Opinion
01 Civ. 3688 (RWS).
January 24, 2007
GOULD REIMER WALSH GOFFIN COHN, LLP, Attorney for Plaintiffs, New York, NY, By: Marcia Goffin, Esq.
FROSS ZELNICK LEHRMAN ZISSU, P.C., Attorney for Defendant, New York, NY, By: Mario Aieta, Esq.
OPINION
Plaintiffs Anna Callahan ("Callahan") and North Callahan (collectively, the "Callahans" or "Plaintiffs") have moved for an order of contempt against Defendant The Image Bank ("TIB") and to compel non-party Old Republic Insurance Company ("Old Republic") to consent to the May 22, 2002 settlement of this action approved by order of May 29, 2002. For the reasons set forth below, the motion for contempt is denied, and the motion to compel is construed as an application for judicial approval of the settlement pursuant to section 29(5) of the New York Workers' Compensation Law (the "WCL") and is granted.
Prior Proceedings
Callahan filed a workers' compensation claim in July 1999, alleging that she suffered from post-traumatic stress disorder arising out of and in the course of her employment with TIB. Old Republic, the workers' compensation insurance carrier for TIB, was directed to make payments as of July 10, 1999.
Callahan was also found to be disabled from working by the Social Security Administration, and was initially awarded a social security disability payment of $1,034 per month, commencing in January 2000. The amount has been increased annually and is currently $1,255 per month.
On August 31, 2000, Callahan filed a complaint with the Equal Employment Opportunity Commission ("EEOC") alleging that she had been subjected to harassment on the basis of sex and national origin by individual Defendant Rick Wysocki ("Wysocki") and had been constructively discharged from her employment at TIB. The EEOC issued a right-to-sue letter on February 1, 2001. The complaint in this action (the "Complaint") was filed on May 1, 2001.
On January 30, 2002, the Court granted the motion of Wysocki to dismiss the Complaint against him. Callahan v. Image Bank, 184 F. Supp.2d 362 (S.D.N.Y. 2002) (the "January 30 Opinion"). After more than three months of negotiations, an agreement was reached between TIB and the Plaintiffs to settle the action against TIB. A stipulation of dismissal of the action with prejudice was executed by counsel for the parties on May 22, 2002, subject to the settlement agreement (the "Settlement Agreement"), which was incorporated by reference. The stipulation was so-ordered by the Court on May 29, 2002 (the "May 29 Order").
The instant motions were filed on September 14, 2006. Opposition to the motion to compel was filed by Old Republic, Kodak and C C on October 23, 2006, and opposition to the motion for contempt was filed by TIB on October 26, 2006. The motion was heard and marked fully submitted on November 5, 2006. The Facts
In September 1999, Eastman Kodak Company ("Kodak") sold TIB, its wholly owned subsidiary, to Getty Images, Inc. ("Getty"). Kodak retained responsibility for certain liabilities of TIB that arose prior to the sale, including liability for workers' compensation claims. Pursuant to a pre-existing insurance agreement, Old Republic continued as the workers' compensation insurance carrier on all TIB workers' compensation claims that arose prior to the sale. All such claims were adjusted by third-party administrator Crawford Company ("C C").
The Settlement Agreement contains a general release of all claims of the Plaintiffs against TIB, with the following exclusion:
Exclusion of Workers Compensation Claims. TIB acknowledges that this Release specifically excludes any claims or rights that Anna Callahan may have or that are currently pending under the applicable workers compensation laws, including Chapter 51.04 et seq. of the Revised Code of Washington or the New York State Worker's Compensation Law § 1, et seq.
(Settlement Agreement ¶ 4.2, attached as Ex. 1 to Goffin Aff. of Sept. 14, 2006.) The Settlement Agreement also contains a confidentiality provision, which requires the "Callahans and Mr. Wysocki . . . to keep the amount of this settlement and the terms and contents of this Agreement completely confidential. . . ." (Settlement Agreement ¶ 10.)
On March 21, 2005, C C filed a Request for Further Action with the Workers' Compensation Board ("WCB") pursuant to section 29(5) of the WCL to suspend Callahan's workers' compensation benefits on the grounds that her federal action constituted a third-party action within the meaning of the WCL and that she had failed to obtain court approval or the consent of the insurance carrier as required by section 29(5).
