Opinion
FSTCV116011525S.
11-02-2012
WESTPORT DENTAL ASSOCIATES, P.C. v. Jeffrey COOPER et al.
UNPUBLISHED OPINION
DAVID R. TOBIN, Judge.
The plaintiff, Westport Dental Associates, P.C., filed this suit against the defendants, Jeffrey Cooper, Zeldes, Needle & Cooper, P.C. and Anne Sabo, on October 7, 2011 seeking reimbursement pursuant to a lien claimed under General Statutes § 31-293 for workers' compensation payments made to its employee, Anne Sabo. The plaintiff's complaint alleges that the payments were made to Sabo for injuries that she suffered as a result of the negligence of the third-party tortfeasors, Amalgamated Realty Company, LLC and Hanley's Excavating, LLC. The plaintiff's complaint asserts that since Sabo has received a settlement award from the third-party tortfeasors above the amount that she received from the plaintiff in workers' compensation payments and that it is entitled to payment in the amount of the statutory lien created by § 31-293. The complaint alleges that despite notice to the defendants of its lien and demands for reimbursement, the defendants have placed funds in the amount of the lien in an escrow account and have refused to pay them over to the plaintiff. The plaintiff claims that these actions constitute a conversion of its property.
On November 23, 2011, the defendants filed a motion to dismiss the plaintiff's complaint on the grounds that: (1) the plaintiff lacks standing in that § 31-293 does not grant the plaintiff authority to bring suit against the employee or her representing attorney; and (2) the court lacks subject matter jurisdiction. The court (Adams, J.T.R.) denied the motion to dismiss, holding that " pursuant to § 31-293(a), an employer may assert a lien against an employee on that employee's settlement or judgment against third party tortfeasors up to the amount of workers' compensation benefits that the employer made to the employee, even if the employer initially intervened in the employee's case against the tortfeasors and subsequently withdrew its appearance before the parties reached a settlement." Westport Dental Associates, P.C. v. Cooper, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 11 6011525 (June 18, 2012, Adams, J.T.R.) (54 Conn. L. Rptr. 187, 190).
Presently before this court is the defendants' motion to strike, which they filed on July 2, 2012. In this motion, the defendants move to strike Counts Two, Three and Four of the plaintiff's complaint, each claiming conversion by a different defendant, on the ground that the plaintiff's conversion claims are based on its claimed statutory lien pursuant to § 31-293 and that the mere act of withholding such funds cannot furnish a basis for a cause of action for conversion. The defendants also move to strike that portion of the plaintiff's prayer for relief seeking costs and attorneys fees on the ground that there is no statutory or common-law basis for a claim of costs or attorneys fees. The plaintiff filed a memorandum of law in opposition to the defendants' motion, to which the defendants filed a reply memorandum. The matter was heard at the short calendar on September 10, 2012.
DISCUSSION
" The purpose of a motion to strike is to contest ... the legal sufficiency of the allegations of any complaint ... to state a claim upon which relief can be granted." (Internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003). " A motion to strike admits all facts well leaded; it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings." (Emphasis in original; internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 588 (1997). " It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ... Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically." Internal quotation marks omitted.) Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252-53 (2010). The court must " construe the complaint in the manner most favorable to sustaining its legal sufficiency." Internal quotation marks omitted.) American Progressive Life & Health Ins. Co. of New York v. Better Benefits, LLC, 292 Conn. 111, 120 (2009). " A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged." (Internal quotation marks omitted.)
Conversion Counts
In support of their motion to strike Counts Two, Three and Four of the complaint, the defendants make the following argument. The plaintiff's complaint alleges that the defendants have placed the portion of the recovery equal to the amount of the plaintiff's workers' compensation lien into an escrow account. Since the funds are in an escrow account, the defendants are not exercising ownership over the proceeds and did not convert the plaintiff's property for their own use. The refusal of access to funds arguably subject to a lien, without more, does not constitute conversion. Otherwise a cause of action for conversion would arise every time a party disputed the validity or amount of a lien. The fact that the defendants are disputing the plaintiff's claim does not, ipso facto, make their refusal to pay over the funds a tortious conversion. Moreover, the plaintiff is alleging a lien on the defendants' settlement proceeds. When a lien is imposed, the relationship between the parties is one of debtor and creditor, and claims of conversion are precluded under a debtor-creditor relationship. There is no distinction between a statutory lien and a workers' compensation lien for purposes of defining the relationship between the parties as a debtor and creditor. The fact that the plaintiff may have a constitutional right to pursue its alleged lien does not alter the legal conclusion that a lien cannot be the basis for a conversion claim.
