Adams v. Northland Equipment Company: Employees Do Not Have the Right to Unreasonably Block Fair Settlements of Third Party Claims under Wis. Stat. § 102.29.
In Adams v. Northland Equipment Company, a case decided on July 22, 2014, the Wisconsin Supreme Court affirmed the decision of the trial court granting a worker’s compensation carrier’s motion to compel an injured employee to accept the defendant’s offer of judgment.1 The decision will be useful in cases in which an employee unreasonably refuses to accept a settlement agreement that is pretty clearly in the best interests of the third party claimant, and the worker’s compensation carrier is actively protecting its interests.
The Underlying Personal Injury Products Liability Case
The Adams court’s decision stemmed from an immensely defensible personal injury case. The plaintiff, Russell Adams, claimed he was injured while plowing snow for his employer, the Village of Fontana, Wisconsin.2 His claim was that, while he was plowing snow, the blade of the snowplow got caught on a raised one-and-a-half inch lip of the sidewalk. He claimed that this stopped the truck dead in its tracks and caused him to fly, not forward into the windshield, but straight up into the ceiling of the cab. He claimed that this caused a compression injury to his spine. He was not wearing his seat belt. After allegedly stopping on the raised lip, the truck then continued across the street where the plow blade struck and jumped the curb. This is where another worker eventually found the plaintiff. There were no witnesses to the accident itself.
Adams sued Northland Equipment, which had made some repairs to the snowplow prior to the accident. Snowplows are designed with shock absorbers—usually springs. When the bottom of the snowplow encounters a fixed object, the blade “trips.” This means that the springs compress or stretch, depending on whether they are at the bottom or top of the plow blade. The springs absorb some of the force of the impact and typically allow the plow to move over smaller obstructions.
The Village had brought the plow to Northland Equipment Company for repair prior to the accident,complaining that the springs on the plow were too loose, such that the plow tripped when encountering heavy snow. Northland did not have the original replacement springs on hand, and the Village wanted the plow fixed in time for an expected snow storm. Thus, the Village and Northland agreed to use a different brand of springs. The Village was satisfied with the repair. Notably, Adams used the plow with those springs for a year and a half afterward with no problems at all. Presumably, he drove over the area where the accident occurred as well as other similar obstacles, such as manhole covers.
Northland moved for summary judgment. Its main argument was that Adams could not prove that the repair was defective or that any defect with the repair caused the accident. Adams’ theory of liability was that the replacement springs were too tight such that the plow did not trip when it should have—and that it should have tripped when it encountered the raised lip in the sidewalk. The extent of Adams’ expert’s opinion was that the replacement springs were tighter than the original springs, and that tighter springs made the plow harder to trip. Adams’ expert could not say, however, whether the accident presented a situation in which the plow actually should have tripped. That is, the expert could not say that the same accident would not have happened even with springs of the same tension as the original springs. Neither did he have any opinion as to what the “sweet spot” was for tension—that is, where the springs were tight enough to plow heavy snow but loose enough to trip when they were supposed to. Finally, the expert also could not explain why a similar accident had not happened during the prior one-and-a-half years that the plow was being operated with those same springs.
The trial court ultimately denied Northland’s motion for summary judgment, but not before expressing its doubts about Adams’ case. The court held that at trial, Adams’ expert would not be able to use a report that was written by Adams’ attorney and which the expert had simply agreed with at his deposition. The court also opined that Adams was “spitting into a pretty strong” wind on causation, and that the court was very interested to see at trial how the expert was going to explain to the jury what he thought was a reasonable tension for the springs such that they could operate to plow heavy snow but would be loose enough to trip when they were supposed to. Ultimately, however, the trial court held that the expert’s opinion that the springs were unreasonably dangerous because they were too tight created a fact issue precluding summary judgment.
