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NEIL D. REID, INC., a Professional Corporation, Plaintiff and Appellant, v. The STATE of California, DEPARTMENT OF HEALTH CARE SERVICES, Defendant and Respondent.
Plaintiff, an attorney, filed an action on behalf of Edward O'Bar, Jr., to recover damages for injuries caused by the negligence of the owners of a fishing pier. The injuries sustained required medical services costing $38,715.29 which were supplied by the defendant, State of California, under the Medi-Cal Program. Pursuant to section 14117 of the Welfare and Institutions Code the state filed lien in the action, for the amount of the medical expenses, against any judgment awarding damages. Plaintiff notified defendant he hoped to obtain a settlement of the case for $100,100.00, the insurance policy limits; through negotiations with the Attorney General, acting on behalf of the State of California, obtained an agreement from defendant to reduce its lien claim to $30,000.00 in order to effect the settlement; thereafter culminated the settlement; received the amount paid in settlement; and sent the Attorney General, for defendant, a trustee's check in the sum of $20,000.00 purporting to represent the state's recovery on the lien after deducting the “customary' one-third attorney's fee.' There was no agreement defendant would pay plaintiff an attorney's fee.1 Defendant refused to accept the payment, explaining the compromise of its lien contemplated recovery of $30,000.00, and also refused to pay any attorney's fee. The plaintiff did not receive compensation from O'Bar for any sums received in excess of $70,000.00; deposited $30,000.00 with the court; and filed the action at bench to recover reasonable attorney's fees.
Both parties filed motions for summary judgment. The court denied plaintiff's motion and granted defendant's motion upon the ground plaintiff was not entitled to an attorney's fee from defendant under the applicable statute. Judgment was entered in favor of defendant and plaintiff appeals.
The primary issue for determination on appeal is whether under the provisions of Welfare and Institutions Code section 14117 and Labor Code section 3860 defendant is entitled to recover the full amount of its lien without any deduction for attorney's fees, or any obligation to pay plaintiff for services rendered in obtaining a settlement.
Welfare and Institutions Code section 14117, in pertinent part, provides: ‘(b) When benefits are provided . . . to a beneficiary under this chapter because of an injury for which another person is civilly liable, the director [i.e. director of benefits under the Medi-Cal program] shall have a right to recover from such person the reasonable value of the benefits so provided. . . . In enforcing such right the director may commence and prosecute actions, file liens, or intervene in court proceedings all in the same manner, with the same rights and authority as to notice, settlement and other matters, and to the same extent provided in Chapter 5 (commencing with Section 3850), Part 1, Division 4 of the Labor Code for an employeremployer . . . where payments have been made or a liability incurred by an employer . . . under the workmen's compensation laws.’
Labor Code section 3860, incorporated in Welfare and Institutions Code section 14117 by reference provides (a) for a settlement with or without suit of the claim of an employee against a third person for injuries sustained in the course of his employment as a result of the negligence of the third person; (b) ‘. . . the entire amount of such settlement, with or without suit, is subject to the employer's full claim for reimbursement for compensation he has paid . . .’; and (c) ‘Where settlement is effected, with or without suit, solely through the efforts of the employee's attorney, then prior to the reimbursement of the employer, as provided in subdivision (b) hereof, there shall be deducted from the amount of the settlement the reasonable expenses incurred in effecting such settlement . . . together with a reasonable attorney's fee to be paid to the employee's, attorney, for his services in securing and effecting settlement for the benefit of both the employer and the employee.’
By virtue of section 3860, as interpreted and applied or referred to in Carden v. Otto, 37 Cal.App.3d 887, 893, 112 Cal.Rptr. 749; Fuchs v. Western Oil Fields Supply, 25 Cal.App.3d 728, 102 Cal.Rptr. 75; Moreno v. Venturini, 1 Cal.App.3d 286, 81 Cal.Rptr. 551; and Johnson v. L.D.S. Trucking Co., 254 Cal.App.2d 496, 499, 62 Cal.Rptr. 501; see also California State Auto. Assn. Inter-Ins. Bureau v. Jackson, 9 Cal.3d 859, 867–868, fn. 11, 109 Cal.Rptr. 297, 512 P.2d 1201, where, in an employee's tort action for injuries sustained in which the employer has filed a lien for reimbursement of compensation paid, a settlement is effected, with or without suit, through the efforts of the employee's attorney, the latter is entitled to a reasonable fee for his services in effecting settlement for the benefit of both the employer and the employee; this fee shall be paid from the total amount of the settlement; and thereupon, to the extent of the balance remaining, the claim of the employer for reimbursement shall be paid in full, without any deduction on account of an attorney's fee for plaintiff's attorney.
