Court Finds Attorney who Converted Subrogation Interest Cannot Avoid Liability
The Dallas Court of Appeals has reversed a judgment in favor of a claimant’s attorney who refused to reimburse the self-insured city’s workers’ compensation lien despite a lengthy delay between the date the city took a judgment against the attorney for conversion and the date the city tried to execute on the judgment.
The case is City of Dallas v. Ellis, No. 05-16-00348-CV, February 17, 2017. The court explains that in 1987, a City employee was injured in an automobile accident during the course and scope of his employment as a firefighter. The City, as a workers’ compensation self-insurer, paid the employee workers’ compensation benefits. Ellis, an attorney, represented the employee in his personal injury claim against the third-party tortfeasors who caused his injuries. The suit settled. The settlement agreement provided for Ellis to resolve the City’s worker’s compensation lien. Ellis was aware of the law in effect at that time and knew the City had the right to recover the “first money” from the employee’s settlement to offset the amount the City paid to the worker in workers’ compensation benefits. The City, however, was not paid. See Ellis v. City of Dallas, 111 S.W.3d 161, 164–65 (Tex. App.—Eastland 2003, no pet.).
The City sued Ellis for conversion of its workers’ compensation lien. Following a trial, a jury found in the City’s favor. On September 28, 2001, the trial court signed a judgment in accordance with the jury’s verdict awarding the City judgment for $86,926.82 with interest at the rate of 10 percent per annum and taxable court costs. On December 28, 2001 the trial court signed a modified final judgment reducing the total awarded to the City to $75,626.09, plus post-judgment interest and court costs. Ellis appealed, and the judgment was affirmed.
On July 30, 2015, the City filed its first amended motion to revive the judgment by scire facias, this time seeking to revive the modified final judgment of December 28, 2001. Ellis argued that the city was barred in its attempt to revive the judgment. The trial court agreed with Ellis’ argument that Section 16.061 of the Texas Government Code did not exempt the City from the two-year statute of limitations because the underlying claim was based on a subrogation interest belonging to the City’s employee, not the City. Ellis also reasserted his laches defense. The trial court signed an order concluding that the judgment is not revived and is considered dormant and unenforceable for all purposes. The City appealed.
Ellis argued that the exemption from the statute of limitations found in section 16.061 did not apply to the circumstances of this case because the City was asserting a subrogation interest in a claim belonging to its employee. As such, he argued, the City’s was not asserting its own “right of action.” To support his argument, he relied on Harris County v. Carr, 11 S.W.3d 342 (Tex. App.—Houston [1st Dist.] 1999, no pet.) and two cases that followed it, Texas Department of Transportation v. Esquivel, 92 S.W.3d 17 (Tex. App.—El Paso 2002, no pet.), and State of Texas v. Airgas-Mid South, Inc., 83 S.W.3d 890 (Tex. App.—Texarkana 2002, no pet.). The court distinguished those cases.
In Carr, Harris County paid an employee workers’ compensation benefits after he was injured in an automobile accident. 11 S.W.3d at 343. More than three years later, Harris County, on its own behalf and on its employee’s behalf, sued the driver of the other vehicle for negligence. The defendant asserted the claim was barred by limitations and laches, and the trial court agreed. Id.
On appeal, the county argued its claim was not barred because it was exempt from the statute of limitations under section 16.061. The Court of Appeals disagreed, explaining that a workers’ compensation insurer who asserts a subrogation claim is asserting a claim that belongs to the employee and, regardless of whether the insurer sues in its own name, that claim belongs to the employee. Id. Thus, the Court of Appeals concluded the subrogation claim brought by the county against the third-party tortfeasor was not a cause of action belonging to the county that was covered by section 16.061; thus, the claim was barred by limitations. Id. at 344.
