McClanahan v. Morauer & Hartzell, Inc.

PETITIONER:McClanahan
RESPONDENT:Morauer & Hartzell, Inc.
LOCATION:United States District Court for the Eastern District of Michigan

DOCKET NO.: 70-5097
DECIDED BY: Burger Court (1971-1972)
LOWER COURT: United States Court of Appeals for the District of Columbia Circuit

CITATION: 404 US 16 (1971)
ARGUED: Oct 21, 1971
DECIDED: Nov 08, 1971

ADVOCATES:
James C. Gregg – for respondents
John Louis Smith, Jr. – for petitioner

Facts of the case

Question

Audio Transcription for Oral Argument – October 21, 1971 in McClanahan v. Morauer & Hartzell, Inc.

Warren E. Burger:

We’ll hear arguments now in Mcclanahan v. Morauer & Harzell, 5097.

Mr. Smith, you proceed.

John Louis Smith, Jr.:

Mr. Chief Justice and may I please the Court.

The chief issue in this case involves Sec. 933 (g) of the Workman’s Compensation Act of the District of Colombia which is a Longshoremen’s and Harbor Worker’s Compensation Act involves the use of the term “compromise” involving settlements in which the insurance carry it for the Workman’s Compensation Company hasn’t participated.

For a brief history in the case, Mr. Mcclanahan, the petitioner was injured on the job on October of 1962.

He seasonably filed an action in the Workman’s Compensation of the — Bureau of Employee’s Compensation in the District of Colombia, and also a third party action was filed against a third party tortfeasor in the U.S. District Court in the District of Colombia.

The compensation claim was settled.

Award was made of $3780.00 in 1964.

The third party action came up at trial on February of 1967.

At that time a settlement was made in the chambers of a Judge Luther Youngdahl, which an award of $5000.00 was made, $3000.00 of which went to Mr. Mcclanahan’s wife as a consortium, and the balance of $2000.00 went to the claimant Mr. Mcclanahan.

A motion to modify the Workman’s Compensation award was then filed, which was now 1967, three years after the original claim has been filed before the Deputy Commissioner.

A hearing was held in December of 1967 and April of 1968, in which the Deputy Commissioner asked what issues were before, I mean he was advised that it was just the issue of the compromise of whether or not this was a judicial evaluation made by this consent judgment in the third party case.

The Deputy Commissioner having heard all these evidence made a finding that it was a judicial evaluation and made a temporary partial disability award of 25% which he stated entered in November of 1965 that the complainant’s condition reverted back to a state as that of that time.

Motions for summary judgment were filed in the U.S. District Court in which both sides argued that the findings did not — were not sustained by sufficient evidence.

Judge Hart (ph) ruled in favor of the respondent in this case, and stated that it was not a judicial evaluation, that it was a compromise, and that therefore, the claimant could not reach assurance to the Compensation Board for further money.

This was appealed to the United States District Court, and they affirmed finding three distinctions between this case and Banks versus Chicago Grain Trimmers Association, 1968 decision of the United States Supreme Court.

They felt that it was distinguishable, and first of all on the grounds that it was not the result — the compromise was not the result of a full hearing of all the evidence.

Secondly, that the Chicago Grain Trimmers did involve a remittitur, and because of this the party did not have to accept it, that this was a judicial evaluation by a judge presumably just finding that his evaluation, the claim, varied from that of the jury, and he had this right to offer the party, the remittitur if they wish to settle.

And third, that they were free to reject this and this freedom of reject resulted in prejudice to the employer and his carrier.

Now as I urge Your Honor that these decision in the Court below is not in accord with Banks v. Chicago Grain Trimmers, or the Bell versus O’hern case and this is the grounds on which the petitioner’s certiorari was filed.

I urge that this ruling is more in terms of the earlier decisions of the — on the Section 33 (g) of the Longshoreman and Harbor Worker’s Act, and that the interpretations placed on it since then by the Banks case, and Bell, have shown a desire to encourage settlements Your Honor, and that this decision will completely discourage him because as a practical matter, it’s not very easy to get an insurance carrier to agree to a settlement of an award for an amount less than they’ve already paid.

