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January 28, 1999

NO. 4-98-0120

IN THE APPELLATE COURT

OF ILLINOIS

FOURTH DISTRICT

Plaintiff William B. Mosier was employed by plaintiffLong-Airdox Company (Long-Airdox). In November 1982, Mosier wasinjured while hanging sheet metal at Elkhart Mine. Mosier receivedapproximately $346,000 in workers' compensation payments from Long-Airdox. In December 1991, Mosier filed a legal malpractice actionagainst his attorney, defendants Warren E. Danz, individually, andWarren E. Danz, P.C. (collectively, Danz), alleging negligence andbreach of contract in failing to investigate and file suit againstthird parties responsible for Mosier's injury. Long-Airdox waspermitted to intervene but was denied protection of a workers'compensation lien against any recovery Mosier might receive fromDanz. Long-Airdox now appeals this order pursuant to a findingunder Supreme Court Rule 304(a) (155 Ill. 2d R. 304(a)). Weaffirm.

Mosier's first amended complaint, filed in July 1992,alleged that he had retained Danz to pursue whatever claims hemight have for injuries suffered in his employment-relatedaccident. He alleged breach of contract and negligence, claimingthat Danz had failed to (1) investigate his claims against anythird parties, (2) file suit on Mosier's behalf based uponnegligence and/or the Structural Work Act (Ill. Rev. Stat. 1981,ch. 48, pars. 60 through 69), and (3) advise Mosier of the applicable statute of limitations in filing suit against third parties.

Long-Airdox filed a petition to intervene in July 1997. That petition was allowed, and Long-Airdox was granted leave tofile a motion for protection of its lien under section 5(b) of theWorkers' Compensation Act (Act) (820 ILCS 305/5(b) (West 1996)). Danz and Mosier objected to the motion, based upon a decision ofthe Fifth District Appellate Court in Woodward v. Pratt, Bradford& Tobin, P.C., 291 Ill. App. 3d 807, 684 N.E.2d 1028 (1997). Thetrial court entered an order on January 12, 1998, in which it foundthe amount of Long-Airdox's lien to be $346,759.77. In denying themotion for protection of the lien, the trial court stated it wasrequired to follow the Woodward decision.

Section 5(b) of the Act provides in pertinent part:

"Where the injury or death for which compensation is payableunder this Act was caused under circumstances creating a legalliability for damages on the part of some person other than hisemployer to pay damages, then legal proceedings may be takenagainst such other person to recover damages notwithstanding suchemployer's payment of or liability to pay compensation under thisAct. In such case, however, if the action against such otherperson is brought by the injured employee or his personalrepresentative and judgment is obtained and paid, or settlement ismade with such other person, either with or without suit, then fromthe amount received by such employee or personal representativethere shall be paid to the employer the amount of compensation paidor to be paid by him to such employee or personal representativeincluding amounts paid or to be paid pursuant to paragraph (a) ofSection 8 of this Act. ***

***

If the injured employee or his personal representative agreesto receive compensation from the employer or accept from theemployer any payment on account of such compensation, or toinstitute proceedings to recover the same, the employer may have orclaim a lien upon any award, judgment or fund out of which suchemployee might be compensated from such third party.

***

In the event the employee or his personal representative failsto institute a proceeding against such third person at any timeprior to 3 months before such action would be barred, the employermay in his own name or in the name of the employee, or his personalrepresentative, commence a proceeding against such other person forthe recovery of damages on account of such injury or death to theemployee, and out of any amount recovered the employer shall payover to the injured employee or his personal representatives allsums collected from such other person by judgment or otherwise inexcess of the amount of such compensation paid or to be paid underthis Act ***." 820 ILCS 305/5(b) (West 1996).

Long-Airdox concedes that it did not file suit againstany third persons who may have been responsible for Mosier'sinjuries, as permitted by section 5(b) of the Act.

