Grijalva v. Arizona State Compensation Fund

In Grijalva v. Arizona State Compensation Fund, 185 Ariz. 74, 912 P.2d 1303 (1996), an employee was seriously injured after he fell from a roof. He sued the manufacturer and distributor of a board that had broken and later settled his case against the distributor. The employee refused the manufacturer's offer to settle its case because of concern about the State Compensation Fund's lien against the proceeds. His attorney and the trial judge then negotiated a settlement that included conducting a summary trial. At its conclusion, the judge found that the employee's damages exceeded $ 10 million and that the employer was one hundred percent at fault. Based on the court's findings, the employee contended the Fund had no lien against his settlement proceeds, and the trial judge agreed. The court of appeals reversed the trial court in a memorandum decision, holding that the Fund should receive its full lien. On review, the supreme court agreed, stating that "' artful contrivances' should not be permitted to reduce or extinguish legitimate lien rights." Id. at 77, 912 P.2d at 1306. The supreme court also noted that the "only apparent purpose of the summary trial was to diminish or entirely defeat the Fund's lien," pointing out that, once the trial judge had determined that neither the manufacturer nor the distributor had been at fault, there was no need to determine the amount of the employee's damages or to apportion fault. Id. at 76, 912 P.2d at 1305. The Arizona Supreme Court examined whether equitable apportionment could be applied where the third-party claim had been conditionally settled and a "summary trial" established the amount of the employee's damages and the proportion of employer's fault. The Grijalva court pointed out that in Aitken, the parties did not have any advance agreement to pay or receive any amount of money, whereas Grijalva involved an attempt to settle a third-party claim without approval of the compensation carrier and to seek an assignment of fault that would limit or negate the carrier's lien rights. Id. at 76, 912 P.2d at 1305. In reaching its decision, the Grijalva court agreed with the following portion of the court of appeals' conclusion in the case: Absent the statutorily required approval of any compromise of the lien amount by the Fund, neither the parties nor the trial court had any authority to take any action which would affect the Fund's subrogation rights under the statute. The trial court's ruling that the employer was 100% at fault, and that both the defendants were not negligent was, therefore, a meaningless gesture. Id. The court noted that because the Fund had not approved the settlement, it was unauthorized, and the "summary trial" was of no consequence because there was no need to apportion fault or fix the amount of the employee's damages; Aitken, the court pointed out, neither required nor authorized such a procedure. See id. In fact, said the Grijalva court, "Aitken did not address rules governing the compromise of disputed third party claims." Id. at 77, 912 P.2d at 1306.