City and County of San Francisco v. Sweet

• Citation: 48 Cal.Rptr.2d 42,12 Cal.4th 105,906 P.2d 1196
• Decision Date: 18 December 1995
• Docket Number: No. S045960,S045960
• Court: United States State Supreme Court (California)
• Parties: , 906 P.2d 1196, 95 Cal. Daily Op. Serv. 9672, 95 Daily Journal D.A.R. 16,789 CITY AND COUNTY OF SAN FRANCISCO, Plaintiff and Appellant, v. Robert J. SWEET et al., Defendants and Respondents.

Page 42

48 Cal.Rptr.2d 42

12 Cal.4th 105, 906 P.2d 1196, 95 Cal. Daily Op. Serv. 9672,

95 Daily Journal D.A.R. 16,789

CITY AND COUNTY OF SAN FRANCISCO, Plaintiff and Appellant, v. Robert J. SWEET et al., Defendants and Respondents.

No. S045960.

Supreme Court of California.

Dec. 18, 1995.

Robert L. Fletcher, Jr., Tax Collector Attorney, Deborah B. Honig, Assistant Tax Collector Attorney, Louise H. Renne, City Attorney and Dennis Aftergut, Chief Assistant City Attorney, for Plaintiff and Appellant.

Phillip S. Cronin, County Counsel (Fresno), Anne Kinzel, Deputy County Counsel, Mark W. Pike and Philip D. Peatman, Long Beach, as Amici Curiae on behalf of Plaintiff and Appellant.

Edwin Train Caldwell, San Francisco, for Defendants and Respondents.

Ian Herzog, Santa Monica, Mary Alexander, Bruce Broillet, Santa Monica, David Casey Douglas Devries, Sacramento, Larry Drivon, Beverly Hills, Joe Horbison, Sacramento, Steven Kleifield, Los Angeles, Moses Lebowitz, Harvey R. Levine, Wayne McClean, Woodland Hills, David Rosen, Leonard Sacks, Granada Hills, Dan Smith, Robert Steinberg, Los Angeles, Thomas G. Stolpman, Long Beach, Jim Sturdevant, San Francisco, Tony Tanke, Belmont, Leann Tratten, William David Turley, San Diego, Roland Wrinkle, Woodland Hills, and Thomas H. Speedy Rice, San Diego, as Amici Curiae on behalf of Defendants and Respondents.

BAXTER, Justice.

Government Code section 23004.1 ¹ gives a county a first lien for the cost of medical care it has provided to an injured person against any judgment that person recovers from a third person who is responsible for the injury. The issue in this case is whether that lien is subject to equitable reduction for a portion of the attorney fees incurred by the injured party in recovering damages from the person responsible for the injury.

The Court of Appeal held that allocation of a pro rata share of attorney fees to the county's recovery is proper notwithstanding the statutory command that the county lien secure the full value of the services rendered because the Legislature did not express an intent that common law equitable principles were not applicable to section 23004.1 liens. We disagree and reverse the judgment of the Court of Appeal.

I Background

While crossing a San Francisco street, defendant Sweet was injured when struck by an automobile driven by Robin Jones. Sweet was transported to a hospital operated by the City and County of San Francisco (the county) where he received treatment. He was later transferred to another county hospital facility for additional treatment. Sweet was unable to pay the $35,454.60 cost of that treatment with interest. ² After several attorneys declined to represent Sweet in an action against Jones because Sweet had been jaywalking and Jones's liability was not clear, defendant Edwin Train Caldwell agreed to do so and filed an action on Sweet's behalf against Jones. Caldwell was successful in obtaining a settlement of $175,000. Reduced by attorney fees and costs, Sweet's net recovery was $100,748.53.

Caldwell asked the county to reduce the lien the county had asserted in the action against Jones. The county had discretion to reduce the lien under section 23004.2, but the county declined to do so. ³ Caldwell then set aside $22,000 from Sweet's net recovery to satisfy the lien as reduced by what he believed to be the county's proportionate share of attorney fees incurred in creating the "fund" from which the county sought to recover its expenses. The county then initiated this action against Sweet and Caldwell to recover the full amount of its lien and to establish a constructive trust in the amount of the lien on the funds held by defendants. ⁴

The trial court concluded that the "common fund" doctrine, under which fairness to the actual successful litigant requires that all who benefit from the creation of the fund share the burden of its recovery (see Alyeska Pipeline Co. v. Wilderness Society (1975) 421 U.S. 240, 257, 95 S.Ct. 1612, 1621, 44 L.Ed.2d 141; Estate of Stauffer (1959) 53 Cal.2d 124, 132, 346 P.2d 748), was applicable. The Court of Appeal affirmed the judgment, which awarded the county only an additional $159.12. In doing so the Court of Appeal distinguished and disagreed with Lindsey v. County of Los Angeles (1980) 109 Cal.App.3d 933, 167 Cal.Rptr. 527, which held that the common fund principle does not apply to a debt owed to a county for medical care provided at public expense. The Court of Appeal held instead that the pro rata deduction for attorney fees was permitted notwithstanding section 23004.1.

The county, supported by the California State Association of Counties and the Counties of Fresno and Santa Clara as amici curiae, claims that the Court of Appeal erred in both respects.

