                      NOTICE: NOT FOR OFFICIAL PUBLICATION.
  UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
                  AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.




                                     IN THE
              ARIZONA COURT OF APPEALS
                                 DIVISION ONE


                    PINAL COUNTY, Petitioner Employer,

      ARIZONA COUNTIES INSURANCE POOL, Petitioner Carrier,

                                         v.

      THE INDUSTRIAL COMMISSION OF ARIZONA, Respondent,

                  ANDREW GOODE, Respondent Employee.


                              No. 1 CA-IC 15-0041
                                FILED 4-7-2016


                   Special Action - Industrial Commission
                        ICA Claim No. 20111-090234
                     Carrier Claim No. WC2011013296

          Joann C. Gaffaney, Administrative Law Judge (Retired)
              Michael A. Mosesso, Administrative Law Judge

                             AWARD AFFIRMED


                                    COUNSEL

Jardine, Baker, Hickman & Houston, P.L.L.C., Phoenix
By Scott H. Houston, Rae Richardson
Counsel for Petitioner Employer and Petitioner Carrier

Industrial Commission of Arizona, Phoenix
By Andrew F. Wade
Counsel for Respondent ICA
Snow Carpio & Weekley, PLC, Phoenix
By Dennis R. Kurth
Counsel for Respondent Employee



                      MEMORANDUM DECISION

Judge Lawrence F. Winthrop delivered the decision of the Court, in which
Presiding Judge Peter B. Swann and Judge Donn Kessler joined.


W I N T H R O P, Judge:

¶1           This is a special action review of an Industrial Commission of
Arizona (“ICA”) award and decision upon review lifting the carrier’s
suspension of workers’ compensation benefits. Two issues are presented
on appeal:

       (1) whether administrative law judge (“ALJ”) Gaffaney erred
       in lifting the suspension of the respondent employee’s
       workers’ compensation benefits; and

       (2) whether ALJ Mosesso erred by purportedly making a
       credibility finding on administrative review.

Because we find no legal error and the evidence of record reasonably
supports the rulings by the ALJs, we affirm.

            JURISDICTION AND STANDARD OF REVIEW

¶2            This court has jurisdiction pursuant to Arizona Revised
Statutes (“A.R.S.”) sections 12-120.21(A)(2), 23-951(A), and Arizona Rules
of Procedure for Special Actions 10.1 In reviewing findings and awards of
the ICA, we defer to the ALJ’s factual findings, but review questions of law
de novo. Young v. Indus. Comm’n, 204 Ariz. 267, 270, ¶ 14, 63 P.3d 298, 301
(App. 2003). We consider the evidence in a light most favorable to
upholding the ALJ’s award. Lovitch v. Indus. Comm’n, 202 Ariz. 102, 105,
¶ 16, 41 P.3d 640, 643 (App. 2002).



1      Absent material revisions after the relevant dates, statutes and rules
cited refer to the current version unless otherwise indicated.



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                   PINAL/AZ COUNTIES v. GOODE
                        Decision of the Court

              FACTUAL AND PROCEDURAL HISTORY

¶3            At the time of injury, claimant Andrew Goode worked as a
detective for the petitioner employer, Pinal County Sheriff’s Office
(“PCSO”). He injured his right knee during an arrest while performing
undercover work at a music festival. Goode filed a workers’ compensation
claim, which was accepted for benefits by the petitioner carrier, Arizona
Counties Insurance Pool (“ACIP”). He received medical, surgical, and
disability benefits. Goode’s claim eventually closed with a scheduled
permanent partial impairment to the right lower extremity and a
supportive care award.

¶4            Along with other plaintiffs, Goode retained attorney Gary L.
Lassen to file a third-party lawsuit against the music venue, other festival
vendors, and the couple responsible for causing his injuries during the
arrest.2 Professional Event Management (“Pro Em”), one of the named
parties, was the security company hired to provide security for the stadium
where the bands performed but not the campground area where the
claimant was injured. Lassen approached Pro Em’s attorney, Rob Justman,
with a settlement proposal. Pro Em agreed to settle the claim for $23,000 to
all of the plaintiffs, solely for its nuisance value because, in Justman’s
opinion, his client had no liability for the injury-causing events. Releases
were signed in spring 2013, and Lassen filed a notice in the superior court
on June 18, 2013, dismissing Pro Em. At the time of the settlement, Justman
was unaware of ACIP’s workers’ compensation lien.

