COUNTY OF SAN DIEGO v. SANFAX CORPORATION (1976)

OPINION

The County of San Diego (County) appeals from a judgment of dismissal entered after a demurrer to its complaint against Sanfax Corporation and its successors (Sanfax) was sustained without leave to amend on the ground the action was barred by the one-year statute of limitations contained in Code of Civil Procedure section 340, subdivision 3. The County contends the one-year statute of limitations does not apply to the employer's action brought under Labor Code section 3852 and that, in any event, the statute was tolled in this case.

Alleging defendants' strict liability as well as negligence, the County filed this action on June 27, 1974 pursuant to labor Code section 3852 to recover workmen's compensation benefits¹ paid and payable to two county employees injured in an explosion which occurred on November 23, 1971 while they were using a commercial drain cleaner manufactured by Sanfax. In a third count alleging Sanfax had sold a dangerous product without adequate warning, the County sought to recover $5 million in exemplary damages.

Eddy S. Edrozo and Patrick Lisi, the injured employees, had filed separate personal injury actions against Sanfax within one year after the accident. Both cases were settled without the County's consent shortly before the County filed this action.

From the outset Edrozo was treated as a County employee, injured in the course of his employment. When Edrozo filed his personal injury action against Sanfax, the County filed an employer's lien in the action. The County did not intervene in the action. No issue of the County's contributory negligence was raised in the pleadings at the time of the settlement.²

At first, both Lisi and the County took the position he was not a County employee at the time of the accident.³ In fact, when Lisi filed his personal injury action, he named both Sanfax and the County as defendants and alleged the County's concurrent negligence. However, on November 20, 1972 (i. e., within one year of the accident) Lisi filed an application with the Workmen's Compensation Appeals Board naming the County as his employer. His attorney advised the County this filing was a precautionary measure to protect against the one-year statute of limitations and that Lisi had no intention of pursuing this remedy since the potential recovery in the civil suit far exceeded compensation benefits. The matter was taken off the W.C.A.B. calendar.

In March 1974 the County moved for summary judgment in Lisi's civil case, alleging he was a County employee whose rights against the County were limited to workmen's compensation.⁴ Before the motion came on for hearing, Lisi settled his claim against Sanfax for $160,000 without the County's consent after giving one day's notice. The action was dismissed with prejudice as to Sanfax. Later, over Lisi's opposition, the court granted the County's motion for summary judgment, ruling that Lisi was a County employee at the time of the accident. The County had not filed an employer's lien or a complaint in intervention before the settlement, nor did it appeal from the summary judgment.

Soon after Lisi's settlement, Edrozo followed suit by settling his personal injury action against Sanfax for $60,000. He gave no notice to the County, and the settlement was effected without its consent and in disregard of its lien application.

The County filed this action against Sanfax on June 27, 1974, which was more than two years after the accident in which Edrozo and Lisi were injured but less than two months after they settled and dismissed their suits against Sanfax without the County's consent. The complaint alleges the County has already paid Edrozo $20,028.94 in workmen's compensation and will be required to pay additional sums in the future, and further alleges the County will be obligated to pay Lisi workmen's compensation benefits in excess of $30,000 as a result of the adjudication of his employee status.

Appealing from the judgment of dismissal entered after a demurrer was sustained without leave to amend, the County contends:

1. An employer's action under Labor Code section 3852 to recover workmen's compensation paid to an employee is governed by the three-year statute of limitations applicable to an action on a liability credited by statute (Code Civ.Proc. § 338, subd. 1).

2. Even if applicable, the one-year statute of limitations (Code Civ.Proc. § 340, subd. 3) is no bar in this case because the timely filing of Lisi's action inured to the benefit of his employer and because the County's timely filing of a lien in Edrozo's case tolled the statute since Edrozo settled his case in disregard of the lien without the County's consent.

3. To deter defendants and protect the public, the County should be allowed to seek exemplary damages.

DISCUSSION

The rights of an employer who has paid, or becomes obligated to pay, workmen's compensation benefits to an employee who has been injured through a third party's negligence are set out in Labor Code sections 3850–3864. Such an employer has remedies available to him both in the courts and before the Workmen's Compensation Appeals Board.

