This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (1994).

STATE OF MINNESOTA

IN COURT OF APPEALS

C5-95-2315

Janesville Auto Transport Company,

Respondent,

vs.

Foreign Domestic Car Service, d/b/a F.D.C.S.,

Appellant.

Filed May 21, 1996

Affirmed in part, reversed in part

Norton, Judge

Washington County District Court

File No. C8-91-3672

Diana L. Brennan, Johnson & Condon, 7235 Ohms Lane, Minneapolis, MN 55439-2152 (for Respondent)

Janet Stellpflug, Suite 3100, 150 South Fifth Street, Minneapolis, MN 55402

Considered and decided by Norton, Presiding Judge, Kalitowski, Judge, and Short, Judge.

U N P U B L I S H E D O P I N I O N

NORTON, Judge

In this workers' compensation subrogation matter, the tortfeasor appeals from the trial court's judgment awarding damages to respondent employer by allocating economic recovery benefits to a verdict area designated as wage loss benefits. We affirm in part and reverse in part.

FACTS

In 1989, while Steven Ashenbrenner was driving an automobile in the course and scope of his employment with respondent Janesville Auto Transport Company (JATCO), an employee of appellant Foreign Domestic Car Service, Inc. (FDCS) broad-sided Ashenbrenner's car, injuring him. Ashenbrenner sued FDCS for negligence, and FDCS admitted liability for the underlying accident. Subsequently, Ashenbrenner entered a Naig settlement agreement with FDCS for the portion of his damages not recoverable under workers' compensation.

JATCO, in turn, brought a subrogation action against FDCS, seeking reimbursement of workers' compensation benefits paid and payable to Ashenbrenner. JATCO partially settled these claims for benefits paid to Ashenbrenner through March 10, 1992.

Even though Tyroll v. Private Label Chems., 505 N.W.2d 54, 61 (Minn. 1993), a Minnesota Supreme Court case outlining the procedure for maintaining subrogation actions, [1] was decided more than two months before trial, the trial court never held a pretrial Tyroll hearing to determine the amount of workers' compensation benefits JATCO paid or owed to Ashenbrenner. In fact, JATCO did not insist on the required procedure despite a reminder from counsel for FDCS during an October 1993 pretrial conference that, under Tyroll, the trial court should conduct such a hearing prior to trial. Instead, JATCO's subrogation claim for benefits paid and payable after March 10, 1992, proceeded to trial on November 8, 1993, with JATCO apparently believing that FDCS did not dispute the amount of its claimed subrogation interest.

By special verdict form, the jury awarded damages in each of the verdict areas provided on the form. In one verdict area labeled "Loss of Earnings," the jury awarded $58,300 for damages sustained from March 10, 1992, to the date of the trial. The verdict form provided no category for personal injury damages or loss of earning capacity sustained during this period. However, the form did identify a category labeled both "Loss of Earnings and Earning Capacity" from the date of trial into the future.

FDCS immediately moved for a judgment notwithstanding the verdict, asserting for the first time that JATCO had failed to establish the amount of its subrogation interest. The trial court denied this motion, but directed the parties to appear at a posttrial Tyroll-type hearing. Because of a continuing dispute regarding its nature, the hearing never took place as scheduled and rescheduled. Finally, the trial court simply cancelled the hearing and entered judgment for JATCO for the full amount of the verdict.

FDCS appealed to this court. By unpublished opinion, we reversed and remanded the matter to the trial court for a Tyroll hearing in order to give JATCO the opportunity to establish the amount of benefits paid to Ashenbrenner and covered by the jury's verdict. Janesville Auto Transp. Co. v. Foreign Domestic Car Serv., No. C6-94-627, unpub. op. at 7 (Minn. App. Oct. 18, 1994). We directed the trial court to apply the amounts paid to each verdict area. Id.

