Brown v. Forest Oil Corp.

UNITED STATES COURT OF APPEALS

for the Fifth Circuit

_____________________________________

No. 93-4340

_____________________________________

JAMES BROWN and JANN BROWN,

Plaintiffs-Appellants,

VERSUS

FOREST OIL CORP., ET AL.,

Defendants,

PRODUCTION OPERATORS, INC.,

Defendant-Appellee.

_____________________________________

No. 93-5292

_____________________________________

JAMES BROWN, ET AL.,

Plaintiffs,

JAMES BROWN,

Plaintiff-Appellant,

VERSUS

PRODUCTION OPERATORS, INC.,

Defendant-Appellee.

______________________________________________________

Appeals from the United States District Court

for the Western District of Louisiana

______________________________________________________

(August 10, 1994)

Before ALDISERT1, REYNALDO G. GARZA and DUHÉ, Circuit Judges.

DUHÉ, Circuit Judge:

1

Circuit Judge of the Third Circuit, sitting by designation.

James Brown, an employee of Production Operators, Inc.

("POI"), was injured while working on an offshore platform located

on the outer continental shelf off the coast of Louisiana. To

recover for their injuries, James Brown and his wife sued numerous

defendants, including Forest Oil Corp., an owner and operator of

the platform. POI intervened to recover medical and wage benefits

that it had paid to or on behalf of James Brown since his injury.

Upon learning POI had failed to secure compensation under the

Longshoreman and Harbor Worker's Compensation Act ("LHWCA"), the

Browns sued POI for damages under 33 U.S.C. § 905(a). [Hereinafter

"the LHWCA case"]. POI asserted a counterclaim against the Browns

arising out of James Brown's execution when employed of a contract

called the Insurance Waiver Agreement ("the Agreement"). The

Agreement, if Brown suffered a compensable injury, provided that

POI would pay Brown 100 percent of his salary and reasonable

medical benefits in lieu of the compensation benefits applicable in

the jurisdiction where he was injured. In exchange for these

promises, Brown waived any claims that he may have against POI

arising out of his injury.

Before trial, the Browns settled with all defendants except

POI for $600,000. Later, the Browns' LHWCA case against POI was

tried to a jury, which found both POI and Forest Oil responsible

for the Browns' injuries. The district court deducted from the

total damages found by the jury the full amount that the Browns had

collected from the settlement and the benefits that James Brown had

previously received from POI. After the application of these

2

credits, the district court entered a judgment against the Browns

for the balance they owed POI for the benefits it had previously

paid.2

While the federal suit was pending, James Brown filed suit

seeking money damages against POI in Texas state court, alleging

that POI had breached the Insurance Waiver Agreement by terminating

payment of benefits to Brown after he commenced the LHWCA action

against POI in federal court. [Hereinafter "breach of contract

case"]. Alternatively, Brown argued that POI fraudulently induced

him into signing the Agreement. The breach of contract case was

removed to federal court and transferred to the Western District of

Louisiana. POI's counterclaim in the LHWCA case was severed and

consolidated with the breach of contract case.

POI moved to dismiss, or alternatively, for summary judgment.

The district court granted POI's motion for summary judgment and

dismissed all Brown's claims in the breach of contract case with

prejudice.

2

Specifically, the jury awarded James Brown $584,000 in total

damages. The jury awarded Jan Brown $27,500 for loss of consortium

damages. The parties had stipulated to the amount of Brown's past

medical expenses, equaling $54,867.04. Accordingly, James and Jan

Brown's total damages were $666,367.04. The district court then

applied a credit of $600,000 for the settlement. On summary

judgment, the district court had determined that POI was entitled

to an employer's lien for benefits it had paid to Brown prior to

the tort suit. Therefore the district court applied a credit for

$120,640, the amount Brown had previously received from POI. After

application of both credits, no portion of the Browns' damages

remained due, and the district court entered a judgment against the

Browns in favor of POI in the amount of $54,272.96 to complete

reimbursement to POI.

3

The Browns appeal several aspects of the damage award in the

LHWCA case and the grant of summary judgment in favor of POI in the

breach of contract case. The appeals have been consolidated before

this Court. We vacate and remand in part and affirm in part.