The two claims are not of an equal footing.

One being of a nature of a non-fault insurance, this is really our first kind of non-fault insurance, and many times as the better case, especially if they have very poor liability to prove fault.

Warren E. Burger:

Well, isn’t the — doesn’t this case turn on whether the enterprise that took place in the judge’s chambers that this is judicial determination or a compromised settlement, isn’t that the heart of the case?

John Louis Smith, Jr.:

Yes Your Honor.

Warren E. Burger:

It is the part of you thesis that if a judge suggests a figure of settlement, assuming that he did so here, that takes it out of the compromise area and makes it into a judicial evaluation, or judicial determination?

John Louis Smith, Jr.:

Well, yes in effect Your Honor.

What I’m saying is that the Banks case does state in this language that it differs from these earlier cases in the fact that it was evaluated by a trial judge.

Now what I’m stating is that in this particular instance, the trial judge had before him certain information, perhaps not the information that you’d have from a fully conducted trail, but he did have the pretrial statement, which was available on all those cases.

He had a deposition that had been given by the plaintiff.

John Louis Smith, Jr.:

He had something to go on in which to evaluate.

Warren E. Burger:

Are you suggesting that he had enough to decide the case?

John Louis Smith, Jr.:

I think yes Your Honor.

I believe that he could make a fair —

Warren E. Burger:

Then why shouldn’t we have District judges dispose of all cases without trial on the pretrial statement?

John Louis Smith, Jr.:

Well, I wouldn’t go so far as that Your Honor, by all — as I’m saying that I think that he had as much information that is necessary to make a fair evaluation of the claim, and that a somebody at a later date wishes to challenge it.

I think that they should have an obligation to show that there was some prejudice to them from this settle.

I don’t think that we should presume conclusively the fact that the judge interceded in the settlement.

That is not a fair evaluation of the claim.

Thurgood Marshall:

Couldn’t neither party reject it?

John Louis Smith, Jr.:

Yes Your Honor, they could reject it and go to trial.

Thurgood Marshall:

Well you don’t normally reject judgments do you?

You’re bound by them.

John Louis Smith, Jr.:

Well yes Your Honor, but of course these other two cases as a matter of fact —

Thurgood Marshall:

Well, Banks was remitted to the judge, he knew all the facts in the case.

He accepted the whole trial of the case, am I right?

John Louis Smith, Jr.:

Well, yes Your Honor, but no one had to accept the remittitur figure, he could have gone to trial.

Thurgood Marshall:

But he had all the facts, didn’t he?

John Louis Smith, Jr.:

Yes Your Honor, he had all the —

Thurgood Marshall:

This judge didn’t.

He was just helping out, wasn’t he?

John Louis Smith, Jr.:

I think Mr. Justice Marshall it’s a little more than just helping out.

I think that he–

Thurgood Marshall:

Well what more?

John Louis Smith, Jr.:

Well, he may not have had as many facts as you would have at a trial under ideal conditions, but I think there’s — a many at trial that you would have just about as much information as he had.

Thurgood Marshall:

Well, suppose the judge has held this discussion in the library of a Court, would that be judicial?

I’m trying to get what mileage you get out of — he was in his chambers.

I don’t get any mileage out of that at all, do you?

John Louis Smith, Jr.:

Well, I feel Your Honor that he did have enough information before him where he can make an evaluation of it and enter into a consent judgment which was done in this instance.

I think that in every case of arbitration of a settlement, we have some limitation as to the information that a judge has, and I certainly can’t come forth and say that he had as much information as he would have had in a full pledge trial, but I’m not sure that a full pledge trial is necessary in all these instances to evaluate a claim.

John Louis Smith, Jr.:

I think that a man who ascend District Court judge, that’s — that is a District Court has a little greater ability of measuring a value of a claim and 12 people even when they do have all the evidence.

He has at least has bad shot from the many years of experience that he decided.

Warren E. Burger:

Well, what you’re saying adds up to the proposition that when a judge, trial judge gets into the process of settlement, which up to now I thought was something to be encouraged.

