The opinion of the court was delivered by: NEAHER
Following a jury verdict in this action brought under the Longshoremen's and Harbor Workers' Compensation Act, as amended, 86 Stat. 1251, 33 U.S.C. §§ 901 et seq. ("the Act"), judgment was entered for plaintiff in the amount of $ 17,150 for injuries received while he was working on defendant's vessel. Prior to trial, plaintiff had been paid $ 13,554.91 in compensation and medical benefits by his employer, who now claims a lien in that amount against the recovery. Plaintiff's attorney also claims $ 7,109.36 against the recovery for his fee and disbursements and has applied to the court for an order directing defendant to make such payment.
This case is unusual in that the defendant vessel owner was also plaintiff's employer.
Thus, the question arises whether an employer's compensation lien takes precedence over a plaintiff's attorney's lien where the self-insured vessel employed the longshoreman and the recovery is not sufficient to fully satisfy both liens. For the reasons which follow, the court is of opinion that under the circumstances of this case the employer's lien is to be accorded priority.
The statutory scheme governing the work-related injuries of longshoremen was the subject of sweeping amendments in 1972. Briefly outlined, the Act entitles a longshoreman to prompt compensation and medical payments from his stevedore-employer for injuries occurring on the navigable waters of the United States. 33 U.S.C. §§ 901 et seq. The longshoreman may also bring an action for negligence against the third-party owner of the vessel on which the injury occurred. Id. § 933(a). Any recovery in that suit is subject to the stevedore's judicially created lien in the amount of compensation and medical payments previously made. See Bloomer v. Liberty Mutual Ins. Co., 445 U.S. 74, 100 S. Ct. 925, 928, 63 L. Ed. 2d 215 (1980). If the longshoreman fails to bring such an action within six months of receipt of the compensation award, his claim is then assigned to the stevedore. 33 U.S.C. § 933(b). See Rodriguez v. Compass Shipping Co., Ltd., 617 F.2d 955 (2d Cir.), "aff'd, 451 U.S. 596, 101 S. Ct. 1945, 68 L. Ed. 2d 472 (1981)". Although the Act provides for distribution of a recovery obtained in the stevedore's assigned action, id. § 933(e),
it is silent regarding the distribution of a judgment obtained by the longshoreman himself against the vessel owner, and in such situations the courts are called upon to fashion rules that complement the statutory scheme and accord with the equities of the parties. See, e.g., 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).
The Court of Appeals for this Circuit in 1977 laid down a rule for the priority of liens in a case involving the usual context of a longshoreman's action under the amended Act where the vessel owner and the stevedore-employer are distinct entitles and the latter is not a party to the suit. In Valentino v. Rickners Rhederei, G.M.B.H., 552 F.2d 466 (2d Cir. 1977), it was held that the longshoreman's attorney's lien had priority over the employer's compensation lien, with the longshoreman, who had already collected compensation payments, receiving whatever may remain. See Bloomer v. Liberty Mutual Ins. Co., supra, 100 S. Ct. at 932 n. 13. This priority scheme prevails even where the recovery is insufficient to satisfy the liens of both the attorney and the employer and may result in the longshoreman himself receiving nothing out of the judgment. Valentino, supra, 552 F.2d at 467-68 & n. 2.
The rationale for this decision was based upon the
"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, 59 S. Ct. 777, 83 L. Ed. 1184 (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)." Valentino, supra, 552 F.2d at 468-69.
Thus, it is equitable to charge the employer with the expenses of securing the recovery out of which he receives the benefit of recoupment of compensation payments previously made. In addition, the court noted that if the employer had instituted the action against the vessel owner, pursuant to the statutory assignment of the longshoreman's claim, it would in any event incur its own legal expenses which would constitute a first lien on the recovery. The court saw no valid reason for departing from the statutory scheme set forth in 33 U.S.C. § 933(e) and directing a different result when the longshoreman pursues his own statutory remedy than when the stevedore-employer does so for him. Id.