In the judicial forum, the employer has three options: (1) to bring an action directly against the third party (§ 3852); (2) to join as a party plaintiff or intervene in an action brought by the employee against the third party (§ 3853); or (3) to allow the employee to prosecute the action alone but file an application for a first lien on the judgment, less an allowance for costs and attorney fees (§ 3856, subd. (b)). (Brown v. Superior Court, 3 Cal.3d 427, 429, 90 Cal.Rptr. 737, 476 P.2d 105; Witt v. Jackson, 57 Cal.2d 57, 69, 17 Cal.Rptr. 369, 366 P.2d 641.)

Before the W.C.A.B., an employer who has not participated in the third party litigation through any on these routes may nevertheless, after either a settlement or judgment, claim credit for the net amount received by the employee from the third party against any compensation benefits awarded. Section 3858 relieves the employer from ‘further compensation’ up to the full amount of the employee's damage recovery, whether by judgment or settlement, and section 3861 requires the W.C.A.B. to allow the employer a credit against his liability for compensation of the net amount of any recovery by the employee from the third party for his injury.

in either forum, however, the employer's contributory negligence defeats his right to recover or receive credit for his compensation payments (Roe v. Workmen's Comp. Appeals Bd., 12 Cal.3d 884, 887, 117 Cal.Rptr. 683, 528 P.2d 771; Witt v. Jackson, supra, 57 Cal.2d 57, 69, 17 Cal.Rptr. 369, 366 P.2d 641. Each forum is bound to accept the other's prior adjudication of employer negligence, but each is free to adjudicate that issue if it is yet unsettled (Roe v. Workmen's Comp. Appeals Bd., supra, 12 Cal.3d 884, 892, 117 Cal.Rptr. 683, 528 P.2d 771).

I. THE LIMITATIONS PERIOD

In view of this elaborate statutory scheme, the County contends its right to bring an independent action against Sanfax for all the relief sought in its complaint is ‘an action on a liability created by statute,’ and hence is governed by the three-year statute of limitations (Code Civ.Proc. § 338, subd. 1), rather than by the one-year statute of limitations applicable to the employee's personal injury action (Code Civ.Proc. § 340, subd. 3).

A series of cases, beginning with Aetna Cas., etc., Co. v. Pacific Gas & Elec. Co., 41 Cal.2d 785, 264 P.2d 5, have held that an employer's cause of action to recover compensation benefits paid, or payable, to an employee injured through the negligence of a third party sounds in tort, accrues at the time of the negligent act, and is governed by the one-year statute of limitations. (See e. g. Liberty Mutual Ins. Co. v. Fabian, 228 Cal.App.2d 427, 39 Cal.Rptr. 570; Harrison v. Englebrick, 254 Cal.App.2d 871, 62 Cal.Rptr. 831; DeMeo v. St. Francis Hosp., 39 Cal.App.3d 174, 177, 114 Cal.Rptr. 280.) All of these cases, however, were decided before, or involved proceedings which were concluded before, the effective date of the 1971 amendment to Labor Code section 3859.

Insofar as pertinent here, section 3859 before the 1971 amendment read:

‘No release or settlement of any claim under this chapter as to either the employee or the employer is valid without the written consent of both. . . .’

The 1971 amendment did not delete the quoted language but added subsection (b) which reads:

‘Notwithstanding anything to the contrary contained in this chapter, an employee may settle and release any claim he may have against a third party without the consent of the employer. Such settlement or release shall be subject to the employer's right to proceed to recover compensation he has paid in accordance with Section 3852.’

The amendment permits the employee to settle his claim with the third party free of the employer's compensation lien, but authorizes the employer to bring suit against the third party to recover compensation benefits which have been paid to the employee (Van Nuis v. Los Angeles Soap Co., 36 Cal.App.3d 222, 229–232, 111 Cal.Rptr. 398). Obviously the right of the employer to bring suit to recover these payments would be meaningless if it were barred by the one-year statute of limitations accruing from the date of the accident. The employee and the third party tort feasor could defeat it by the simple expedient of waiting a year after the accident before effecting their settlement.

We conclude the 1971 amendment to Labor Code section 3859 created a right of action in the employer to recover compensation benefits actually paid to an injured employee from a negligent third party who enters into a settlement with the employee without the consent of the employer. Such right of action accrues from the date of the nonconsensual settlement and not from the date of the accident.