In opposition to the motion, the plaintiff makes the following arguments. The plaintiff has requested the defendants to reimburse the plaintiff for its lien and the defendants have refused to do so, holding the funds in an escrow account held and managed by Zeldes, Needle & Cooper. Accordingly, the defendants' actions amount to a conversion. Furthermore, the plaintiff's lien is statutory, arises automatically upon the filing of certified lien letters to the tortfeasors and takes precedence over any funds being distributed to employees under the statute. Therefore, the plaintiff's lien is the equivalent of legal ownership and is not simply an obligation to pay money, such as in a debtor-creditor relationship. Thus, a claim for conversion is appropriate in this case and the motion to strike should be denied.
General Statutes § 31-293(a)
provides in relevant part: " Notwithstanding the provisions of this subsection, when any injury for which compensation is payable under the provisions of this chapter has been sustained under circumstances creating in a third person other than the employer a legal liability to pay damages for the injury and the injured employee has received compensation for the injury from his employer or its workers' compensation insurance carrier pursuant to the provisions of this chapter, the employer or insurance carrier shall have a lien upon any judgment received by the employee against the third party or any settlement received by the employee from the third party, provided the employer or insurance carrier shall give written notice of the lien to the third party prior to such judgment or settlement." " [T]he scope of an employer's lien is coextensive with that of an employer's ‘ claim, ’ as defined by § 31-293(a) ... and, therefore, includes a credit for unknown, future workers' compensation benefits in the amount of the net proceeds that the injured employee recovers from a third party tortfeasor." Thomas v. Dept. of Developmental Services, 297 Conn. 391, 405 (2010). " Although ... the terms ‘ claim’ and ‘ lien’ are not synonymous ... [a] lien is a property interest ... whereas the term ‘ claim’ refers to the amount of money a party is owed or to a right to payment ... Consequently, an employer's ‘ claim, ’ as that term is used in § 31-293(a), necessarily defines the scope or extent of the employer's ‘ lien.’ " (Citations omitted; internal quotation marks omitted.) Id., at 408.
Although the law is clear that an employer who has paid workers' compensation to an employee who has a claim for damages against a third-party tortfeasor may assert a lien upon a settlement received by that employee, the defendants contend that such a lien gives rise to a debtor-creditor relationship between the employer and employee, which thus precludes the employer from bringing a claim against the employee or its agents for conversion of the settlement proceeds. In support of this argument, the defendants rely on Warren Equities, Inc. Employee Benefit Plan v. Safeco Ins. Co. of Illinois, Superior Court, judicial district of Hartford, Docket No. CV 09 5030868 (November 10, 2010, Sheldon, J.) (51 Conn. L. Rptr. 24). In that case, the plaintiff, an employee welfare benefit plan that covered the injured third-party defendant, alleged that the plan allowed it to recover from any covered person who received a payment from a responsible party or insurer for any injury when the plan had paid for the covered person's injury. The plaintiff further claimed that the plan also allowed it to have an automatic lien to the extent of benefits paid by the plaintiff for the treatment of the illness, injury or condition for which the responsible party was liable. The plaintiff paid the third party's medical expenses arising from the accident and informed the tortfeasor's insurance provider, the defendant, of its claim against the tortfeasor for the third party's medical expenses. The defendant settled the third party's claim and distributed the settlement proceeds directly to her. The plaintiff then imposed a lien on those settlement proceeds and subsequently brought suit against the defendant for conversion of the settlement funds because the plaintiff was the true owner of those funds, to the extent of its right to reimbursement from the third party for the medical payments that it made on her behalf, and because the defendant failed to obtain the plaintiff's permission before distributing the funds to the third party. The defendant filed a motion for summary judgment with respect to the plaintiff's conversion claim.
