Cnty. of Santa Clara v. Escobar

• Citation: 244 Cal.App.4th 555,198 Cal.Rptr.3d 646
• Decision Date: 29 January 2016
• Docket Number: H038121
• Court: California Court of Appeals Court of Appeals
• Parties: COUNTY OF SANTA CLARA, Plaintiff and Appellant, v. Javier ESCOBAR et al., Defendants and Respondents.

244 Cal.App.4th 555

198 Cal.Rptr.3d 646

COUNTY OF SANTA CLARA, Plaintiff and Appellant,

v.Javier ESCOBAR et al., Defendants and Respondents.

H038121

Court of Appeal, Sixth District, California.

Filed January 29, 2016

Attorneys for Plaintiff and Appellant County of Santa Clara: Orry P. Korb, County Counsel, Lori E. Pegg, Acting county Counsel, Shephen H. Schmid, Deputy County Counsel, Marcy L. Berkman, Deputy County Counsel

Attorneys for Defendant and Respondent Javier Escobar: Law Offices of Carcione, Cattermole, Dolinski, Stucky, Markowitz & Carcione, Joseph W. Carcione, Jr., Joshua S. Markowitz

Attorneys for Defendant and Respondent Fresh Express, Inc., Burnham Brown, Robert M. Bodzin, Raymond A. Greene, III

RUSHING, P.J.

Government Code section 23004.1 provides a means for counties to obtain recompense for medical treatment rendered at county expense to persons injured through the torts of others. The statute grants counties a direct right of action against the tortfeasor, as well a lien on any judgment secured by the injured person against the tortfeasor. The question presented by this, the first of three related appeals, is what happens to the county's direct right of action against the tortfeasor when the injured person obtains a judgment against the tortfeasor, the county duly asserts its lien, and the tortfeasor issues a check in the amount of the lien, but makes it payable jointly to the county and the injured person, who refuses to endorse the check over to the county? Here the county filed a new suit seeking to assert its statutory cause of action against the tortfeasor. The trial court held in essence that the county's cause of action had been extinguished by the injured person's judgment and that the only remedy against the tortfeasor was to apply to the court that rendered the judgment for assistance in enforcing the lien. We hold that, on the contrary, an adjudicated tortfeasor holding disputed funds it knows are encumbered by a public hospital lien cannot avoid liability by simply turning control of the funds over to the injured person. It must instead avail itself of the procedures provided for neutral stakeholders caught between rival claimants—most obviously the device of interpleader, under which it can deposit the disputed funds in court, requiring the contestants to appear and present their claims. What it cannot do is simply shirk its statutory obligations by turning disputed funds over to the injured person in a check payable to both contestants. By doing so it satisfies neither the judgment nor the lien, and it remains subject to the statutory liability in favor of the county unless and until the county recovers the amount to which it is entitled under the statute. Accordingly, the trial court here erred by sustaining the tortfeasor's demurrer, and the resulting judgment must be reversed.

BACKGROUND ¹

Because the matter arose on demurrer, we accept as true all well-pleaded allegations of the complaint—in this instance, the first amended complaint filed by plaintiff County of Santa Clara (County) on September 23, 2011, against Javier Escobar, Jose Tinoco, and Fresh Express, Inc. (Fresh Express). It is there alleged that on September 23, 2009, Tinoco, while employed by Fresh Express, injured Escobar by negligently operating a vehicle. Escobar thereafter received treatment at Santa Clara Valley Medical Center, a hospital owned and operated by plaintiff County. The reasonable value of the care and services provided by County is alleged to be $1,249,545.38. Escobar sued Tinoco and Fresh Express in Monterey County Superior Court, where he eventually recovered a judgment for $5,689.624.87. County asserted a lien against the judgment pursuant to Government Code section 23004.1 (section 23004.1 ). Escobar's attorney, who had stipulated at trial that County's bill reflected reasonable and necessary charges, now contended that County was not entitled to the full amount of its bill but only to some lesser amount in accordance with schedules promulgated by the Workers Compensation Appeals Board (WCAB or Board). Fresh Express did not pay County, but instead delivered a check in the amount of $1,249,545.38 to Escobar's attorney, Joseph Carcione, Jr., payable to both County and Carcione's firm.

Based on these allegations, County asserted the following causes of action: (1) Against Fresh Express, for statutory liability pursuant to section 23004.1 ; (2) against Fresh Express and Escobar for money had and received; (3) against Escobar for value of services rendered (quantum meruit); (4) against Escobar, for imposition of a constructive trust; and (5) against all defendants, for declaratory relief.