¶5             When Lassen informed Goode of the settlement offer, Goode
provided Lassen with a summary of PCSO’s written policy on settlement
offers via this e-mail:

      PCSO has a policy that the Sheriff must be notified 10 days
      prior to accepting and finalizing the settlement of a third
      party claim arising out of or relating to an on-duty injury. It
      is required the employee provide the Sheriff with written
      notice of the proposed terms of such settlement.




2      The Arizona Workers’ Compensation Act preserves the right of an
injured employee to bring a lawsuit against a third party tortfeasor “not in
the same employ.” A.R.S. § 23-1023(A). The employer/carrier has a
statutory lien on any net recovery to the extent of medical expenses and
compensation benefits paid. § 23-1023(D).

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                    PINAL/AZ COUNTIES v. GOODE
                         Decision of the Court

       In no case shall the employee accept a settlement without first
       providing such written notice to the Sheriff. It says it is to
       permit the county to determine if the offered settlement will
       [a]ffect any claim the county may have regarding payment for
       damage to equipment or reimbursement for wages against
       the person who caused the accident or injury and to protect
       the county[‘s] right to subrogation, while ensuring the
       employee[‘]s rights to receive such compensation for injuries
       are not affected.

¶6            Goode received $4,400 from the $23,000 settlement, which
Lassen paid to him in two separate checks.3 In May 2014, ACIP suspended
Goode’s workers’ compensation benefits and he became aware at that time
that Lassen had not negotiated or otherwise paid ACIP’s lien. Goode timely
protested the suspension of benefits and requested an ICA hearing.

¶7            The ALJ held two evidentiary hearings and heard testimony
from five witnesses, including Goode, Pro Em’s attorney, and ACIP’s
workers’ compensation claims manager. Following the hearings, ALJ
Gaffaney issued a decision lifting the suspension of benefits and awarding
ACIP a credit of $4,400 against Goode’s future compensation benefits.
ACIP timely requested administrative review; by this time, ALJ Gaffaney
had retired. Substitute ALJ Mosesso reviewed the record and affirmed the
decision. ACIP brought this appeal.

                             ANALYSIS

¶8            On review, ACIP argues that the ALJ erred by lifting the
suspension of benefits. An employee entitled to workers’ compensation
benefits may also pursue a civil remedy against a third party who tortiously
caused the work-related injury. A.R.S. § 23-1023(A). If an employee
pursues a civil remedy, the employer or carrier responsible to pay workers’
compensation has a lien on the employee’s entire net recovery from the
third party to the extent of workers’ compensation paid. § 23-1023(D);
Liberty Mut. Ins. Co. v. Western Cas. & Sur. Co., 111 Ariz. 259, 262–63, 527
P.2d 1091, 1094–95 (1974). In order to settle a third-party claim for less than
the compensation provided, an employee must obtain written approval



3     By this point in the litigation, counsel for ACIP had successfully
moved to intervene, but did not object to the dismissal of Pro Em, or take
any other steps to preserve ACIP’s subrogation rights against any of the
named defendants.

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                    PINAL/AZ COUNTIES v. GOODE
                         Decision of the Court

from the responsible employer or carrier. § 23-1023(D). The statute does
not specify the penalty for failure to comply with the approval requirement.

¶9             The supreme court first interpreted this portion of § 23-1023
(“the lien statute”) in Hornback v. Indus. Comm’n, 106 Ariz. 216, 474 P.2d 807
(1970). In Hornback, the claimant filed a workers’ compensation claim,
received nominal compensation benefits ($266.08), and did not protest the
closure of his claim without permanent impairment. Hornback, 106 Ariz. at
218, 474 P.2d at 809. He subsequently filed a third-party tort claim for a
new or previously undiscovered condition, and he settled that claim for
$10,000, without approval from the self-insured employer. Id. When the
claimant subsequently petitioned to reopen his workers’ compensation
claim to obtain additional workers’ compensation benefits for the new and
previously undiscovered condition, the ICA dismissed the petition. Id. at
218–19, 474 P.2d at 809–10. The supreme court affirmed the ICA’s dismissal
and held that the claimant’s attempt to reopen his workers’ compensation
claim was barred as a sanction for the unapproved third party settlement.
Id. at 219, 474 P.2d at 810.

