Aaron Process Equip v. Luxembourg Cheese ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-1256
GEORGE P. JANSEN and THERESA JANSEN,
Plaintiffs-Appellees,
v.
AARON PROCESS EQUIPMENT COMPANY,
INC.,
Defendant/Third-Party Plaintiff-Appellee,
v.
LUXEMBOURG CHEESE FACTORY, INC.,
Third-Party Defendant-Appellant.
Appeal from the United States District Court
for the Northern District of Illinois, Western Division.
No. 92 C 20386--Philip G. Reinhard, Judge.
Argued October 26, 1999--Decided March 29, 2000
Before HARLINGTON WOOD, JR., KANNE, and DIANE P. WOOD,
Circuit Judges.
HARLINGTON WOOD, JR., Circuit Judge. In 1991,
George Jansen ("Jansen") was severely injured at
work when a cheese blender he was cleaning began
operating when he was inside of it. As a result
of the accident, Jansen’s employer, Luxembourg
Cheese Factory, Inc. ("Luxembourg"), through its
workers’ compensation insurer Travelers Insurance
Company, paid Jansen $212,178.25 in workers’
compensation benefits. Jansen and his wife,
Theresa, filed a diversity negligence and
products liability suit in the Federal District
Court for the Northern District of Illinois
against the manufacturer of the cheese blender,
Aaron Process Equipment Company, Inc. ("Aaron
Process"). Aaron Process then filed a third-party
complaint against Luxembourg for contribution.
The jury returned a verdict for Jansen against
Aaron Process in the amount of $720,000. On the
contribution claims, the jury awarded judgment in
favor of Aaron Process against third-party
defendant Luxembourg, attributing 17% of the
fault to Aaron Process and 83% of the fault to
Luxembourg. These verdicts were affirmed on
appeal. Jansen v. Aaron Process Equip. Co., Inc.,
149 F.3d 603 (7th Cir. 1998). We now consider the
district court’s ruling on Jansen’s post-verdict
motion for attorney’s fees and costs against
Luxembourg pursuant to the Illinois Workers’
Compensation Act (the "Act"), 820 ILCS 305/1 et
seq.
I. BACKGROUND
The facts of the underlying action are set
forth in our previous opinion, Jansen, 149 F.3d
603, and we will not restate them here.
Luxembourg paid Aaron Process $212,178.25
pursuant to the jury’s verdict on the third-party
contribution claim./1 When Jansen received
payment in the amount of $720,000 from Aaron
Process, $212,178.25 of the amount was designated
to cover Luxembourg’s workers’ compensation lien
pursuant to section 5(b) of the Act ("section
5(b)"), 820 ILCS 305/5(b). Section 5(b) provides
that when a judgment is received from a third
party as a result of an injury for which workers’
compensation benefits are payable under the Act,
the recovering party must reimburse the employer
for any workers’ compensation benefits already
received.
On August 3, 1998, Jansen’s attorney filed a
motion for attorney’s fees in the amount of
$53,044.56 and a pro rata share of costs in the
amount of $3,572.20 from Luxembourg pursuant to
section 5(b). Luxembourg filed a response to
Jansen’s motion and a cross-motion to bar Jansen
from requesting attorney’s fees under section
5(b). While the dispute over fees and costs was
pending, Jansen tendered a check for $212,178.25
to Luxembourg in exchange for payments from
Luxembourg covering the attorney’s fees and costs
at issue which Jansen’s attorney agreed to hold
in escrow until the dispute was settled. On
January 11, 1999, the district court granted
Jansen’s motion for attorney’s fees and costs in
the amount of $56,616.76. Luxembourg appeals.
II. ANALYSIS
The Illinois Workers’ Compensation Act allows an
injured worker who has received workers’
compensation from his employer to sue a third-
party tortfeasor. LaFever v. Kemlite Co., 706
N.E.2d 441, 451 (Ill. 1998). Under section 5(b)
of the Act, if the worker prevails in his
lawsuit, he must repay his employer for the
workers’ compensation benefits from the amount
recovered, and the employer may claim a lien on
the recovery in an amount equal to the benefits
paid. Id. (citing 820 ILCS 305/5(b)). Section
5(b) further provides:
Out of any reimbursement received by the employer
pursuant to this Section, the employer shall pay
his pro rata share of all costs and reasonably
necessary expenses in connection with such third-
party claim, action or suit and where the
services of an attorney at law of the employee .
