the judgment the costs and the attorney's fees of his employer seems manifestly arbitrary and unreasonable. The law clearly contemplates that the employer may sue for, and in a proper situation (i. e., where there has been an outlay for compensation benefits, as was the case here) may recover judgment. As in most lawsuits he must pay his attorney for his services in recovering the amount due. That outlay may not then be passed on to the employee. (Lab.Code, § 3852.) The employer may also join in or intervene in the employee's action against a third party and be represented by a separate attorney. In such a situation the statute expressly states: ‘. . . Where the employer and employee are represented by separate attorneys they may propose to the court, for its consideration and determination, the amount and division of . . . expenses and fees.’ (Lab.Code, § 3856, subd. (d).) Why should the circumstances be otherwise when the action is brought by the employee alone, costs are incurred and the attorney who prosecutes the action renders services for the benefit of the both employee and employer? (See, Carden v. Otto (1974) 37 Cal.App.3d 887, 893,112 Cal.Rptr. 749.)

There are obvious advantages of public policy—a money saving to the public fisc when one action is maintained instead of two. There is an obvious advantage to both employee and employer (certainly when the interests of the employee and of the employer do not diverge) in having but one party plaintiff represented by his attorney in the court during a jury trial to the end that the issues to be tried by that jury do not become complex or confused. Why should the employee—plaintiff be penalized, as the judgment here clearly did penalize him, for expediting justice?

Were it necessary for this court to do so, it would at least take a long look at plaintiff's argument before rejecting it. As we read the statutory law, however, we do not reach the constitutional argument. As a matter of statutory interpretation we will find and hold that, although the statute, Labor Code section 3856, is not entirely free from all ambiguity, it is reasonably susceptible to a construction that it was the Legislature's intention to authorize the trial court to divide reasonable plaintiff's attorney's fees and court costs equitably between employee and employer, and that the assumption by both parties to the contrary is incorrect.

We analyze the language of the Legislature in Labor Code section 3856, subdivision (b) (see fn. 1). That subdivision is addressed to actions (such as the one at bench) which are prosecuted by the employee alone, represented by his own attorney, and where, as here, the action goes to judgment in his favor.

First, the subsection provides that the court shall order paid from the judgment for damages recovered ‘the Reasonable litigation expenses incurred in preparation and prosecution of such action, together with a Reasonable attorney's fee . . ..’ (Emphasis ours.) Let us pause to note that the statute does not say that there shall be deducted from the judgment the full contracted-for attorney's fee. Indeed, it effectually commands the trial court to fix a reasonable attorney's fee. And it also commands the trial court to fix reasonable litigation expenses incurred in the preparation and prosecution of the action—not necessarily taxable costs. There are only two ways by which such reasonable litigation expenses and a reasonable attorney's fee can be fixed: one is by agreement between the parties, and the other is by a court hearing. Such a hearing must, if it is to be fairly held, include the taking of evidence.

Reverting to the determination of a reasonable attorney's fee, the subsection delivers another mandate. It affirms that it must be based solely ‘upon the services rendered by the employee's attorney in effecting recovery both for the benefit of the employee and the employer.’ (Emphasis added.) The Legislature did not expressly state who should pay the attorney's fee benefiting both. However, absent such expression, by what precept of logical reasoning may it be assumed that services rendered for the joint benefit of both employee and employer should be paid for only by the former? Since we find that nowhere has the Legislature specified the payor, or payors, is it not more logical to assume that it intended a division—rather than that it intended to impress upon employees the full burden? We find nothing in the subsection which compels us to hold that the Legislature intended the latter unjust result. It is not accurate to construe it as manifesting the intent to give payment of the employer's lien preference over the employee simply because provision for payment is set forth in the subsection before the provision for payment of the employee's share of the judgment. Actually, as we have pointed out, the fixing by the trial court of all of the following: (1) reasonable litigation expenses in preparation and prosecution of the action, (2) fixing of a reasonable attorney's fee, and (3) the determination of that fee on the basis of (a) how it benefited the employee, and (b) how it benefited the employer, are steps which precede the payment to anyone.