DISCUSSION

I. Breach of Contract Case

A. Standard of Review

We review a summary judgment de novo. Abbott v. Equity Group,

Inc., 2 F.3d 613, 618 (5th Cir. 1993), cert. denied, 114 S. Ct.

1219 (1994). Summary judgment may be granted if there is "no

genuine issue as to any material fact and the moving party is

entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c).

A summary judgment may be affirmed on any proper legal basis, even

if not ruled on by the district court. See Harbor Ins. Co. v.

Urban Constr. Co., 990 F.2d 195, 199 (5th Cir. 1993).

B. Breach of Contract Claim

In this Court the parties proceed assuming that, under the

Insurance Waiver Agreement, Brown waived his right to compensation

under the LHWCA in lieu of the benefits promised under the

contract.3 Section 915(b) of the LHWCA provides, however, that

"[n]o agreement by an employee to waive his right to compensation

3

We question whether the Insurance Waiver Agreement applies to

Brown's injuries as it appears to waive benefits under Texas and

Louisiana workers' compensation laws. Because there is some

ambiguity in the contract, however, we will assume, as the parties

do, that the contract applies to compensation benefits under the

LHWCA. See Lumar Marine v. Insurance Co. of N. Am., 910 F.2d 1267,

1273 (5th Cir. 1990) (ambiguous contractual provisions are

construed against the drafter).

4

under this chapter shall be valid." Thus, as a matter of law,

Brown's breach of contract claim must fail because the contract is

void. See Lawson v. Standard Dredging Co., 134 F.2d 771 (5th Cir.

1943) (finding employment contract that waived benefits under the

LHWCA in favor of state worker's compensation benefits invalid).

Contrary to Brown's assertion, we find no policy

considerations that preclude this result. Brown makes much of

POI's failure to secure compensation. What Brown fails to

understand is that whether the contract is valid or applies to the

LHWCA is a separate inquiry from whether POI failed to secure

compensation. The LHWCA provides mechanisms to "punish" those

employers who fail to secure compensation. See 33 U.S.C. §§

905(a), 938(a). The requirements for securing compensation are set

forth in § 932 of the LHWCA, and § 932 does not require a contract

between the employee and employer. That POI failed to secure

compensation is irrelevant to the inquiry of whether the contract

is valid.

C. Fraud and Misrepresentation Claim

Alternatively, Brown argues that POI through certain

representations induced him into entering an agreement that was

void. To prevail on his fraud claim, Brown must prove POI's intent

to defraud him or gain an unfair advantage, and a resulting loss,

or damages. Autin v. Autin, 617 So. 2d 229 (La. Ct. App. 5th

Cir.), writ denied, 620 So. 2d 846 (1993). To recover for

negligent misrepresentation, Brown must establish the following

elements: 1) a legal duty on the part of POI to supply correct

5

information to Brown, 2) a breach of that duty, and 3) damages to

Brown as a result of his justifiable reliance upon the

misrepresentation. Busby v. Parish Nat'l Bank, 464 So. 2d 374, 377

(La. Ct. App. 1st Cir.), writ denied, 467 So. 2d 1132 (1985).

First, the undisputed facts show that at the time Brown signed

the Agreement, POI was not aware that Brown would be working in a

federal jurisdiction for workers' compensation purposes. Therefore

POI could not have known, at the time it entered into the

Agreement, that it would be invalid under the LHWCA. Brown has

adduced no summary judgment evidence that demonstrates otherwise.4

The only other misrepresentation suggested by the summary

judgment evidence is that POI fraudulently induced Brown into

signing the Insurance Waiver Agreement by representing that it was

a qualified self-insurer under the LHWCA. Brown contends that his

damages are the difference between the remedies afforded by the

Agreement and those of the LHWCA. Assuming that POI misrepresented

its self-insurer status,5 as previously discussed, POI's self-

4

In the district court, POI had argued that Brown's allegations

did not comply with the specificity requirement of Federal Civil

Procedure Rule 9(b). Brown argues that the district court should

have treated POI's motion as one for a more definite statement and

granted Brown leave to amend his complaint. Both parties, however,

submitted evidence beyond the pleadings. Brown can claim no

surprise in the district court's treating the motion as one for

summary judgment. See, e.g, Oreman Sales, Inc. v. Matsushita Elec.

Corp. of Am., 768 F. Supp. 1174, 1179 & n.3 (E.D. La. 1991).

