Healthcare Liens and the Common Fund Doctrine: The Need for Legislative Action to Prevent Fee Shifting at the Expense of Healthcare Providers

Transcription

1 Healthcare Liens and the Common Fund Doctrine: The Need for Legislative Action to Prevent Fee Shifting at the Expense of Healthcare Providers Alex W. Schulte ABSTRACT: Over the course of the last forty years, state appellate courts have grappled with the issue of whether the equitable common fund doctrine should be applied to a healthcare provider s statutory lien on the proceeds of a cause of action held by its patient. Early precedents in this area uniformly rejected this application of the common fund doctrine, but some recent cases have found it applicable and used it to impose liability on the healthcare provider for a share of a patient s attorney fees. This Note argues that the most prudent course of action particularly in the many states without any established case law on this issue is for state legislatures to amend state healthcare lien statutes to explicitly state their position on this shift in attorney fees. This Note further argues that this legislative action should reject any liability on the part of the healthcare provider for patient legal fees in order to preserve the full benefit of healthcare liens to those providers. I. INTRODUCTION II. BACKGROUND A. THE HEALTHCARE LIEN B. THE COMMON FUND DOCTRINE C. THE COMMON FUND DOCTRINE APPLIED TO HEALTHCARE LIENS III. THE SPLIT AMONG STATE APPELLATE COURTS A. THE EARLY ERA: The Implied-Contract Argument The Subrogation Argument J.D. Candidate, The University of Iowa College of Law, 2013; B.S., The University of Missouri, I would like to thank Bill Rasmussen and Judge Rodney Clark for introducing me to this topic and for giving me my first chance to see what real lawyers do. I would also like to thank my parents, Bill and Candy Schulte, for all their support. 1763

2 1764 IOWA LAW REVIEW [Vol. 98:1763 B. MARTINEZ V. ST. JOSEPH HEALTHCARE SYSTEM C. THE POST-MARTINEZ ERA: Cases Adopting the Martinez Application of the Common Fund Doctrine to Healthcare Liens Cases Rejecting the Martinez Application of the Common Fund Doctrine to Healthcare Liens IV. INTERVENTION BY STATE LEGISLATURES A. THE NEED FOR LEGISLATIVE ACTION IN THIS AREA B. PRECLUDING SHIFTS IN ATTORNEY FEES THROUGH LEGISLATIVE ACTION Financial Difficulties that Hospitals Face as Care Providers for Uninsured Americans Ensuring Full Lien Benefits for Hospitals V. CONCLUSION

3 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1765 I. INTRODUCTION In August of 1994, St. Joseph Medical Center in Albuquerque, New Mexico admitted into its care a woman named Debbie Trujillo, who had been injured in a hit-and-run accident. 1 Despite her apparent lack of healthinsurance coverage, St. Joseph provided Trujillo with approximately $30,000 worth of treatment. 2 To secure full payment for this treatment, St. Joseph placed a lien on Trujillo s cause of action against her automobile insurer pursuant to the New Mexico Hospital Lien Act. 3 Trujillo s estate negotiated a settlement of over $100,000 with the insurer, 4 and St. Joseph likely had every expectation that it would be fully compensated through its lien. However, after the lien was satisfied, the Trujillo estate sued St. Joseph, claiming that the hospital should have been liable for over $10,000 of the attorney fees the estate accrued in reaching the settlement. 5 Ultimately, in the landmark case of Martinez v. St. Joseph Healthcare System, the New Mexico Supreme Court ruled in favor of the estate, and St. Joseph was left with a total recovery from its lien of less than two-thirds of the value of the treatment it provided Trujillo. 6 In this way, St. Joseph Medical Center became the first hospital in the United States to fall victim to the application of the common fund doctrine to healthcare liens. 7 A healthcare lien is a statutory device the vast majority of states have adopted in some form that enables specified healthcare providers to pursue compensation for past treatment by asserting a legal right or interest in any recovery from a patient s cause of action. 8 In Martinez, the court applied the common fund doctrine a principle of equity whereby a passive beneficiary of the efforts of an active litigant is compelled to pay a share of the litigation costs incurred in pursuing a claim 9 to impose liability on a lien-holding healthcare provider for a pro rata share of the attorney fees the patient accrued in pursuing her cause of action Martinez v. St. Joseph Healthcare Sys., 871 P.2d 1363, 1364 (N.M. 1994). 2. Id. 3. Id. (citing N.M. STAT. ANN (1978)). Trujillo s estate pursued that cause of action after her death. Id. She died of a condition that was unrelated to the injuries for which St. Joseph treated her. Id. 4. Id. 5. Id. 6. Id. at 1364, See id. 8. See infra Part II.A (elaborating on the nature and role of statutory healthcare liens). 9. See infra Part II.B (discussing the principles behind and prevalent applications of the common fund doctrine). 10. Martinez, 871 P.2d at ; see also infra Part II.C (discussing the application of the common fund doctrine to healthcare liens).

