Isack v. Acuity, 850 N.W.2d 822

Background

Terry Isack, injured in a 2009 work-related vehicle accident, received workers’ compensation benefits paid by Acuity (the insurer) and later sued the negligent third party; Deborah Isack retained attorney John Knight on contingency.
Acuity intervened asserting subrogation/recovery rights under SDCL 62-4-39 and retained attorney Charles Larson to protect its statutory recovery/offset.
Isack and a co-plaintiff (Walraven) cooperated in litigation and reached a settlement with the third-party defendants; dispute arose over whether Knight was entitled to a contingent fee from the portion attributable to Acuity’s recovery.
Parties agreed to escrow one-third of Acuity’s recovery portion pending resolution of the fee dispute; the circuit court conducted a bench trial on the attorney-fee allocation.
The circuit court found Knight made substantial contributions to the recovery, while Larson’s participation was minimal and sometimes impeded Knight, and awarded Knight a 33% contingent fee from Acuity’s recovery portion under SDCL 62-4-39.
The South Dakota Supreme Court affirmed, holding the trial court’s factual findings were not clearly erroneous and that SDCL 62-4-39 permits deduction of necessary and reasonable expenses (including up to 35% attorney fees) from the employer’s recovery.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether employee’s contingent-fee attorney may claim a percentage of the employer/insurer’s recovery under SDCL 62-4-39	Knight: his contingent agreement applies to the entire recovery because he substantially contributed to obtaining the settlement	Acuity: because it retained its own counsel (Larson) to protect its statutory recovery, Knight should not get fees from Acuity’s portion	Court held Knight entitled to 33% of Acuity’s recovery portion; trial court’s factual findings that Knight substantially contributed and Larson did not were not clearly erroneous
Whether employer/insurer’s counsel participation negates employee counsel’s fee entitlement	Knight: insurer’s counsel did not meaningfully contribute, so fees are necessary and reasonable	Acuity: insurer’s counsel was retained and thus should prevent application of contingent fee to insurer’s recovery	Court: if insurer or its counsel actively and substantially contributes, employee’s fee may not apply; here insurer’s counsel did not contribute substantially, so employee’s fee applied
Appropriate standard for reviewing trial court’s allocation of recovery expenses	Knight: defer to trial court’s factual findings	Acuity: legal application should be reviewed de novo where statutory construction implicated	Court: mixed review — factual findings reviewed for clear error; application of law to facts was essentially factual here and not clearly erroneous
Whether a 33% fee is reasonable under SDCL 62-4-39 (max 35%)	Knight: 33% is within statutory cap and was found necessary and reasonable by the trial court	Acuity: fee is unreasonable and improperly imposed against insurer	Court: 33% found within statute and not clearly erroneous given trial court’s weighing of evidence

Key Cases Cited

Faircloth v. Raven Indus., Inc., 620 N.W.2d 198 (South Dakota 2000) (workers’ compensation statutory construction is reviewed de novo)
Stockwell v. Stockwell, 790 N.W.2d 52 (South Dakota 2010) (trial court findings of fact reviewed for clear error)
Mergen v. N. States Power Co., 621 N.W.2d 620 (South Dakota 2001) (intervenor may be charged proportionate share of reasonable expenses; trial court determines apportionment after hearing)
Summers v. Command Sys., Inc., 867 S.W.2d 312 (Tenn. 1993) (disputes over amount and apportionment of attorney fees resolved by trial court)
Schulz v. Gen. Wholesale Coop. Co., 238 N.W.2d 463 (Neb. 1976) (insurer’s counsel who actively and viably represents carrier may support denying employee counsel’s fee from carrier’s recovery)
D.N. Corp. v. Hammond, 685 P.2d 1225 (Alaska 1984) (remand to determine whether insurer’s counsel made substantial contribution to recovery)