5

Brown stated in an affidavit that POI told him that it was a

qualified self-insurer when he signed the Agreement. Notably,

Brown does not testify that POI told him that it was a qualified

self-insurer under the LHWCA. As stated above, POI did not know

that the LHWCA would apply to Brown, and POI was qualified under

state workers' compensation laws.

6

insurer status is irrelevant to the contract's validity. Brown has

failed to show how such a misrepresentation caused him any damages.

Because we find that Brown has failed to establish a genuine

issue of material fact as to his fraud and misrepresentation claim,

we need not address the prescription argument urged by POI.

II. The LHWCA Case

A. Credit for Settlement

The Browns argue that the district court erred in setting off

the entire $600,000 they received in settlement against the total

damages awarded to them at trial.6 They argue that Louisiana law,

made applicable by the Outer Continental Shelf Lands Act (OCSLA),

43 U.S.C. §§ 1331-1356, is the applicable law. Accordingly, the

Browns contend that the district court should have employed the

proportionate fault method in offsetting the third-party

settlement. See Diggs v. Hood, 772 F.2d 190, 195-96 (5th Cir.

1985) (explaining that under Louisiana law, nonsettling tortfeasor

is responsible for only his share of the judgment based on his

percentage of fault). POI responds that under the OCSLA, Louisiana

law only applies if there is no inconsistent federal law, and

because the LHWCA embodies a one recovery policy, the dollar-for-

dollar or pro tanto approach to credit was appropriate.

6

POI challenges the Browns' standing to raise this claim. POI's

argument that the Browns were not injured because they obtained the

single recovery they are entitled to begs the question raised by

this claim. Nor is the claim moot as POI argues. The issue raised

in this case does not concern contribution among tortfeasors, and

that POI and Forest Oil have resolved the issue of contribution

between them is irrelevant.

7

A brief review of the statutory framework governing this

action is necessary to understand the issue confronting this Court.

Because Brown was injured on a platform on the outer

continental shelf, the OCSLA applies to this lawsuit. 43 U.S.C. §

1333(a). Pursuant to § 1333(b) of the OCSLA, compensation is

payable under the provisions of the LHWCA for employees injured as

a result of operations conducted on the outer continental shelf for

the purpose of exploring for or removing natural resources from the

seabed. Because POI was engaged in this type of operation, the

LHWCA is the applicable compensation scheme in this case.

Under the LHWCA, an injured worker is ordinarily barred from

bringing a civil action against his or her employer. See 33 U.S.C.

§ 905(a). When an employer fails to secure compensation in

accordance with § 932 of the LHWCA,7 however, § 905(a) provides

that an employee or his legal representatives "may elect to claim

compensation under the chapter, or to maintain an action at law or

in admiralty for damages on account of such injury or death."

Because POI failed to secure compensation, the Browns elected to

bring a civil action under § 905(a).

7

Section 932 provides that every employee shall secure the

payment of compensation:

(1) By insuring and keeping insured the payment of

such compensation with any stock company or mutual

company or association, or with any other person or fund,

while such person or fund is authorized (A) under the

laws of the United States or any State, to insure

workmen's compensation, and (B) by the Secretary, to

insure payment of compensation under this chapter; or

(2) By furnishing satisfactory proof to the

Secretary of his financial ability to pay such

compensation and receiving an authorization from the

Secretary to pay such compensation directly.

8

The Browns brought their civil cause of action under the

OCSLA. Section 1333(a)(2)(A) of the OCSLA states that:

To the extent that they are applicable and not

inconsistent with this Subchapter or with

other Federal laws and regulations . . . the

civil and criminal laws of each adjacent State

. . . are hereby declared to be the law of the

United States for that portion of the subsoil

and seabed of the outer Continental Shelf, and

artificial islands and fixed structures

erected thereon . . . .

Thus, Louisiana civil law is adopted as surrogate federal law in

this lawsuit via the OCSLA.

Thus, the issue posited by this case is not whether the LHWCA

supplants Louisiana law under the OCSLA; we have already determined

that it does. The Browns are able to bring this civil action only

because the LHWCA permits them to under the circumstances. The

issue presented today is whether the LHWCA mandates the application

of the pro tanto rule when an employee elects to bring a civil

action under § 905(a). The resolution of that issue is a matter of

statutory construction.

