Baracia v. Board of Trustees of the State Police Retirement System, A-3611-09T2; Appellate Division; opinion by Newman, J.A.D., retired and temporarily assigned on recall; decided and approved for publication May 13, 2011. Before Judges Fuentes, Ashrafi and Newman. On appeal from the Board of Trustees of the State Police Retirement System, SPRS #8-10­3436. DDS No. 39-2-2137 [9 pp.]

Petitioner appeals from the final decision of the respondent Board of Trustees of the State Police Retirement System. Petitioner was a New Jersey state trooper who was seriously injured while on duty in an automobile accident. He was awarded workers’ compensation benefits. He brought a third-party action, which resulted in a net settlement of $352,962.51. The attorneys’ fees totaled one-third of that amount in the sum of $117,654.05. The workers’ compensation lien was for $68,844.08, which was satisfied from these proceeds, leaving an amount due petitioner of $166,464.38. Because of the third-party award, the employer obtained a reimbursement of its statutory workers’ compensation lien and was relieved of its future workers’ compensation liability.

Under N.J.S.A. 34:15-40(b), the employer was required to pay a pro rata share of petitioner’s attorneys’ fees incurred in the prosecution of the third-party action. Here, the workers’ compensation judge found the employer’s pro rata share of attorneys’ fees was $27,482.70 and awarded petitioner that amount. In so concluding, the court stated that that amount “does not constitute a payment of compensation, but in fact, a credit toward the payment of Petitioner’s counsel fees.”

The board held that N.J.S.A. 53:5A-38.1(b) required a dollar-for-dollar offset from petitioner’s accidental disability retirement allowance of $27,482.70, the net award petitioner received by order of the Workers’ Compensation Court. Petitioner contends on appeal that the net award does not qualify as a payment of compensation on account of petitioner’s disabilities or injuries, but constitutes the employer’s pro rata share of the attorneys’ fees it owed petitioner under N.J.S.A. 34:15-40(b).

Held: An employer’s payment of its pro rata share of petitioner’s attorneys’ fees incurred in the prosecution of a third-party action in which the employer received reimbursement of its statutory workers’ compensation lien and was relieved of its future workers’ compensation liability does not constitute a payment of compensation under N.J.S.A. 34:15-40(b). As a consequence, petitioner’s accidental disability retirement allowance was not subject to a dollar-for-dollar reduction under N.J.S.A. 53:5A-38.1(b) because it was not compensation or payment of a periodic benefit under the workers’ compensation scheme, but represented a credit for the employer’s portion of the attorneys’ fee in the third-party recovery lawsuit.

The board maintains that it was entitled to offset the payment of the $27,482.72 under the authority of N.J.S.A. 53:5A-38.1(b) and argues that it was entitled to reduce the payment of periodic benefits since petitioner was a retirant of an accidental disability retirement allowance. The appellate panel finds the board is mistaken. The balance was not a periodic benefit as contemplated under N.J.S.A. 53:5A-38.1(b), as specifically stated in the order entered by the workers’ compensation judge approving the settlement. That part of the workers’ compensation judge’s order is totally in keeping with the provisions of N.J.S.A. 34:15-40(b), which requires the employer to pay its portion toward the attorneys’ fees incurred by petitioner in the third-party recovery action.

In Fiore v. Trident Construction Co. , the Appellate Division examined a similar issue, holding that the employer’s contribution does not constitute compensation payment against which it is entitled under N.J.S.A. 34:15-95.5 to offset the employee’s federal Social Security disability benefits. As the Appellate Division made clear in Fiore , “the attorney’s fee contribution may be an incident of the [W]orkers’ [C]ompensation [A]ct, but is not a monetary benefit provided by the Act to compensate an employee for his injury.” Neither the federal nor the state offsetting statutory scheme entitled the employer to reduce the attorneys’ fee payment by the amount of the Social Security disability benefit.

The same is true here. The board cannot offset petitioner’s accidental disability retirement allowance under N.J.S.A. 53:5A-38.1(b) by the amount of the attorneys’ fee payment credit to petitioner because that payment does not constitute a compensation benefit under workers’ compensation law. The fact that petitioner may have received the attorneys’ fee payment from his employer in the form of a credit does not change the legal status and convert that payment into a periodic benefit subject to triggering the application of N.J.S.A. 53:5A-38.1(b).

Petitioner’s accidental disability retirement allowance is not subject to a dollar-for-dollar reduction based on the employer’s payment of its pro rata share of petitioner’s attorneys’ fees because it was not compensation or payment of a periodic benefit under the workers’ compensation scheme, but represented a credit for the employer’s portion of the attorneys’ fee in the third-party recovery lawsuit.

The panel reverses the board’s decision and reinstates the full payment of the accidental disability retirement allowance originally granted to petitioner and requires the board to reimburse petitioner for any monies previously deducted from that allowance.

— By Debra McLoughlin

For appellant — Jonathan S. Fabricant (Bathgate, Wegener & Wolf; Fabricant and Rui O. Santos on the briefs). For respondent — Kellie L. Pushko, Deputy Attorney General (Paula T. Dow, Attorney General; Lewis A. Scheindlin, Assistant Attorney General, of counsel; Don E. Catinello, Deputy Attorney General, on the brief).