
USCA1 Opinion

	




                                       UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 92-1902                         MARY A. HOLBROOK, MARY E. HOLBROOK,                            INDIVIDUALLY AND AS MOTHER AND                          NEXT FRIEND OF DANIEL M. HOLBROOK,                               Plaintiffs, Appellants,                                          v.                            ANDERSEN CORPORATION, ET AL.,                                Defendants, Appellees.                                 ____________________                     APPEAL FROM THE UNITED STATES DISTRICT COURT                              FOR THE DISTRICT OF MAINE                       [Hon. Gene Carter, U.S. District Judge]                                          ___________________                                 ____________________                                        Before                                Boudin, Circuit Judge,                                        _____________                           Campbell, Senior Circuit Judge,                                     ____________________                              and Stahl, Circuit Judge.                                         _____________                                 ____________________            James  M. Campbell  with  whom  Michelle I.  Schaffer,  Ronald  M.            __________________              _____________________   __________        Davids and Campbell & Associates were on brief for appellants.        ______     _____________________            Margaret  D.  McGaughey, Assistant  United  States  Attorney, with            _______________________        whom  Richard S. Cohen, United  States Attorney, and  Paula D. Silsby,              ________________                                _______________        Senior Litigation Counsel, were on brief for appellees.                                 ____________________                                    June 30, 1993                                 ____________________                 BOUDIN, Circuit Judge.   The Holbrooks'  two-and-a-half-                         _____________            year-old son, Daniel Holbrook, sustained severe and permanent            injuries after  falling through a second-floor  window of the            Holbrooks'  apartment.   Because plaintiff Mark  Holbrook was            employed  by  the  United States  Navy  at  the  time of  the            accident, the United States  paid 80 percent of the  costs of            Daniel's medical treatment under the Dependent's Medical Care            Act,  10 U.S.C.   1071 (the "Dependent's Act").  The Holbooks            then  sued  Andersen  Corporation,  the  manufacturer of  the            window and screen, alleging negligence and product liability.            The Holbrooks notified the United States of the initiation of            the suit, but the United States did not intervene.                 Three  days before  trial,  the  Holbrooks and  Andersen            settled the suit  for $725,000.1   This amount  was far  less            than  the complaint  had  sought, and  the amount  presumably            reflected the parties' judgment about likelihood  of success;            Daniel Holbrook  had  been unsupervised  at the  time of  the            accident, and there were no witnesses.  The United States was            not  a  party  to  the  settlement, nor  did  the  settlement            agreement provide that  any money should be paid  by Andersen            to the United States in respect of the medical costs that the            government  had  incurred.    The  settlement  agreement  did                                            ____________________                 1Attorneys'  fees and expenses  absorbed a large portion            of this amount ($391,505.50).  Of the balance,  the Holbrooks            were allotted  a portion  ($50,000) for direct  expenses with            the remainder to be held in trust for Daniel.                                         -2-                                         -2-            provide, however, that the Holbrooks would indemnify Andersen            if the latter were held liable to the United States.                   In  its order  approving  the settlement,  the  district            court  sua sponte  ordered  that $139,028  of the  settlement                   ___ ______            proceeds be placed in an  escrow account to satisfy potential            liens of the United States or others.2   Six months later the            United States moved to compel disbursement to it of the funds            held  in escrow,  and  shortly thereafter  the United  States            formally  moved to  intervene  in the  action; the  Holbrooks            opposed  both motions.    The court  ultimately granted  both            motions and after a  recalculation of the government's actual            payments  ordered   disbursement  to  the  United  States  of            $122,834.   The  balance of  the escrow  was remitted  to the            Holbrooks.     The  Holbrooks   appeal,  arguing   that  this            disbursement was not authorized by law.                 In  claiming  a right  to  a portion  of  the Holbrooks'            settlement, the  United States  relies solely on  the Federal            Medical Care  Recovery Act, 42  U.S.C.   2651  ("the Recovery            Act").   This  statute grants  to the  government a  right to            recover from a third-party tortfeasor the reasonable value of            medical services that the  government has furnished under the                                            ____________________                 2Local rules required  court approval of  settlements of            claims brought  on behalf  of minor  children.   The  court's            escrow  order  may  have  been  prompted  by  the  Holbrooks'            statement  in   their  motion  for  court   approval  of  the            settlement that the Navy  had paid 80 percent of  the medical            bills  and  that  the  total  medical  expenses  amounted  to            $139,028.                                           -3-                                         -3-            Dependent's   Act  (or   under   other   similar   statutes).            Specifically, the Recovery Act provides:                 In  any  action  in  which  the  United  States  is                 authorized or required by  law to furnish hospital,                 medical, surgical, or dental care and treatment . .                 .  to a person who is injured or suffers a disease,                 after  the   effective  date  of  this  Act,  under                 circumstances creating a  tort liability upon  some                 third person  . . .  to pay  damages therefor,  the                 United States  shall have  a right to  recover from                 said third person the  reasonable value of the care                 and treatment  so furnished or to  be furnished and                 shall, as to this right be subrogated  to any right                 or  claim that the injured person . . . has against                 such third  person to the extent  of the reasonable                 value of the care and  treatment so furnished or to                 be furnished.            42  U.S.C.   2651(a).  The statute then sets forth procedures            for the  government's enforcement of this  right of recovery.            The United States  may "intervene  or join in  any action  or            proceeding brought by the injured  or diseased person" or, if            such an  action  is  not  commenced within  six  months,  may            "institute and prosecute legal proceedings against  the third            person  who  is liable  for the  injury or  disease."   Id.                                                                      __            2651(b).                   The parties direct their  arguments in this case chiefly            at the procedural component  of the statute, section 2651(b).            The  Holbrooks  argue  that  the  United  States'  motion  to            intervene came too late, because it was not filed until after            the   Holbrooks'  suit  against   Andersen  was  resolved  by            settlement.   The United States responds  by pointing to case            law  providing  that  the  procedural devices  set  forth  in                                         -4-                                         -4-            section  2651(b)  are  not exclusive  and  that  a motion  to            intervene may be  filed "at  any time," even  after entry  of            judgment.  United  States v.  Merrigan, 389 F.2d  21, 25  (3d                       ___________________________            Cir. 1968); see  also United  States v. York,  398 F.2d  582,                        ___  ____ ______________________            585-86 (6th Cir. 1968).  We  think that the crucial issue  is            not  when the government may intervene but rather whom it may                 ____                                         ____            proceed against once it makes an appearance in the case.                   The statute  grants  to the  United  States a  right  to            recover "from [the] third  person" who is liable in  tort for            the injury.  It  makes no provision for the  United States to            recover   against   the   injured   party   or   from   funds            unconditionally paid to the  injured party by the tortfeasor.            Moreover,  the  United States'  right  to  recover under  the            statute  is contingent  upon "circumstances  creating a  tort            liability  upon some  third  party."   42  U.S.C.    2651(a);            Thomas  v.  Shelton,  740  F.2d  478,  481  (7th  Cir.  1984)            ___________________            (tortfeasors' "liability under the Medical Care Recovery  Act            depends on their being found liable  . . . under the tort law            of the pertinent state"); United States  v. Trammel, 899 F.2d                                      _________________________            1483,  1488 (6th Cir.  1990) (same).  There  has been no such            determination in this case.                 "All  courts  which have  considered  the  question have            agreed  that   the  statute   gives  the  United   States  an            independent right of recovery against the tortfeasor . . . ."            United  States v.  Housing Authority  of Bremerton,  415 F.2d            __________________________________________________                                         -5-                                         -5-            239, 241 (9th Cir 1969).  Thus, the government's right is not            extinguished  by the injured  person's settlement and release            with the tortfeasor.  See,  e.g., United States v. Theriaque,                                  ___   ____  __________________________            674 F. Supp. 395  (D. Mass. 1987).  Indeed,  the government's            right against  the tortfeasor under  the Recovery Act  is not            defeated  even by  certain  restrictions that  might bar  the            injured  person's own recovery.3   There is thus no necessity            for  the  United  States  to  look  to  the  injured  party's            settlement for compensation.                 If the United States  wishes to invoke the  Recovery Act            to recover its medical  payments in this case, we  think that            under  the plain  language  of the  statute  it must  proceed            against  Andersen  and  seek  to  establish  Andersen's  tort            liability.   The language of  the statute does  not authorize            the government to  collect under  the Recovery Act  out of  a            settlement negotiated  between  the injured  person  and  the            tortfeasor.  Nor  is there any case  law that permits such  a            recovery  absent  an express  agreement  designating for  the            government a portion of the settlement.                 This  case  does  not  involve  the  peculiar  facts  of            Cockerham  v. Garvin,  768  F.2d 784,  787  (6th Cir.  1985).            ____________________                                            ____________________                 3See Heusle v. National  Mutual Ins. Co., 628 F.2d  833,                  ___ ___________________________________            837 (3d Cir. 1980)  (procedural restrictions); United  States                                                           ______________            v. Moore, 469 F.2d 788, 790 (3d Cir. 1972) (state doctrine of            ________            interspousal immunity),  cert. denied,  411 U.S.  905 (1973);                                     ____  ______            United  States v. Gera, 409  F.2d 117, 119-20  (3d Cir. 1969)            ______________________            (state statute of limitations).                                           -6-                                         -6-            There the  Sixth Circuit  allowed recovery out  of settlement            proceeds   where  "[t]he  [injured   person]  and  tortfeasor            specifically agreed that part  of the money paid over  to the            [injured person] would be  held in escrow pending a  claim by            the [United  States] for specific medical bills . . . ."  The            court   treated  the   escrow   as   giving  the   government            "beneficiary" status akin to  that enjoyed by the third-party            beneficiary of a contract.   See id. at 784.  The  court also                                         ___ __            decided  that  on  remand   the  government's  share  of  the            settlement    should    be    determined     by    "equitable            considerations," taking account of any  discounted settlement            accepted by the victim and the litigation costs he had borne.            Id. at 787.  The government does not argue that  in this case            __            there was  any third-part  beneficiary agreement  between the            Holbrooks and Andersen.                 Rather, the  United States  says that its  present claim            has  been  misunderstood.    It argues  that  its  attempt to            recover  from the escrow is not a claim against the Holbrooks            but  rather,  consistent with  the Recovery  Act, is  a claim            against Andersen, which supplied  the funds.  This is  a word            game  that does  not reflect  the reality  of the  situation:            Andersen has  paid the settlement amount to  the Holbrooks in                          ____            exchange  for  a release  of claims  against  it.   The money            belongs to the Holbrooks and  their son quite as much  as Mr.                                         -7-                                         -7-            Holbrook's salary paid to him by the Navy belongs  to him and            not to the Navy which is the source of the funds.                 The  best argument  for the  United States  is based  on            policy considerations.   Andersen's payment to  the Holbrooks            is not technically  an admission of liability,  Fed. R. Evid.            408, but  in reality the  settlement reflects  a judgment  by            Andersen that there is a risk of liability and that the  case            is worth  that  much  to  settle.   But  to  the  extent  the                                                     _______________            tortfeasor  is liable  to  the Holbrooks  under tort  law--an            issue  mooted  by the  settlement--it is  also liable  to the            United States for any medical costs paid by the latter.                 Of course the  United States  still has a  right to  sue            independently and, if it can prove liability, to collect  its            full  medical expenses  with no  settlement discount  at all.            But  everyone  knows  that  if  fault  is  debatable and  the            tortfeasor settles  with the  injured party, the  chances for            the United States to recover may be much reduced.  Any lawyer            would prefer to try a tort case in which the co-plaintiff  is            an   injured  two-and-a-half-year  old,  especially  where  a            verdict for the child virtually requires an award for the co-            litigant.                 What is  even more troubling is that  the tortfeasor has            an  incentive in  such  a  case  to  pay  the  injured  party            something extra in settlement  precisely in order to uncouple            the two claims.   Once the United States is  left to litigate                                         -8-                                         -8-            on its own, it not only has no sympathetic victim to take the            lead before  the  jury  but  must  bear  its  own  litigation            expenses.   And, if (as  here) the alleged  tortfeasor has an            indemnity  agreement  with  the  victim,  making  the  latter            responsible for any award to the United States, the victim or            witnesses  associated with  the victim  now have  an economic            incentive to minimize the  tortfeasor's fault when the United            States sues.                 These policy concerns are  not overwhelming:  the United            States is not without  litigation resources, in this  case it            has the  benefit  of  much  discovery  already  done  by  the            Holbrooks, and perjury laws  cabin the witnesses'  testimony.            Had  it anticipated  the  problem, Congress  might well  have            provided  a  legislative  solution  along the  lines  of  the            Cockerham case:  The Recovery Act could easily have said that            _________            if the tortfeasor  and victim settle,  the United States  can            claim for  its  medical costs  an  "equitable" share  of  the            settlement to be determined  by the court.  But  Congress did            not  to so--it  cannot anticipate  every problem--and  so the            question posed  is whether  the courts should  do the  repair            work themselves.                 The answer here, we think, is  no.  The statute does not            literally forbid this "equitable share" solution, but neither            do the provisions of this reasonably detailed statute provide            for any such  recovery against the  victim or the  settlement                                         -9-                                         -9-            fund.   Nor can we  be certain  that Congress  would wish  to            impose an "equitable share" solution; perhaps it might pick a            quite different solution or no solution  at all.  There is no            magic formula to say when courts should do patch-work repairs            to legislation, but in our view this is not such a  case.  If            Congress wants a  solution, it is best  for it to tailor  its            own.                 The judgment of the district court is reversed.                                                       ________                                         -10-                                         -10-
