Trevino v. HHL Financial Services, Inc.

• Decision Date: 15 September 1997
• Citation: 945 P.2d 1345
• Docket Number: 96SC372
• Parties: 97 CJ C.A.R. 1936 Abel TREVINO, Petitioner, v. HHL FINANCIAL SERVICES, INC., a Delaware corporation; and University Hospital, a Colorado non-profit corporation, Respondents.
• Court: Colorado Supreme Court

Page 1345

945 P.2d 1345

97 CJ C.A.R. 1936

Abel TREVINO, Petitioner, v.HHL FINANCIAL SERVICES, INC., a Delaware corporation; and University Hospital, a Colorado non-profit corporation, Respondents.

No. 96SC372.

Supreme Court of Colorado En Banc.

Sept. 15, 1997.

As Modified on Denial of Rehearing

Oct. 20, 1997.

Thomas D. McFarland, Golden, for Petitioner.

McKenna & Cuneo, L.L.P., Ann E. Edelman, Denver, for Respondent University Hospital.

Machol & Johannes, P.C., Jacques A. Machol, III, Denver, for RespondentHHL Financial Services, Inc.

Justice KOURLISdelivered the Opinion of the Court.

This case raises the question of whether a hospital enforcing its statutory lien for medical services upon proceeds of a personal injury settlement must contribute a proportionate share of the attorney fees incurred in obtaining the recovery.In Trevino v. HHL Financial Services, Inc., 928 P.2d 766(Colo.App.1996), the court of appeals held that neither the common fund doctrine nor a provision in section 38-27-101, 16A C.R.S. (1996 Supp.), giving an attorney's lien precedence over a hospital lien, requires the holder of the hospital lien to pay a share of the attorney fees.We agree, and accordingly affirm the court of appeals.

I.

PetitionerAbel Trevino was injured in a slip-and-fall accident at his apartment complex on December 31, 1992, and was admitted to University Hospital for treatment.Prior to receiving treatment, Trevino signed an "Admission Agreement" in which he agreed to pay all costs for his care and all costs, including attorney fees, necessitated by collection efforts.

University Hospital provided Trevino with medical care and billed him under several different accounts, the largest of which was for the principal amount of $13,703.97.Trevino retained an attorney and began pursuing a tort claim against the owner of the apartment complex where the accident occurred.The apartment owner was represented by the liability insurer, Hartford Insurance Company(Hartford).

University Hospital assigned Trevino's account in the amount of $13,703.97 to defendantHHL Financial Services, Inc.(HHL), for collection.¹On October 11, 1993, HHL filed a hospital lien pursuant to section 38-27-101, 16A C.R.S. (1996 Supp.), on behalf of University Hospital in the amount of $13,703.97 against any amount Trevino might recover from Hartford or any other person as damages arising out of his injuries.

On January 18, 1994, Hartford settled Trevino's tort claim by issuing two checks to Trevino totaling $80,000.One check was in the amount of the $13,703.97 hospital lien and was jointly payable to "HHL for University Hosp," Trevino, and Trevino's attorney.The other check, for the balance of the settlement amount, was jointly payable to Trevino and his attorney.Trevino's attorney received one-third of the latter check.

Trevino notified HHL of the settlement, but sought to reduce the amount payable on the hospital lien by a proportionate share of attorney fees and by the alleged amount of his comparative negligence, although that issue had never been litigated.Specifically, Trevino proposed to pay HHL $4,562.16 in full satisfaction of his outstanding obligations to University Hospital.HHL refused this offer and demanded payment of the hospital lien in full.

On April 29, 1994, Trevino filed suit in Denver District Court against HHL and University Hospital seeking a declaratory judgment as to the rights of the parties with respect to the check from Hartford in the amount of $13,703.97.²Both defendants counterclaimed against Trevino seeking payment of the hospital lien plus interest and attorney fees.Trevino asserted various affirmative defenses to the counterclaims.On August 9, 1994, HHL filed a motion for partial summary judgment on one of those defenses, accord and satisfaction.On October 26, 1994, University Hospital filed a motion for summary judgment on all legal issues in the case.

The parties appeared before the district court for trial on November 4, 1994.After hearing arguments from both sides, the district court granted University Hospital's motion and dismissed Trevino's claims.On January 27, 1995, the district court reduced its order to written form, requiring Trevino to pay the hospital lien with statutory interest and to pay both defendants' attorney fees and costs.The court intended to determine the amount of interest, attorney fees, and costs at a later hearing.

