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Charles PHELPS IV, Plaintiff and Appellant, v. Gertrude STOSTAD, Defendant and Respondent.
Here we determine priorities between two statutes, Code of Civil Procedure section 1141.21, subdivision (a)(ii), and Labor Code section 3856, subdivision (b).
A party requesting a trial de novo after a judicial arbitration may not recover costs if the judgment is less favorable than the arbitration award. (Code Civ. Proc., § 1141.21, subd. (a)(ii).) In an action by an employee against a third party tortfeasor, the employer may have a lien against the judgment for worker compensation benefits paid to its employee. The employee, however, first may recover his litigation expenses and attorney's fees. (Lab.Code, § 3856, subd. (b).)
Here we hold that Code of Civil Procedure section 1141.21(a)(ii) takes priority over Labor Code section 3856, subdivision (b).
Plaintiff Charles Phelps IV appeals an order denying him litigation expenses and attorney's fees. (Lab.Code, § 3856, subd. (b).) We affirm.
FACTS
Plaintiff Charles Phelps IV, an employee of C.D.'s Pet Emporium in Grover City, suffered personal injuries when defendant Gertrude Stostad negligently drove her automobile onto the store premises. He brought this action against Stostad for damages for his injuries.
Pet Emporium paid workers' compensation benefits to Phelps concerning the accident. Pet Emporium then filed a complaint in intervention, seeking indemnification from Stostad for the $17,173.46 disability and medical benefits paid to Phelps through that date. (Lab.Code, § 3853.)
Prior to trial, Stostad offered Phelps $60,000 to settle the lawsuit. She made this offer to compromise pursuant to Code of Civil Procedure section 998, subdivision (c). Phelps did not accept.
The matter then proceeded to judicial arbitration. The arbitrator awarded Phelps $45,000 damages against Stostad. Phelps rejected the award and requested a trial de novo. (Code Civ. Proc., § 1141.20, subd. (b).)
Shortly before trial, Pet Emporium assigned its claim for reimbursement to Stostad for $20,000. As of the February 3, 1995, assignment, Pet Emporium had paid Phelps $20,974.02 in disability benefits. It also paid or was liable for $7,422.07 in medical expenses.
Phelps proceeded to trial against Stostad. Pet Emporium did not participate in the trial. The jury awarded Phelps $14,600: $5,000 for medical expenses, $2,100 for lost earnings and $7,500 for general damages.
Stostad submitted a memorandum of costs totaling $6,933.02, under Code of Civil Procedure sections 1141.21, subdivision (a) and 998. She also sought recovery as assignee of Pet Emporium's employer's lien. Phelps brought a motion seeking his litigation expenses and attorney's fees under Labor Code section 3856, subdivision (b).
The $14,600 judgment was insufficient to satisfy the parties' litigation costs, Phelp's attorney's fees and the employer's lien. The trial court ordered the following costs and reimbursement: It allowed Stostad $6,933.02 in costs, offset against the $7,500 general damages award. It denied Phelps any litigation expenses and attorney's fees under Labor Code section 3856, subdivision (b) because he failed to receive a judgment more favorable than the arbitration award of $45,000. (Code Civ. Proc., § 1141.21, subd. (a)(ii).) It then allowed Stostad her assigned lien against the $7,100 damages the jury awarded for medical expenses and lost earnings. (The parties agreed that the employer's lien could not apply against the $7,500 general damages.) Phelps received the remaining $566.98.
Phelps appeals and argues that his right to recover litigation expenses and attorney's fees pursuant to Labor Code section 3856, subdivision (b) has priority over the employer's lien. He points out that Pet Emporium did not participate in the trial and emphasizes that the efforts of his attorney resulted in partial satisfaction of the employer's lien. (Crampton v. Takegoshi (1993) 17 Cal.App.4th 308, 317–319, 21 Cal.Rptr.2d 284 [Lab.Code, § 3856 permits active litigant who benefits a passive beneficiary to recover his attorney's fees and costs].) Phelps urges an interpretation of Code of Civil Procedure section 1141.21, subdivision (a)(ii), and Labor Code section 3856, subdivision (b), that allows him to receive court awarded costs and attorney's fees from the judgment.
