This opinion will be unpublished and

may not be cited except as provided by

Minn. Stat. § 480A.08, subd. 3 (2006).

 

STATE OF MINNESOTA

IN COURT OF APPEALS

A06-1145

 

Linda Timmer, et al.,

Respondents,

 

Independent School District 482, intervenor,

Appellant,

 

vs.

 

Shamineau Adventures,

Defendant.

 

Filed April 17, 2007

Affirmed in part, reversed in part, and remanded

Lansing, Judge

 

Morrison County District Court

File No. CX-03-00261

 

Luke M. Seifert, Heidi N. Thoennes, Quinlivan & Hughes, P.A., 400 First Street South, Suite 600, St. Cloud, MN 56302 (for respondents)

 

Shamus P. O’Meara, Dale O. Thornsjo, Gabriel A. Kuhfuss, Johnson & Condon, P.A., 7401 Metro Boulevard, Suite 600, Minneapolis, MN 55439 (for appellant)

 

            Considered and decided by Peterson, Presiding Judge; Lansing, Judge; and Worke, Judge.

U N P U B L I S H E D   O P I N I O N

LANSING, Judge

            This appeal involves a dispute between Independent School District 482 and its employee, Linda Timmer, over the effect of a pretrial agreement on the distribution of proceeds from litigation establishing third-party liability for Timmer’s work-related injuries.  Because the agreement provides for allocation according to the statutory workers’ compensation formula for subrogation rights, we reverse the district court’s order that apportions recoverable and nonrecoverable damages under Henning v. Wineman, 306 N.W.2d 550 (Minn. 1981).  But because Jere Timmer’s loss-of-consortium claim is not governed by the agreement or the statute, we affirm the district court’s exclusion of the loss-of-consortium damages from the statutory distribution. 

F A C T S

            Linda Timmer was an employee of Independent School District 482 and was acting in her employment capacity in 2001 when she sustained severe injuries on property owned by Shamineau Adventures.  Timmer accepted workers’ compensation benefits from the school district for medical expenses and wage loss.  In 2002 Timmer sued Shamineau for damages under Minn. Stat. § 176.061, subd. 5(a) (2006).  Her husband, Jere Timmer, separately sued Shamineau for loss of consortium, and the actions were consolidated.

            Pending trial on the third-party action against Shamineau, Linda Timmer entered into a No-Naig/No-Reverse-Naig agreement with the school district and its workers’ compensation self-insurer (collectively “school district”).  See Naig v. Bloomington Sanitation, 258 N.W.2d 891, 893-95 (Minn. 1977) (analyzing employee’s right to settle claim with third-party tortfeasor when settlement does not affect employer’s subrogation rights).  The three-page agreement essentially provided that neither Timmer nor the school district would settle with Shamineau but would try the full claim to a jury.  The agreement further provided that Timmer and the school district would “allocate any recovery in the [a]ction pursuant to Minn. Stat. § 176.061, subd. 6.”  The school district reserved its right to intervene if its subrogation rights were not adequately protected. 

            The jury returned a special verdict finding gross damages of $4,639,915 and allocating forty percent of the fault to Timmer.  The net award of $2,783,949 combined Jere Timmer’s damages for loss of consortium with Timmer’s damages for medical care; past and future wage loss; and pain, disability, embarrassment, and emotional distress.  The Timmers brought a motion to distribute the proceeds according to Timmer’s agreement with the school district but asked the court to exclude from the statutory formula the amounts provided for pain and suffering and Jere Timmer’s damages for loss of consortium.  

            Asserting that the Timmers’ motion violated the terms of their pretrial agreement, the school district moved to intervene.  The school district argued that because its agreement with Timmer required “any recovery” in the action to be allocated “pursuant to Minn. Stat. § 176.061, subd. 6,” the agreement prohibited the Timmers from relying on Henning v. Wineman, 306 N.W.2d 550 (Minn. 1981), to petition for a variance from the statutory formula.  The Timmers disputed the school district’s interpretation of the agreement and asserted that Henning provides authority for the district court to apportion the verdict into amounts recoverable and amounts nonrecoverable under workers’ compensation. 