The court in Valentino also relied on the fact that prior to the 1972 amendments, a vessel owner sued by a longshoreman was permitted to bring a third-party action against the employer seeking indemnity for any judgment secured by the injured longshoreman. See Ryan Stevedoring Co. v. Pan-Atlantic S.S. Corp., 350 U.S. 124, 76 S. Ct. 232, 100 L. Ed. 133 (1956). Under those circumstances, the longshoreman's suit conferred little or, more usually, no benefit upon the employer because it exposed him to substantial third-party liability. "The net result in most cases was that the stevedore became liable without fault for injuries to its employees." Valentino, supra, 552 F.2d at 468. See Swift v. Bolten, 517 F.2d 368, 369-79 (4th Cir. 1975). Accordingly, it was the view of the pre-1972 amendment decisions that "to impose a fee in such a case was to charge the stevedore for the privilege of being sued." Valentino, supra, 552 F.2d at 470. Since the longshoreman and his employer had conflicting interests, see Swift v. Bolten, supra, 517 F.2d at 369-70, discussing Ballwanz v. Jarka Corporation of Baltimore, 382 F.2d 433 (4th Cir. 1967); but compare Chouest v. A & P Boat Rentals, Inc., supra, 472 F.2d at 1032, the equitable principle embodied in Sprague v. Ticonic Nat'l Bank, supra, was considered inapplicable.
The 1972 amendments, however, abolished the vessel's right to indemnity and vested the longshoreman and his employer with common interests arising out of the fact that the greater the former's recovery against the vessel the greater the chance that the compensation lien would be satisfied in full. The effect of this realignment, later incorporated into the rationale of the Court of Appeals in Valentino, had been described by the district court below:
"The 1972 amendments mean that there is an undeniable benefit to the stevedore. A res is created out of which a fee can reasonably be paid." Valentino v. Rickners Rhederei G.M.B.H., 417 F. Supp. 176, 181 (E.D.N.Y.1976). (Emphasis supplied.)
In the case at bar, although there exists a somewhat different divergence of interests between the longshoreman and his employer than in the pre-amendment cases, defendant argues that it nonetheless finds itself in the awkward position of being asked to underwrite a lawsuit from which it cannot hope to benefit. It is true that Hellenic Lines, as employer and self-insurer, will not in any real sense recoup its compensation payments out of the recovery against Hellenic Lines as self-insured vessel owner. Since such a "recoupment" would in reality be little more than the transfer of funds from one pocket to another, it cannot be said that the employer here derives a benefit as an incident of plaintiff's attorney's efforts. Rather, the circumstance that the vessel owner is also employer makes this case more similar to the pre-amendment situations where the longshoreman and his employer were considered to have had adverse interests.
Nor is it clear that this is a case where the court's decision may be guided by the explicit statutory provision for distribution of a recovery obtained in an action brought by the stevedore-employer. 33 U.S.C. § 933(e). Even if plaintiff had failed to bring suit within six months and his claim had been statutorily assigned, Hellenic Lines, as assignee-employer would have been unable to pursue a claim for recoupment against itself Hellenic Lines as vessel owner. See Czaplicki v. The S.S. Hoegh Silvercloud, 351 U.S. 525, 76 S. Ct. 946, 100 L. Ed. 1387 (1956).
In the light of all the foregoing, this case boils down to one where the court is being asked to compel defendant to pay "for the privilege of being sued" in an action where no benefit will inure to either the stevedore or the injured longshoreman himself. It is the court's view that a rigid application to the facts of this case of the rule announced for the Valentino situation would do violence to the very equitable principles that were considered to require the result reached by the Court of Appeals in that case. Nor are we able to believe this would be in keeping with the intent of the 1972 amendments to reduce the potential liability and considerable legal expenses of employers "to assure that stevedores would have sufficient funds to pay ...