DISCUSSION
We must consider the interaction of Code of Civil Procedure section 1141.21, subdivision (a)(ii), and Labor Code section 3856, subdivision (b). The first statute involves statutory penalties for a party's failure to obtain a more favorable judgment in a trial de novo following judicial arbitration. The second statute requires an award of litigation expenses and attorney's fees to an injured employee who prosecutes a tort action against a third party. The $14,600 judgment here is not sufficient to pay Stostad's and Phelp's litigation expenses, Phelp's attorney's fees, and the employer's lien.
Code of Civil Procedure section 1141.21, subdivision (a)(ii) states that a party electing a trial de novo shall not recover his costs if he fails to receive more favorable damages or relief at trial than received in arbitration.1 In that situation, the party also is liable for fees and costs incurred by the other party. (Crampton v. Takegoshi, supra, 17 Cal.App.4th 308, 319, 21 Cal.Rptr.2d 284 [denial of costs promotes finality of arbitration awards and discourages trials de novo].)
Labor Code section 3856 applies to actions by employees and employers against third party tortfeasors. It requires payment of litigation expenses and attorney's fees incurred to prosecute the action and reimbursement of workers' compensation benefits paid. Section 3856, subdivision (b) provides: “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․” Section 3856 assures priority to the injured employee's litigation expenses and attorney's fees if the judgment is insufficient to pay those expenses and fees and also satisfy the employer's lien. (Manthey v. San Luis Rey Downs Enterprises, Inc. (1993) 16 Cal.App.4th 782, 789, 20 Cal.Rptr.2d 265.)
Phelps's arguments are thoughtful. It is true that the employer receives a benefit when the injured employee successfully prosecutes an action against a third party tortfeasor. Had the judgment not been obtained by Phelps's efforts, the employer (or its assignee) would not have had a fund from which to recoup the workers' compensation benefits paid. (Crampton v. Takegoshi, supra, 17 Cal.App.4th 308, 318–319, 21 Cal.Rptr.2d 284.)
Nevertheless, Code of Civil Procedure section 1141.21, subdivision (a)(ii) is plain. If a judgment in a trial de novo is not more favorable than the arbitration award, “the party electing the trial de novo shall not recover his or her costs.” Under Code of Civil Procedure section 1033.5, subdivision (a)(10), allowable costs include attorney's fees, when authorized by contract or statute.
The words of section 1141.21, subdivision (a)(ii) are clear and we may not add the words “from the other party” at the end of the phrase “the party electing the trial de novo shall not recover his or her costs.” (Mutual Life Ins. Co. v. City of Los Angeles (1990) 50 Cal.3d 402, 412, 267 Cal.Rptr. 589, 787 P.2d 996 [discussing rules of statutory interpretation].) “Courts must take a statute as they find it, and if its operation results in inequality or hardship in some cases, the remedy therefor lies with the legislative authority. [Citation].” (Jordan v. Retirement Board (1939) 35 Cal.App.2d 653, 658, 96 P.2d 973, overruled on other grounds by Eichelberger v. City of Berkeley (1956) 46 Cal.2d 182, 190, 293 P.2d 1.)
We agree with the dictum in Crampton v. Takegoshi, supra, 17 Cal.App.4th 308, 319–320, 21 Cal.Rptr.2d 284, that section 1141.21, subdivision (a)(ii) precludes an award of litigation expenses and attorney's fees under Labor Code section 3856, subdivision (b), to a litigant who receives a less favorable judgment in a trial de novo following arbitration proceedings. The purpose of section 1141.21 is to encourage the finality of arbitration awards and discourage trials de novo, thereby resolving small claims efficiently and inexpensively. (Id., at p. 319, 21 Cal.Rptr.2d 284; Code Civ. Proc., § 1141.10, subd. (a).) The shifting of the cost burden, including attorney's fees required by statute, furthers this purpose.
Accordingly, the order is affirmed. Phelps shall bear costs on appeal.
FOOTNOTES
1. Code of Civil Procedure section 1141.21 provides:“(a) If the judgment upon the trial de novo is not more favorable in either the amount of damages awarded or the type of relief granted for the party electing the trial de novo than the arbitration award, the court shall order that party to pay the following nonrefundable costs and fees․ . . . . .“(ii) To the other party or parties, all costs specified in section 1033.5, and the party electing the trial de novo shall not recover his or her costs.”
GILBERT, Associate Justice.
STEVEN J. STONE, P.J., and YEGAN, J., concur.
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Docket No: No. B097644.
Decided: July 01, 1996
Court: Court of Appeal, Second District, Division 6, California.
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