One of the purposes of that section is to prevent theemployee from obtaining a double recovery from the employer and athird-party tortfeasor. Kozak v. Moiduddin, 294 Ill. App. 3d 365,369, 689 N.E.2d 217, 221 (1997). Long-Airdox contends that such adouble recovery will result here if it is not allowed to assert alien under the Act. It argues that should Mosier prevail in hissuit against Danz, he will, in effect, be compensated for theinjuries caused by the third-party tortfeasor because it will benecessary for Mosier to prove that he would have recovered from thetortfeasor had his lawsuit been filed by Danz. A legal malpracticeaction has been referred to as a "suit within a suit," i.e., theattorney stands in the shoes of the third-party tortfeasor tocompensate the plaintiff for his injury. The objective is toestablish what the result should have been had the case been filed. Nika v. Danz, 199 Ill. App. 3d 296, 308, 556 N.E.2d 873, 882(1990).

Danz argues that Mosier will not receive a doublerecovery in the legal malpractice action because, in the underlyingaction against the tortfeasor, Mosier's recovery would have beenreduced by the amount of Long-Airdox's section 5(b) lien. Danzasserts that Mosier can recover no more in the legal malpracticeaction than he would have in the underlying action. In Moores v.Greenberg, 834 F.2d 1105 (1st Cir. 1987), an employee sued hisattorney for failure to relay to him a $90,000 settlement offer inhis personal injury action against a third-party tortfeasor. Thejury was instructed that, in awarding damages, it should subtractthe contractual attorney fee of one-third of the recovery. Theappellate court found this proper, noting that, had his attorneynot been negligent, the employee would have received only $60,000from the settlement. The court also held that the amount ofrecovery in the legal malpractice case was properly reduced by theamount of workers' compensation paid to the employee for which theemployer would have had a subrogation lien on any recovery from thethird-party tortfeasor. Moores, 834 F.2d at 1114.

Here, the trial court found that the amount of Long-Airdox's lien in the underlying action would have been $346,759.77. Since Mosier may recover in the legal malpractice action only thatwhich he would have recovered in the underlying action, the amountof Long-Airdox's lien would be set off by the trial court from anydamages awarded to Mosier from Danz. Thus, Mosier would notreceive a double recovery. We note that at oral argument in thiscase, Mosier's counsel agreed that the amount of Long-Airdox'ssection 5(b) lien would have to be deducted from any damagesrecovered from Danz.

Long-Airdox cites a federal case from the Seventh CircuitCourt of Appeals in support of its argument that it is entitled toassert a lien in the instant case. In Williams v. Katz, 23 F.3d190 (7th Cir. 1994), the employee brought a legal malpracticeaction against his former attorneys, charging they were negligentin allowing the statute of limitations to expire on a claim againstdoctors who treated him for a work-related injury. It was allegedthe injury had been aggravated by the doctors' negligent failure toproperly diagnose the injury. The employer, who had paid benefitsunder the Act, sought to intervene and assert its section 5(b) lienon any recovery by the employee from his attorneys. The districtcourt denied intervention and the employer appealed. The appealscourt rejected the employee's argument that, because the attorneysdid not injure his arm, any damages he recovers from them would notbe subject to the employer's lien under the Act, stating:

"[The Act] recognizes an employer's lien whenever the injuryoccurred 'under circumstances creating a legal liability fordamages on the part of some person other than his employer to paydamages.' The injury to [the employee] occurred in circumstancesthat made his lawyers potentially liable for the consequences ofthe injury. This can be seen by considering the nature of thedamages that [the employee] seeks to recover from them. He seeksexactly the same damages that he would have sought from the doctorshad he been able to bring a timely suit against them--the medicalexpenses, the lost earnings, the disfigurement, the pain andsuffering, caused by the negligent doctors." (Emphasis in original.) Williams, 23 F.3d at 192-93.

The Williams court found that the lien provision ofsection 5(b) of the Act is intended to prevent a windfall to theemployee and noted that this provision enables the damages from anindustrial accident to be apportioned among the actual victims. Inthis case, the court stated, the employer may have been a victim ofthe doctors' negligence, as it may have had to pay out additionalbenefits to the employee caused by that negligence. The courtnoted that although the statutory language of section 5(b) of theAct does not clearly include legal malpractice claims, neither doesit exclude them. Williams, 23 F.3d at 193.