On April 28, 2005, a Workers' Compensation Law Judge ("WCLJ") issued a Notice That Payment Has Been Stopped or Modified, which suspended Callahan's workers' compensation benefits. On July 29, 2005, a WLCJ found that Callahan had not violated the WCL by settling this action. Upon appeal, the WCB issued a Memorandum of Board Panel Decision, dated May 1, 2006 (the "May 1 Decision"), which unanimously reversed the Workers' Compensation Law Judge, holding that Callahan had failed to comply with section 29(5) by settling this action without the consent of Old Republic and that she therefore had forfeited any and all further workers' compensation benefits arising out of her claim against TIB:
The Board Panel finds, based on a review of the entire record, that the claimant's federal discrimination action is a "third party action" within the meaning of the Workers' Compensation Law, subject to the credit and lien provisions of WCL 29, and requiring the carrier's consent to settle. . . . The claimant's federal discrimination action is based on the same nucleus of operative facts as the instant claim for workers' compensation benefits. The decision of the federal court, as set forth above, shows that the injuries and damages for which the claimant sought recovery in that action include the medical expenses and lost wages for which she has been reimbursed by the carrier through the awards made in this compensation claim. Under the circumstances here, the Board Panel finds that the claimant's federal court action is a "third party action" within the meaning of WCL § 29, that the federal court action was settled without the carrier's consent, and therefore the claimant is barred from the receipt of any further awards for medical expenses or indemnity benefits.
(May 1 Decision, at 4, attached as Ex. 2 to Callahan Aff. of July 14, 2006.)
C C paid Callahan more than $121,000 in workers' compensation over a period of 302.6 weeks, along with payment for all of her medical expenses prior to April 25, 2005, when Callahan's workers' compensation benefits were suspended.
TIB Will Not Be Held In Contempt
Plaintiffs ask that an order of contempt be entered against TIB on the grounds that TIB violated the terms of the May 29 Order by (1) allowing Old Republic to contest Callahan's workers' compensation benefits on the basis of the settlement between Callahan and TIB, and (2) disclosing the terms of the Settlement Agreement in the proceedings before the WCB. Neither contention supports the entry of an order of contempt.
A party moving to hold another in civil contempt must prove that "the order that the contemnor failed to comply with is clear and unambiguous, the proof of non-compliance is clear and convincing; and the contemnor was not reasonably diligent in attempting to comply." EEOC v. Local 638, 81 F.3d 1162, 1171 (2d Cir. 1996) (quoting United States v. Local 1804-1, 44 F.3d 1091, 1096 (2d Cir. 1995). A court order is clear and unambiguous when it is "specific and definite enough to apprise those within its scope of the conduct that is being proscribed," New York State NOW v. Terry, 886 F.2d 1339, 1352 (2d Cir. 1989) (quoting In re Baldwin-United Corp., 770 F.2d 328, 339 (2d Cir. 1985)), and "leaves `no uncertainty in the minds of those to whom it is addressed.'" King v. Allied Vision, Ltd., 65 F.3d 1051, 1056 (2d Cir. 1995) (quoting Hess v. New Jersey Transit Rail Operations Inc., 846 F.2d 114, 116 (2d Cir. 1988)).
Plaintiffs have submitted that TIB violated the May 29 Order by "allowing" Old Republic to argue to the WCB that the Settlement Agreement barred further payments to Anna Callahan. The Settlement Agreement expressly excludes Callahan's workers' compensation claims from its scope. There is no evidence to suggest that TIB took any action with respect to Old Republic and the workers' compensation proceeding, in which TIB had no financial interest. Furthermore, no evidence has been presented that Kodak and Old Republic acted at the direction or for the benefit of TIB. Thus, TIB cannot be held in contempt on this ground.
Plaintiffs also have argued that TIB violated the confidentiality provisions of the Settlement Agreement by disclosing its terms and contents in the proceedings before the WCB. The Settlement Agreement states:
The Callahans and Mr. Wysocki agree to keep the amount of this settlement and the terms and contents of this Agreement completely confidential and will not publicize or disclose the conditions, terms, or contents of this Agreement in any manner, whether in writing or orally, to any person, directly or indirectly, or by or through any agent, representative, attorney, or any other person unless compelled to do so by law or except as necessary to effectuate the terms of this Agreement.
