Clinic v. De Smet Ins. Co. Of South Dakota

• Decision Date: 05 May 2010
• Docket Number: No. 25403.,25403.
• Citation: 2010 SD 36,782 N.W.2d 367
• Parties: A. UNRUH CHIROPRACTIC CLINIC, Plaintiff and Appellee,v.DE SMET INSURANCE COMPANY OF SOUTH DAKOTA, Defendant and Appellant,andDE Smet Insurance Company of South Dakota, Third-Party Plaintiff and Appellant,v.Henry Lentsch and Dorothy Lentsch, Third-Party Defendants.
• Court: South Dakota Supreme Court

782 N.W.2d 367
2010 SD 36

A. UNRUH CHIROPRACTIC CLINIC, Plaintiff and Appellee,
v.
DE SMET INSURANCE COMPANY OF SOUTH DAKOTA, Defendant and Appellant,
and
DE Smet Insurance Company of South Dakota, Third-Party Plaintiff and Appellant,
v.
Henry Lentsch and Dorothy Lentsch, Third-Party Defendants.

No. 25403.

Supreme Court of South Dakota.

Argued On March 24, 2010.
Decided May 5, 2010.

782 N.W.2d 368

James R. Even, Sioux Falls, South Dakota, Attorney for plaintiff and appellee.

Larry M. Von Wald of Beardsley, Jensen and Von Wald, Prof. LLC, Rapid City, South Dakota, Attorneys for defendant, third-party plaintiff and appellant.

ZINTER, Justice.

[¶ 1.] In the course of providing treatment, Unruh Chiropractic Clinic (Unruh) obtained assignments of proceeds of personal injury claims from two patients. The patients' claims arose out of injuries they sustained in an automobile accident involving a negligent driver insured by De Smet Insurance Company (De Smet). Although Unruh gave De Smet notice of the assignments, De Smet settled the claims on behalf of its insured without paying the proceeds to Unruh for its unpaid services. Unruh subsequently commenced this action against De Smet to recover under the assignments. On cross-motions for summary judgment, a magistrate court ruled in favor of Unruh, concluding that the assignments were enforceable. The circuit court affirmed, and De Smet appeals. We reverse.

Facts and Procedural History

[¶ 2.] On June 5, 2007, Henry and Dorothy Lentsch were involved in an automobile accident with Opal Omanson. Omanson was insured by De Smet. De Smet apparently conceded that Omanson was at fault.

[¶ 3.] On June 6, 2007, Unruh began treating Lentsches for injuries sustained in the accident. Prior to treatment, Lentsches each signed separate documents entitled “ASSIGNMENT OF PROCEEDS.” The pertinent language of the assignments provided:

In consideration of the furnishing by A. Unruh Chiropractic Clinic PC of Chiropractic care at my request and for my benefit; I, for myself and my heirs, assigns personal representatives and successors in interest, DO HEREBY IRREVOCABLY SELL, ASSIGN, TRANSFER AND SET OVER TO A. UNRUH CHIROPRACTIC CLINIC PC all my right, title and interest in and to any settlement, judgement [sic] or recovery from Opal Omanson to the extent of any unpaid chiropractic charges owed by patient to Unruh Chiropractic Clinic PC.

I, FURTHER FOR MYSELF AND MY HEIRS, ASSIGNS, PERSONAL REPRESENTATIVES, AND SUCCESSORS IN INTEREST IRREVOCABLY SELL, ASSIGN, TRANSFER AND SET OVER TO A. UNRUH CHIROPRACTIC CLINIC PC all my rights to receive the proceeds of any policy of insurance (including health, accident, liability or other) which indemnifies [ ] [Opal Omanson] in the event of such settlement, judgement [sic] or recovery, (including specifically the proceeds paid by any insurance company on behalf of the above named person) or which provides coverage for the assignor, herein.

782 N.W.2d 369

IN CLARIFICATION OF THE FOREGOING, it is hereby agreed that the patient shall at all times remain the real party in interest in the said claim or law suit, and no such rights to a cause of action shall inhere to the A. Unruh Chiropractic Clinic PC as a result of this assignment. A. Unruh Chiropractic PC's interest in the proceeds is the equivalent of an equitable assignment, lien, or other security arrangement confined solely to the unpaid balance of its charges of chiropractic services rendered in treatment of the patient for matters related to the personal injury suffered by the patient at the hands of a third party tortfeasor....