Long-Airdox also relies on Kozak, a first district casewhere an employee suffered an injury to his foot and ankle whileworking for his employer, Yellow Freight. Yellow Freight settledthe employee's workers' compensation claim. The employee thereafter filed a medical malpractice claim against a medical doctor andDr. Rembos, a podiatrist. Yellow Freight sought to intervene toclaim its lien on the employee's recovery. Rembos sought to joinYellow Freight as a third-party defendant for contributionpurposes. Yellow Freight successfully moved for dismissal of thethird-party claim, arguing that the employee's initial injury wasseparate and distinct from the injury caused by the doctors'negligent treatment. The employee then moved to dismiss YellowFreight as an intervenor, arguing that if the two injuries wereseparate and distinct, Yellow Freight had no right to a workers'compensation lien on any recovery from the doctors. The trialcourt granted the motion, finding that the doctrine of judicialestoppel applied to bar Yellow Freight from asserting its lien.

On appeal, the appellate court found the doctrine ofjudicial estoppel inapplicable and held that Yellow Freight wasentitled to a lien on any recovery the employee might obtainagainst the doctors, reasoning:

"In the present case, [the employee] was injured during thecourse of his employ at Yellow Freight, an injury that he allegesDr. Rembos exacerbated by his negligent treatment. Before YellowFreight knew of the plaintiffs' medical malpractice claims, itagreed to pay compensation for [the employee's] medical expenses,temporary total disability and permanent partial disability--asrequired by [the Act]. Shortly after the settlement, plaintiffsfiled the present action seeking compensation for, among otherthings, medical expenses, loss of mobility, and disability, as wellas loss of earnings and earning capacity. In our opinion, thesedamages translate roughly into medical expenses, temporary totaldisability and permanent partial disability caused by themalpractice. Under these facts, the distinct possibility existsthat Yellow Freight already paid compensation benefits to [theemployee] for damages that actually arose from Dr. Rembos' allegedmedical malpractice; thus, Yellow Freight paid compensation for aninjury (the negligent treatment) 'caused under circumstancescreating a legal liability for damages on the part of [Dr. Rembos]to pay damages.' Accordingly, Yellow Freight should remain free toassert its lien under section 5(b), in order to prevent [theemployee] from securing a double recovery." Kozak, 294 Ill. App.3d at 369-70, 689 N.E.2d at 221.

The Kozak court cited the Williams case with favor,although noting that, in Williams, the employer's lien was on arecovery for an injury twice removed from the original workplaceinjury. Kozak, 294 Ill. App. 3d at 371, 689 N.E.2d at 221-22.

The Kozak case does not support Long-Airdox's position. There, the physician against whom the employee filed suit hadcontributed to the original injury through his malpractice. Thus,Yellow Freight's liability to the employee for workers' compensation payments was increased by the actions of the physician. Inthe instant case, any alleged malpractice on Danz's part is notrelated to Mosier's original injury for which Long-Airdox paidcompensation. The Williams court, in reaching its decision, failedto heed the plain language of section 5(b) of the Act. Therefore,neither Kozak nor Williams supports Long-Airdox's argument.

The Fifth District Appellate Court has spoken directly tothe issue posed in our case. In Woodward, 291 Ill. App. 3d 807,684 N.E.2d 1028, relied on by the trial court here, the employer'sworkers' compensation carrier, Home Insurance Company (Home), paidworkers' compensation benefits to Woodward, its insured's employee. A law firm (Pratt) retained by Woodward to represent him filed suitagainst the third-party tortfeasor (Crown) on grounds of strictliability and negligence in the design and manufacture of a pallettruck being operated by Woodward at the time of his injury. Ultimately, that case was removed to federal district court anddismissed on grounds that the statute of limitations had expired. Woodward sued Pratt for legal malpractice. Home was allowed tointervene and file its lien against any recovery Woodward mightreceive from Pratt. On Woodward's motion, the trial courtdismissed the claim on the ground that any recovery in themalpractice case was not subject to Home's lien.