(Settlement Agreement ¶ 10.) The confidentiality provisions of the Settlement Agreement expressly apply only to the Callahans and Wysocki; it is not clear that they apply to TIB. Even if the confidentiality provisions were held to apply to TIB, no evidence has been adduced to establish that TIB disclosed the terms of the Settlement Agreement to the WCB or any other entity. Because it has not been shown by clear and convincing evidence that TIB violated any provisions of the Settlement Agreement, an order of contempt will not issue.
The Settlement Will Be Approved Nunc Pro Tunc
Plaintiffs have asked that Old Republic be compelled to consent to the settlement of this action nunc pro tunc to May 29, 2006, in order to satisfy Section 29(5) of the WCL, which "requires either the carrier's consent or a compromise order from the court in which a third-party action [was] pending for a claimant to settle a third-party action and continue receiving compensation benefits." Johnson v. Buffalo Erie County Private Indus, Council, 84 N.Y.2d 13, 19 (N.Y. 1994). As noted above, the WCB concluded that the Plaintiffs' federal action was a third-party action within the meaning of the WCL, and that Callahan's "failure to obtain the written consent of the carrier herein or judicial approval of the settlement" barred her receipt of further workers' compensation benefits.
Plaintiffs have suggested that consent by the employer, in this case TIB, "preserves a plaintiff's right to receive workers' compensation," citing Bernthon v. Utica Mutual Insurance Co., 279 A.D.2d 728 (N.Y.App.Div. 3d Dept. 2001), and Waters v. City of New York, 256 A.D.2d 680 (N.Y.App.Div. 3d Dep't 1998). (Pls.' Reply Mem. at 7 n. 2). This argument was rejected by the WCB, which noted that for settlement of third-party actions, section 29(5) requires "`the written approval of the person, association, corporation, or insurance carrier liable to pay' compensation" and that therefore "the employer's consent is irrelevant" in this case. (May 1 Decision, at 3.)
Plaintiffs have cited no precedent for an order compelling a non-party to consent to a settlement, and the cases cited in support of their motion address the issue of when a compromise order may issue nunc pro tunc. Accordingly, the instant motion will be construed as an application for judicial approval of the Settlement Agreement nunc pro tunc. This Court has jurisdiction to approve the Settlement Agreement pursuant to section 29(5). N.Y. Workers' Comp. Law § 29(5) (McKinney 2006) ("[W]ritten approval of . . . the insurance carrier need not be obtained if the employee . . . obtain[s] a compromise order from a justice of the court in which the third-party action was pending."); see also Kusiak v. Commercial Union Assurance Cos., 49 A.D.2d 122, 125 (N.Y.App.Div. 4th Dep't 1975) ("[T]he court in which the action Was [sic] pending retains jurisdiction to issue a compromise order even after a settlement is finalized and the third-party action is no longer pending.").
Federal and New York State courts have held that judicial approval of a settlement may be granted nunc pro tunc where "the settlement is reasonable, . . . the delay in applying for an order of approval was not caused by petitioner's fault or neglect, and . . . the workers' compensation carrier was not prejudiced by the delay." Wilbur v. Utica Mut. Co., 228 A.D.2d 928, 929 (N.Y.App.Div. 3d Dep't 1996); see also Oga v. Loh, 603 F. Supp. 1354, 1356 (S.D.N.Y. 1985) (citing Balkam v. Miesemer, 74 A.D.2d 629 (N.Y.App.Div. 2d Dep't 1980); Ikewood v. Aetna Life Cas. Of Hartford, 439 N.Y.S.2d 87 (Monroe County Sup. Ct 1981)). "Resolution of an application for judicial approval of a settlement pursuant to [section] 29(5) is committed to the discretion" of the court. Hargrove v. Becom Real, Inc., 287 A.D.2d 598, 598 (N.Y.App.Div. 2d Dep't 2001).