            While this motion was pending, the district court resolved other postverdict motions and issued an order for conditional remitittur.  On appeal, we affirmed the district court’s denial of a new trial or judgment as a matter of law, and we also affirmed the conditional remitittur that reduced future pain, disability, embarrassment, and emotional-distress damages from $3,000,000 to $1,650,000.  Timmer v. Shamineau Adventures, A04-2458 (Minn. App. Dec. 13, 2005), review denied (Minn. Feb. 14, 2006).  On remand, the Timmers accepted the remitittur, and the total amount of damages was consequently reduced to $3,289,915 resulting in a net award of $1,973,949.

            With the appeal resolved, the Timmers renewed their motion to exclude loss-of-consortium and pain-and-suffering damages from the subdivision 6 distribution formula.  The district court granted the Timmers’ motion for apportionment between recoverable and nonrecoverable damages.  In its order granting the motion, the district court held that the agreement between Timmer and the school district was enforceable but that Timmer had not waived her right to elect an apportionment between recoverable and nonrecoverable damages.  The school district appeals. 

D E C I S I O N

            The school district and Timmer do not dispute that they entered into a valid agreement in April 2003 relating to the school district’s subrogation interest in Timmer’s pending cause of action against third-party tortfeasor Shamineau Adventures.  Under the agreement the school district stipulated that it would not independently settle its subrogation claim and would “allocate any recovery in the [a]ction pursuant to Minn. Stat. § 176.061, subd. 6.”  Timmer reciprocally agreed that she would not compromise or settle her claim “for damages not paid or payable by workers’ compensation” and would “allocate any recovery in the [a]ction pursuant to Minn. Stat. § 176.061, subd. 6.” 

            Agreements relating to the settlement of litigation are interpreted as contracts.  Ryan v. Ryan, 292 Minn. 52, 55, 193 N.W.2d  295, 297 (1971).  If the terms of a settlement agreement are unambiguous, the language of the agreement must be given its plain and ordinary meaning.  Humphrey v. Philip Morris USA, Inc., 713 N.W.2d 350, 355 (Minn. 2006).  The terms of the agreement between the school district and Timmer incorporate the provisions of Minn. Stat. § 176.061, subd. 6.  On appeal, questions of contractual and statutory interpretation are legal issues subject to de novo review.  Humphrey, 713 N.W.2d at 355.

            The school district contends that a Henning allocation is not available when parties agree to allocate “any recovery” under section 176.061, subdivision 6, because the allocation method is not an option that is inherently available under the statute.  The school district also argues that the parties’ agreement resulted in a waiver of the Henning-allocation right because the agreement expressly provides for “allocating any recovery” in the action according to the statute and this promise includes any loss-of-consortium recovery because it is a derivative claim.

            Minnesota workers’ compensation law provides that when an injured employee who has accepted benefits from the employer or employer’s insurer, brings an action against the third-party tortfeasor, the employer or insurer is subrogated to the rights of the employee.  Minn. Stat. § 176.061, subd. 5(a) (2006).  Ordinarily, the total proceeds of the action are allocated according to the statutory formula set forth in section 176.061, subdivision 6.  Id.  The formula reduces the proceeds by reasonable costs expended in pursuit of the action and sets aside one-third of the remainder for the employee.  Id., subd. 6 (2006).  From the remaining sum the formula reimburses the employer or insurer for the benefits paid, less a proportionate share of the costs.  Id.  Any remaining amount is paid to the employee to serve as a credit against future benefits payable by the employer or insurer.  Id.

In Henning, the supreme court held that when a settlement between an employee and a third-party tortfeasor divides the damages between recoverable and nonrecoverable damages, the district court has the authority to determine that only the proceeds allocated to recoverable damages are subject to section 176.061, subdivision 6.  Henning v. Wineman, 306 N.W.2d 550, 552 (Minn. 1981).  If the employee elects this allocation method, the employee waives the right to the statutory one-third share, and the costs considered are only those attributable to the recoverable portion.  Id.at 552-53.  The supreme court noted that this type of allocated settlement does not affect the rights of a nonconsenting employer or workers’ compensation insurance carrier to proceed against the third-party as if the settlement had not been made.  Id. at 553.