¶10            The supreme court next considered the lien statute in Bohn v.
Indus. Comm’n, 196 Ariz. 424, 999 P.2d 180 (2000). In Bohn, the claimant filed
a workers’ compensation claim after falling through a residential roof. Id.
at 424, ¶ 2, 999 P.2d at 180. His uninsured employer denied having any
employees, and the No Insurance Section of the ICA denied his claim for
benefits. Id. An ALJ affirmed, and during the pendency of the appeal in
this court, the claimant’s attorney settled a third-party tort claim against the
homeowner. Id. at 424–25, ¶ 2, 999 P.2d at 180–81. Although the attorney
obtained the uninsured employer’s permission to settle, he did not seek
approval from the No Insurance Section of the ICA. Id. at 425, ¶ 2, 999 P.2d
at 181. On remand, an ALJ found that, because of the unapproved third-
party settlement, the claimant had forfeited his right to collect workers’
compensation benefits. Id. at ¶¶ 3, 5.

¶11            This court affirmed the ALJ’s forfeiture award, but the
supreme court set it aside. Id. at 425–26, ¶¶ 6, 13, 999 P.2d at 181–82. The
supreme court recognized that forfeiture was not the only sanction
available for violations of § 23-1023. Bohn, 196 Ariz. at 426, ¶ 9, 999 P.2d at
182. Instead, it fashioned an equitable remedy—awarding the carrier a
credit for an amount that depends on the reasonable value of the settlement.
Id. at 427, ¶ 17, 999 P.2d at 183. If the settlement amount was reasonable,
the carrier (or in this case, the No Insurance Section of the ICA) would have
a credit up to the net settlement proceeds against future medical and
disability benefits. If the settlement was not for a reasonable amount, the


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                    PINAL/AZ COUNTIES v. GOODE
                         Decision of the Court

credit against future medical and disability benefits would be increased to
the equivalent of a reasonable settlement amount. Id.

¶12            The supreme court most recently addressed a violation of the
lien statute in Hendrickson v. Indus. Comm’n, 202 Ariz. 442, 46 P.3d 1063
(2002). In Hendrickson, the claimant sustained a compensable injury to both
of her temporomandibular joints and she received artificial joint implants.
Id. at 443, ¶ 2, 46 P.3d at 1064. When the implants failed, she filed a civil
action against her dentist, the joint manufacturer (Vitek), and the implant
materials supplier (DuPont). Id. at ¶¶ 2–3. Vitek eventually filed for
bankruptcy protection, and the claimant received a distribution from the
bankruptcy court. Id. at ¶ 3. She later settled with both the dentist and
DuPont without obtaining the workers’ compensation carrier’s approval.
Id. at ¶¶ 3–4. The carrier then closed her claim with no determination of
permanent impairment or supportive care. Id. at ¶ 5.

¶13             The claimant appealed, but an ALJ applied Hornback and held
that her failure to comply with § 23-1023 resulted in forfeiture of any
additional workers’ compensation benefits. Hendrickson, 202 Ariz. at 443,
¶ 5, 46 P.3d at 1064. This court affirmed, but the supreme court set aside
the award. Id. at 443, 446, ¶¶ 6, 20, 46 P.3d at 1064, 1067. It found that the
claimant had only recovered a minimal amount from her third-party action
compared to the substantial amount of compensation benefits to which she
may be entitled. Id. at 445, ¶ 15, 46 P.3d at 1066. Forfeiture of compensation
benefits is contrary to the remedial purpose of the workers’ compensation
law; accordingly, if the settlement amount accepted by the claimant proved
to be unreasonably low, the equitable remedy fashioned in Bohn would
correct the problem and, contrary to the situation in Hornbeck, the carrier’s
lien rights, in the form of a credit against the value of the net proceeds of a
reasonable settlement, would be preserved. Id. at ¶¶ 13, 15, 46 P.3d at 1066.