True, the subsection provides that after payment of such expenses and attorney's fee ‘the court shall, on application of the employer, allow as a first lien against the amount of such judgment for damages, the amount of the employer's expenditure for compensation . . .,’ but it does not prohibit the deduction from the amount of the employer's expenditure of his fair share of the attorney's fee by which he benefited.

The trial court in the case at bench fixed no attorney's fees (reasonable or otherwise) and made no division of fees and expenses. This was in clear disregard of subdivision (d) of section 3856 which provides as follows: ‘The amount of reasonable litigation expenses and the amount of attorneys' fees under subdivisions (a) , (b), and (c) of this section shall be fixed by the court. Where the employer and employee are represented by separate attorneys they may propose to the court, for its consideration and determination, the amount and division of such expenses and fees.’

While the last sentence of that section expressly authorizes employer and employee, when each has been represented by a separate attorney, to propose the amount and division of expenses and attorney's fees ‘for [the court's] determination,’ this does not, in our opinion, carry with it the inference or implication that there can be no division of the attorney's fees when employee's attorney handled the entire litigation for the benefit of both. In fact, the power to fix as expressed in the first sentence implies the power to divide.

We discuss chronologically earlier California cases. Dodds v. Stellar (1947) 30 Cal.2d 496, 183 P.2d 658, held that as Labor Code section 3856 then stood, it clearly provided that, notwithstanding the fact that neither the employer (nor his compensation carrier) had joined in the employee's action or brought a separate action, and although the attorney for the compensation carrier had not participated therein, the carrier was entitled to a first lien for the full amount of the employer's (or the carrier's) workmen's compensation payments. As the law was then worded, there was no room for a different interpretation.4 The majority of the court held: ‘If there is to be any change in these statutory provisions defining the rights of the parties, the suggestion for such change should be addressed to the legislature rather than the courts.’ (Id. at p. 506, 183 P.2d at p. 664.) Justice Carter, with whom Justice Schauer concurred, dissented, holding that the statute violated the equal protection clause.

The Legislature promptly accepted the ‘suggestion’ mentioned in the Dodds majority opinion. Statutes of 1949, chapter 120, amended section 3856 expressly to provide: ‘[T]he court shall fix a reasonable attorney's fee, which shall be fixed as a share of the amount actually received by the employer, to be paid to the employee's attorney on account of the service . . . which said fee shall be deducted from any amounts due to the employer.’

As a part of a general legislature scheme widely amending the provisions of the Labor Code covering workmen's compensation, section 3856 was again changed in 1959 to its present form. (See fn. 1.)

Johnson v. L. D. S. Trucking Co. (1967) 254 Cal.App.2d 496, 62 Cal.Rptr. 501, an appeal decided by the First District, is the first case which has been called to our attention decided under the 1959 amendment. That case involved an action originally brought by an employee-plaintiff against a third party tortfeasor. The employee was represented by an attorney, Quinn. Argonaut, the employer's compensation carrier, did not file a separate action; neither does the record show an intervention in the employee's action. However, throughout the proceedings up to and including the settlement to be discussed below Argonaut was represented by its separate attorney who participated with Quinn in some, if not all, of the proceedings and in all of the negotiations for the settlement ultimately consummated. There was first an abortive offer to settle by defendant. Later, in a settlement joined in by Argonaut, a sum of $16,000 was agreed upon. Of this, Argonaut received $4,960 of a total prior compensation payment to employee of $6,775. $7,110 was paid to the employee-plaintiff and Quinn, his attorney, received $3,930 as his fee. Quinn was not satisfied. He then moved the court for an additional fee based upon the asserted value of his services for Argonaut's recovery, which value he claimed was $825. He argued that sum should be paid to him in addition to the money received from the employee, out of the $4,960 allowed by settlement to Argonaut. The trial court granted the motion. On appeal, the order was reversed.

The appellate court noted that prior to 1959 sections 3856 and 3860 of the Labor Code had provided that the employee's attorney was entitled to a reasonable attorney's fee to be deducted from the employer's share of the judgment or settlement. In 1959—the opinion states—these sections were repealed and reenacted in their present form. As the Johnson court interpreted the present law, it stated that section 3856, subdivision (b), and section 3860, subdivision (c), provide that the employee-plaintiff attorney's fee for legal services rendered both for the employee and the employer were to be paid ‘off the top’ of the judgment; the employer was then to receive the total amount of his outlay for compensation benefits and the remainder, if any, was to go to the employee—the person who had conceived the action against the third party, who had hired an attorney who prosecuted it, if necessary, to judgment and the employer, although he had not lifted a finger in maintaining the action but who had hired an attorney, got a free ride.

