Court of Appeals Addresses Whether Liens Must be Negotiated Prior to Providing Plaintiff’s Counsel with Settlement Funds

A new case has addressed an issue that has long been an annoyance of plaintiff’s attorneys. The case is Karpinski v. Smitty’s Bar, Inc.(2016) 2016 Cal App LEXIS 277. Mr. Karpinksy was the victim of a serious beating while on the Smitty’s premises. After filing suit, the case settled at mediation on May 5, 2014. As of July 22, 2014 (almost 3 months after settlement), Smitty’s had refused to provide plaintiff with the settlement proceeds. Smitty’s argued that plaintiff had to negotiate his various medical liens before the funds would be provided. Smitty’s made this argument despite specific language in the settlement agreement indicating that plaintiff would be responsible for all medical liens and would indemnify Smitty for any claim brought by the lienholders for non-payment.

This is a common practice by defense firms and I have personally encountered cases wherein settlement funds are withheld for months while defendants earn interest on the settlement funds. Further, some lienholders can take many months to provide final lien amounts and then additional time after that to finish lien negotiations.

Frustrated with this practice, Karpinksi’s attorneys brought a motion to enforce the settlement agreement pursuant to Code of Civil Procedure Section 664.6. The Court granted the motion and ordered Smitty’s to pay out the $40,000.00 settlement. Rather than pay, Smitty’s attorneys appealed this decision – ultimately hanging this entire matter up in the Appellate Court until April 12, 2016. The matter settled in May 5, 2014 — Smitty’s held onto $40,000 of settlement proceeds until at least April 12, 2016.

After being held up on appeal for almost 2 years, the Appellate Court affirmed the decision of the Superior Court – Smitty’s could not hold up the settlement by refusing to pay until plaintiff’s counsel negotiated the medical liens in the matter, nor could they place the lienholders on the settlement check, effectively forcing plaintiff to settle with the lienholders prior to being able to receive the settlement funds.

The Court of Appeals noted, “there is nothing in the settlement agreement demonstrating the existence of a condition precedent to payment of the $40,000 to Karpinski.”

“In addition, neither the lien imposed under Government Code section 13963 nor the reimbursement obligation under title 42 of the United States Code section 1395y(b)(2)(B) constitutes a statutory condition precedent to payment of the settlement proceeds in the circumstances of this case”

The Court further noted “public policy does not preclude a court from enforcing a settlement that does not include Medicare as a co-payee on a settlement check where the plaintiff signed a release acknowledging his responsibility to pay any Medicare claim and/or agreeing to indemnify the released parties.”

Citing a case from Georgia which had already encountered this issue, the Court stated:

“The Hearn court agreed with the reasoning of a Connecticut court, which had observed that “‘there is no authority for an insurer’s insistence that it protect a governmental agency’s lien by making that agency a co-payee on a check tendered in payment of a judgment or settlement. To the contrary, the recent case of Zaleppa v. Seiwell [(2010) 2010 PA Super 208 [9 A.3d 632]], stands for the proposition that, absent express authorization, private parties may not assert the interests of the government (in that case, Medicare) in a post-trial motion or any phase of litigation. Generally, putting an agency’s name on a check as a co-payee is neither authorized or required under federal or state law, and quite obviously, is not an efficient way to resolve personal injury lawsuits. … [¶] While an insurer has a responsibility to assure that governmental agency liens are taken into account, such responsibility is generally discharged by obtaining a written commitment by the plaintiff, either in a release document or in an independent document, to be responsible for the payment of all such liens.”

Despite Mr. Karpinksi having to wait nearly 2 years for his settlement proceeds, this is generally good news for plaintiffs. That is, unless defendants decide to start including language in their settlement agreements requiring settlement negotiation as preconditions to payment. Only time will tell as to whether defense firms will start doing that or whether they will turn over settlement funds without making plaintiffs jump through these unnecessary hoops.

Please read the entire Karpinsky opinion for more specifics regarding the case and the Court’s rulings/holdings.