In granting the defendant's motion, the court employed the following syllogism: when a lien is imposed, the relationship between the parties is one of debtor and creditor; conversion claims cannot be maintained when the relationship between the parties is one of debtor and creditor; accordingly, a conversion claim cannot be based on a lien. Id., at 26. The court specifically held: " The conversion claim fails because (1) in a debtor-creditor situation, conversion claims are precluded and (2) an action for conversion is precluded when it is premised merely on an obligation to pay money." Id. The court further reasoned that the plaintiff's conversion claim could not be brought because the defendant was not in possession of the funds to which the plaintiff alleged it was entitled since the defendant already had disbursed the funds to the third party. Id. The court concluded that " there is no genuine issue of material fact that, by bringing [the conversion] claim, the plaintiff is merely seeking to recover damages on a debt, which is not actionable as conversion in this State. Absent an ownership or possessory interest in the particular portion of the settlement funds which represented reimbursement for medical expenses that the plaintiff had already paid on [the third party's] behalf, the payment of those funds to [the third party] instead of to the plaintiff did not constitute the conversion of those funds." Id., at 26-27.
In rendering its decision, the court in Warren Equities heavily relied on Mystic Color Lab, Inc. v. Auctions Worldwide, LLC, 284 Conn. 408 (2007). In Mystic, the court stated that " a claim for conversion may be brought when the relationship is one of bailor and bailee but not when it is one of debtor and creditor." Id., at 419. However, in Berlin Commerce Park Associates v. People's United Bank, Superior Court, complex litigation docket at Hartford, Docket No. X04 CV 106008952 (July 11, 2011, Shapiro, J.) (52 Conn. L. Rptr. 321, 325), the court held that " [a] conversion action may be brought by a lienholder." The court distinguished Mystic, explaining that " Mystic Color Lab ... does not hold to the contrary. In Mystic ... the subject of the action was monetary proceeds of an auction which the plaintiff claimed was money owed by the defendant/ auctioneer to the plaintiff on a debt ... Here ... personal property, machinery and equipment, was allegedly subject to [the plaintiff's] security interest and converted." (Citations omitted.) Id., at 326. Further conflicts with Warren Equities are presented by Unigard Ins. Co. v. Tremont, 37 Conn.Supp. 596 (App.Sess.1981). In that case, the court first held that General Statutes (Rev. to 1979) § 38-325(b) imposed a lien on the proceeds of the claimant's recovery and that such a lien applied under the facts of this case. Id., at 598-99. The court then proceeded to find " that the allegations in the complaint, as amended, are sufficient to support an action for conversion." Id., at 599. The court reasoned: " In its complaint and the amendment thereto the plaintiff alleged that it had a lien on the settlement proceeds; that the proceeds had been in the hands of ... [the insured's] attorney; that [the insured's attorney] had notice of the lien; that under [the insured's] instructions, [the attorney] disbursed the amount due the plaintiff under the statute; that [the attorney] disregarded the plaintiff's lien by writing checks to [the insured's] attorneys and to [the insured herself]; and that this was an unlawful violation of the plaintiff's statutory lien under 38-325(b). This was sufficient to establish conversion as alleged." Id., at 599-600. See also, State v. Angelo, 39 Conn.App. 709, 713 (1995), cert. denied, 236 Conn. 901 (1996) (holding that General Statutes § 17-83f grants to the department of social services a valid lien on the proceeds of a cause of action in the hands of the defendant and that the act of the defendant in disbursing the funds in disregard of the state's lien constituted a conversion); State v. Blawie, 31 Conn.Supp. 552, 558 (App.Div.1974), cert. denied, 167 Conn. 693 (1975) (same); and Shelby Mutual Ins. Co. v. Della Ghelfa, 3 Conn.App. 432, 445 (1985) (finding that " the allegations of the second count, taken favorably to the plaintiff and considered in the light of the facts provable under them ... state causes of action both for violation of the plaintiffs' lien rights and conversion by [the defendant]") (citation omitted).