A. Any Delay Was Not Caused By Plaintiffs' Fault Or Neglect
"[T]he reason for the delay, rather than its length, determines the timeliness of the motion for a nunc pro tunc compromise order." Oga, 603 F. Supp. at 1356-57 (citing Balkam, 425 N.Y.S.2d at 169; Ikewood, 439 N.Y.S.2d at 89). Plaintiffs' counsel has affirmed that although she was aware at the time the Settlement Agreement was executed that TIB had been sold to Getty in November 1999, it was not until October 16, 2006 that she learned that Kodak had retained liability for TIB workers' compensation claims that arose prior to the sale. (Goffin Decl. of October 27, 2006, ¶¶ 2-3.) Absent this knowledge, there was no reason for Plaintiffs to believe that their federal action was a third-party action within the meaning of section 29(5), and thus no reason to seek the consent to the Settlement Agreement of Old Republic, Kodak or C C, until the decision of the WCB on May 1, 2006.
Old Republic contends that the instant application for judicial approval should have been brought immediately following the suspension of Callahan's benefits on April 28, 2005, or, at the latest, within a short time after the termination of Callahan's benefits by the WCB on May 1, 2006. Plaintiffs' failure to seek the consent of Old Republic between April 28, 2005 and May 1, 2006 is justified in light of the July 29, 2005 decision by a WLCJ that section 29(5) did not apply to the settlement of the federal action. See McCaffrey v. James L. Lewis, Inc., 225 A.D.2d 981, 982 (N.Y.App.Div. 3d Dep't 1996) (noting that "[t]he initial determination of the WCLJ . . . that carrier consent was not required remained the law of the case until it was overturned by the WCB" and upholding nunc pro tunc approval of settlement where petition was brought promptly following the decision of the WCB). Plaintiffs filed the instant motion on September 14, 2006, within five months of the decision of the WCB on May 1, 2006. Delays of this length have been held reasonable under section 29(5). See, e.g., Oga, 603 F. Supp. at 1357 (approving settlementnunc pro tunc although motion was not filed until eight months after final decision of the WCB); Ikewood, 439 N.Y.S.2d at 89 (approving settlement after five-month delay). In light of the circumstances presented, it is determined that any delay in filing the instant motion was not due to any fault or neglect on the part of Plaintiffs.
B. Old Republic Has Not Been Prejudiced By Any Delay
In their opposition to the motion, Old Republic, Kodak and C C have contended that they have been prejudiced by Plaintiffs' delay in seeking judicial approval of the Settlement Agreement because, not having been involved in the settlement negotiations, they "were left with no opportunity whatsoever to assess the reasonableness of the settlement, protect themselves from an imprudent settlement on the part of Plaintiff[s], nor protect and/or ensure the priority of a workers' compensation lien." (Mem. Opp. at 12.) These parties also have argued that they have been prejudiced by the fact that Callahan has received a double recovery, in that the "injuries and damages for which the [Plaintiff] sought recovery in [the federal] action include the medical expenses and lost wages for which she has been reimbursed by the carrier through the awards made in this compensation claim." (Id. (quoting May 1 Decision at 4).)
However, judicial approval of a settlement is a statutory alternative to approval by the insurance carrier. N.Y. Workers' Comp. Law § 29(5) ("[W]ritten approval of . . . the insurance carrier need not be obtained if the employee . . . obtain[s] a compromise order from a justice of the court in which the third-party action was pending."); Kusiak, 49 A.D.2d at 125 (noting that "court approval of the compromise dispenses with the need for approval by the compensation insurer" (citing Schnabel v. Grimes, 31 A.D.2d 375, 377 (N.Y.App.Div. 2d Dep't 1969))).
A copy of the papers to be used on the application to compromise and settle the claim must be served . . . upon the . . . insurance carrier, whose written approval would have been required to compromise such cause of action by the employee or his dependents. This notice shall afford them the opportunity to submit affidavits and to be heard by the court on the application.
N.Y. Workers' Comp. Law § 29(5). Having received notice of the application, submitted papers in opposition, and been given an opportunity to be heard, Old Republic has had full opportunity to contest the reasonableness of the settlement, and no prejudice can flow from Plaintiffs' delay in making the instant application. See Ikewood, 439 N.Y.S.2d at 89 (finding no prejudice based on "lack of notice at the time the settlement was made" as such notice "is not required by statute"). But see Wilbur, 228 A.D.2d at 929 (finding prejudice where carrier "was not given the opportunity to participate in the settlement negotiations or approve the settlement"). Any concerns the carrier may have regarding the terms of the settlement should be addressed as part of the reasonableness inquiry. Cf. Kusiak, 49 A.D.2d at 125 ("An employee who finalizes the settlement without approval or consent of the insurance carrier and prior to seeking a judicial compromise order runs the risk of having his application for a compromise order rejected by the court. . . ."). To the extent that the decision of the Third Department in Wilbur suggests that the lack of an opportunity for the carrier to influence or approve the settlement is sufficient to demonstrate prejudice, it is contrary to prior state-law precedent.
