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decided: March 17, 1977.


The appellee is a longshoreman injured in the course of employment. He brought suit in the United States District Court for the Eastern District of New York against the ship on which he was injured. The jury's verdict was below the amount paid to him in compensation. Accordingly, his employer sought to establish a lien on the entire recovery. Appellee's lawyer then moved for the payment of a fee out of the fund. The district court, Weinstein, J., granted counsel's motion, and the employer appealed. Affirmed.

Feinberg, Gurfein and Meskill, Circuit Judges.

Author: Meskill

MESKILL, Circuit Judge:

In 1972, Congress enacted a sweeping revision of the laws governing the work-related injuries of longshoremen in the amendments to the Longshoremen's and Harbor Workers' Compensation Act, 86 Stat. 1251 et seq., amending 33 U.S.C. §§ 901 et seq. ("the Act"). On this appeal, we are asked to determine if the Act sub silentio overruled a line of district court cases which relied on Fontana v. Pennsylvania R.R., 106 F. Supp. 461 (S.D.N.Y. 1952), aff'd sub nom. Fontana v. Grace Line, Inc., 205 F.2d 151 (2d Cir.), cert. denied, 346 U.S. 886, 74 S. Ct. 137, 98 L. Ed. 390 (1953). Those cases held that a stevedore's compensation lien*fn1 on a longshoreman's tort recovery had priority over the attorney's lien for his fee. In the district court, Judge Weinstein held that the rule had in fact been changed, and awarded an attorney's fee. We affirm.

The appellee is a longshoreman employed by the John W. McGrath Corporation ("McGrath"), a stevedoring company. In November, 1974, he was injured while unloading the SS ETHA. As a result of his injuries, he was paid compensation and medical expenses of $15,488.31. McGrath asserts a lien in this amount against any tort recovery obtained by Valentino. 33 U.S.C. § 933.

Pursuant to 33 U.S.C. § 933(a), Valentino brought a suit in the Eastern District of New York against the SS ETHA and its owners, alleging that their negligence was the proximate cause of his injuries. The case was tried to a jury, before Judge Weinstein, and resulted in a verdict of $5,000. Valentino's attorney represented him on a contingent fee basis; the retainer called for a fee of $2,000 in this case. The attorney claims that he is entitled to recover his fee from the $5,000 fund before McGrath claims the remainder pursuant to its lien.*fn2 Judge Weinstein agreed. In order to explain our holding affirming the district court, it is necessary to briefly outline the situation prior to the 1972 amendments to the Act.

In Seas Shipping Co. v. Sieracki, 328 U.S. 85, 90 L. Ed. 1099, 66 S. Ct. 872 (1946), the Supreme Court decided that a longshoreman covered by the Act could also recover full damages from the ship on which he was injured, based on a non-negligent breach of its warranty of seaworthiness. A decade later, the Supreme Court held that there was a warranty of workmanlike performance running from the stevedore to the shipowner. Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 100 L. Ed. 133, 76 S. Ct. 232 (1956). A breach of this warranty occurred if the unseaworthiness was solely the fault of the shipowner but was "brought into play" by the stevedore, or even if it arose largely from the negligence of the injured longshoreman. See McLaughlin v. Trelleborgs Angfartygs A/B, 408 F.2d 1334 (2d Cir.) (Friendly, J.), cert. denied, 395 U.S. 946, 23 L. Ed. 2d 464, 89 S. Ct. 2020 (1969); G. Gilmore and C. Black, The Law of Admiralty, 442-448 (2d ed. 1975). The shipowner was allowed to implead the stevedore for breach of the Ryan warranty. The net result in most cases was that the stevedore became liable without fault for injuries to its employees. However, in order to prevent a double recovery, the stevedore had a lien against the tort recovery for the amount expended in compensation and medical costs.

Widespread dissatisfaction with these doctrines led Congress to a restructuring of the compensation system in 1972. The right to sue for a breach of warranty of seaworthiness was abolished. The right of the shipowner to seek indemnity from the stevedore, based upon the warranty of workmanlike performance, was similarly done away with. In return, the level of compensation benefits was substantially raised.

The injured longshoreman is still able to sue the ship for negligence, and recover an amount beyond the statutorily fixed compensation. If, after six months, he has not done so, the stevedore may sue in the longshoreman's name. When it does, the stevedore is first paid back for the amount of compensation, plus its costs and an attorney's fee. Any excess is distributed 20 percent to the stevedore and 80 percent to the longshoreman. 33 U.S.C. § 933(e)(2).*fn3

The statute is silent on the distribution of the recovery in a suit brought by a longshoreman himself. We are thus required to formulate a rule that complements the statutory scheme. See Cella v. Partenreederei MS Ravenna, 529 F.2d 15, 20 (1st Cir. 1975), cert. denied, 425 U.S. 975, 96 S. Ct. 2175, 48 L. Ed. 2d 799 (1976).

It is a well-established principle of equity that a lawyer who creates a fund for the benefit of another is entitled to reasonable compensation for his efforts. Sprague v. Ticonic Nat'l Bank, 307 U.S. 161, 83 L. Ed. 1184, 59 S. Ct. 777 (1939); Chouest v. A & P Boat Rentals, Inc., 472 F.2d 1026 (5th Cir.) (Wisdom, J.), cert. denied, 412 U.S. 949, 93 S. Ct. 3012, 37 L. Ed. 2d 1002 (1973). McGrath contends, however, that this rule is inapplicable in the instant case. Its argument is that because Valentino's lawyer has conferred no benefit upon his client, the longshoreman, he is not entitled to any fee for his efforts. Such a holding here would exalt form over substance.

If the stevedore had brought this suit, and recovered $5,000, it would have retained the entire amount only in a technical sense. Attorneys for stevedores, no less than those who represent longshoremen, generally expect to be paid for their services. Out of its $5,000 judgment, the stevedore would have to pay the cost of recovering it. If it refused to do so, its attorney would have a lien against the fund. N.Y.Jud.L. § 475 (McKinney 1968).

Thus, a stevedore seeking to enforce its employee's rights would be chargeable with reasonable attorney's fees, regardless of the size of the recovery. Here, during the six-month waiting period, Valentino pursued his remedies with his own attorney. Because the recovery was insufficient to cover McGrath's lien plus the legal fees, McGrath asserts that it is entitled to the entire fund recovered. If, in the instant case, McGrath had brought suit and recovered the $5,000, it would have had to pay its legal expenses after applying its lien to the fund. There is little justification for putting a stevedore in a stronger position when the longshoreman pursues his own statutory remedy than when the stevedore does so for him.

McGrath responds that for six months after the injury, the longshoreman alone has the statutory right to sue, and the employer can do nothing. 33 U.S.C. § 933(b). It argues that it could bring suit with less expensive counsel, and might pursue ...

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