Trevino v. HHL Financial Services, Inc.

• Decision Date: 04 April 1996
• Docket Number: No. 94CA2138,94CA2138
• Citation: 928 P.2d 766
• Parties: Abel TREVINO, Plaintiff-Appellant, v. HHL FINANCIAL SERVICES, INC., a Delaware corporation; and University Hospital, a Colorado non-profit corporation, Defendants-Appellees. . IV
• Court: Colorado Court of Appeals

Page 766

928 P.2d 766

Abel TREVINO, Plaintiff-Appellant, v. HHL FINANCIAL SERVICES, INC., a Delaware corporation; and University Hospital, a Colorado non-profit corporation, Defendants-Appellees.

No. 94CA2138.

Colorado Court of Appeals Div. IV.

April 4, 1996.

As Modified on Denial of Rehearing

May 9, 1996.

Certiorari Granted Nov. 18, 1996.

Thomas D. McFarland, Littleton, for Plaintiff-Appellant.

Machol, Johannes & Vanstrom, P.C., Jacques A. Machol, III, Denver, for Defendant-Appellee HHL Financial Services, Inc.

Sabey, Johns, Ordelheide & Smith, P.C., Melvin B. Sabey, Ann E. Edelman, Denver, for Defendant-Appellee University Hospital.

Opinion by Chief Judge STERNBERG.

Plaintiff, Abel Trevino, appeals a summary judgment entered in favor of defendants, HHL Financial Services, Inc., a collection agency (HHL), and University Hospital. We affirm.

Trevino was injured in a slip-and-fall accident at an apartment complex on December 31, 1992, and was admitted to University Hospital for treatment. Upon his admission, he signed an "Admission Agreement" promising to pay for the costs of his care as well as costs of collection, including attorney fees, should University Hospital be required to pursue any action to collect payment.

Trevino retained an attorney to represent him in his claim against the owner of the apartment complex, who was represented by his liability insurer, Hartford Insurance Company. In the meantime, Trevino applied for and was granted indigency status under the hospital's indigent discount program. That program requires that available third-party resources be exhausted prior to acquiring an indigency rating and that the rating may be reversed if third-party resources are later found. Trevino did not notify the hospital at that time of his claim against Hartford or of the third-party resources available from that source.

The hospital billed Trevino for his medical care under several different accounts, with the largest being for the amount of $13,703.97. When the hospital's effort to collect proved unsuccessful, HHL sued on the account. HHL's counterclaim alleged the claim had been assigned to it by the hospital; Trevino's reply does not deny this allegation, and no issue is raised on appeal of the authority of HHL to sue. Indeed, the appellant's brief in this court repeatedly refers to HHL as "assignee." In October 1993, HHL filed a hospital lien authorized under § 38-27-101, C.R.S. (1995 Cum.Supp.) on behalf of University Hospital against any amount that Trevino might recover from a third party. The only account that University Hospital had not assigned for collection was one for $512.02.

Hartford settled Trevino's claim in January 1994 for $80,000, and paid the proceeds in two separate checks. The first was in the amount of the $13,703.97 hospital lien, and was made jointly payable to HHL, Trevino, and Trevino's attorney. The second check was for the balance of the settlement and was made payable jointly to Trevino and his attorney.

Trevino's attorney advised HHL of the settlement, but sought to reduce the amount payable against the hospital lien by a proportional share of his attorney fees. He also sought to reduce further the amount due by asserting that Trevino had been 50% comparatively negligent in his slip-and-fall accident, even though that determination had never been litigated. For these reasons, Trevino proposed to pay HHL only $4,562.16 of the $13,703.97 hospital lien check in satisfaction of all outstanding obligations of Trevino to University Hospital.

In March 1994, after HHL refused the proposal, Trevino sent a restrictively endorsed check to the hospital for $512.02, the amount still owed directly to the hospital after it had assigned Trevino's largest account to HHL. The hospital negotiated that check. Trevino claimed the payment satisfied all of his accounts with the hospital.

Finally, Trevino filed suit against HHL and University Hospital in April 1994, seeking a declaratory judgment establishing relative rights and responsibilities of the parties with regard to the $13,703.97. The defendants counterclaimed against Trevino for enforcement of the statutory hospital lien and for breach of the Admission Agreement contract.