In such an action, the previous settlement between the employee and the third party does not establish either the third party's negligence or the employee's lack of contributory negligence (Brown v. Superior Court, supra, 3 Cal.3d 427, 431–432, 90 Cal.Rptr. 737, 476 P.2d 105; Van Nuis v. Los Angeles Soap Co., supra, 36 Cal.App.3d 222, 232). Thus the burden is upon the employer to establish the third party's negligence, and the employer's contributory negligence, or that of the employee, will bar any recovery (Van Nuis v. Los Angeles Soap Co., supra, 36 Cal.2d 222, 232, 111 Cal.Rptr. 398).⁵ The employer's ultimate recovery in such action is limited to the amount of compensation benefits actually paid to or on behalf of the employee as of the date of the settlement (Lab.Code § 3859, subd. (b)).⁶

Applying these conclusions to the complaint before us, the County, in the first two causes of action based on different theories of liability, seeks to recover compensation benefits actually paid to Edrozo as of the date of the settlement ($20,028.94) as well as compensation benefits which it will be obligated to pay both Edrozo and Lisi in the future. The latter claims are barred by the one-year statute of limitations (Aetna Cas. etc. Co. v. Pacific Gas & Elec. Co., supra, 41 Cal.2d 785, 787, 264 P.2d 5). The claim for compensation benefits actually paid before the date of settlement is not (Lab.Code § 3859, subd. (b)).

Since portions of a cause of action canno be reached by demurrer, the demurrer to the first two causes of action of the complaint should be overruled.⁷ (DeMonbrun v. Sheet Metal Workers, 140 Cal.App.2d 546, 566, 295 P.2d 881; 3 Witkin, Cal.Proc.2d, Pleading, § 807, p. 2418.)

The trial court sustained the demurrer to the third cause of action in which the County seeks to recover $5 million in exemplary damages on the ground it was barred by the one-year statute of limitation. If we engage in the assumption that such a cause of action ever existed in the County (and we do so only for the purpose of considering the matter on the basis upon which the trial court ruled), the cause of action must have accrued on the date the two employees were injured. The County's complaint, filed over two and one-half years later, came too late. Labor Code section 3859, subdivision (b), is not applicable to the third cause of action since the recovery sought is not for compensation benefits the County claims to have paid. The demurrer to the third cause of action was therefore properly sustained.

Other arguments advanced by the County in support of its right to sue for compensation benefits it may be obligated to pay in the future are without merit, and the cases cited in support of the arguments are inapposite.

The judgment of dismissal is reversed. The case is remanded to the trial court with directions to enter its order overruling the demurrer as to the first two causes of action and sustaining it as to the third.

FOOTNOTES

1.  Throughout the opinion we use the title of the Act and its terminology as they existed at the time the events involved took place.

2.  In their briefs both parties relate factual information which does not appear on the face of the complaint. There appears to be no dispute as to these facts and they were apparently before the trial court when it ruled on the demurrer by reason of the personal injury actions filed in the same court by the injured employees.

3.  Confusion concerning Lisi's status apparently arose because at the time of the accident he was on active duty with the Marine Corps participating under military orders in a transition training program with the County under an agreement between the County and the Marine Corps.

4.  In its brief the County charactrizes this action as having been taken by its public liability insurance carrier. Irrespective of who manipulated it, the action was taken by the County. It was the moving party—its public liability carrier was not a party to the action. In any event, since it is now established by the superior court judgment that Lisi was a County employee when he was injured, the action taken by the carrier was both sound and justified. It was not obligated to respond in damages to a County employee injured in the course of his employment.

5.  Despite the fact it had not been pleaded as such at the time of the settlement, there can be no doubt that a Witt v. Jackson, 57 Cal.2d 57, 69, 17 Cal.Rptr. 369, 366 P.2d 641, issue is involved in these cases. Lisi's complaint alleged the concurrent negligence of the County, and the County's summary judgment removed the issue from the case. The causes were settled without resolution of the issue, and it may be raised in the pending litigation or in any proceedings which may take place before the W.C.A.B. (see Roe v. Workmen's Comp. Appeals Bd., 12 Cal.3d 884, 892, 117 Cal.Rptr. 683, 528 P.2d 771).

6.  Should either employee seek additional compensation benefits, the County may also claim a credit against their respective net recoveries in any proceedings before the W.C.A.B. (Lab.Code §§ 3858, 3861.)

7.  When the case is remanded to the trial court, the allegations in the first two causes relating to the recovery for future compensation benefits which are barred by the statute of limitations can be eliminated by a motion to strike.

AULT, Acting Presiding Justice.

COUGHLIN* and WHELAN*, JJ., concur.