Distributing settlement not enough to hold law firm accountable for lien

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When Watertown Regional Medical Center filed a small claims lawsuit trying to collect on an outstanding hospital lien, the District 4 Court of Appeals court had to decide whether a law firm was just acting as a conduit for payment or as an actual payor when it disbursed a related personal injury settlement.

In Watertown Regional Medical Center Inc. v. General Casualty Ins. Co., 2013 AP 2324 (consol. w/2013 AP 2511), a three-judge appellate panel concluded that the law firm of Hupy and Abraham SC, Milwaukee, never agreed to be responsible for the distribution of a $30,000 personal injury settlement it landed on behalf of a client, and couldn’t be found liable for any portion of the client’s unpaid $8,447 hospital lien.

Although the court agreed that Wis. Stat. Section 779.80 should be construed liberally to protect the rights of hospitals, even a liberal construction of the statute could not make Hupy responsible for the hospital lien against its client, Nathaniel McGuire.

Case history

McGuire was injured Dec. 2, 2008, in a motor vehicle accident with another vehicle driven by Thomas Boley.

McGuire underwent treatment for his injuries at Watertown Regional Medical Center. He then received other ongoing medical care from different doctors for almost two years after the accident.

Within a week of the original accident, McGuire hired Hupy and Abraham to represent him. He filed suit in October 2011.

After a short discovery period, the case was settled by a negotiated mediation less than a year later. At the end of the mediation process, a final mediation agreement was reached and signed by the parties. In that agreement, Hupy agreed to receive the $30,000 settlement amount into its trust account and distribute it.

Watertown Medical Center filed a hospital lien and sent out notice of it to General Casualty, McGuire, Boley, car owner Jeremy Gill and Progressive Auto Insurance. No notice was sent to Hupy and Abraham.

A list of payees to receive payment from Hupy and Abraham through the settlement included Radiology Waukesha, Johnson Creek Fire Department, the Dousman Chiropractic Clinic, and Oasis Legal Finance.

Watertown Regional Medical Center lien was not listed to be paid.

General Casualty forwarded the settlement funds to Hupy in October 2012. Hupy first paid off the stated lien holders, later paying McGuire the balance of $14,230.47 in two installments.

Counsel for Watertown contacted Hupy less than six months after the final payment to McGuire, demanding satisfaction of its $8,447 hospital lien.

When Hupy asked for copies of all notices of liens the hospital had forwarded to protect its interest, Watertown forwarded proof that liens had been served on all parties except for Hupy. Hupy then denied responsibility and refused to make any payment to Watertown.

Watertown filed a small claims suit against Hupy, General Casualty and McGuire, and General Casualty cross-claimed for indemnity against Hupy and Abraham.

Jefferson County Small Claims Court Judge David Wambach granted summary judgment to Watertown Regional and General Casualty, finding both Hupy and General Casualty were liable for the hospital lien, and also finding that Hupy had to indemnify General Casualty against any obligation for payment on the lien.

On appeal

But had the small claims court correctly interpreted Wis. Stat. Section 779.80, suggesting that a law firm that acts as a trust account repository and distributor of settlement funds in a personal injury case is “a person making any payment … to [the] injured person … as compensation for the injuries sustained”?

The appellate court said no. According to the court, the plain meaning of 779.80 et al. could not be so stretched to create any liability for Hupy either to Watertown Regional Medical Center or General Casualty, although General Casualty did not escape liability.

The key issue here distinguishing Hupy as just a facilitator and General Casualty as a “person making any payment,” according to the court’s opinion, was that General Casualty was actually sending along payment as the result of final mediation negotiations “as compensation” for injuries.

Under General Casualty and Watertown’s interpretation, the 779.80 language would effectively become “making or transferring any payment that is compensation for the injuries sustained.”

Although here both Watertown and General Casualty incorporated other elements of 779.80 to justify treating Hupy as a “person” under the statute in this manner, the court concluded it was wrong to expand the net of responsibility with such a broad brush.

The court pointed out the glaring fact that 779.80(3)(b) and (c) did not have a notice requirement for attorneys. Notice only had to go to “the injured person, the person alleged to be liable, and that person’s insured.”

Also, it was difficult to reconcile holding an attorney responsible here when 779.80(5) prohibits a hospital lien from “in any way prejudicing or interfering with” an attorney’s lien or contract for services, according to the court.

Furthermore, counsel for Hupy pointed to 779.80(4), which gives a description of general categories of participants in hospital lien litigation: the injured, the medical provider, the legal representative and the payor. Distributing the settlement funds falls within what 779.80(4) states is the role of the “legal representative,” said Hupy, whereas General Casualty would obviously fit the statute’s description of a “payor.”

Counsel for General Casualty suggested the 2004 case Riegleman v. Krieg, 271 Wis.2d 798, where an attorney was found liable for unpaid medical expenses, was on point.

But Riegleman better supported the position of Hupy, according to the appellate court. In that case, the attorney had expressly signed a document manifestly agreeing to “honor the [patient/client lien] to protect adequately said provider.” That attorney undertook a separate contract obligation, the court noted. Although Hupy signed a mediation agreement, it never rose to the level of a promise to Watertown Medical or General Casualty to protect the hospital lien.

The appellate court let stand the summary judgment finding against General Casualty, but reversed the small claims court finding that Hupy was responsible either directly to Watertown Regional or to General Casualty.