Likewise, in Esquivel and Airgas-Mid South, the governmental units sued third-party tortfeasors to recover workers’ compensation payments made to their employees for injuries caused by the tortfeasors’ negligence. Esquivel, 92 S.W.3d at 19; Airgas-Mid South, 83 S.W.3d at 891. The defendants in both cases raised the statute of limitations, and the governmental units relied on section 16.061 for an exemption. In both cases, the defendants relied on the reasoning in Carr to conclude 16.061 did not apply, and the courts of appeals agreed. Esquivel, 92 S.W.3d at 23; Airgas-Mid South, 83 S.W.3d at 892.
The court agreed with Ellis that when a workers’ compensation carrier asserts a subrogated claim against third-party tortfeasors, the carrier is asserting a claim derivative of the employee’s claim, and in such situations, the carrier “stands in the shoes” of the injured employee. But the court concluded that the posture of this case was materially different from Carr and its progeny. Unlike those cases, the City here was not seeking to invoke section 16.061 to avoid the statute of limitations in a suit brought against the third-party tortfeasors, where it would clearly “stand in the shoes” of its employee. Moreover, the judgment the City sought to revive did not arise from such a circumstance and was not one for an employee’s personal injuries. Rather, it was a judgment for conversion, resulting from the City’s suit against the employee’s attorney Ellis who, once he settled the suit against the third-party tortfeasors, refused to pay the City what it was owed on its workers’ compensation lien. Under these circumstances, the court concluded that in attempting to revive the judgment, the City was asserting its own “right of action,” not the employee’s, and thus was entitled to the exemption from the statute of limitations provided in section 16.061. Therefore, the City’s action to revive the dormant judgment was not barred by limitations.
Ellis also argued that the city waited too late to pursue the judgment based on the equitable doctrine of laches. Laches is an equitable defense that prevents a plaintiff from asserting a claim due to delay––“not mere delay but delay that works a disadvantage to another.” Culver v. Pickens, 176 S.W.2d 167, 170–71 (Tex. 1943). It rests on the theory that because of a delay in the exercise of a legal or equitable right, the defendant would be unconscionably prejudiced if the right were exercised. Regent Int’l Hotels, Ltd. v. Las Colinas Hotels Corp, 704 S.W.2d 101, 106 (Tex. App.—Dallas 1985, no writ). Unlike statutes of limitations, “laches is not . . . a mere matter of time; but principally a question of the inequity of permitting the claim to be enforced. . . .” Condom Sense, Inc. v. Alshalabi, 390 S.W.3d 734, 758 (Tex. App.—Dallas 2012, no pet.) (quoting Holmberg v. Armbrecht, 327 U.S. 392, 396 (1946)). Two essential elements must exist for laches to bar a claim: (1) a party’s unreasonable delay in asserting a legal or equitable right and (2) a good-faith change of position by another to his detriment because of the delay. Rogers v. Ricane Enters., Inc., 772 S.W.2d 76, 80 (Tex. 1989).
In this case, Ellis alleged he was harmed by the City’s delay in reviving its judgment because (1) post-judgment interest has more than tripled the amount of the original judgment and (2) he is no longer eligible to serve on City boards and commissions. Ellis asserted that he “always intended” to pay the City for its subrogation interest. Ellis asserted that he “held the impression” the City was “willing to negotiate a settlement” of the final judgment until March 2015, when the City “first informed” him it would not negotiate a settlement because it believed it was precluded by law from doing so. Ellis asserted that had the City informed him settlement was impossible “from the beginning,” he would have paid the judgment.
Ellis then asserted that before this “incident,” he was very active in the Dallas community, but as a result of the conflict with the City, he was no longer eligible to serve on boards and commissions. In addition, he asserted that his “credibility and reputation, both personal and professional, had been damaged.” Finally, he asserted the loss of civic opportunities and injury to his reputation was “severe.”
The Court of Appeals was unpersuaded by these arguments.
Having reviewed Ellis’s affidavit, we conclude he failed to present any evidence that he had a good faith, detrimental change in his position in reliance on the City’s delay in asserting its rights. The judgment has tripled because post-judgment interest has accrued; Ellis cannot sit on City boards and commissions because he owes the City money. Ellis knew of the judgment against him and that it was accruing interest. He also knew he had an obligation to pay the judgment.
FOLIO
