Section 40 Lien Entitlement Should Include the Gross Award to the Petitioner and Not the Net After Fees and Costs Paid


Category: New Jersey

On August 19, 2022, the Appellate Division granted petitioner Daniel Panckeri’s petition for certification and remanded the matter for reconsideration after the decision in Richter v. Oakland Board of Education, 246 N.J. 507 (2021).

The court held that in the absence of binding precedent holding attorney's fees and costs arising out of the workers' compensation claim should be excluded from a Section 40 lien, its underlying decision should not be disturbed. In other words, the fees and costs that the petitioner pays out of their award are still part of the employer’s Section 40 lien reimbursement rights.

In the petitioner’s underlying claim, Panckeri v. Allentown Police Dep't., the petitioner was injured while assisting at the scene of a motor vehicle accident during the course of his employment with the Allentown Police Department (respondent). No. A-2015-19 (App. Div. Mar. 2, 2021) (slip op. at 1-3). The petitioner filed both a claim for workers' compensation benefits, and a third-party tort action against the driver and owner of the vehicle. Id. at 2-3.

The petitioner initially settled his workers’ compensation claim for 33.33% permanent partial total disability, and later increased to 40% of partial total disability as his condition worsened. In addition to his receipt of $16,547.13 in temporary disability benefits and $16,287.05 in medical benefits, the petitioner’s gross compensation award for his permanency benefits was $20,883.10. The petitioner also settled his tort claim in the amount of $99,000.00, less $5,000.00 for his ex-wife’s per quod claim, $30,696.00 in counsel fees, and $1,919.82 for litigation expenses. Keep in mind that the per quod proceeds are not part of the Section 40 lien.

The respondent asserted a lien against the petitioner’s tort settlement under Section 40 of the workers’ compensation statute, N.J.S.A. 34:15-40. The petitioner challenged the lien against the full $20,883.10 in permanency benefits, arguing the lien should not include the $2,368 in attorney's fees and costs the petitioner had to pay out of his award for litigation of his workers' compensation claims, as those fees and costs were not part of the compensation payments paid to him under Section 40.

The judge disagreed and indicated that the reimbursement requirement of Section 40 based the employer's right to reimbursement on the entirety of the recovery, without regard to the fees and costs encountered in the workers' compensation award. The judge further noted that, although the Legislature had most recently amended Section 40 in 2007, and "specifically 'examined exemptible fees and costs,'" it had declined to alter the language in Section 40. The appellate division affirmed.

Subsequently, in Richter, the Supreme Court addressed the issue of whether the claimant's recovery from her employer under the New Jersey Law Against Discrimination (LAD), N.J.S.A. 10:5-1 to -49, was barred by the exclusivity provision of the Workers’ Compensation Act (WCA), N.J.S.A. 34:15-8. Richter was a diabetic teacher who fell and struck her head when she fainted, and sought workers’ compensation benefits, alleging that she was injured due to being unable to eat as a result of her schedule. She also filed a separate action seeking damages under the LAD for the school's alleged failure to accommodate her disability. Ibid. The Court affirmed Richter's ability to seek dual relief under both the LAD and the WCA. Id. at 541-42.

The Court in Richter noted that the “WCA was in place when the LAD was enacted, and the Legislature stated its clear intent that the LAD should be treated as supplemental to other remedies." The Court further noted that the discrimination claim under the LAD was not duplicative of the type of claims under the WCA, and therefore should not be regarded as subordinate to the WCA's exclusive remedy.” The LAD allowed for relief for a different workplace wrong.

The petitioner argued that similarly to the Richter matter, the attorneys’ fees and costs in his workers’ compensation claim should be excluded from the Section 40 lien. The respondent argued that Richter did not apply, as the petitioner’s case involves an award for permanent disability benefits, which was not the case in Richter. The respondent further argued that application of Richter to the present matter would result in inconsistencies in Section 40 cases, because the lien recovery could change depending on the timing of the settlement of the disability award and the settlement of the third-party case.

In Richter, the court reviewed the purpose of Section 40, which was to prevent a double recovery to an injured employee. 459 N.J. Super. at 422-425. The court held "if the award recovered by Richter is 'equivalent to or greater than the liability of the employer from an award,' in this case $28,733.84 for medical bills and temporary disability benefits, the Board is allowed to keep two-thirds with Richter's counsel being entitled to the remaining one-third for counsel fees and costs not to exceed $750." Id. at 426.

Section 40 discusses the lien and net amount to be paid to a plaintiff in the context of a third-party tort action where the third-party counsel is paid on a contingent fee basis pursuant to the recovery. The LAD indicates fee shifting if the plaintiff prevails. The court noted that the intent of the Legislature as it pertains to preventing a double recovery, a prevailing plaintiff in an LAD action – who is awarded counsel fees and obtains a workers' compensation award – must be considered on a case-by-case basis.

Comment: It will be interesting to see the decision on remand and we will keep you posted. The argument by counsel should  fail since the gross award paid to the petitioner is all “benefits” that should be lienable. The fact that they pay their share of fees and costs out of that award should have no bearing since the employer must pay that amount and to discount same would allow the double recovery Section 40 is designed to avoid. The analogy to an LAD recovery is misguided in our opinion and it seems thus far to be the opinion of the court.

Media Contact

Valerie Lyons
Chief Marketing and Business Development Officer
T: 267.765.4124

back to top