We submit that the Johnson court in stating this was confusing priority in order of payment with priority in right to receive payment. We have been at pains to explain above that, at least where a judgment is concerned, this is not what the Legislature has said, and this court is not willing to conclude that this is what it meant to say.

We have no quarrel with the holding in Johnson. The result was fair to all concerned. Each party to the settlement received what he bargained for. The payment of Quinn's attorney's fee by his own client, under the circumstances, was proper. Argonaut had hired its attorney and presumably had paid him a reasonable fee. Through that attorney it had participated in the action and negotiations for settlement. Neither principles of equity nor the terms of Labor Code section 38565 or section 3860 suggest that in such circumstances the employee's attorney should receive something in addition from the employer (or its carrier). The scope given sections 3856 and 3860 by the Johnson court was, however, uncalled for. It had no place in the rule of decision which, properly construed, would have been the same. Constitutional questions were neither discussed nor was there any reason to discuss them.

On quite different facts, however, Moreno v. Venturini (1969) 1 Cal.App.3d 286, 81 Cal.Rptr. 551, picks up the language of Johnson which we have paraphrased above and uses it as a partial basis for its ruling.6 Under the facts of Moreno, an employee-plaintiff had brought an action, represented by his own attorney, against a third party tortfeasor. Neither the employer nor its compensation carrier was in formed of the institution of the action. The latter soon learned it had been brought and filed a lien for compensation benefits paid to the employee ($1,115). Employee-plaintiff settled the suit. The trial court first entered an order awarding employee's attorney 40 percent of the total lien for compensation but later set aside that order. On appeal the reviewing court upheld the trial court's order. No facts are given in the opinion to indicate to what extent, if any, the attorney for the compensation carrier had participated in the action brought by the employee-plaintiff or to what extent he had participated in the settlement negotiations. The opinion does not discuss constitutional questions.

Finally we come to Fuchs v. Western Oil Fields Supply (1972) 25 Cal.App.3d 728, 102 Cal.Rptr. 74. There a settlement was also involved and the facts stated appear quite similar to those of Moreno. In a per curiam opinion the court again relied upon the portion of the Johnson opinion which had been quoted in Moreno and which we have paraphrased above. The Fuchs case for the first time refers to the constitutional question: due process and equal protection. The court adopts the reasoning that the employee, having elected to accept the benefits of workmen's compensation may not thereafter complain ‘when the detailed statutory provisions providing for the repayment of his compensation award are applied to him.’ (Id. at p. 738, 102 Cal.Rptr. at p. 81.)

The opinion ends with the following: ‘It is the general policy of the California courts to avoid judicial emendations to the workmen's compensation scheme established by the Legislature. [Citation.] In accord with this general policy, we conclude that the Labor Code sections in question are constitutional and that the trial court's application of them to the instant case is correct.’ (Id. at pp. 738–739, 102 Cal.Rptr. at p. 81.)

With the first of the two sentences quoted we agree. With the second, this court expresses no opinion. We repeat that we do not reach the question. We do not reach it because deferentially we do not believe that Labor Code section 3856 means what Johnson states (and what Moreno and Fuchs in following Johnson, without analysis, assume the sections to say). We are not bound by Johnson, Moreno, or Fuchs for two reasons: (1) Although their dicta seems to embrace allocations occurring both by judgment and by settlement, their rulings relate solely to settlements and not to judgments. (2) This appellate court treats with great respect the opinions of other appellate courts. But it is not bound by them and if, as here, if finds something stated therein which it believes to be wrong, it is not only its right but its duty to express that disagreement. Referring to (1) above, we point to a noteworthy difference between a settlement and a judgment. The former is made and joined in by parties dealing at least presumably at arm's length (and, therefore, outside § 3856). A judgment occurs by operation of legal proceedings (and, therefore, falls within that section).


