The Importance of Being CC’d

By Nicole Killoran

Colson v. Town of Randolph, 2011 VT 129 (mem.).

Today’s case is a complex story composed of a series of unfortunate mistakes.  The various threads in this tale consist of two state agencies, two liens, a fireman, a municipal insurance provider, some unpaid child support, a frustrated and unpaid attorney, and the proceeds from a workers compensation injury claim settlement.  What could possibly weave these together, you may ask?  As the SCOV puts it: “avoidable error and its consequences.”

A fireman for the Town of Randolph incurred two child support obligations in 1998 and 2001.  When fireman did not pay them in full, he wound up with a grand total of approximately $20,000 in arrearages.  Several years later, fireman filed a workers’ compensation claim for a work-related injury against the Town of Randolph and the Vermont League of Cities and Towns (VLCT), the organization providing the Town’s workers’ compensation insurance.  In April of 2005, the Office of Child Support (OCS) perked up, and initiated a trustee process for the arrearage claims.  OCS served two summonses on the VLCT in an attempt to secure the proceeds from the workers’ compensation claim, so long as the trustee process was uncontested.

Meanwhile, in June 2005, fireman hired an attorney, the Claimant in today’s case, to represent him on a 25% contingency basis in the injury claim.  In October 2006, OCS notified attorney that it had filed liens on the injury claim with regard to the fireman’s two child support obligations.  Attorney, concerned that her own fees would go unpaid, contacted OCS and confirmed that OCS would not object to Attorney’s lien taking priority for payment from any settlement proceeds.  Attorney thereafter obtained an attorney’s lien from the Department of Labor (DOL) on the injury claim settlement.  In a December 2006 letter to DOL, attorney acknowledged OCS’s perfected lien, and notified DOL of the arrangement to pay her fees first from the settlement.

So this should have been easy, right?  The VLCT settles the fireman’s claim, the valiant attorney gets to collect her fees, and the fireman’s dependents get a cut of the settlement, reducing the fireman’s obligations to OCS. 

But no, Murphy’s Law dictates that it’s never that easy.  There were three cracks in this otherwise cut and dry case.

The first problem was that attorney never formalized her agreement with OCS that her lien would take priority over OCS’s. 

The second problem was that attorney never copied the VLCT, the entity responsible for paying any settlement, on the letter she sent to DOL confirming this arrangement with OCS.  What followed was a flurry of paperwork and letters acknowledging the lien.  DOL notified the VLCT of the attorney’s lien, but not of the informal agreement for disbursement.  When the claim was settled in April 2007, the attorney requested the funds be either disbursed in a lump sum to OCS, or in the alternative for 20% of the settlement to be paid toward attorney’s fees.  

The third problem, and the capper, was that the VLCT submitted a settlement form to DOL confirming a lump sum payment would be disbursed to OCS.  This would have flagged the attorney that all was not as it should be, but the VLCT did not copy attorney when the form was sent to DOL.  You can probably guess what happened next: shortly thereafter, the VLCT sent the entirety of the settlement, $9,784.63, to OCS, and not a penny to the attorney.

Attorney appealed this action through several layers of the administrative review and then the courts.  First, attorney requested that DOL enter an order against the VLCT to enforce her attorney’s lien.  DOL held a formal hearing and denied attorney her fees, concluding that attorney’s letter requesting payment of her fees from the settlement proceeds as an alternative to lump sum distribution was a “constructive waiver” of her rights to any funds from the settlement.  Attorney then appealed to the Washington County Superior Court, which reversed the DOL, granted summary judgment to the attorney, and remanded the case for DOL to consider the priority of the two liens.  On remand, DOL granted summary judgment for the Defendants, faulting attorney for failing to secure her lien’s priority.  Attorney appealed again, this time to the SCOV.

The lens through which the SCOV looks at this case is one of great deference.  With regards to the operative facts of the case, the SCOV must support the Commissioner’s findings if they were supported by the evidence.  The SCOV’s review is also limited to the propriety of the Commissioner’s conclusions on just a few questions certified for appeal: 1) whether the VLCT could be held responsible for failure to disburse payment to the attorney for her fees; and 2) whether the attorney “was not entitled to satisfaction” of her lien out of the settlement funds held by OCS.  For the attorney, these questions were better phrased as: 1) whether OCS’s lien took priority over the attorney’s lien; and 2) whether it matters that OCS actually waived the priority of its lien, and that the VLCT’s disbursement to OCS was an honest mistake that did not reflect the actual priority of the liens.

The SCOV easily settles the first question with a bit of “first in time.”  The common law rule of lien priority is “first in time, first in right.”  Quite simply, because OCS appropriately filed its trustee process lien two months before attorney assumed representation, and because the “trustee process itself imposes a lien on the funds to which it attaches,” OCS’s lien was senior and took priority over Attorney’s lien.

The three convergent cracks in this story are responsible for the SCOV’s conclusion on the second question.  Attorney failed to copy the VLCT on its letter to DOL regarding the “pay me first” arrangement.  DOL then failed to copy attorney on its letter confirming the mistaken “pay OCS first” arrangement for the lump sum settlement disbursement.  The VLCT unwittingly, but lawfully, distributed the entirety of the settlement to OCS.  Despite the fact that the VLCT “did this for the wrong reason,” the SCOV refuses to honor what was at best an informal agreement that OCS would waive its lien priority and attorney would get paid first.  Both sides made honest mistakes, but the attorney “bears the economic consequences” because she failed to demonstrate that the VLCT violated its legal obligations in disbursing the settlement to OCS.

The attorney throws a last ditch policy argument at the SCOV, but to no avail.  Attorney insists that to give OCS liens preference will disadvantage future workers seeking representation.  No one likes to work for free.  Workers’ compensation clients typically can’t afford to pay an attorney to represent them in their claim, so lawyers rely on their ability to collect their contingency fee from settlement proceeds.  For the SCOV to conclude no entitlement to payment in these circumstances, attorney warns, there will be fewer attorneys able to make a living representing such clients. The SCOV dismisses attorney’s harbinger of restricted access to justice, concluding that this case merely “resolves the consequences of avoidable mistakes in the unique context of its facts.”

If a life lesson is to be drawn from these novel facts, it is this: don’t forget to CC the guy who is supposed to pay you on a letter describing precisely how you are to be paid.