He is making a judicial determination rather than presiding over compromise of settlement conference, does this —

John Louis Smith, Jr.:

Yes, Your Honors, that probably the heart of what I’m saying, but ensuring these other cases Your Honor, have come up to what’s known to a judicial determination, and then they settle for a figure something less.

I mean the jury came in with a $30,000.00 award, a remittitur of $19,000.00 —

Warren E. Burger:

I’m talking about cases that go on everyday in every courthouse in the country to dispose of cases without trial by having the parties come into the judge’s chambers, and the lawyers have discussions back and forth and they finally reach the settlement figure.

Now, in — I’m — that’s a common practice you know first.

John Louis Smith, Jr.:

Yes, Mr. Chief Justice —

Warren E. Burger:

And it certainly one to be encouraged, doesn’t it?

John Louis Smith, Jr.:

I certainly feel that way, Mr. Chief Justice, and I — that’s why I feel strongly about up to this point.

Warren E. Burger:

Well, but then you want in your argument though is, that can be reopened after both parties have agreed to it, months or years past, one party can come in and challenge the agreement, the settlement agreement and bring on a new trial all over again.

John Louis Smith, Jr.:

No, Your Honor, I — Mr. Chief Justice, I didn’t mean to relay anything of that nature.

I feel that once it was entered into and as a matter of fact in this case, the judge went on the bench and had the parties accept the figure and then signed a consent judgment for the amount.

Warren E. Burger:

Wasn’t that done in the settlement of every case?

John Louis Smith, Jr.:

Well not necessarily Your Honor, sometimes — a praecipe I suppose that would be certainly close to the same thing as a consent judgment.

William J. Brennan, Jr.:

Well suppose in this instance, two lawyers had sat down, and written out a compromise agreement and exchanged of releases or whatever without taking consent judgment, you wouldn’t be here, would you?

John Louis Smith, Jr.:

If the two lawyers were getting along, Mr. Justice Brennan?

William J. Brennan, Jr.:

Yes.

John Louis Smith, Jr.:

No I think the —

William J. Brennan, Jr.:

Then it wouldn’t be a compromise?

John Louis Smith, Jr.:

Yes.

William J. Brennan, Jr.:

But you say this was not a compromise agreement, but rather it was something that Judge Youngdahl suggested as an amount by which the case should be disposed of and it took the form then of a consent judgment, is that it?

And you say consent judgment is not a compromise agreement for the purpose of the statute.

John Louis Smith, Jr.:

That is correct, Mr. Justice Brennan.

William J. Brennan, Jr.:

How do you — I guess we’ve all been parties to these things.

Sometimes it takes the form of a consent judgment, sometime of — exchange of releases.

Really what difference is there between these two, actually?

John Louis Smith, Jr.:

I don’t think a consent judgment to be reopened, I would —

William J. Brennan, Jr.:

I know, I’m not to judge, no, the issue here is whether there was a compromise for the purpose of the statute, isn’t that it?

William J. Brennan, Jr.:

It just didn’t take the form of an agreement between counsel of a sort that we’re familiar with where they exchange releases and that sort of thing, and —

John Louis Smith, Jr.:

That is correct, it’s a — it was a settlement, but I think that most all of these cases Mr. Justice Brennan that are really settlements and a — you know all the New York cases cited by my opposing counsel involves settlements.

William J. Brennan, Jr.:

Well, compromising in the real sense.

John Louis Smith, Jr.:

Yes, they did —

William J. Brennan, Jr.:

But is this the way this thing is done in the District that you add a consent judgments on these things instead of settlement agreement?

John Louis Smith, Jr.:

Ordinarily there — it would be a praecipe Mr. Justice Brennan, signed by both parties saying of a settlement dismissed, and usually don’t even put the figure down.

In this case we did have a person that had a history of mental illnesses, and as a matter of fact, this was one of the reasons that Judge Youngdahl wanted a thought of judgment should be in the —

William J. Brennan, Jr.:

It’s quite a long while since I used to do this sort of thing, both as a trial judge and as a practicing lawyer, but where he had instant cases in that sort of thing.

We used this procedure.

It was a necessity because of the nature of the plaintiff in the case.

The judgment was of more protection.

Now is that what this situation was?

