State ex rel. Raber v. Wang, 642 Ariz. Adv. Rep. 13 (App. Div. I, September 6, 2012) (J. Howe)
STATE'S RECOVERY OF MEDICAL COSTS PAID INJURED PARTY WHEN INJURED PARTY SETTLES WITH THIRD PARTY TORTFEASOR SHOULD NOT INCLUDE REDUCTION OF STATE'S PRO RATA SHARE OF ATTORNEYS' FEES
Wang was hit by a car while riding his bicycle. He suffered injuries and received $15,758.26 of medical care and treatment paid for by State-sponsored health insurance for employees. Wang later settled his claim against the car's driver for $50,000. He incurred $16,666 in attorneys' fees and $250.85 in costs in obtaining the settlement. The State sought reimbursement of $15,758.26 in medical costs from Wang's settlement and moved for summary judgment under Arizona Revised Statutes sec. 12-962(A) which allows the State to recover the reasonable value of medical care and treatment it has provided to a person injured from a third party's tortious conduct. The recovery is limited "to the extent that such person has received money in settlement of the claim or satisfaction of a judgment against the third party." (Emphasis added.) Wang also moved for summary judgment arguing among other things that if the State was entitled to recover anything, under the common fund doctrine, that amount must be reduced by a pro rata share of the attorneys' fees and costs Wang incurred in obtaining the settlement. The trial court granted the State's motion and denied Wang's motion and the Arizona Court of Appeals affirmed.
The court noted that "The common fund doctrine provides that a person who employs "attorneys for the preservation of a common fund may be entitled to have their attorney's fees paid out of that fund." LaBombard v. Samaritan Health Sys., 195 Ariz. 543, 548, , 991 P.2d 246, 251 (App. 1998). The doctrine (1) ensures fairness to the successful litigant, whose recovery may be consumed by the expenses of litigation; (2) prevents the unjust enrichment of others who benefit in the fund and should share the burden of recovery; and (3) encourages the attorney to diligently litigate a claim by ensuring payment of his or her fees. Because the common fund doctrine is a rule of equity, however, it will not be applied if a statute precludes apportionment of attorneys' fees."
Here section 12-962 limits the State's right to reimbursement to the amount of money the injured person "received" in settlement of the tort claim. Here attorneys' fees and costs were not "received" by Wang because they were deducted by his attorney before any money was disbursed to him. The court distinguished LaBombard which required a hospital lien be reduced by its pro rata share of attorneys' fees because the lien statute in question there (ARS sec. 36-931(A))attaches the hospital lien to a person's entire damage award and is not limited to what the person actually "received."
Finally, the court ruled that Arizona Revised Statute sec. 36-596.01(I) does not mandate a pro rata reduction for fees here. That statute requires the State to compromise a claim under §12-962 if, after considering certain factors, compromise is "fair and equitable." Specifically the court stated this statute "does not change our analysis because it requires the State to consider the equities of an injured party's case in determining whether to "compromise" its reimbursement claim, but it does not require compromise or a pro-rata apportionment of attorneys' fees."
Editor's Note: quoting Barry Davis' analysis of this case: "It seems to me that the approach should be to enter into an agreement with the State, BEFORE FILING A LAWSUIT, that they will share in costs and attorney fees.
Likewise I can envision situations in which the client can claim negligence on the lawyer or in the alternative have a great position for reducing the attorney fee if the lawyer does not inform the client that due to attorney fees and the state's lien he ( the client) may well receive little or no money."