Plaintiff contends the provisions of section 3860 relating to the distribution of funds obtained in settlement of an action by an injured employee against a third person are not applicable to the distribution of funds obtained in settlement of an action by an injured Medi-Cal beneficiary against the person causing his injuries; and, for this reason, the foregoing rules respecting the payment of attorney's fees do not apply in the situation at bench.
The issue thus presented is whether Welfare and Institutions Code section 14117 incorporates the whole of Labor Code section 3860 or only that part thereof authorizing the state to file a lien in the Medi-Cal beneficiary's action for the amount of the Medi-Cal expenses paid by it.
In support of his position, plaintiff relies on the decision in Bilyeu v. State Employees' Retirement System, 58 Cal.2d 618, 25 Cal.Rptr. 562, 375 P.2d 442, which considered the effect of an incorporating provision in the State Employee's Retirement Law, i.e. Government Code section 21453, authorizing the state of file a lien in a tort action for damages by a retired disabled employee against the person causing the disability, for the amount paid the disabled employee by the retirement system, ‘in the same manner and to the same extent’ as provided in the Labor Code sections incorporated in Welfare and Institutions Code section 14117. The retirement system sought recovery, under its lien, of retirement allowances paid and the actuarial value of those to be paid in the future. The disabled employee claimed recovery under the lien should be limited to the payments made, with a right of offset as to future payments, claiming the Labor Code provisions incorporated by Government Code section 21453 governed the disposition of the funds recovered in the tort action and limited recovery under the lien to the amount of the allowances paid to the time of judgment. The court held Government Code section 21453 incorporated the Labor Code section only insofar as they related to ‘the manner in and the extent to which remedical action is to be taken’ by the retirement system, and not insofar as they related to the ‘disposition of the funds, once recovered’ (Bilyeu v. State Employees' Retirement System, supra, 58 Cal.2d 618, 627, 25 Cal.Rptr. 562, 567, 375 P.2d 442, 447). Plaintiff at bench claims the effect of Welfare and Institutions Code section 14117 is the same as Government Code section 21453 and, for this reason, the Labor Code section governing the disposition of funds, including payment of attorney's fees, do not apply to the case at bench.
Plaintiff's reliance on Bilyeu is misplaced. The incorporating provisions of Welfare and Institutions Code section 14117 are more inclusive than those of Government Code section 21453. Welfare and Institutions Code section 14117 authorize the state, acting through the Medi-Cal agency, in enforcing the ‘right’ to recover from a person causing injury to the Medi-Cal beneficiary the reasonable value of medical services furnished the beneficiary to ‘file liens . . . in the same manner, with the same rights and authority as to notice, settlement and other matters, and to the same extent provided’ [italics ours] by the incorporated Labor Code section. Comparably Government Code section 21453 did not authorize the state to proceed with the same rights and authority conferred by the Labor Code section, incorporated therein, but was limited to an authorization to file a lien ‘in the same manner and to the same extent’ as authorized by the Labor Code sections. Among the rights attendant upon filing a lien under Labor Code section 3860 is the right to subject the proceeds from the settlement in a tort action to the full claim of the lien without any deduction for attorney's fees.
Furthermore, in Bilyeu, the court held the State Employees' Retirement Law, by the provisions of Government Code section 21454, ‘expressly directed the disposition of the amounts recoverable’ in the tort action. ‘After providing for the reimbursement for current obligations the section further provides: ‘The balance of the amount recovered shall be paid by this system to the fund out of which the compensation of the injured or deceased member was paid . . ..’ The specific direction of section 21454 . . . must be deemed to control over the general direction contained in section 21453 to the effect that recovery should be made in the manner and to the extent provided in the Labor Code provisions.' (Bilyeu v. State Employees' Retirement System, supra, 58 Cal.2d 618, 626, 25 Cal.Rptr. 562, 567, 375 P.2d 442, 447.)
Contrary to plaintiff's contention, Welfare and Institutions Code section 14117 incorporates not only the provisions of the Labor Code governing the method of claiming reimbursement for compensation payments made by the employee, but also the disposition of funds obtained upon settlement of an employee's tort action when the employer has filed a lien in the action.
Plaintiff also contends, under Labor Code section 3860, properly interpreted, he is entitled to an attorney's fee for services rendered the state in effecting settlement of the Medi-Cal beneficiary's tort action and urges us to reject the interpretation of that section. Declared and applied in the decisions theretofore noted, which fore-closes recovery. We believe the heretofore declared interpretation is correct. The opinion of the court in Fuchs v. Western Oil Fields Supply, supra, 25 Cal.App.3d 728, 102 Cal.Rptr. 74, which considers the legislative history of those parts of section 3860 pertinent to the issue at hand, convincingly demonstrates the legislative intent in the premises, and dictates the interpretation there declared by the court.