John Louis Smith, Jr.:

Basically yes.

William J. Brennan, Jr.:

Well I must say, I never regarded those infant settlements as any less compromising or settlements because we had to take this form and edit them.

John Louis Smith, Jr.:

I think this word compromise has been a — its been rather or settlements had been rather — whether abused in the interpretations under this act both in New York and here, because what I never could understand in these other decisions, it reach a judicial evaluation by a judgment and then they had settled it for a lesser figure.

Well, there was no way the insurance cavalry was going to recoup what he had lost.

And one of the cases cited by the other side in New York involved a settlement of $45,000.00 and the other party wouldn’t — the insurance carrier wouldn’t sign a consent in the — no, the other side said they were going to appeal, unless they took $600.00 off the judgment from a $45,000.00 judgment dropped in a $600.00 seems very strange and yet the insurance carrier wouldn’t consent.

Although it was filed to be a judicial evaluation, they felt that they hadn’t been prejudiced by accepting a lesser amount.

Warren E. Burger:

But as Justice Marshall suggested, that’s a case where all the facts are in.

The case has been completely tried.

John Louis Smith, Jr.:

I agree with that Your Honor, but what I’m arguing is I don’t — for the purpose of encouraging settlement, I don’t think that its necessary in every instance to know every fact of a case.

I think that what I’m arguing here causes to encourage the idea of settlements.

Now, to both parties here were willing to settle.

The third party, the insurance carrier of the Workman’s Compensation is the only one who objected to the settlement in this instance.

Warren E. Burger:

But would you concede that if this case had been tried, and all the evidence had come in, there was always the possibility that the claimant might get nothing at all?

John Louis Smith, Jr.:

I felt very strongly that way Your Honor.

I — it was a — I did not start this, so would I — I was the one who settled it before Judge Youngdahl, but as a matter of fact, there were seven subcontractors on the site and the original suit only sued one of these people, and in conferences I had with other counsel, they told me that they felt — in fact they had it in their pretrial statement that they were going to produce evidence to show that that the party that was sued wasn’t even involved in the accident.

And this is part of the reasons that encouraged me to want to settle a claim.

I felt very strongly that this man was going to get nothing.

Potter Stewart:

Who took the initiative for the meetings and Judge Youngdahl’s papers?

John Louis Smith, Jr.:

Judge Youngdahl did a — Mr. Justice Stewart, he called us into the chambers and he has quite a reputation in the District of Colombia for encouraging settlements, and he was quite forceful, I will say.

Potter Stewart:

Did he just take the initiative, and so —

John Louis Smith, Jr.:

Very definitely.

Potter Stewart:

At least there is that significant distinction between the circumstances here, and a settlement worked out by counsel with no participation by a judge at all because there, the initiative has to come from one of the lawyers to the other and here the initiative came from the judge, is that right?

And he had before him, he had the pleadings, and he had the deposition of the plaintiff and he had a schedule of the special damages, is that right?

John Louis Smith, Jr.:

Yes, that was in the pretrial statement, gives the theory of defense, gives the facts that we all agree on, as I would and that of the course is part of the Court record in CA 189563 which is in the U.S. District Court down here.

William J. Brennan, Jr.:

You could have a jury trial in the state —

John Louis Smith, Jr.:

Yes Mr. Justice —

William J. Brennan, Jr.:

Was it Judge Youngdahl also who suggested that this form of reflecting the settlement rather than the praecipe?

John Louis Smith, Jr.:

The consent judgment?

William J. Brennan, Jr.:

Yes.

John Louis Smith, Jr.:

I can’t rightly recall who suggested that.

The three of us were in chambers together and —

William J. Brennan, Jr.:

What I am asking, was there any suggestion that that form might avoid the effect of the compromise provision in the –?

John Louis Smith, Jr.:

No, Mr. Justice Brennan, definitely it was on the subject of this man’s mental illness.

William J. Brennan, Jr.:

Mentality?

John Louis Smith, Jr.:

Yes sir, we —

Had you demanded a jury trial?

John Louis Smith, Jr.:

Yes — there was a jury judge — trial demand made by the counsel who filed it and I was prepared to go forward with the jury that morning.