[¶ 4.] Unruh served copies of the assignments and notices of the assignments on De Smet. The notices informed De Smet that any proceeds of insurance for Lentsches' claims should be paid directly to Unruh to the extent of any unpaid chiropractic services. The notices further informed De Smet that if Unruh was not named as a payee on any settlement checks, De Smet would be required to make a second payment directly to Unruh.

[¶ 5.] Lentsches continued treatment with Unruh until July 2007. In September 2007, Henry arranged for Lentsches' son, who had a power of attorney for Dorothy, to enter into settlement negotiations with De Smet. Lentsches disputed some of Unruh's charges and they refused to settle with De Smet if it included Unruh as a payee on the check. Lentsches' son ultimately executed releases of Omanson and De Smet in exchange for cash settlements. Notwithstanding the notices and assignments, the releases provided that Lentsches would be responsible for paying their medical care providers. Accordingly, De Smet delivered the settlement checks directly to Lentsches. Further, De Smet did not include Unruh as a payee on the settlement checks. The settlement amount exceeded Unruh's unpaid charges.

[¶ 6.] Unruh learned of the settlements and attempted to collect the amount owed for unpaid chiropractic services rendered. Unruh first demanded payment from Lentsches. When Lentsches refused to pay, Unruh demanded payment from De Smet. De Smet also refused to pay. Unruh subsequently filed this action to enforce the assignments in small claims court. De Smet removed the case to the formal side of magistrate court, and both parties moved for summary judgment. The court acknowledged the common-law prohibition on the assignment of personal injury claims. The court, however, concluded that there was a legal distinction between assignments of claims and assignments of proceeds of claims. Therefore, the court ordered enforcement of the assignments.

[¶ 7.] On appeal, the circuit court affirmed. The circuit court acknowledged the split of authority on the enforceability of such assignments. The court analyzed the competing views and followed those authorities recognizing the legal distinction between assignments of claims and assignments of proceeds of claims. Considering the distinction, the circuit court concluded there was “no danger of champerty or any public policy reason to preclude the assignment of expected proceeds from a personal injury claim.”

Decision

[¶ 8.] Summary judgment is proper where “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits ... show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” SDCL 15-6-56(c). The parties agree there is no issue of material fact regarding the creation of the assignments.

782 N.W.2d 370

The enforceability of the assignments is a question of law. “We review questions of law de novo with no discretion given to the circuit court.” Pauley v. Simonson, 2006 SD 73, ¶ 7, 720 N.W.2d 665, 667 (citation omitted).

[¶ 9.] South Dakota recognizes the common-law prohibition on the assignment of personal injury claims. See Schuldt v. State Farm Mut. Auto. Ins. Co., 89 S.D. 687, 238 N.W.2d 270, 271-72 (1975) (holding that subrogation clauses in automobile policies do not constitute “illegal assignment[s]” of personal injury claims). The common-law prohibition is grounded on two principles: first, prior to wrongful death statutes, personal claims did not survive the death of the victim; and second, the prohibition prevented maintenance and champerty, i.e., profiteering and speculating in litigation, “which would disturb the peace of society, lead to corrupt practices, and prevent the remedial process of law.” ¹ McKellips v. Mackintosh, 475 N.W.2d 926, 928 (S.D.1991) (citing Schnabel v. Taft Broad. Co., 525 S.W.2d 819, 823 (Mo.Ct.App.1975) (citations omitted)). See also Quality Chiropractic, PC v. Farmers Ins. Co. of Ariz., 132 N.M. 518, 522, 51 P.3d 1172, 1176 (Ct.App.2002) (noting these doctrines are in place to prevent the “unscrupulous trafficking in litigation as a commodity”). Although wrongful death statutes have alleviated the first concern, maintenance, champerty, and the concerns underlying those doctrines continue to prohibit the assignment of litigation claims. See McKellips, 475 N.W.2d 926 (voiding, on public policy grounds of champerty, an agreement to loan money to finance a lawsuit in return for a percentage of the litigant's recovery).

[¶ 10.] De Smet argues that the concerns underlying the common-law prohibition preclude enforcement of Lentsches' assignments of proceeds of claims. De Smet also points out that recent cases have articulated additional factors extending the common-law prohibition to assignments of proceeds. De Smet contends that in addition to the older common-law concerns, the enforcement of assignments of proceeds will discourage settlement and promote litigation, increase the burden on the tortfeasor and insurer, and open the door for other creditors to seek debt protection through assignments. See W. Broad Chiropractic v. Am. Family Ins., 122 Ohio St.3d 497, 912 N.E.2d 1093 (2009).

[¶ 11.] There is a split of authority on the question...