On remand, the trial court held a Tyroll-type hearing at which it received the deposition testimony of JATCO's witness, Deborah Breisacher, whose firm was the third-party administrator for JATCO's workers' compensation claims. Breisacher testified that from March 10, 1992, to the date of trial, JATCO paid $495.60 as past wages in the form of temporary total disability (TTD) payments and $39,770.25 as economic recovery compensation (ERC) benefits. Thus, JATCO's combined payment for TTD and ERC benefits from March 10, 1992, to the date of trial was $40,265.85.

On August 14, 1995, the trial court's amended judgment was entered. The trial court identified $40,265.85 as "past wage loss" and allocated that amount to the verdict area labelled "loss of earnings" from March 10, 1992, to the date of trial. FDCS now appeals from this judgment, challenging $39,770.25 of the $40,265.85 award allocated to wage loss.

D E C I S I O N

Because the amount of compensation benefits entitled to be recovered out of a jury's common law damages award involves the administration of the Workers' Compensation Act, it is a question of law for the trial court to decide. Tyroll v. Private Label Chems. Inc., 505 N.W.2d 54, 61 (Minn. 1993). A reviewing court is not bound by and need not give deference to a trial court's decision on a purely legal issue. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).

An employee who is injured through the negligence of a third-party tortfeasor may, prior to trial, settle with the tortfeasor for those damages not recoverable under workers' compensation. Naig v. Bloomington Sanitation, 258 N.W.2d 891, 894 (Minn. 1977). However, the employer retains the right to pursue its subrogation interest. Minn. Stat. § 176.061, subd. 3 (1988); Naig, 258 N.W.2d at 894. Until the Minnesota Supreme Court's Tyroll decision in August 1993, employers whose employees entered Naig settlements had no guidelines for maintaining their subrogation actions. Tyroll, 505 N.W.2d at 58.

Tyroll outlines a two-step process in this situation: (1) prior to trial, the trial court should hold a hearing to determine the amount of workers' compensation benefits paid and payable; (2) the suit is then tried to the jury as a common law tort action. Id. at 61.

Once the verdict is received on common law damages, judgment is entered against the defendant for the amount of the benefits paid and payable or such part thereof as the jury's award of damages will cover.

Id. While "the ultimate damages recoverable in the employer's subrogation suit are the benefits paid and payable," such damages can only be recovered "out of the common law tort damages for which the third party tortfeasor is first found responsible." Id. at 60.

By way of illustration, Tyroll stated that when a defendant tortfeasor claims it is not liable for a loss of earning capacity because such loss is attributable, for example, to a pre-existing condition,

[i]f * * * the jury awards no damages for loss of earning capacity, the employer simply has no such damages to apply to payment of its subrogation claim.

505 N.W.2d at 62. In other words, if a jury determines a defendant tortfeasor is not liable for some of the damages for which the employer has paid benefits and, therefore, awards no damages in that area, the trial court cannot apply any portion of the verdict to that area.

FDCS contends that the trial court erred by characterizing $39,770.25 in ERC compensation as "loss of earnings" and, thereby, awarding that amount to JATCO. FDCS relies on Tyroll to argue that because the jury did not award any damages for Ashenbrenner's functional loss, the trial court may not apply any portion of the verdict to JATCO's ERC payments. We agree.

Minnesota's workers' compensation law recognizes a distinction between ERC and wage loss replacement. Gasper v. Northern Star Co., 422 N.W.2d 727, 731 (Minn. 1988) (applying the distinction to allow an employee to receive both ERC benefits and wage loss compensation concurrently). ERC is payable for a permanent functional loss of use or permanent impairment of function. Minn. Stat. § 176.021, subd. 3 (1988). In other words, ERC provides compensation for an employee's permanent injury and not for a reduction of wages as a result of that injury. Gasper, 422 N.W.2d at 731; accord Cassem v. Crenlo, Inc., 470 N.W.2d 102, 105 (Minn. 1991). Payments for temporary total disability (TTD) are, however, considered wage loss replacement benefits. Marsolek v. George A. Hormel Co., 438 N.W.2d 922, 923 (Minn. 1989).