So that he knew that the — what — that the jury might settle with — at the part of — toward damages, rather than the judge?

John Louis Smith, Jr.:

Very definitely Mr. Justice White, but I also knew there was a very strong possibility they’re going to award him nothing, Your Honor, he ran fault basis of liability showing negligence and —

So you settled?

John Louis Smith, Jr.:

Yes, I certainly did.

But you didn’t compromise.

John Louis Smith, Jr.:

I certainly did not.[Laughter]

Warren E. Burger:

Since we’ve gotten off into some practical things about who initiated the discussion, is it not a, as a practical matter, isn’t it often happen that one lawyer wants to have the settlement discussion that he doesn’t want to be the one to initiate it, so he asks the judge if he won’t do it, judge then sets it in motion.

John Louis Smith, Jr.:

I have never personally had that experience, but in this particular case, even though —

Well, Judge Youngdahl didn’t bother with that procedure, did he?

John Louis Smith, Jr.:

No, Mr. Justice Burger, the matter of fact, the opposing counsel was on the floor above me in my building, and I never even met him until the morning we were down here, and we did not discuss.

I was in the case just about four weeks prior to that.

Warren E. Burger:

Very well.

Mr. Gregg.

James C. Gregg:

Mr. Chief Justice, may it please the Court.

The question I think is adequately phrased, with respect to what transpired in Judge Youngdahl’s chambers, the only evidence on that point, that is in the record is contained in the testimony of Mr. Mahoney who was the lawyer representing the defendant in the third party.

This testimony starts on page 31 of the transcript of proceedings and as he said on page 32 with respect to the conference before Judge Youngdahl, as I recall it was done in his usual manner, but he discussed this settlement with both of us first, and then I believe I left the room.

The settlement was discussed with you, meaning counsel, and then I was called back in and you left the room and our figures were discussed then.

As a result of the conference, an agreement was reached at $5,000.00.

This is the testimony of Mr. Mahoney, the witness, offered by counsel for the petitioner during the Workman’s Compensation proceedings.

He was — Mr. Mahoney was further examined with respect to the question as to why it was that a consent judgment was entered in this case as distinguished in the usual procedure of just filing a praecipe entering the case is settled and dismissed.

I was questioning him about that, and I said, “You’ve had several cases come up for trial before Judge Youngdahl, have you not?”

He said “Yes sir.”

There were of course occasions when a consent judgment was entered into as a result of a conference in chambers, he answered, that’s correct.

Question: Primarily, where the plaintiff is an infant?

He nods and said yes.

Question: Otherwise, generally speaking, a praecipe is merely filed entering the case as settled and dismissed with prejudice?

That’s true.

Question: Was there any discussion between the plaintiff’s lawyer and the judge that this consent judgment was necessary in order to eliminate the Workman’s Compensation carrier’s interest in the case, or to provide a means of avoiding the settlement provisions under Workman’s Compensation Act?

As to — according to Mr. Mahoney, the answer was no.

Question: Then why was it that with an adult plaintiff, a consent judgment was entered into in this case when there had been no real trial on the merits?

Answer: For the protection of all concerned.

It was felt that this consent judgment should be entered into.

Question: For the protection, meaning the protection against the ramifications of the Workman’s Compensation Act?

Answer: No.

All concerned which would be the plaintiff and the attorneys involved.

Mr. Mcclanahan had had several lawyers that they’re under psychiatric care.

Question: You are implying then that perhaps Mr. Mcclanahan would not have abided by the settlement without a consent judgment?

No sir, I don’t imply that.

Question: But there was no trial in the merits?

Answer: No trial in the merits.

Question: No testimony was offered?

James C. Gregg:

And the jury was impelled?

That’s correct.

No verdict was rendered.

So the question here is whether a discussion of this nature in the conference of the judge prior to the start of a trial constitutes as the Court has indicated, a judicial evaluation of the case as distinguished from a settlement, a judgment that merely affirms and ratifies a settlement that had previously been entered into between the parties.

This is not a particularly noble question.