On appeal, Home argued that section 5(b) of the Act isakin to a common law right of subrogation and its purpose is toprevent a double recovery. The appellate court held that Home'slien did not attach to a potential recovery by Woodward from Prattfor legal malpractice. The court noted that section 5(b) of theAct grants the employer two distinct rights--a lien on any recoveryby the employee against a tortfeasor that caused the injury and aright to file suit against the tortfeasor if the employee has notdone so prior to three months before the limitations periodexpires. In the latter case, the employee's right of action istransferred to the employer, who may then file the same suit theemployee could have filed against the tortfeasor. The court lookedto the statutory language of section 5(b) of the Act in determiningthat Pratt did not cause the injury to Woodward that led to theworkers' compensation payments. The lien of the employer attachesto any award out of which the employee might be compensated from"such third person." That third person is the "injurer," i.e., Crown, whose acts or omissions caused the right to workers'compensation benefits to accrue. The cause of action held byWoodward against Pratt is not for "injury" or "death," as contemplated by section 5(b) of the Act. Once the limitations periodexpires, both the employee and the employer lose their cause ofaction for injury or death. The nature of the cause of actionagainst allegedly negligent attorneys is for pecuniary injuries tointangible property interests. That cause of action is personaland not assignable; it cannot be transferred to the employer, ascontemplated by section 5(b) of the Act. Thus, the employer has noright to file the employee's suit for legal malpractice against theemployee's attorney. No attorney-client relationship existedbetween Home and Pratt, and Pratt owed no duty to Home. A failureto timely file a suit against Crown is therefore not a proximatecause of any injury to Home. Woodward, 291 Ill. App. 3d at 814-15,684 N.E.2d at 1033.

In a very recent case, the First District Appellate Courthas held that an employer is not entitled to be reimbursed from theproceeds of a legal malpractice action for compensation paymentsmade under the Act. In Eastman v. Messner, No. 1-98-1013,(December 15, 1998), ___ Ill. App. 3d ___, ___ N.E.2d ___, theemployer's insurer paid the employee workers' compensation paymentsfor a work-related injury. The employee retained an attorney tofile a personal injury action. However, the attorney failed tofile suit within the period of the statute of limitations and theemployee sued the attorney for malpractice. The insurer's petitionto intervene and assert a lien under section 5(b) of the Act wasrejected by the trial court. The appellate court affirmed, citingthe Woodward case and relying on the plain language of section 5(b)of the Act. The court held that the injury involved in the legalmalpractice case is not the injury "for which compensation ispayable" under the Act. Eastman, slip op. at 7.

We agree with the Woodward and Eastman courts that anemployer is not entitled to a workers' compensation lien in a legalmalpractice case. Although Long-Airdox urges us to follow Williamsand construe the statute in a manner that would allow such a lien,the statutory language cannot reasonably be read to support such aconstruction. The analysis in Woodward makes this clear:

"There is no lien except by virtue of the statute. The courtcannot create a lien not provided for by the statute, no matter howdesirable the court may believe that result to be. [Citation.] Paragraph 1 of section 5(b) states that '[w]here the injury ordeath for which compensation is payable under this Act was causedunder circumstances creating a legal liability for damages on thepart of some person other than his employer to pay damages'(emphasis added) (820 ILCS 805/5(b) (West 1994)), a lien arisesagainst any recovery from such other person. The plaintiff'sallegedly negligent lawyers did not cause the injury that led tocompensation payments. The third paragraph of section 5(b) statesthat 'the employer may have or claim a lien upon any award *** outof which such employee might be compensated from such third party.' (Emphasis added.) 820 ILCS 305/5(b) (West 1994). This third partyis the 'injurer' whose acts or omissions caused the expenditure ofmedical and hospital payments [citation], not the lawyer who wasallegedly negligent in failing to sue the injurer." Woodward, 291Ill. App. 3d at 814, 684 N.E.2d at 1033.

CONCLUSION

We therefore conclude that an employer may not assert alien under section 5(b) of the Act against damages received by itsemployee from the employee's attorney in a legal malpracticeaction. Accordingly, the trial court's order denying Long-Airdox'smotion for protection of lien is affirmed.

Affirmed.

KNECHT, P.J., and STEIGMANN, J., concur.