Here, if Tyroll's orderly two-step process had been followed and if the jury had been presented with the option of awarding damages for functional loss, but had awarded no damages, the trial court could not, under Tyroll, apply any portion of the verdict to JATCO's ERC payments. However, the special verdict form did not ask the jury what sum of money would fairly and adequately compensate JATCO for payments made to Ashenbrenner for Ashenbrenner's functional loss from March 10, 1992, to the date of the trial.

Relying both on the statements FDCS made during the pretrial conference and on a letter from JATCO's attorney iterating her understanding, JATCO nevertheless insists that by agreeing to the reasonableness of benefits paid, FDCS agreed to pay JATCO whatever the jury awarded. This issue was already settled in the earlier appeal in which we determined that JATCO had reasonably, but mistakenly, relied on FDCS's statements and conduct to believe it was entitled to the entire verdict. Janesville Auto Transp. Co. v. Foreign Domestic Car Serv., No. C6-94-627, unpub. op. at 7 (Minn. App. Oct. 18, 1994). Even though FDCS agreed not to challenge the reasonableness of benefits paid by JATCO, we stated, "the reasonableness of benefits paid does not relieve JATCO of the burden of establishing the amount of benefits paid." Id. at 6. We, therefore, remanded the case to the trial court to hold a Tyroll hearing at which JATCO would "have an opportunity to establish the amount of benefits paid to Ashenbrenner and covered by the jury's verdict." Id. at 7 (emphasis added).

JATCO further insists that the special verdict form was drafted based on FDCS's agreement to pay whatever the jury awarded. JATCO claims it requested, but did not receive, a jury instruction on personal bodily injury. JATCO's proposed jury instructions are not part of the record on appeal. [2] Moreover, because JATCO made no posttrial motions challenging any of the jury instructions, that issue was not preserved for appeal. See Sauter v. Wasemiller, 389 N.W.2d 200, 201 (Minn. 1986) (holding that jury instructions are subject to appellate review only if there has been a motion for a new trial in which such matters have been assigned as error).

Lastly, JATCO argues that even though the distinction between ERC and wage loss benefits is important to the application of workers' compensation law, it is irrelevant to common law principles because such a distinction would only confuse a jury in this situation where Ashenbrenner was not working at the time he received ERC benefits..

JATCO's argument is unpersuasive. Not only has the supreme court in Gasper unequivocally stated that ERC is separate and distinct from any wage loss benefits, but, contrary to JATCO's claim, the jury here was fully capable of making this distinction. Gasper, 422 N.W.2d at 731. The jury awarded future damages to the category identified as "Loss of Earnings and Earning Capacity," which FDCS acknowledges equates rather well with a combination of wage loss and functional loss. Had "loss of earning capacity" been included in the categories listed for past damages, the ERC benefits JATCO paid from March 10, 1992, to the date of trial would be recoverable. Nothing in the record explains why this language was omitted.

Breisacher--JATCO's own witness and workers' compensation administrator--testified unequivocally that $40,265.85 represented a combined ERC and TTD payment, of which only $495.60 was for TTD. Therefore, we hold as a matter of law that the trial court mischaracterized $39,770.25 in ERC benefits as "past wage loss" and erroneously allocated them to the "loss of earnings" verdict area. We reverse the trial court's judgment for JATCO with respect to $39,770.25.

Affirmed in part and reversed in part.


Footnotes

     [1] When an employee enters a Naig settlement agreement before trial of the employer's subrogation lawsuit, the trial court should hold a hearing prior to trial to determine the amount of benefits paid and payable. Tyroll v. Private Label Chems., 505 N.W.2d 54, 61 (Minn. 1993). The suit is then tried to a jury as a common law tort action. Id.

     [2] The trial transcript, however, reveals a discussion with the trial court concerning the drafting of the special verdict form as it was eventually submitted to the jury. When the trial court specifically gave both parties the opportunity to object on the record to the instructions, counsel for JATCO replied, "I don't have any objections."