The Worker’s Compensation Carrier’s Motion to Compel Settlement
Following the denial of the motion for summary judgment, Northland served a statutory offer of judgment for $200,000. The Village’s worker’s compensation carrier, which had paid about $150,000 in worker’s compensation benefits and who stood liable to pay additional benefits in the future, was concerned about the weaknesses of Adams’ case, which the summary judgment motion had exposed. The carrier therefore wanted to accept the settlement offer. After negotiating with Adams’ attorney, who refused to accept the settlement offer, the worker’s compensation carrier accepted the offer unilaterally and then moved the court to compel Adams to accept the offer as well.
Adams objected that the court had no authority to compel him to accept the settlement. In the alternative, he argued that, if the court did have the authority, it had to conduct an evidentiary hearing outside the presence of Northland first. Finally, Adams argued that the court should not compel the settlement because the offer was grossly inadequate and not in his best interests.3
The circuit court granted the motion to compel Adams to accept the settlement. In doing so, the court followed the recent court of appeals case of Dalka v. American Family Mut. Ins. Co., which had held that a trial court can grant the motion of a worker’s compensation carrier to force an employee to settle.4Dalka, in turn, had extended the Wisconsin Supreme Court’s decision in Bergren v. Staples, holding that a circuit the court can force a worker’s compensation carrier to settle.5
Adams appealed. He again argued that the trial court did not have the authority to compel him to settle and that the court misused its discretion and violated his due process rights by compelling him to settle without first conducting an evidentiary hearing. The court of appeals affirmed, following Dalka, and concluded that the trial court did have the authority to force Adams to settle. It also concluded that the trial court had appropriately exercised its discretion.6
The Supreme Court’s Decision
The Wisconsin Supreme Court affirmed the decision of the court of appeals. It rejected Adams’ argument that Wis.Stat.§102.29,by its own terms, did not authorize the trial court to compel an injured employee to settle. Adams had relied on the first sentence of § 102.29 for this argument, namely, that “the making of a claim for compensation against an employer or compensation insurer for the injury or death of an employee shall not affect the right of the employee to make a claim or maintain an action in tort against any other party for such injury or death.”7 Adams argued that this sentence trumped the language in the statute that gives the worker’s compensation carrier or employer an equal voice in prosecuting the third party claim, and which gives the trial court the authority to pass upon disputes regarding the prosecution of the claim. The supreme court rejected this argument, reading the statute as a whole and concluding that the plain meaning of the statute is that the worker’s compensation carrier or employer and the employee both have the right to file and prosecute a third party claim and that the trial court has the authority to resolve any disputes between them arising out of how to prosecute the claim.8
The supreme court then rejected Adams’ argument that Wis. Stat. § 102.29 violated his right to a jury trial. The court held that an injured worker has no right to a jury trial when pursuing a third party claim under § 102.29. The supreme court addressed this issue in detail even after noting that Adams had not developed the argument by applying the applicable law.9 In doing so, the supreme court opted not to simply rely on its decision in Bergren, as extended by the court of appeals in Dalka. Bergren had, in part, relied on the legal fiction that, because the Worker’s Compensation Act was deemed incorporated as amatter of law into every employment contract, both parties to the employment contract must also be deemed to have waived any right inconsistent with the rights under the Act.10 Bergren went on to hold that a party who accepts any benefits under a law is thereby foreclosed from challenging any portion of that law.11
The supreme court did not mention these arguments. Instead, it simply held that an injured employee has no right to a jury trial when pursuing a third party action under Wis. Stat. § 102.29 because the third party claim created by § 102.29 is not analogous to any common law cause of action that carried with it a right to a jury trial. The court noted that, under § 102.29, unlike the common law, the injured employee is not entitled to receive full compensation from a tortfeasor, but is required to split the proceeds of a successful third party claim with the employer or worker’s compensation carrier. The court also noted that, unlike under the common law, the employer or worker’s compensation carrier has the right to join in the third party claim and has the same right as the employee to control the litigation, with the trial court passing on any disputes.12 The court thus concluded that the statutory third party claim was not sufficiently analogous to a common law claim against a tortfeasor to conclude that the right to a jury trial survived.13
The supreme court also rejected Adams’ argument that his due process rights were violated by the circuit court’s order because the trial court did not hold an evidentiary hearing. The court essentially held that, because Adams’ rights were created by the statute, the statutory procedure for settling any dispute between the employee and the employer or worker’s compensation carrier did not violate due process.14The court thus concluded that Adams had not been deprived of any constitutionally protected rights.