It is a matter of note that the current provisions of section 3860 respecting the payment of attorney's fees were adopted in 1959; the parent interpretation thereof in Johnson v. L.D.S. Trucking Co., supra, 254 Cal.App.2d 496, 62 Cal.Rptr. 501, occurred in 1967; in 1969, which followed the interpretation of section 3860 in Johnson v. L.D.S. Trucking Co., supra, 254 Cal.App.2d 496, 62 Cal.Rptr. 501 by two years, the Legislature incorporated that section in the Medi-Cal statute by Welfare and Institutions Code section 14117; in 1971 the Legislature amended section 3860 but made no change in the provisions respecting attorney's fees even though by this time the interpretative decisions in both Johnson v. L.D.S. Trucking Co., supra, 254 Cal.App.2d 496, 62 Cal.Rptr. 501, and Moreno v. Venturini, supra, 1 Cal.App.3d 286, 81 Cal.Rptr. 551, had been rendered; and in 1973 the Legislature amended Welfare and Institutions Code section 14117 but made no change affecting the provisions of Labor Code section 3860 as incorporated therein even though, by this time, the interpretive decisions in Johnson v. L.D.S. Trucking Co., supra, 254 Cal.App.2d 496, 62 Cal.Rptr. 501, Moreno v. Venturini, supra, 1 Cal.App.3d 286, 81 Cal.Rptr. 551, and Fuchs v. Western Oil Fields Supply, supra, 25 Cal.App.3d 728, 102 Cal.Rptr. 74, had been rendered.
Plaintiff also contends he is entitled to attorney's fees from the state upon a quasi-contractual cause of action premised on unjust enrichment (gen. see 1 Witkin, Summary of Cal. Law (8th ed. 1973) Contracts, § 28, p. 45). The contention is without merit.
Labor Code section 3860 as incorporated in Welfare and Institutions Code section 14117 and interpreted in the decisions heretofore noted, in effect, requires the employee, in the tortfeasor action, to pay the fees of his attorney in toto from the settlement in the action. In the event the attorney does not choose to receive payment in full from his client he may not claim the employer was unjustly enriched by services for which he waived payment from his client. In substance, by virtue of the statute, as applied to the situation at bench, the client and not the attorney furnished the services allegedly enriching the state. However the so-called enrichment of the state was a benefit incidental to that obtained by the client through his action against the tort-feasor, and is not the basis for a claim of unjust enrichment (Major-Bladeney Corp. v. Jenkins, 121 Cal.App.2d 325, 340–341, 263 P.2d 655).
Plaintiff also contends he is entitled to recover herein under the doctrine where a number of persons are entitled in common to a specific fund a person who brings an action, for the benefit of all, to create or preserve the fund is entitled to payment of his attorney's fees out of the fund (D'Amico v. Board of Medical Examiners, 11 Cal.3d 1, 25, 112 Cal.Rptr. 786, 520 P.2d 10). In substance, the fund is surcharged ‘with the expense of its protection or recovery, including counsel fees' (4 Witkin, Cal. Procedure (2d ed. 1971) Judgment § 129, p. 3278).
Assuming the action by plaintiff's client against the tortfeasor created a common fund, under Labor Code section 3860, as applied to the situation at bench, the attorney's fees, in toto, are payable from the fund, the state's lien is satisfied in full from the remainder, and the balance is payable to the client. The common fund doctrine does not provide for a division of the fund between the common owners after the payment of attorney's fees; or for a division of liability for attorney's fees between those entitled to the fund, which is the basis of plaintiff's claim in the case at bench. Labor Code section 3860, as a part of the statute by virtue of which plaintiff's client received Medi-Cal services, provides for the division of the fund which includes reimbursement for the services the client received.
The common fund doctrine is inapplicable to the facts at bench (cf., United States v. Nation, D.C.Okl., 299 F.Supp. 266).
1. In a letter by plaintiff to the Attorney General seeking a reduction or waiver of the lien, to effect a compromise settlement, plaintiff stated he intended to reduce his fee to assist in reaching a settlement but if a compromise was not effected the action would be tried and in the event of a verdict in excess of policy limits, ‘I would expect to receive a full fee for my services and I would expect the lienholder to be paid in full.’ Nothing was stated about a claim for fees against defendant.
COUGHLIN,* Associate Justice. FN* Retired Associate Justice of the Fourth District sitting under assignment by the Chairman of the Judicial Council.
DRAPER, P. J., and SCOTT, J., concur.
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Docket No: Civ. 34978.
Decided: July 28, 1975
Court: Court of Appeal, First District, Division 3, California.
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