Trevino appealed, arguing that under either the common fund doctrine or section 38-27-101, the defendants were required to pay a share of the attorney fees incurred in obtaining the settlement with Hartford.³The court of appeals held that the common fund doctrine does not apply to hospital liens, and that pursuant to section 38-27-101, the attorney's lien is satisfied "off the top" and does not reduce the amount of the hospital lien.Trevino, 928 P.2d at 769-70.Trevino petitioned this court to review the court of appeals decision.⁴

II.

Trevino notes that HHL and University Hospital were passive beneficiaries of the settlement his attorney negotiated with Hartford and that without the settlement, they would not have been able to collect their debt.Hence, he argues that the common fund doctrine requires HHL and University Hospital to share in the attorney fees that were generated in creating the settlement.

Trevino correctly asserts that the common fund doctrine is based on principles of equity that require those who have benefited from litigation to share its costs.SeeKuhn v. State, 924 P.2d 1053, 1057(Colo.1996).However, summarizing the doctrine in that fashion describes the roof of the building, but not its walls or foundation.As we noted in Kuhn, the common fund doctrine is grounded in fiduciary law.Id. at 1058.Hence, when a plaintiff takes legal action to create or preserve assets of a trust for the benefit of all beneficiaries to the trust, those beneficiaries must pay a proportionate share of the costs incurred in achieving the benefit.Id.Implicit in the doctrine are two requirements: (1) that all beneficiaries are similarly situated; and (2) that but for the plaintiff's actions, the beneficiaries would have been forced to institute the litigation themselves in order to achieve any benefit.

These requirements are frequently satisfied in class action lawsuits, seeid., or in litigation preserving a pool of resources, such as a pension fund, in which a number of persons have a common interest, seeAgee v. Trustees of Pension Bd., 33 Colo.App. 268, 272-73, 518 P.2d 301, 304(1974).Both this court and the court of appeals have also applied the common fund doctrine to require a subrogated insurer to share in the costs of litigation where a plaintiff obtains a recovery from a third party tortfeasor and the subrogated claim is paid out of that recovery.SeeCounty Workers Compensation Pool v. Davis, 817 P.2d 521, 526(Colo.1991)(holding that workers' compensation carrier which had subrogated claim for workers' compensation benefits was required to pay a reasonable share of attorney fees and court costs incurred in tort litigation producing settlement from which subrogated claim was satisfied);⁵Castellari v. Partners Health Plan of Colo., Inc., 860 P.2d 593, 595(Colo.App.1993)(holding that insurer which had subrogated claim for medical benefits was required to pay a proportionate share of attorney fees and costs incurred in litigation producing recovery from which claim was paid).

Several factors support the extension of the doctrine to a subrogated insurer.Subrogation is a contractual or statutory right pursuant to which a portion of an injured plaintiff's rights against the tortfeasor responsible for the injuries are assigned to the subrogee.In the context of insurance, the subrogee/insurer pays for the insured's injuries or compensation at the outset and, as a result, succeeds to the insured's rights against the tortfeasor for reimbursement of the amount paid.The insurer and insured are similarly situated because they have similar rights against the tortfeasor.The insurer's right to reimbursement is dependent upon a recovery from the tortfeasor, and the insurer does not have any right to reimbursement from the insured's other assets.Thus, the insurer must either bring an action itself, or rely on the insured to bring one.If the insured brings an action, and the insurer does not contribute, the insurer may be entitled to share in the fund created by a settlement or judgment against the tortfeasor, but the courts have required the insurer also to share in the attorney fees and costs expended in obtaining the fund.SeeDavis, 817 P.2d at 526-27;Castellari, 860 P.2d at 595.

In the context of litigation brought to preserve a trust or pension fund, class action lawsuits, or subrogated insurance claims, the beneficiaries are similarly situated with respect to the fund and but for the litigation, they would have had nothing.Hence, the requirements implicit in the common fund doctrine are satisfied.This case arises in a fundamentally different context because University Hospital is Trevino's creditor, with only its statutory right to a hospital lien connecting it to the personal injury fund.See§ 38-27-101, 16A C.R.S. (1996 Supp.).⁶

Therefore, Trevino and the defendants were not similarly situated with respect to the claim against the apartment owner or the fund created as a result of that claim.Unlike a subrogated insurer, the defendants did not have any rights against the tortfeasor, nor could they have joined in a lawsuit.⁷Trevino was certainly not acting for the benefit of the defendants.He pursued his claim against the apartment owner for his own benefit and the creation of the settlement fund inured primarily to his benefit by enabling him to pay his debt.The benefit to the defendants was an incidental, not an intended, outcome of the litigation.

Further, the defendants' right to payment of...