In Bell against O’hearne they cite Marlin against Cardillo, and I’m quoting, “The Court of Appeals for the District of Colombia Circuit held that a settlement between a claimant and a third party, entered into without the consent and agreement of the employer or insurance carrier, followed by the entry of a judgment in the agreed amount, barred the claimant from recovering any deficiency benefits under the Act.”

The Marlin case is likewise distinguishable from the instant case, Bell against O’Hearne, where there the settlement, the plaintiff’s claim was reached before the Court had established the amount of the third party’s liability and reduced it to judgment.

In Bell against O’hearne the Court, Fourth Circuit said, page 780 of 284 F.2d, as we construe the statute, meaning the specific provision of the Longshoreman’s Act that we’re dealing with here, “A recovery of deficiency compensation is barred only where the injured employee or his beneficiaries incase of death, have compromised the third party claim, or where judgment in the third party action has been entered as a result of a settlement or a compromise.”

The uncontradicted evidence in this case before the commission, and upon which both the trial court and the United States Court of Appeals for the District of Colombia acted, was that this was a settlement, it was entered into, and that the judgment in this case was entered into merely and solely for the purpose of confirming the settlement that the parties had previously reached.

The —

Potter Stewart:

Well you do have this statement that the $5,000.00 figure was Judge Youngdahl’s determination.

I’m looking at page 32 of the appendix.

The witness says, “I don’t know whether I was asked but I evaluated the case at, but I know at sometime during the discussion Judge Youngdahl felt that the case was worth $5,000.00, and that was the amount of the consent judgment.

James C. Gregg:

Yes sir.

Potter Stewart:

So you have that much indication —

James C. Gregg:

Yes sir, in other words it’s not a clear —

Potter Stewart:

That should be — there’s no determination of an evaluation at least by a man who is a United States District Judge.

James C. Gregg:

Yes sir, in other words, in this case it’s not as clearly one way or the other as some cases are, but it would seem to me that when a judge is evaluating a case for settlement purposes, he is considering a lot of things that he is not considering as a trial of defect.

He is considering odds of recovery, jury verdict ranges, and matters of that nature.

It is purely and simply a compromise, it’s the only real way that we can dispose of the case without having additional proceedings follow motions, appeals, and so forth.

Now the Banks and Chicago Grain Trimmers Association case, which is the most recent opinion of this Court dealing with this subject, involved, as Justice Marshall indicated, the case were — that it go into trial, evidence been offered and introduced, involved the question as to whether an order of remittitur constituted a judicial determination.

It hardly seems worth mentioning that in order of remittitur would be a judicial determination made by a trier, based upon facts, testimony, and evidence that was before it.

We submit to Your Honors that the case that we have here is distinguishable, and we rely primarily upon the reasoning employed by the United States Court of Appeals for the District of Colombia.

Thank you.

Warren E. Burger:

Thank you.

Do you have anything more, counsel?

John Louis Smith, Jr.:

There is one thing that I wanted to mention when I was standing before and I — forgot was, yesterday when I was researching these New York cases cited by Mr. Gregg.

I checked the New York statute, and I’ve noticed that they’ve changed their statute and I felt the Court should be aware of this because really it’s a — its in a McKinney’s Consolidated Laws of New York, 64 Workman’s Compensation Law, Section 1549, the pocket supplement, and they had the same similar language in their compromise statement and then they added on to it.

However, written approval of the carrier need not be obtained if the employee or his dependants obtain a compromise order from a justice of the Court in which the third party action was pending.

The papers upon an application to compromise and settle such a claim shall consist of the petition, the affidavit of the attorney and the affidavit of a physician, or more, more than one position if necessary.

John Louis Smith, Jr.:

And it spelled out basically what was a — what should be in this information, and really did not provide an awful lot more information than was available in this case to Judge Youngdahl.

Then copies of these as — when the judge arrives at a determination, copies of these are served on the carrier and if the carrier feels as if that’s not enough, then they can come in and challenge it, but they have to produce evidence that is not a fair settlement.

And I believe that this was done in New York by the legislature there to encourage settlements and discourages ideal of a party who’s really not a party toward frustrating settlements.

Warren E. Burger:

Thank you Mr. Smith.

Thank you Mr. Gregg.

The case is submitted.