Attorney Liens Have Priority over Medical Liens

Gilman v. Dalby, 176 Cal.App.4th 606, 98 Cal.Rptr.3d 231 (2009)

Brief Summary
In a dispute that turned on the priority of a medical lien versus an attorney lien, the court held that attorney liens have priority, but that the attorney in this dispute did not have such a lien.

Complete Summary
Plaintiff Kevan Gilman’s business involved paying the medical bills of an injured person in return for a lien against the person’s litigation recovery. Per his usual practice, Gilman would obtain the signatures of both the injured person and the personal injury attorney on the lien. But in this case, the attorney who signed the lien was replaced by defendant Dalby. Dalby was aware of the lien, but never signed it. Because the suit eventually settled for less than Dalby’s litigation costs, the entire recovery went to Dalby. Gilman then sued Dalby for, among other things, breach of fiduciary duty and conversion.

The trial court sustained Dalby’s demurrer as to the breach of fiduciary duty claim and granted Dalby summary judgment on the conversion claim. Regarding the latter, the court relied on alternative grounds. First, Gilman did not have a sufficient interest in the settlement to sue for conversion, and second, because the proceeds were used to cover litigation costs, there was no property for Gilman to recover. Gilman appealed.

The Third District Court of Appeal affirmed the demurrer but reversed and remanded the summary judgment. The court affirmed the demurrer because Gilman failed to allege facts that could establish a breach of fiduciary duty. The only basis for Gilman’s allegation, the court noted, was the fact that Dalby was aware of Gilman’s lien. This fact, according to the court, did not even establish contractual duties, much less fiduciary duties between Dalby and Gilman. The court went on to distinguish cases in which attorneys had agreed to act as a fiduciary (i.e. an escrow agent or trustee) noting that Dalby had agreed to no such role.

The court then reversed the summary judgment based on flaws in both of the trial court’s grounds for decision. First, Gilman had a sufficient interest in the settlement to sue for conversion, the appellate court held, because his lien did not purport to forgo payment if the litigation was unsuccessful. Rather, it granted a right to recover from the settlement proceeds first before seeking payment from the injured person himself. The court did not elaborate on the reasoning behind this holding.

Next, in resolving whether there was any property for Gilman to recover, the court addressed a mixed question of law and fact. The first question was whether, as a matter of law, an attorney lien takes priority over a medical lien. The court noted that this was a matter of first impression and held that an attorney lien for fees and costs (even if later in time) has priority over a medical lien. This holding was based on the premise that medical liens will be more valuable if attorney liens are given priority. Specifically, a medical lien derives its value from the prospect of monetary recovery in litigation, and such recovery would be much less likely if attorneys were discouraged from representing injured plaintiffs by being deprived of the risk hedge inherent in a lien for fees and costs.

The court, however, noted that as a question of fact, Dalby did not have an attorney lien for costs. Therefore Gilman could potentially recover the proceeds at issue and summary judgment was inappropriate. The court further reversed the trial court’s award of prevailing party attorney fees to Dalby, because, upon reversal of summary judgment, Dalby could no longer be considered the prevailing party.

Significance of Opinion
This opinion essentially gives attorney liens for fees and costs “superpriority” over medical liens. Accordingly, personal injury lawyers would be wise to secure such liens.