This court extended Henning to permit an employer to rely on a jury verdict rather than a settlement to petition for a posttrial allocation between recoverable and nonrecoverable damages.  Drake v. Reile’s Transfer & Delivery, Inc., 613 N.W.2d 428, 431 (Minn. App. 2000).  Drake recognized, however, that, although the section 176.061, subdivision 6 formula allows the district court to allocate the proceeds between damages recoverable and nonrecoverable under workers’ compensation law, it does not require it.  See Locher v. Gareis, 411 N.W.2d 273, 275 (Minn. App. 1987) (stating that two options are available in absence of express agreement); see also In re Markuson, 685 N.W.2d 697, 702 (Minn. App. 2004) (workers’ compensation statute “does not require a district court to allocate settlement proceeds between damages that are recoverable and nonrecoverable”).  Drake also recognized that a Henning allocation was not precluded on the facts of Drake because the parties had not agreed to allocation under section 176.061, subdivision 6.  Drake, 613 N.W.2d at 434.

By their agreement, Timmer and the school district promised to “allocate any recovery in the [a]ction pursuant to Minn. Stat. § 176.061, subd. 6.”  The Timmers assert that the Henning allocation method is an inherent part of section 176.061, subdivision 6, rather than an allocation method distinct from that set forth in section 176.061, subdivision 6, and therefore, the agreement did not preclude them from requesting a Henning allocation.  The Timmers offer two main arguments in support of this interpretation.

The Timmers first argue that because Henning and the cases applying Henning specifically refer to section 176.061, subdivision 6, when identifying the “allocation options,” the statute itself is the source of the options.  But that argument is not apparent on the face of the statute and is unsupported by the case law that recognizes the Henning variation. 

In Lang v. William Bros. Boiler & Mfg. Co., the supreme court held that an employee can settle tort claims against a third-party tortfeasor without the employer’s consent, but the settlement does not affect the employer’s subrogation rights.  250 Minn. 521, 531, 85 N.W.2d 412, 419 (1957).  Similarly, in Liberty Mut. Ins. Co. v. Nutting Truck & Caster Co., the supreme court noted that an employee can settle personal claims and can exclude from that settlement any rights of an employer because it does not affect the employer’s subrogated rights.  295 Minn. 211, 216, 203 N.W.2d 542, 545 (1973).  And in the seminal case Naig v. Bloomington Sanitation, the supreme court held that when an employee has settled only those claims not recoverable under the workers’ compensation statute, the settlement is not subject to section 176.061, subdivision 6, because a contrary interpretation of the provision would preclude the employee from settling the employee’s own claims.  258 N.W.2d 891, 894 (Minn. 1977).  The Naig court also allowed the employee to apportion the settlement into recoverable and nonrecoverable portions with only the recoverable portion distributed according to the statutory formula, thereby foregoing the statutory one-third share.  Id.  For its part, the Henning decision established only that district courts “ha[ve] the jurisdiction to allocate the proceeds of a third-party settlement between amounts recoverable under workers’ compensation and amounts not so recoverable.”  306 N.W.2d at 551 (referring to employee’s right to allocate as described in Naig); see also Drake, 613 N.W.2d at 432 (applying allocation right to jury verdicts). 

            Lang, Liberty Mutual, Naig, and Henning demonstrate that a Henning allocation is a mechanism for allowing employees to exercise their right to set aside nonrecoverable amounts.  But more importantly, these cases also illustrate that an employee’sright to set aside nonrecoverable amounts exists—as the name implies—because section 176.061 does not grant employers and insurers subrogated interests in these proceeds.  Because the right is premised on the statute’s limited scope, it cannot be said to have its origins in the statute.  Cf. Locher, 411 N.W.2d at 275 (noting availability of Henning allocation absent express agreement to apportion proceeds by statute, thereby implying that options are distinct). 