The supreme court also held that the trial court had not erroneously exercised its discretion in compelling the settlement. The court rejected Adams’ argument that the trial court erred by not ensuring that the settlement was in the best interests of Adams. The court explained that a “best interests” standard, like the one used for approval of minor child settlements, is not appropriate because employees, unlike children, do not occupy a special position.15 The court then held that the correct standard for the circuit court to apply is whether the settlement is “reasonably fair to both parties.”16 The court noted that this is similar to the standard for approval of class action settlements under federal law, where the concerns are similar to the concerns that were raised by Adams about compelling a litigant to accept a settlement offer.
The court went on to hold that the trial court appropriately went about determining whether the settlement was fair. The court noted that settlement decisions are a product of a variety of variables,including litigation costs, settlement costs, the parties’ stakes in the case, and the likelihood of success at trial, and thus are often difficult to quantify and compare. It noted that the case demonstrated that the professional estimations of these variables can vary widely. As a result, it held that the decision of a circuit court that has examined whether the settlement offer is fair deserves wide latitude.17 The court concluded that, based on the summary judgment motion as well as additional materials that the parties submitted after the summary judgment proceeding, the trial court was well-informed of the disputed issues in the case. The supreme court agreed with the worker’s compensation carrier that the summary judgment motion had exposed many of the weaknesses in Adams’ case.18
Finally, the supreme court rejected Adams’ argument that the trial court should have conducted a mini-trial to determine whether the settlement was fair. The court noted that a mini-trial would be unworkable and would greatly diminish the value of a settlement, a main purpose of which is to stop accruing the costs of litigation.19 The court concluded that the trial court’s decision reflected a logical interpretation of the facts and law, not an erroneous exercise of discretion.
The Scope of Application of Adams
Pundits and bloggers from the plaintiff’s bar have reacted to the Adams decision with predictable righteous indignation and dismay, complaining that the decision shuts the courthouse doors for injured workers and keeps them from litigating their third party claims any time the worker’s compensation carrier wants to settle.20 The scope and effect of the decision is much less dire. Adams will likely provide opportunities and leverage to defense counsel in only a limited number of cases.
What must not be forgotten is that the decision simply upheld the right of a worker’s compensation carrier to move (and the trial court to grant) a motion to compel settlement. While the court rejected Adams’ argument that the employee gets special treatment in prosecuting third party claims under Wis. Stat. § 102.29, it did not err in the opposite direction—i.e., it did not hold that the worker’s compensation carrier gets to dictate whether or not a settlement offer should be accepted. The court’s decision does nothing more than enforce the language of the statute—that both the employee and the employer shall have an “equal voice” in prosecuting the claim.
It will likely be the rare case in which a worker’s compensation carrier will even seek to take advantage of Adams. First, the carrier will have to be an active participant in the case. Worker’s compensation carriers are not necessary parties, and oftentimes simply wait on the sideline for their statutory distribution after settlement or trial. Second, the carrier must conclude that a settlement offer is not only worth taking, but also good enough to justify the added time and expense of moving the trial court to compel the injured employee to accept. Generally speaking, the interests of the employee and worker’s compensation carrier will be aligned such that if a worker’s compensation carrier thinks a settlement offer is good, the employee will also likely take that offer, or something close.
