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In Gilman v. Dalby (Aug. 10, 2009) 176 Cal.App.4th 606, the Court of
Appeal for the Third District of California held, as a matter of
first impression, a lien for attorney fees and costs has priority
over a lien for medical costs “regardless of which lien was first in
time.”
Plaintiff Kevin Gilman had a business in which he paid, at a
discount, the costs of medical care to the provider of an injured
person, in exchange for the assignment of the medical lien by the
health care provider for the full amount to be collected from a
“judgment that might be obtained by the person in a lawsuit against
the tortfeasor who caused the injury.” Apparently, medical providers
agree to this arrangement so they immediately receive at least
partial payment for treatment of a patient who otherwise might not
have the resources to pay, the patient agrees to the arrangement so
he gets treated in a timely way, and Gilman agrees “in hopes of
getting more money via the medical lien than he paid for it.”
The patient then filed a suit, but it did not turn out the way
Gilman, the defendants [plaintiff’s attorneys] or the injured
plaintiff had hoped. The case was settled for less than the costs of
litigation, and defendants waived their right to attorney fees
pursuant to their contingency fee agreement “due to the fact that
the settlement amount was less than the total of office costs that
had been incurred.” Gilman was not paid. He then filed suit against
the defendant attorneys to enforce payment of his medical lien and
alleged, among other things, conversion and breach of fiduciary
duty.
In their answer, defendants asserted “there were other liens
superior and prior to [Gilman’s] lien”; and “defendants ‘were
legally bound to pay said superior and prior liens, before any
payment could be made to [Gilman].” The evidence showed that while
Gilman’s lien came first in time, the injured person had agreed to
the lien with Gilman while being represented by another attorney;
defendants never signed Gilman’s lien and never accepted its terms.
Defendants’ demurrer to the breach of fiduciary duty claim was
sustained without leave to amend by the trial court, and the trial
court also granted defendants’ summary judgment motion on the
conversion cause of action. Gilman appealed.
The court of appeal held the fact defendants were “aware” of the
lien did not create a fiduciary duty on their part and therefore the
trial court correctly sustained defendants’ demurrer without leave
to amend as to the breach of fiduciary duty cause of action. As for
the conversion claim, the appellate court held “as a matter of
equity and public policy, defendants’ purported attorney lien for
costs had priority over Gilman’s medical lien, regardless of which
came first in time. Because the purported attorney lien for costs
exceeded the amount of the settlement, there was nothing left for
Gilman to collect via his lien, and thus there was no basis for a
claim of conversion.” Unfortunately for defendants, however, there
was no evidence in support of the summary judgment that they had
created an attorney lien against the recovery, and thus they failed
to prove they “were entitled to deduct their litigation costs from
the settlement proceeds.” The court reversed the trial court’s
granting of the MSJ and remanded it for further proceedings.
Though the facts of this case are unusual, the holding of the court
was clear that as between an attorney fees and costs lien and a
medical lien, the attorney lien will take priority: “Despite the
similarity of equities favoring the priority of medical liens and
attorney liens, we conclude that, as a matter of public policy, a
medical lien against the recovery in a personal injury lawsuit is
not equal in equity to an attorney lien for fees and costs created
by a retainer agreement to litigate the lawsuit.” And further, the
court held, as a matter of law that “the amount recovered by the
plaintiff in a personal injury lawsuit always goes first to satisfy
the attorney lien for fees and costs before it is used to satisfy
medical liens.”
Part of the court’s reasoning for this conclusion was that a
patient’s chances of success in court are greatly diminished if he
or she is not represented by counsel; the medical provider’s chances
of recovery are similarly diminished if the patient lacks legal
representation to give him or her the best chances of prevailing at
trial.
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