Third District Rules that Attorney’s Liens Have Priority Over Medical Liens in First Impression Case.
In personal injury cases, there is an inherent tension between medical liens—contractual liens granted by injured patients to medical providers or assignees that attach to monetary recoveries in personal injury cases—and attorneys’ liens—contractual liens granted by clients to attorneys to secure payment of fees and costs in a personal injury matter. Now, in a case of first impression, the Third District has resolved the question of which lien has priority in favor of attorneys. The case is Gilman v. Dalby, Case No. C050294 (3d Dist. Aug. 10, 2009) (certified for publication).
Gilman involved a situation in which a medical lien was granted against the future recovery in a personal injury case and the lien was prior to the contractual lien granted to the attorneys eventually settling the case. The problem was that the lawsuit settled for only $6,500, an amount that did not even cover the basic litigation out-of-pocket costs of $6,882.47 (although plaintiffs’ attorneys did waive any recoupment of the costs deficit and fees recoverable under the contingency fee agreement). An assignee of the medical provider with the lien sued the attorneys under various contractual, common count, fiduciary duty, and conversion theories, essentially arguing that the medical lien had priority over the attorney’s lien gobbling up all the personal injury settlement recovery. A demurrer was sustained without leave on the fiduciary duty/unjust enrichment claims, and summary judgment was granted in attorneys’ favor on the remaining claims. Also, the trial court awarded attorneys fees and costs as the prevailing parties in the amount of $17,229.23.
In a 3-0 decision authored by Presiding Justice Scotland, the Third District reversed on a technical ground, which meant the matter needed to be remanded for further proceedings. However, it did decide the merits of the priority issue in a decision of importance for all plaintiff personal injury attorneys practicing in California.
The fiduciary duty claim was correctly jettisoned at the pleading stage because the attorneys had no contractual duty to the medical provider in light of the fact that the attorneys did not grant the medical lien (rather, their clients did so). Attorneys’ mere “awareness” of the medical lien did not create a fiduciary duty.
Assuming that attorneys had a proper attorneys’ lien, the conversion count was properly adjudged as a matter of law because the attorneys’ lien had priority over the medical lien “regardless of which came first is time … as a matter of equity and public policy.” Justice Scotland observed that the medical lien only had value if a judgment or settlement was recovered, which usually meant that an injured patient needed retention of a personal injury attorney to obtain such value. Beyond that, the priority of the attorneys’ lien was necessary to incentivize attorneys to take these types of personal injury cases. “In many cases today, the costs of litigation can reach tens of thousands of dollars, far beyond the out-of-pocket resources of most plaintiffs in our society. Therefore, few, if any, personal injury plaintiffs’ lawyers would be willing to represent a client on a contingency fee basis if an attorney lien for fees and costs does not have priority over medical liens.” (Slip Opn., at pp. 17-18.)
However, the summary judgment had to be reversed because attorneys did not submit evidence that they actually had an attorneys’ lien. With the reversal of the summary judgment, so too fell the fee/costs award in their favor.
BLOG UNDERVIEW—Justice Scotland’s observation that litigation costs are high, even in personal injury cases, mirrors our Mission Statement that the recovery of costs and fees in a case is often the driving force in the success or failure of a litigated matter. Or, as Samuel Butler put it in his own way, “In law, nothing is certain but the expense.”
I have a different view of Gilman. There is a statute referenced in the case that governs lien priority, section 2897 enacted in 1872 as part of California's first Civil Code. The statute requires that liens created first in time prevail unless "other things" are not equal. Gilman was decided on public policy grounds without any evidence, fact finding or basis. It assumed that attorney liens as a class were superior over those of medical providers, whether or not the medical lien was prior. The Gilman court simply pointed out some differences between the lienors, which can be done in any case, and deemed them sufficiently unequal to justify its rule. It did so in contravention of existing law. See Waltrip, 164 Cal.App.4th 517, 526 (an attorney lien "does not have priority over prior liens on the same property"). Additionally, lien priority, is a function of legislative intent, not judicial fiat. See Guinn v. McReynolds (1918) 177 Cal. 230, 232, 237; Takehara v. H.C. Muddox Co. (1972) 8 Cal.3d 168, 172; Roseburg Loggers (1975) 14 Cal.3d 742, 750. Courts are not to engage in policy making without legislative enactment in support. Indeed, the policy must be tethered to some legislatively declared public policy or proof of some actual or threatened impact. Cel-Tech, (1999) 20 Cal.4th 163, 187; Green (1998) 19 Cal.4th 66, 80. The Gilman court did not point to a single study or any proof to support its activist new rule. If its theory of financial harm to the injured absent its rule were correct, it should not have been difficult for the court to point to a study or some evidence thereof in the 137 years since 2897 was enacted. It not up to the court, but is up to the legislature to make such a sweeping change. Two decades of legislative inaction is persuasive. Cel-Tech (1999) 20 Cal.4th 163, 178. Finally, the Gilman court acknowledged the danger that medical lienors that may not treat the injured if a later attorney's lien is deemed, ipso facto, superior. In its rule, Gilman court turned public policy on its head and subordinated the health if not life of the patient in favor of the financial interests of members of the bar.
Posted by: Craig McLaughlin | August 26, 2009 at 09:29 AM