The trial court dismissed Trevino's claim, granted summary judgment in favor of HHL and the hospital on their counterclaims, and awarded attorney fees and costs against Trevino. This appeal followed.

I.

At the outset, contrary to Trevino's contention, we hold that the hospital did not discharge its claim when it negotiated the restrictively endorsed check.

At the time Trevino tendered the $512.02 check in April 1994, he knew that the hospital had assigned its claim for the $13,703.97 to HHL and that HHL had filed a hospital lien for that amount. The record shows that he had attempted to negotiate the amount due on that lien with HHL in January 1994.

These circumstances make the following principle dispositive of Trevino's contention. After notice of a valid assignment, payment to the assignor or any person other than the assignee is at the debtor's peril and does not discharge him from liability to the assignee. Mid-States Sales Co. v. Mountain Empire Dairymen's Ass'n., 741 P.2d 342 (Colo.App.1987). See also § 4-9-318(3), C.R.S. (1992 Repl.Vol. 2) (debtor may pay the assignor until he receives notification that the account has been assigned and that he is to make payment to the assignee.)

II.

The principal question presented by this appeal is whether the equitable "common fund" doctrine should apply to a hospital lien situation so that the hospital would have to pay a proportionate share of Trevino's attorney fees. We agree with the trial court that application of this doctrine is precluded as a matter of law.

The "common fund" doctrine is a basic rule of equity that permits an apportionment of attorney fees under circumstances in which a party has been successful in creating a fund from which other passive beneficiaries derive monetary advantage. The rationale behind the doctrine is prevention of unjust enrichment by requiring the beneficiaries to bear a fair share of the costs of litigation. County Workers Compensation Pool v. Davis, 817 P.2d 521 (Colo.1991); Castellari v. Partners Health Plan of Colorado, Inc., 860 P.2d 593 (Colo.App.1993). See also Osborne v. State Farm Mutual Automobile Insurance Co., 923 P.2d 304 (Colo.App.1996).

Colorado cases applying the common fund doctrine have thus far done so only in class actions or in circumstances in which a subrogation relationship existed amongst the parties. For example, in County Workers Compensation Pool v. Davis, supra, the supreme court held that if an injured employee's tort claim against a third party is settled for an amount greater than the insurer's subrogation claim for workers' compensation benefits, and the insurer has not actively participated in the tort litigation, the insurer may be ordered to pay a reasonable share of the attorney fees and court costs incurred by the employee in the tort litigation. And, in a class action suit involving several volunteer firefighters, Agee v. Trustees of Pension Board, 33 Colo.App. 268, 518 P.2d 301 (1974), a division of this court held that when many persons have an interest in a fund that is enhanced or preserved in litigation sponsored by an individual, a court of equity will award attorney's fees out of the fund.

In subrogation and class action cases, application of the common fund doctrine is appropriate because of the likelihood that there are passive, but co-equal, parties to the litigation. In contrast, a hospital's lien is not co-equal with an injured plaintiff's claim of the right to settlement proceeds, even though the hospital may benefit from the efforts of plaintiff's attorney's creation of the settlement fund. Rather, the lien results from a debtor-creditor relationship between the plaintiff/patient and the hospital.

Courts of most states that have addressed the issue have held that hospitals are not unjustly enriched in these circumstances and that there is no need to expand the common fund doctrine to hospital liens. The rationale for this position was stated in Maynard v. Parker, 54 Ill.App.3d 141, 11 Ill.Dec. 898, 901, 369 N.E.2d 352, 355 (1977), as follows:

[T]he benefit to the hospital resulting from [the attorney's] services was merely incidental to the primary purpose of obtaining compensation for plaintiff's injuries. The hospital's position is analogous to that of [a] prior judgment creditor ... not to that of [a] subrogee ... in that the hospital's right to payment of its claim is not dependent upon plaintiff's recovery against a third party but rather involves an ordinary debtor-creditor relationship.... We cannot justify extending the common fund doctrine to require a mortgagee or a furniture store or any other creditor of a plaintiff to contribute to the fees of the plaintiff's attorney if the funds recovered by litigation are used to satisfy the plaintiff's obligations.

Accord Harlow v. Lloyd, 15 Kan.App.2d 497, 809 P.2d 1228 (1991) (distinguishing hospital lien case from subrogation cases on the basis that...