The statute eventually became General Statutes § 38a-369(b), which was repealed by Public Acts 1993, No. 93-297. The case is still instructive as to the issue of whether a conversion action may be asserted based on a lien to which the claimant is entitled as a matter of law.
In this case, the plaintiff alleges that it has a right to the settlement proceeds of Anne Sabo and that the defendants have placed the settlement proceeds in escrow. The court need not discuss the legal status of the relationship between the parties or at what point in the litigation the plaintiff's alleged lien on the settlement proceeds could be the basis for a conversion cause of action. The dispositive allegation of the plaintiff, which distinguishes the present case from the aforementioned cases, is that the defendants are holding the funds in escrow allegedly due the plaintiff and which are subject to the workers' compensation lien. The plaintiff has not alleged that the defendants disbursed any of the settlement proceeds to Sabo or to any other party.
" The tort of [c]onversion occurs when one, without authorization, assumes and exercises ownership over property belonging to another, to the exclusion of the owner's rights ... Thus, [c]onversion is some unauthorized act which deprives another of his property permanently or for an indefinite time; some unauthorized assumption and exercise of the powers of the owner to his harm. The essence of the wrong is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm ... To establish a prima facie case of conversion, the plaintiff had to demonstrate that (1) the material at issue belonged to the plaintiff, (2) that [the defendant] deprived the plaintiff of that material for an indefinite period of time, (3) that [the defendant's] conduct was unauthorized and (4) that [the defendant's] conduct harmed the plaintiff." (Citations omitted; internal quotation marks omitted.) Coster v. Duquette, 119 Conn.App. 827, 831-32 (2010).
The Rules of Professional Conduct are relevant in that they inform and clarify the position of the defendant attorneys. Rule 1.15(e), concerning safekeeping of property, provides: " When in the course of representation a lawyer is in possession of property in which two or more persons (one of whom may be the lawyer) claim interests, the property shall be kept separate by the lawyer until the dispute is resolved. The lawyer shall promptly distribute all portions of the property as to which the interests are not in dispute." Comment 4 to the Rule provides in relevant part: " Paragraph (e) also recognizes that third parties may have lawful claims against specific funds or other property in a lawyer's custody, such as a client's creditor who has a lien on funds recovered in a personal injury action. A lawyer may have a duty under applicable law to protect such third-party claims against wrongful interference by the client. In such cases, when the third-party claim is not frivolous under applicable law, the lawyer must refuse to surrender the property to the client until the claims are resolved." Here, the defendants are disputing whether the plaintiff is entitled to the settlement proceeds and, in accordance with Rule 1.15(e), neither defendant Jeffrey Cooper nor defendant Zeldes, Needle & Cooper has disbursed any of the proceeds claimed by the plaintiff to their client, Sabo. Under these circumstances, it is clear that the plaintiff has not stated a legally sufficient cause of action for conversion by when it alleges that the defendants maintained the disputed settlement proceeds in an escrow account.
Had the plaintiff alleged that the defendants distributed any or all of the disputed settlement proceeds to Sabo, the court's analysis would change. The defendants' conduct of retaining the settlement funds in an escrow account, without more, does not give rise to a cause of action for conversion. See Pa. Ethics Op.2004-118 (2004) (lawyer who settled client's suit and escrowed money to satisfy workers' compensation lien must continue to hold funds in escrow notwithstanding client's demand to give client the money); cf. Silver v. Statewide Grievance Committee, 42 Conn.App. 229, 236-38 (1996), appeal dismissed, 242 Conn. 186 (1997) (holding that pursuant to General Statutes (Rev. to 1993) § 38a-369(b), the statutory lien of the insurance companies in the claimant's settlement proceeds did not attach until the funds were in the claimant's possession and control and that, therefore, the claimant's attorney did not have an ethical duty to notify the insurance companies of his receipt of the proceeds or to deliver a portion of them to the insurance companies) and Biller Associates v. Peterken, 269 Conn. 716, 722-24 (2004) (holding that the Rules of Professional Conduct do not give rise to a cause of action and that Rule 1.15(d) does not create a fiduciary duty between an attorney and a third party claiming an interest in the funds of the attorney's client).