POI relies on Hernandez v. M/V Rajaan, 841 F.2d 582 (5th

Cir.), modified, 848 F.2d 498 (5th Cir.), cert. denied, 488 U.S.

981 (1988), and cert. denied, 488 U.S. 1030 (1989), and Edmonds v.

Compagnie Generale Transatlantique, 443 U.S. 256 (1979), to support

its position that the LHWCA, although allowing an employee to file

a civil action, alters the state law rule applicable to the issue

of a nonsettling defendant's liability. In Hernandez, an injured

longshoreman brought an action against a vessel under the general

9

principles of maritime law pursuant to § 905(b) of the LHWCA.8 The

vessel impleaded several third-party defendants. The plaintiff

settled with the third-party defendants before trial. In

determining the liability of the nonsettling defendant, we adopted

the maritime pro tanto approach. We further reasoned that under

the LHWCA, the plaintiff was entitled to one recovery for the

injuries he suffered. We explained that because the damage award

represented 100 percent of the loss suffered, it must be reduced by

the amount the plaintiff received in settlement from the third-

party defendants.

Although this panel has no authority to overrule a prior

panel's decision, we question the continuing viability of the

Hernandez decision in light of the recent Supreme Court case,

McDermott, Inc. v. AmClyde, 114 S. Ct. 1461 (1994). In McDermott,

the Supreme Court rejected the application of the dollar-for-dollar

credit method in maritime cases in favor of the proportionate share

method.

We further question the broad language in Hernandez concerning

the LHWCA's policy of one recovery. Although admittedly the LHWCA

8

Section 905(b) provides:

In the event of injury to a person covered under

this chapter caused by the negligence of a vessel, then

such person, or anyone otherwise entitled to recover

damages thereof, may bring an action against such vessel

as a third party in accordance with the provisions of

section 933 of this title, and the employer shall not be

liable to the vessel for such damages directly or

indirectly and any agreements or warranties to the

contrary shall be void.

10

has a general policy to avoid double recoveries,9 we have also

noted that limitations on employee recovery are not favored absent

statutory authority. See Strachan Shipping Co. v. Nash, 782 F.2d

513, 519 (5th Cir. 1986) (en banc); United Brands Co. v. Melson,

594 F.2d 1068, 1075 (5th Cir. 1979) (employer should not be

credited for benefits that the employee has received under a state

compensation system absent statutory authority, even though it

results in double recovery), overruled by 33 U.S.C. § 903(e); see

also Todd Shipyards Corp. v. Director, Office of Workers'

Compensation Programs, U.S. Dep't of Labor, 848 F.2d 125, 129 (9th

Cir. 1988) (employer receives no credit for employee's Veterans

benefits absent statutory authority). Nothing in § 905(b) suggests

that a pro tanto rule be applied. Thus, although Hernandez is

analogous, it is not controlling, and we decline to follow its

reasoning.

We likewise reject POI's reliance on Edmonds. As the Supreme

Court noted in McDermott, Edmonds did not address a nonsettling

defendant's liability; it merely reaffirmed the well-established

principle of joint and several liability. McDermott, 114 S. Ct. at

1471. In Edmonds, a longshoreman brought suit against a vessel

under 33 U.S.C. § 905(b). The longshoreman had received LHWCA

benefits from his employer. The question before the Court was

9

That policy has been codified in the statutory credit provision,

§ 903(e), and the subrogation provisions of § 933. Section 903(e)

allows a credit to the employer for any amount that the employee

has actually received under state worker's compensation laws or the

Jones Act. Section 933 involves the reimbursement rights of the

employer when an employee seeks recovery from a third party.

Neither of these sections apply to the present case.

11

whether the vessel should pay its proportionate share of the

damages or be fully responsible to the longshoreman even if the

employer's negligence contributed to the injuries. The Court held

that the vessel should be liable to the longshoreman for the full

amount of damages. The Court explained that applying a

proportionate share rule would place the burden of recovering

damages on the injured employee and could potentially result in the

employee's recovery of an amount less than actual injury. The

Court's concern in Edmonds was not double recovery, but the

inequities faced by the employee as a result of the statutory

scheme. The same concerns do not exist here, however, as the

Browns voluntarily assumed the risk of a "good" or "bad"

settlement.