That leads to the third circumstance likely necessary for Adams to be relied upon—that the employee and worker’s compensation carrier have widely divergent views on the benefits of accepting the settlement offer. In Adams, the worker’s compensation carrier, trial court, court of appeals, and supreme court all agreed that the summary judgment motion exposed significant weaknesses in the employee’s case. The only person who did not see these weaknesses was the employee himself. If the courts’ evaluation was correct, then the worker’s compensation carrier actually did the employee a favor by advocating for settlement and exercising its rights under Wis. Stat. § 102.29.
Fourth, even assuming that the worker’s compensation carrier is involved in the case, wants to settle, and disagrees with the employee over the settlement offer, the carrier still needs to convince the trial court that the settlement is reasonably fair to both parties. The supreme court noted that some of the things the trial court can take into consideration are the stakes of the parties in the litigation and the likelihood of prevailing at trial. That means that a trial court will be reluctant to force an employee to give up his or her third party claim unless, in addition to the settlement being reasonably fair, there is also a significant chance that the employee would not prevail at trial. Because the employee and worker’s compensation carrier are equal partners in pursuing third party claims, the employee cannot gamble with the worker’s compensation carrier’s money and force it to try a bad case when a better option is available.
The Adams case involved a perfect storm of events that led to the carrier moving to compel the employee to accept the settlement offer, and is likely the reason that the supreme court had not previously dealt with this issue despite the longevity of the Worker’s Compensation Act in Wisconsin. Defense counsel should consider using this case when confronted with a similar confluence of factors: 1) a reasonable worker’s compensation carrier with a large stake actively participating in the litigation; 2) the worker’s compensation carrier wants to accept a settlement that is clearly in the best interests of the carrier and the employee due to weaknesses in the plaintiff’s case; 3) the employee fails to see that settlement is in his or her own best interests; and 4) the trial court is likely to think settlement is a good idea because, for example, a defense summary judgment motion has exposed significant problems with the plaintiff’s case.
Dustin Woehl is a senior staff counsel at Kasdorf Lewis & Swietlik where he practices appellate law, as well as insurance defense, products liability, construction defect, and personal injury litigation in Wisconsin state and federal courts. He frequently presents continuing legal education seminars on a variety of topics, including premises liability, insurance coverage, personal injury litigation, and legal ethics. Mr. Woehl earned his B.A. degree from Carleton College and his J.D. degree from the University of Pennsylvania. He is a member of the State Bar of Wisconsin and Wisconsin Defense Counsel. Mr. Woehl is admitted to practice in the State of Wisconsin, the Eastern and Western Districts of Wisconsin, and the Seventh Circuit Court of Appeals.
References1 2014 WI 79, ___ Wis. 2d ___, 850 N.W.2d 272.
2 Id., ¶ 6.
3 Id., ¶ 18.
4 2011 WI App 90, 334 Wis. 2d 686, 799 N.W.2d 923.
5 263 Wis. 477, 57 N.W.2d 714 (1953).
6 Adams, 2014 WI 79, ¶ 20.
7 Id., ¶ 31 (quoting Wis. Stat. § 102.29).
8 Id., ¶ 34.
9 Vill. Food & Liquor Mart v. H & S Petroleum, Inc., 2002 WI 92, 254 Wis. 2d 478, 647 N.W.2d 177.
10 Bergren v. Staples, 263 Wis. 477, 484, 57 N.W.2d 34 (1953).
11 Id. at 484-85.
12 Adams, 2014 WI 79, ¶ 4.
13 Id., ¶ 58.
14 Id., ¶ 67.
15 Id., ¶ 71.
16 Id., ¶ 72.
17 Id., ¶ 73.
18 Id., ¶¶ 74-75.
19 Id., ¶ 77.
20 See, e.g., Domer Law, “What you need to know about the Adams v. Northland case,” http://www.domerlaw.com/
(last visited 9/29/2014); Domer Law, “Courthouse Door Slammed Shut for
Workers” http://wisworkcompexperts.com/tag/adams-v-northlan... (last visited 9/29/2014).