Old Republic's concerns regarding the priority of its lien and a double recovery by Callahan also fail to show prejudice. The Appellate Division has noted that under section 29(1) and (4) of the WCL, an insurance carrier "has a lien and offset against a claimant's net recovery resulting from a third-party action."Waters v. City of New York, 256 A.D.2d 680, 681 (N.Y.App.Div. 3d Dep't 1998). Although Callahan has received funds from the settlement in addition to benefits paid by Old Republic, there is no threat of a double recovery, and thus "no prejudice to the carrier because it retains the right to offset any future compensation benefits by the amount of the plaintiff's net recovery." Neblett v. Davis, 260 A.D.2d 559, 560 (N.Y.App.Div. 2d Dep't 1999). See also Parmalee v. Int'l Paper Co., 157 A.D.2d 878, 878 (N.Y.App.Div. 3d Dep't 1990) (noting that employer was not estopped "from asserting the right to an offset against future benefits").
C. The Settlement Agreement Is Reasonable
Plaintiffs have contended that the Settlement Agreement is reasonable because Callahan was suffering extreme emotional distress and was anxious and fearful about testifying at trial, and because of concerns regarding the strength of Plaintiffs' case against TIB. Old Republic has argued that the claims regarding Callahan's emotional state are not credible, and that Plaintiffs' assessment of the likelihood of success on the merits is both irrelevant and contradicted by Callahan's own testimony.
When considering applications for judicial approval of a settlement pursuant to section 29(5), "a liberal standard is applied in determining whether a settlement is reasonable."Snyder v. CNA Ins. Cos., 306 A.D.2d 677, 678 (N.Y.App.Div. 3d Dep't 2003). Factors that have been considered in making this determination include the nature of the plaintiff's injuries, the likelihood of success on the merits, and the potential liability and concerns of the insurance carrier. See Snyder, 25 A.D.3d at 1056; Neblett, 260 A.D.2d at 560; Davison v. Chem. Leaman Tank Lines, Inc., 136 A.D.2d 937, 938 (N.Y.App.Div. 4th Dep't 1988);Kusiak, 49 A.D.2d at 126; Ikewood, 439 N.Y.S.2d at 89.
Old Republic contends that a settlement cannot be considered reasonable based solely on a plaintiff's subjective concerns about the merits of her case. Plaintiffs do not dispute this assertion, but contend that the Settlement Agreement was objectively reasonable. Specifically, they note that there were indications that TIB would pursue a statute of limitations defense and that Plaintiffs' Title VII claims could be subject to dismissal due to Callahan's failure to avail herself of remedial measures. These arguments are compelling, particularly given that the January 30 Opinion dismissed Plaintiffs' claim against individual Defendant Wysocki on statute of limitations grounds, and given that Old Republic has failed to address the merits of the defenses available to TIB in this action.
Old Republic also has argued that the Settlement Agreement is unreasonable because Callahan has stated that "$90,000 was not a true reflection of the extent of the pain and suffering I experienced as a result of the discriminatory treatment I was subjected to." (Callahan Aff. ¶ 17.) Just as a plaintiff's subjective assessment of her likelihood of success is not determinative of the reasonableness inquiry, Callahan's subjective estimation of the amount necessary to compensate her for her alleged injuries cannot substitute for an objective decision whether the Settlement Agreement was reasonable.
Although the liabilities incurred by Old Republic in this case are substantial, it is determined that the Settlement Agreement is reasonable in light of the circumstances. Because, as noted above, any delay in filing the instant motion was not due to the fault or neglect of Plaintiffs and caused no prejudice to Old Republic, Kodak and C C, the Settlement Agreement is hereby approved.
Conclusion
For the reasons set forth above, the motion of Plaintiffs for an order of contempt against TIB is denied, and the motion to compel is construed as an application for judicial approval of the Settlement Agreement and is granted.
It is so ordered.