If anything, Edmonds supports the Browns' position. In

Edmonds, the Supreme Court declined to alter the pre-existing

maritime rule without an indication in the statute or legislative

history of congressional intent to do so.

Turning to § 905(a), itself, the purpose of that section is to

induce employers to accept and participate in the LHWCA

compensation scheme by eliminating the non-participating employer's

immunity from tort actions under the LHWCA. See Weeks v. Alonzo

Cothron, Inc., 493 F.2d 538 (5th Cir. 1974) (citing Gould v. Bird

& Sons, Inc., 485 P.2d 458 (Wash. Ct. App.), review denied, 79

Wash. 2d 1009 (1971)). In essence, § 905(a) restores the

employee's pre-LHWCA right against the non-participating employer.

Cf. Parker v. South Louisiana Contractors, Inc., 537 F.2d 113 (5th

12

Cir. 1976) (holding that § 905(b) does not create a broader cause

of action in admiralty; rather, it preserves a longshoreman's right

under prior law), cert. denied, 430 U.S. 906 (1977).

Although there is no helpful legislative history, the language

of the statute demonstrates Congress' ability to expressly modify

the usual state law rules when it desires to do so. Section 905(a)

prohibits an employer from pleading contributory negligence,

negligence of a fellow servant or assumption of the risk as

defenses, although ordinarily available in most state tort actions.

The statute indicates no other change of state tort actions. Cf.

Edmonds, 443 U.S. at 266-67 ("[R]eticence while contemplating an

important and controversial change in existing law is unlikely.").

Although we are mindful that in this case the Browns may

receive a windfall, we will not alter the cause of action that

Congress has returned to the employee under § 905(a) without a

clearer mandate. Accordingly, we vacate the judgment insofar as it

decreed that the $600,000 settlement be deducted from the Browns'

total damages and remand for a determination of POI's share of the

jury award.

B. Employer's Lien

Prior to commencement of the Browns' civil action, POI paid

$120,640.00 to James Brown in compensation and medical benefits.

On summary judgment, the district court concluded that POI could

recover this amount out of the settlement paid by third-party

defendants. The Browns argue that POI made the payments pursuant

to the Insurance Waiver Agreement, not the LHWCA; therefore, POI

13

cannot rely on the reimbursement policy of the LHWCA. The

Agreement has no provision for an employer's lien. We review the

district court's grant of summary judgment de novo. See Abbott, 2

F.3d at 618.

We believe that in the interest of fairness and justice, the

payments made by POI under the void Insurance Waiver Agreement

should as a matter of law be considered payments in compliance with

the LHWCA. See Lawson, 134 F.2d at 772 (payments made under an

invalid contract are considered advance payments of compensation

under the LHWCA). It is undisputed that POI attempted to comply

with the LHWCA by filing the necessary forms with the Department of

Labor once it began payment, and that the Department of Labor

considered POI's payments in compliance with the LHWCA. The courts

have long recognized the employer's subrogation right to be

reimbursed from the worker's net recovery from a third party for

the full amount of compensation benefits already paid. Peters v.

North River Ins. Co., 764 F.2d 306, 312 (5th Cir. 1985). This

right extends to those employers who voluntarily pay compensation

without an award. See Allen v. Texaco, Inc., 510 F.2d 977, 980

(5th Cir. 1975).

To disallow POI the right of reimbursement would be in

contravention of the LHWCA's policy of encouraging voluntary

compliance with the LHWCA. That POI failed to secure compensation

does not affect POI's rights; no provision in the LHWCA penalizes

the employer for failing to secure compensation by making it

14

forfeit the amounts it paid prior to the commencement of the civil

suit. We conclude that POI is entitled to an employer's lien.

C. Application of Lien to Jann Brown's Damages

The Browns argue that if we determine that POI is entitled to

an employer's lien, then the district court erred in applying that

lien against the damages recovered by Jan Brown. We agree.

Employer's offset rights are limited to the portion of recovery

intended for the employee. See 33 U.S.C. § 933(f); Allen, 510 F.2d

at 980. On remand, the district court should apply the employer's

lien only to the damages recovered by James Brown.

CONCLUSION

For the foregoing reasons, we VACATE the judgment in part as

discussed above and REMAND to determine the appropriate credits to

be deducted from the Browns' total damage award. The grant of

summary judgment in both cases is AFFIRMED.

15