Fresh Express demurred generally to the complaint, arguing that it could have no further liability in the matter because an acknowledgment of satisfaction of judgment had been entered in the Monterey court. It also contended that Escobar's injuries had arisen out his employment, such that exclusive jurisdiction over the controversy lay in the WCAB.

The trial court sustained the demurrer without leave to amend, ruling that in view of Escobar's successful prosecution of his claim, "the County can no longer pursue its own action against Fresh Express ..., but must instead seek enforcement of the lien," which the court ruled County could only do in the Monterey court. County filed this timely appeal.

DISCUSSION ²

I. Actual Controversy

Fresh Express first contends that its demurrer was well taken because there was no actual controversy between it and County. This argument fails for a number of reasons. First, the requirement of an actual controversy is peculiar to a cause of action for declaratory relief. (See Code Civ. Proc., § 1060 ; Wilson & Wilson v. City Council of Redwood City (2011) 191 Cal.App.4th 1559, 1582, 120 Cal.Rptr.3d 665.) County also asserted claims against Fresh Express for damages, which are unaffected by the presence or absence of an "actual controversy." Further, an actual controversy obviously does exist between County and Fresh Express. County contends that Fresh Express remains liable to it despite its various efforts to obstruct County's claims, while Fresh Express contends that it discharged its entire responsibility in the matter by surrendering the disputed funds, or a check representing them, to Escobar's attorney. It may be questionable whether the declaratory relief cause of action really adds anything to County's claims for damages, but we have no doubt that it alleges an actual and present controversy. Fresh Express offers no coherent argument to the contrary.

However, if Fresh Express's underlying argument on this point were sound, it might indeed support a conclusion that County is not entitled to a favorable declaration—or other relief—because of its position as a subrogee of Escobar, who has assertedly exclused Fresh Express from further liability by acknowledging satisfaction of the judgment. As formulated in Fresh Express's brief, the argument seems to flow as follows: (1) County was subrogated to Escobar's claim against Fresh Express; (2) as a subrogor, County stood in Escobar's shoes and was subject to any defense Fresh Express could raise against Escobar; (3) having acknowledged satisfaction of judgment, Escobar would be barred from obtaining any further relief against Fresh Express; (4) therefore, "the County by operation of law also has no controversy with Fresh Express."

This argument cannot be sustained. The first of its flaws is that the record contains no competent evidence that Escobar has ever acknowledged satisfaction of the judgment. So far as we can determine, all copies of the acknowledgment in this record—and in the records of the two companion appeals—reflect the satisfaction of a judgment in favor not of Escobar, but of Jose Guadalupe Montoya–Medina, a co-plaintiff in the Monterey action. Because this deficiency has gone unremarked by the parties, however, we place little weight on it.

More tellingly, even if factually grounded in matters cognizable on demurrer, the argument fails to sustain the conclusion that County is not entitled to relief. Fresh Express cites Patent Scaffolding Co. v. William Simpson Construction Co. (1967) 256 Cal.App.2d 506, 510, 64 Cal.Rptr. 187, for the proposition that "any defense that can be asserted against a subrogor can also be asserted against a subrogee." What that decision really says is that "generally , any defenses or counterclaims which could have been asserted against the subrogor-insured can also be asserted against the subrogee-insurer." (Ibid. italics added.) The "generally" is critical here, for one well-known exception to the rule is that the subrogor (here, Escobar) cannot defeat the subrogee's (County's) claim by conniving with the third party (Fresh Express) to cut off the subrogee's rights. " ‘[W]here the tortfeasor [i.e., third party] obtains a release from the insured [subrogor] with knowledge that the latter has already been indemnified by the insurer [subrogee], such release of the tortfeasor does not bar the right of subrogation of the insurer.’ [Citations.]" (Conservatorship of Edwards (1988) 198 Cal.App.3d 1176, 1184, 244 Cal.Rptr. 330.) Although County has not, technically speaking, indemnified Escobar, we think that distinction is inconsequential. The argument asserted by Fresh Express rests entirely on statutory language declaring County subrogated to Escobar's rights. (Section 23004.1, subd. (a).)³ Fresh Express cannot assert defenses arising from that language without also accepting the limitations imposed on those defenses by principles of subrogation. Fresh Express has failed to establish that those principles pose any impediment to County's claims. (Cf. State Bar of California v. Statile (2008) 168 Cal.App.4th 650, 666, 86 Cal.Rptr.3d 72 [expressing doubt, despite statutory language of subrogation, that "unilateral action" by attorney, or agreement between attorney and aggrieved clients, could "alter" at...