For affirmance -- Chief Justice Hughes, Justices Mountain, Clifford and Schreiber and Judge Conford. For reversal -- Justices Sullivan and Pashman. Pashman, J. (dissenting). Justice Sullivan joins in this opinion.
The judgment of the Appellate Division is affirmed essentially for the reasons set forth in the well-reasoned opinion of Judge Lynch.
The plaintiffs relied substantially on Koutrakos v. Long Island College Hospital, 78 N.Y. Misc. 2d 39, 355 N.Y.S. 2d 718 (Sup. Ct. 1974) which held, inter alia, that the provision of the New York Workmen's Compensation Law which provided that in a third party action brought by the injured employee reimbursement was to be made to the workmen's compensation carrier at no expense (including attorney's fees) to it, violated the due process and equal protection guarantees of the Federal and New York Constitutions. It should be noted that the Appellate Division reversed that part of the decision. 47 A.D. 2d 500, 368 N.Y.S. 2d 528 (1975).
In Klacik v. Kovacs, 111 N.J. Super. 307, 311-312 (App. Div. 1970), certif. den. 57 N.J. 237, (1970), Judge Matthews wrote: "In the absence of statute, rule of court or contract, the mere accrual of benefits to a third party does not entitle an attorney to recover any compensation from those benefited." He pointed out that there was a diversity of opinion among the states on whether reimbursement of an insurer should be made after deduction of reasonable attorney's fees incurred in effecting the recovery. He added that "[p]ublic policy here, however, is in equipoise", but concluded the more equitable rule is to provide for such deduction. This is a far cry
from holding that the contrary view is so offensive to our public policy that the foreign law should not apply.
PASHMAN, J. (dissenting). In January 1971, Noreen Geelan, a New Jersey resident employed in New York, was injured in an automobile accident in New Jersey. Because of her injuries, said employee received temporary disability benefits from her employer's insurance carrier. Ms. Geelan then retained the services of counsel (plaintiffs herein) and commenced action against a third party for injuries received in the accident. From this action she received an amount in excess of the disability benefits, and attorneys' fees and costs. The insurance carrier, relying on New York law, asserted subrogation rights to this recovery for the full amount of the benefits paid without any deduction for costs or attorneys' fees. Counsel for the employee sought an adjudication of these rights.
The trial court held that New York law governs the existence vel non of the carrier's right of subrogation, but ruled that the insurer's lien is subject, under New Jersey law, to payment of a pro rata share of the attorneys' fees and costs incurred by the employee in recovering from the third party. 125 N.J. Super. 320 (Law Div. 1973). The Appellate Division reversed on the issue of attorneys' fees, and noted that "New York law precludes such deductions for attorneys' fees and costs from the liens of disability insurers." In conjunction with this observation, the court held:
Since plaintiffs have abandoned their contention below that no subrogation rights are cognizable, the sole issue now before this Court is whether attorneys' fees are deductible from
a disability insurer's lien against the recovery received by an insured employee in a third-party action.
I would reverse the Appellate Division with respect to this issue and reinstate the judgment of the trial court substantially for the reasons set forth in the opinion of that court and to ...