Repealed by Public Acts 1993, No. 93-297; see footnote 1, Supra.
Rule 1.15(d) (renumbered from subsection (b) in 2002) provides in relevant part: " Upon receiving funds or other property in which a client or third person has an interest, a lawyer shall promptly notify the client or third person. Except as stated in this rule or otherwise permitted by law or by agreement with the client, a lawyer shall promptly deliver to the client or third person any funds or other property that the client or third person is entitled to receive ..."
Even accepting as true the plaintiff's allegation that it has a workers' compensation lien on the settlement proceeds, the defendants cannot be held liable for conversion for holding the disputed portion of Sabo's settlement proceeds in escrow before an actual judgment has been rendered confirming the validity and amount of the lien asserted by the plaintiff. " A statutory or judgment lien creates a presumptive interest in property, but it is not a final determination of rights to the property. If the client challenges payment of the lien, the lawyer has an obligation to recognize the rights of both the third party and a client. However, the lawyer may not unilaterally assume to arbitrate the dispute between the client and the third party. Comment, Rule 1.15. Therefore, the lawyer must hold the property as a fiduciary, Rule 1 .15(a), and encourage a judicial resolution of the competing claims." (Internal quotation marks omitted.) State v. Porzio, Superior Court, judicial district of Hartford, Docket No. CV 10 3008253 (November 10, 2010, Robaina, J.) (50 Conn. L. Rptr. 860, 862). " [T]he lawyer should not pay, but merely escrow, funds if there are defenses to the application of the lien that the client could assert ... This decision is fact and law specific to each case." (Citation omitted.) CT Eth. Op. 95-20 (Conn. Bar Ass'n.); accord State v. Porzio, supra, 50 Conn. L. Rptr. 862. Therefore, the court finds that the plaintiff has not stated a legally sufficient cause of action for conversion against the defendants. Accordingly, the court grants the defendants' motion to strike as to the plaintiff's conversion counts.
Claim for Costs and Attorneys Fees
The defendants also move to strike the portion of the plaintiff's prayer for relief seeking costs and attorneys fees. The defendants argue that there is no statutory, common-law or contractual support for attorneys fees in this case and that the defendants never signed a contract allowing for such costs. The defendants further contend that the plaintiff has failed to allege bad faith, fraud or willful or wanton misconduct or that it is seeking punitive damages, which otherwise would permit attorneys fees. The plaintiff responds that the defendants' arguments concerning no findings of fraud or willful or wanton misconduct are premature as there has been no discovery in this case at this time. The plaintiff contends that given its statutory lien, it may be possible that a fact finder will find fraud or willful or wanton misconduct.
" Practice Book ... § 10-39, allows for a claim for relief to be stricken only if the relief sought could not be legally awarded." Pamela B. v. Ment, 244 Conn. 296, 325 (1998). " Generally, attorneys fees may not be recovered, either as costs or damages, absent contractual or statutory authorization ... Attorneys fees may be awarded, however, as a component of punitive damages ... To furnish a basis for recovery of such damages, the pleadings must allege and the evidence must show wanton or wilful malicious misconduct, and the language contained in the pleadings must be sufficiently explicit to inform the court and opposing counsel that such damages are being sought ... Punitive damages may be awarded upon a showing of fraud." (Citations omitted; internal quotation marks omitted.) Farrell v. Farrell, 36 Conn.App. 305, 311-12 (1994).
Given the fact that the plaintiff's conversion counts have been stricken, the question becomes whether the plaintiff has alleged sufficient facts in the remaining portions of its complaint to claim attorneys fees. The court finds no statutory, common-law or contractual authorization nor any allegations that would support a finding of punitive damages, so as to entitle the plaintiff to attorneys fees. Accordingly, the court also grants the defendants' motion to strike as to the plaintiff's claim for costs and attorneys fees.