It is well settled that whenever the Legislature has spoken and has expressed itself so clearly that its meaning is unmistakable, the function of the court is either to follow the law as written or to declare the statute unconstitutional. Where, however, the statute is uncertain or ambiguous or where there are interstices which must be filled for the purpose of giving the statute effect, then it is the function of the court to resolve the uncertainty or ambiguity or to fill the interstices (as the case may be). And the court's obligation is to perform this function without eradicating from the judicial mind remembrance that the law is founded upon precepts of justice and social policy. A well written comment in 8 Stanford Law Review, pages 293–296, explains this quite pointedly, citing, inter alia, Cardozo, The Nature of the Judicial Process (1921); Holmes, Collected Legal Papers (1952), page 239; Cardozo, Paradoxes of the Legal Science (1928), page 10; Radin, Law as Logic and Experience (1940), page 28; Llewellyn, The Constitution as an Institution (1934) 34 Colum.L.Rev. 1, 32. (And see, 6 Witkin, Cal.Procedure (2d ed.) pt. 1, pp. 4222–4224 and cases cited; see also, cases collected in 45 Cal.Jur.2d, Statutes, § 106, et seq.)

As we have stated above, in Labor Code section 3856, subdivision (b), the Legislature has directed the trial court to fix a reasonable attorney's fee to be paid employee-plaintiff's attorney. In fixing that fee, the Legislature has directed that it be based upon the services rendered by that attorney both for the benefit of the employee and the employer. It has not stated how payment for the benefits so rendered shall be divided. That is a gap in the legislation which must be filled by the court. It is a gap, however, readily filled. If the precepts of equity and justice are to be followed payment should accord with the value of the benefits received and the party who received them. Had the Legislature intended otherwise, then the trial court in apportioning benefits from legal services to each party is performing a useless act.

Judgment is reversed. The trial court is directed to fix a reasonable attorney's fee based upon and payable by the parties benefited thereby respectively, viz: that portion which the court finds to have benefited employer or employer's compensation carrier shall be paid by it out of the lien for Workmen's Compensation benefits; that portion beneficial to employee-plaintiff shall be charged to him out of his portion of the judgment. Payment for litigation expenses incurred in the preparation and prosecution of the action shall be similarly apportioned.



1.  Section 3856, subdivision (b), relates to actions by an employee against a third party tortfeasor brought by the injured employee alone, represented by his own attorney solely, and states:‘(b) If the action is prosecuted by the employee alone, the court shall first order paid from any judgment for damages recovered the reasonable litigation expenses incurred in preparation and prosecution of such action, together with a reasonable attorney's fee which shall be based solely upon the services rendered by the employee's attorney in effecting recovery both for the benefit of the employee and the employer. After the payment of such expenses and attorney's fee the court shall, on application of the employer, allow as a first lien against the amount of such judgment for damages, the amount of the employer's expenditure for compensation together with any amounts to which he may be entitled as special damages under Section 3852.’

2.  A second cause of action was pleaded under Restatement of the Law Second, Torts, section 416, Work Dangerous in Absence of Special Precautions.

3.  In this particular action where the third party tortfeasor's insurer is the same as the employer's workmen's compensation carrier, effectually this means that the carrier gets a deduction from its judgment debt measured by the amount of the attorney's fee.

4.  Section 3856 then stated: ‘The court shall first apply, out of the entire amount of any judgment for any damage recovered by the employee, a sufficient amount to reimburse the employer for the amount of his expenditures for compensation. If the employer has not joined in the action or has not brought action, or if his action has not been consolidated, the court, on his application shall allow, as a first lien against the entire amount of any judgment for any damages recovered by the employee, the amount of the employer's expenditures for compensation.’

5.  That section is inapplicable to a settlement, however.

6.  We say ‘partial basis.’ Involved there was a motion to vacate a judgment or order under Code of Civil Procedure section 473. The court there asserts the well-established rule that the granting of such a motion will not be disturbed on appeal unless an abuse of discretion clearly appears.

PIERCE, Associate Justice.* FN* Retired Presiding Justice of the Court of Appeal sitting under assignment by the Chairman of the Judicial Council.

RICHARDSON, P. J., and JANES, J., concur.

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