            The Timmers’ second argument is that because “[t]he proceeds of the action or settlement of the action shall be paid in accordance with subdivision 6,” and a Henning allocation is a means of paying proceeds, it must be a part of subdivision 6.  Minn. Stat. § 176.061, subd. 5(a).  Again, the case law is inconsistent with this “amalgamation” theory.  Naig specifically provides that some proceeds—those that are nonrecoverable—do not need to be paid according to the statutory formula.  258 N.W.2d at 894.  And this distinction between the statutory and the Henning allocation was reaffirmed in Kliniski v. Southdale Manor, Inc., 518 N.W.2d 7, 9 (Minn. 1994) (observing that statutory formula does not apply to all settlement proceeds).  The Timmers’ argument has thus been previously addressed and rejected.   The right to allocate claim proceeds into recoverable and nonrecoverable damages is not an inherent part of section 176.061, subdivision 6. 

            The district court concluded that the agreement between the school district and Timmer was unenforceable to the extent that Timmer did not expressly waive her right to allocate the proceeds between recoverable and nonrecoverable damages.  While we agree that the agreement does not contain an express waiver of Timmer’s allocation right, we do not believe that the lack of a waiver prevents the enforcement of the agreement.

            We find no support for the contention that the right to petition for a Henning allocation must be expressly waived.  Instead, the cases that have addressed this issue provide that “an express agreement to apportion the proceeds by statute” will preclude an election to allocate a third-party recovery between recoverable and nonrecoverable damages.  Locher, 411 N.W.2d at 275; see also Drake, 613 N.W.2d at 434 (noting that Henning allocation is available unless employee expressly agrees that statutory method will apply). 

            By expressly agreeing to allocate “any recovery in the [a]ction pursuant to Minn. Stat. § 176.061, subd. 6,” Timmer waived her right to ask for a Henning allocation and agreed to use the statutory-allocation formula.  The provisions of section 176.061, subdivision 6, are plainly stated, and the agreement between Timmer and the school district is unambiguous.  Therefore, Timmer’s recovery in the action against Shamineau must be allocated “pursuant to Minn. Stat. § 176.061, subd. 6.” 

            This analysis does not, however, require that Jere Timmer’s loss-of-consortium damages must also be allocated under section 176.061, subdivision 6.  We reject the school district’s argument that “any recovery,” as provided in the agreement includes Jere Timmer’s loss-of-consortium damages because these damages derive from Timmer’s claims. 

            Under Minnesota law, loss-of-consortium claims are derivative claims and must ordinarily be tried jointly with the claims brought by the injured spouse.  Huffer v. Kozitza, 375 N.W.2d 480, 482 (Minn. 1985).  But even though the “claims use the same liability . . . they are separate claims with separate injuries.”  Id.  Loss-of-consortium claims are not cognizable under the Workers’ Compensation Act.  Rascop v. Nationwide Carriers, 281 N.W.2d 170, 173 (Minn. 1979).  It is well established that section 176.061, subdivision 6, does not apply to the proceeds of a settlement that is attributable to a loss-of-consortium claim.  Henning, 306 N.W.2d at 552.  Consequently, the loss-of-consortium claim may be allocated under Henning unless a valid agreement provides otherwise.

            The pretrial agreement between Timmer and the school district was signed by the school district, the subrogated employer, and Timmer.  Jere Timmer did not agree to have the proceeds of his claim allocated under section 176.061, subdivision 6.  The school district had an interest in Timmer’s claims by virtue of its payments to her under the Workers’ Compensation Act, but it had no interest in Jere Timmer’s claims.  And Timmer does not have the authority to settle the loss-of-consortium claim because, despite its derivative nature, it remains a “separate” claim.  Because neither Timmer nor the school district had an interest in the claim, neither could control its distribution.  As a result, the loss-of-consortium claim is not included in the category of “any recovery” referred to in the pretrial agreement, and Jere Timmer’s damages may be distributed separately from the remaining claims. 

            Finally, we agree with the school district’s claim that the district court’s allocation is incorrect under either the statutory or the Henning calculation because it granted Timmer both the Henning division and a residual one-third statutory share.  See Henning,306 N.W.2d at 552-53 (“By selecting the [Henning allocation] the employee forfeited [the] statutory right to one-third of the recovery.”).  But on remand the district court will apply the statutory formula less the loss-of-consortium damages, and it is therefore unnecessary to address more specifically the preappeal computation. 

            Affirmed in part, reversed in part, and remanded.