. . have resulted in or substantially contributed
to the procurement by suit, settlement, or
otherwise of the proceeds out of which the
employer is reimbursed, then, in the absence of
other agreement, the employer shall pay such
attorney 25% of the gross amount of such
reimbursement.
820 ILCS 305/5(b).
Luxembourg raises three challenges to the
district court order granting attorney’s fees./2
Luxembourg first asserts that it is not liable
for the statutory fees because Jansen failed to
follow the notice provisions set out in section
5(b). Luxembourg next argues that an award of
attorney’s fees is inappropriate because there
was not an attorney-client relationship between
the company and Jansen’s attorney. Finally,
Luxembourg contends that its relationship with
Jansen’s attorney created an "other agreement" as
set forth in section 5(b) which precludes the
recovery of statutory fees. Because Luxembourg’s
arguments are based on alleged legal errors, we
review de novo. See, e.g., Khan v. Gallitano, 180
F.3d 829, 837 (7th Cir. 1999).
Under section 5(b), when an employee files an
action to recover damages from a third party,
he shall forthwith notify his employer by
personal service or registered mail, of such fact
and of the name of the court in which the suit is
brought, filing proof thereof in the action. The
employer may, at any time thereafter [sic] join
in the action upon his motion so that all orders
of court after hearing and judgment shall be made
for his protection.
820 ILCS 305/5(b). In the present case, Jansen
concedes that he did not follow the notice
provisions set out in the statute. Luxembourg
asserts, without citation to supporting
authority, that proper notice is a condition
precedent to recovery of attorney’s fees under
the statute and that, by failing to give proper
notice, Jansen has waived his right to recover
the statutory fees. However, it is clear, both
from the context of the notice provision in the
statute and the cases cited by Luxembourg on the
issue, that the purpose of notification under
section 5(b) is to allow the employer the
opportunity to intervene in the employee’s suit
in order to protect his statutory lien interest
in any award. See, e.g., Brandt v. John Tilley
Ladders Co., 495 N.E.2d 1269, 1272-73 (Ill. App.
Ct. 1986). There is no support for Luxembourg’s
contention that proper notice is a condition
precedent to recovering the statutory attorney’s
fees. In the present case, Luxembourg had actual
knowledge of the suit and participated as an
intervenor before being served with the third-
party complaint from Aaron Process. Not only did
Luxembourg have the opportunity to protect its
workers’ compensation lien, the company did so
and has received actual reimbursement from
Jansen. See LaFever, 706 N.E.2d at 453 ("The
’benefit’ that obligates an employer to pay
section 5(b) fees and costs is actual
reimbursement.").
As its only specific example of prejudice
resulting from the defective notice, Luxembourg
points to the fact that the deposition of its
president, Mark Ernster, was taken before
Luxembourg was added as a party in the underlying
case. Luxembourg characterizes this act as an
"ambush" by plaintiffs’ attorney. However,
Luxembourg fails to note that while the district
court refused to quash the deposition, it stated
that it would allow the parties to reconvene
Ernster’s deposition if necessary. The deposition
was never reconvened. Luxembourg fails to show
prejudice. See Ramsey v. Morrison, 676 N.E.2d
1304, 1312 (Ill. 1997) (holding that an employer
was not prejudiced by depositions taken before he
entered a suit as a third-party defendant when he
had ample opportunity to reconvene the
depositions but failed to do so). Because
Luxembourg had actual knowledge of Jansen’s suit,
participated in the suit as an intervenor, and
was not prejudiced by Jansen’s failure to follow
the notice provisions set out in the statute,
Jansen’s failure to give proper notice does not
preclude him from recovering statutory attorney’s
fees.
Luxembourg’s remaining arguments also are
without merit. While Luxembourg contends that, to
justify an award of attorney’s fees, an attorney-
client relationship must exist between itself and
Jansen’s attorney, it cites no authority to
support this position. It is clear from the
statute that the statutory fees are to be paid by
an employer to the attorney representing the
injured employee. 820 ILCS 305/5(b) (stating
"where the services of an attorney at law of the
employee or dependents have resulted in or
substantially contributed to the procurement . .
. of the proceeds out of which the employer is
reimbursed" an award of attorney’s fees is
appropriate) (emphasis added); see also Silva v.
Electrical Sys., Inc., 701 N.E.2d 506, 506 (Ill.