II Discussion

A. The Common Fund Doctrine.

The common fund doctrine recognizes the common law "historic power of equity to permit the trustee of a fund or property, or a party preserving or recovering a fund for the benefit of others in addition to himself, to recover his costs, including his attorneys' fees, from the fund or property itself or directly from the other parties enjoying the benefit. That rule has been consistently followed. Central Railroad & Banking Co. v. Pettus, 113 U.S. 116, 5 S.Ct. 387, 28 L.Ed. 915 (1885); Harrison v. Perea, 168 U.S. 311, 325-326, 18 S.Ct. 129, 134-35, 42 L.Ed. 478 (1897); United States v. Equitable Trust Co., 283 U.S. 738, 51 S.Ct. 639, 75 L.Ed. 1379 (1931); Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939); Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970); Hall v. Cole, supra [412 U.S. 1, 93 S.Ct. 1943, 36 L.Ed.2d 702 (1973) ]; cf. Hobbs v. McLean, 117 U.S. 567, 581-582, 6 S.Ct. 870, 876-77, 29 L.Ed. 940 (1886)." (Alyeska Pipeline Co. v. Wilderness Society, supra, 421 U.S. 240, 257-258, 95 S.Ct. 1612, 1621, fn. omitted.)

While the doctrine was first recognized and applied in a situation in which a common fund was created (Trustees v. Greenough (1881) 105 U.S. 527, 26 L.Ed. 1157), in Sprague v. Ticonic Bank (1939) 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184, it was extended to an action where no fund was created but the party sharing in the attorney fee expense was benefited by the litigation.

The doctrine has been recognized and applied consistently in California when an action brought by one party creates a fund in which other persons are entitled to share. ⁵ Although once described as a principle of representation or agency (see County of Tulare v. City of Dinuba (1928) 205 Cal. 111, 127, 270 P. 201), it is now recognized as an equitable principle. "The bases of the equitable rule which permits surcharging a common fund with the expenses of its protection or recovery, including counsel fees, appear to be these: fairness to the successful litigant, who might otherwise receive no benefit because his recovery might be consumed by the expenses; correlative prevention of an unfair advantage to the others who are entitled to share in the fund and who should bear their share of the burden of its recovery; encouragement of the attorney for the successful litigant, who will be more willing to undertake and diligently prosecute proper litigation for the protection or recovery of the fund if he is assured that he will be properly and directly compensated should his efforts be successful. (See Estate of Reade (1948), supra, pp. 671-672 of 31 Cal.2d [669, 191 P.2d 745]; Winslow v. Harold G. Ferguson Corp. (1944), 25 Cal.2d 274, 283-286[8a-13] ; Hornstein, Counsel Fee Awards (1956), 69 Harv.L.Rev. 658, 662.)" (Estate of Stauffer, supra, 53 Cal.2d 124, 132, 346 P.2d 748; see also Scott v. Superior Court (1929) 208 Cal. 303, 306, 281 P. 55; Glendale City Employee's Assn., Inc. v. City of Glendale (1975) 15 Cal.3d 328, 341, fn. 19, 124 Cal.Rptr. 513, 540 P.2d 609; In re Pacific Coast Bldg.-Loan Assn. (1940) 15 Cal.2d 155, 157-158, 99 P.2d 261.)

California courts have also recognized a limited extension of the doctrine beyond the common fund situation to those situations in which the litigation benefits the defendant. (Mandel v. Hodges (1976) 54 Cal.App.3d 596, 127 Cal.Rptr. 244; Knoff v. City etc. of San Francisco (1969) 1 Cal.App.3d 184, 203-204, 81 Cal.Rptr. 683; Fletcher v. A.J. Industries, Inc. (1968) 266 Cal.App.2d 313, 72 Cal.Rptr. 146.) This court recognized the limited nature of this extension in D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 112 Cal.Rptr. 786, 520 P.2d 10, where the court held that attorney fees could not be awarded under this theory against a defendant when the benefit of the action was conferred on the plaintiff: "The second principle, of more recent development, is the so-called 'substantial benefit' rule: when a class action or corporate derivative action results in the conferral of substantial benefits, whether of a pecuniary or nonpecuniary nature, upon the defendant in such an action, that defendant may, in the exercise of the court's equitable discretion, be required to yield some of those benefits in the form of an award of attorney's fees. [Citations.] [p] ... [T]he 'substantial benefit' rule can have no application herein for the simple reason that any 'benefit' bestowed as a result of the judgment herein was bestowed on plaintiffs and those similarly situated, not on the medical board or the Attorney General." (Id. at p. 25, 112 Cal.Rptr. 786, 520 P.2d 10, fn. omitted.)

After D'Amico v. Board of Medical Examiners, supra, 11 Cal.3d 1, 112 Cal.Rptr. 786, 520 P.2d 10, however, this court extended equitable apportionment of attorney fees to some third party suits in which no common fund was created. In Quinn v. State of California (1975) 15 Cal.3d 162, 168-171, 124 Cal.Rptr. 1, 539 P.2d 761, the court did so in a judgment recovered by an injured worker against a negligent third party. We allowed apportionment when the plaintiff's employer asserted its right to...