¶14         In this case, ALJ Gaffaney applied this case law to the facts
and concluded:

       17. There is no dispute that applicant settled the third party
       lawsuit against Pro Em without the written approval of ACIP
       and the amount recovered is less than the amount of ACIP’s
       lien.4 Applicant has the burden of proof to show that the

4      Per the record and the ALJ’s findings, ACIP paid approximately
$88,000 in medical and disability benefits to the claimant while the claim
was open.



                                      6
                    PINAL/AZ COUNTIES v. GOODE
                         Decision of the Court

      settlement was for a reasonable amount and therefore,
      forfeiture of benefits is not required. . . .

      The undersigned finds that applicant has shown that the
      settlement amount with Pro Em was a reasonable amount
      given the lack of negligence or liability on the part of Pro Em.
      The undersigned adopts the opinion of Rob Justman, Esq. that
      Pro Em was not a target in the case[] because there was no
      negligence, and the settlement was for “nuisance” value,
      only. At the hearing, Michael Warzynski, Esq. [counsel
      representing ACIP during the third-party lawsuit] agreed
      with the amount of the settlement as a reasonable amount,
      maybe, at the low end of reasonable. Applicant also testified
      that the amount was reasonable given the lack of negligence
      on the part of Pro Em.

      Also, by letter, ACIP agreed to a credit against future benefits
      in the amount of $11,500.00 minus reasonable sums actually
      incurred in obtaining these amounts. . . .

ALJ Mosesso affirmed this finding on administrative review. He also
concluded that ACIP’s credit against future compensation benefits would
be $4,400. ACIP argues that this case is more like Hornbeck, and the ALJ
erred in applying the equitable exception approved in Bohn and
Hendrickson. We disagree. Putting aside the malpractice of Goode’s
attorney,5 Goode received only a fraction of the value of his tort claim as a
result of this unauthorized settlement. Counsel for ACIP had the
opportunity to object to the settlement before the court dismissed Pro Em,
and chose not to do so. In Hornbeck, it was apparent that the claimant there
consciously settled the third-party claim and extinguished the carrier’s
subrogation rights before seeking to reopen his workers’ compensation
case. Here, Goode was not only aware of ACIP’s lien/subrogation rights,
he expressly directed Lassen to protect those rights in negotiating the
potential settlement with Pro Em. On these facts, the ALJs’ lifting of the




5     Lassen was later disbarred as a result of his representation of Goode
and other clients.




                                     7
                   PINAL/AZ COUNTIES v. GOODE
                        Decision of the Court

suspension of benefits and allowing ACIP a $4,400 credit against any future
benefits is more than reasonably supported by the applicable law.6

¶15           ACIP next argues that the award must be set aside because
ALJ Mosesso made a credibility finding without observing the witnesses
testify. We agree that, in order to make an express credibility finding, the
ALJ must personally observe the witnesses. See Adams v. Indus. Comm’n,
147 Ariz. 418, 420, 710 P.2d 1073, 1075 (App. 1985). But we disagree that in
this case ALJ Mosesso made such a finding. Instead, he reasonably
concluded that ALJ Gaffaney had implicitly resolved the credibility issue in
her award. He recognized that she specifically adopted the testimony of
attorneys Justman and Warzynski in her award and found:

      3. . . . It is noted in the award that no specific credibility
      findings are made. However, the undersigned finds and
      concludes that applicant’s testimony is fully supported by the
      testimony of counsel for defendants, Mr. Warzynski, who
      evaluated the lien rights in the matter. That attorney also
      agreed with the attorney for Pro Em, Mr. Justman, regarding
      reasonableness.       This testimony supports applicant’s
      testimony and impliedly finds credible the testimony of all
      three witnesses.

      4. In general, the undersigned concludes that this is a legal
      issue regarding the application of the statute and the case law
      interpreting the statute. A credibility finding is not necessary
      to the outcome in this case. . . .

ALJ Mosesso’s reasoning and conclusion is well supported by the evidence
of record.




6      At oral argument, counsel for ACIP indicated that “we want our
money.” Based upon the severity of the injury described in the medical
records, and the residual of chondromalacia and inevitable arthritic
changes, it seems likely that ACIP will have full opportunity to utilize the
credit against future benefits as approved by the ALJ.

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           PINAL/AZ COUNTIES v. GOODE
                Decision of the Court

                    CONCLUSION

¶16   The award and the decision upon review are affirmed.




                          :ama




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