1998) ("[A]n employer who is reimbursed for its
workers’ compensation payments out of the
proceeds of the employee’s action against a third
party is required to pay the employee’s attorney
’25% of the gross amount of such
reimbursement.’") (emphasis added). An attorney-
client relationship between the employer and the
attorney seeking fees is not required.
Additionally, Luxembourg has not produced any
evidence of another agreement between itself and
Jansen’s attorney that would preclude the
recovery of the statutory fees.
As the Illinois Supreme Court has stated,
section 5(b) is based on the premise "that an
employer should not get ’something’ (a
reimbursement on workers’ compensation payments)
for ’nothing.’" LaFever, 706 N.E.2d at 453. That
is exactly what Luxembourg is trying to do in the
present case. Luxembourg was reimbursed for its
workers’ compensation payments due to the efforts
of Jansen’s attorney. Section 5(b) ensures that
employers who benefit from such reimbursement pay
their fair share of the costs of the recovery.
Silva, 701 N.E.2d at 510. Jansen is entitled to
attorney’s fees from Luxembourg. Luxembourg does
not challenge the amount of fees awarded by the
district court, and we affirm the decision of the
district court. One issue remains.
Jansen has filed a motion for sanctions against
Luxembourg pursuant to Fed. R. App. P. 38. Rule
38 allows an appellate court to award sanctions
against an appellant who brings a frivolous
appeal. "An appeal is ’frivolous’ when the result
is foreordained by the lack of substance to the
appellant’s arguments." Mars Steel Corp. v.
Continental Bank, 880 F.2d 928, 938 (7th Cir.
1989) (en banc). In the present case, the
district court based its decision on "the
Illinois Supreme Court’s unequivocal
interpretation in Silva regarding an employer’s
duty to pay a plaintiff’s attorney’s fees and
costs under section 5(b)." However, Luxembourg
fails to address Silva, 701 N.E.2d 506, in either
its initial or reply brief. Moreover, while
Luxembourg argues that an employer’s obligation
to pay attorney’s fees under section 5(b) is not
absolute, the company cites no cases in which an
employer was excused from paying attorney’s fees
after receiving reimbursement for its workers’
compensation payments, and Luxembourg ignores the
Illinois Supreme Court’s recent statement that
actual reimbursement is "[t]he ’benefit’ that
obligates an employer to pay section 5(b) fees
and costs." LaFever, 706 N.E.2d at 453.
Additionally, as Jansen has pointed out,
Luxembourg’s appendix contained only the first
page of the district court order and did not
include the analysis delivered by the district
court in connection with its award of fees and
costs, an omission which was cured by Jansen in
his motion for sanctions. This constitutes a
violation of Circuit Rule 30(a)./3 Moreover,
despite the omission, counsel for Luxembourg
submitted a Circuit Rule 30(d) statement in which
he certified that all of the materials required
under Circuit Rule 30(a) and (b) were included in
the appendix. This court has warned appellants
and their counsel on numerous occasions that this
behavior alone is sufficient to justify an award
of sanctions. See Collins v. Educational Therapy
Ctr., 184 F.3d 617, 622 (7th Cir. 1999)
(collecting cases). This appeal is frivolous, and
Rule 38 sanctions are appropriate.
III. CONCLUSION
The decision of the district court is affirmed.
Jansen’s motion for sanctions pursuant to Fed. R.
App. P. 38 is granted, and Luxembourg is ordered
to compensate Jansen for the cost of defending
this frivolous appeal. Within fifteen days,
Jansen shall submit to this court a statement of
his costs, including attorney’s fees, reasonably
incurred in connection with this appeal.
AFFIRMED; MOTION FOR RULE 38
SANCTIONS GRANTED.
/1 Luxembourg’s liability for contribution was
limited to the amount of its statutory workers’
compensation liability under Kotecki v. Cyclops
Welding Corp., 585 N.E.2d 1023 (Ill. 1991).
/2 We note at the outset that Luxembourg asserts
only that it is not liable for attorney’s fees
under the statute and does not contest the
district court’s award of costs.
/3 Circuit Rule 30(a) provides: "The appellant shall
submit, bound with the main brief, an appendix
containing the judgment or order under review and
any opinion, memorandum of decision, findings of
fact and conclusions of law, or oral statement of
reasons delivered by the trial court . . . upon
the rendering of that judgment, decree, or order."
(emphasis added).