4 1766 IOWA LAW REVIEW [Vol. 98:1763 Currently, there is a split among state judiciaries regarding whether the application of the common fund doctrine in Martinez is appropriate. 11 Prior to 1994, there was a consensus among the state appellate courts that ruled on the issue that the doctrine should not be used to reduce these liens. 12 These courts rejected this application of the common fund doctrine primarily because they found that no implied contract existed between the lienholder and the patient s attorney 13 and that subrogation arguments were inapposite in the context of healthcare liens. 14 Martinez, however, ended that consensus, holding that because the lien itself only attained value through the efforts of the patient s attorney, fairness demanded that the hospital pay a share of the attorney fees. 15 Subsequent state courts diverged in their reception of Martinez, 16 with the majority of courts rejecting any extension of the common fund doctrine 17 and a minority adopting the Martinez approach. 18 This Note makes two recommendations for resolving this issue at the state level. 19 First, this Note argues that state legislatures should clarify their intent by amending their state lien statutes to specify whether healthcare providers are liable for any attorney fees their patients accrue. 20 The current split in state appellate courts is ultimately a product of differing judicial interpretations of the particular purpose of and intent behind healthcare lien statutes. Second, given that the federal government imposes a heavy burden on healthcare providers particularly hospitals by effectively compelling them to provide emergency care to uninsured patients, and that many American hospitals are currently struggling financially, such amendments to lien statutes should uphold the full benefit of statutory liens 11. See infra Part II.C (discussing the intersection of healthcare liens and the common fund doctrine); infra Part III (detailing the split in state appellate courts regarding the applicability of the common fund doctrine to healthcare liens). 12. See infra Part III.A (reviewing cases prior to Martinez that uniformly rejected the common fund doctrine in this context). 13. See infra Part III.A.1 (detailing the arguments made in cases establishing early precedents in this area regarding the lack of an implied contract between the healthcare institution and its patient s attorney). 14. See infra Part III.A.2 (discussing why cases prior to Martinez rejected analogies to circumstances involving subrogation). 15. Martinez, 871 P.2d at 1367; see also infra Part III.B (reviewing the New Mexico Supreme Court s ruling in Martinez). 16. See infra Part III.C (summarizing the decisions of state appellate courts made post- Martinez). 17. See infra Part III.C.2 (describing decisions in this area after Martinez that rejected its conclusions). 18. See infra Part III.C.1 (noting the state court cases that adopted the Martinez approach). 19. See infra Part IV (suggesting that state legislatures should act to prevent any liability for healthcare lienholders for their patient s attorney fees). 20. See infra Part IV.A (arguing that legislative intervention is necessary to clarify legislative intent regarding lienholder liability for a patient s attorney fees).

5 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1767 to these essential institutions by rejecting any healthcare provider liability for patient attorney fees. 21 By amending these statutes to preclude redistribution of attorney fees through the common fund doctrine, state legislatures would ensure that misguided notions of equity do not hinder the most pivotal function of healthcare liens: protecting and preserving a state s healthcare institutions. II. BACKGROUND A. THE HEALTHCARE LIEN Liens exist to give creditors a level of security in their prospects for recovery that might not otherwise be possible. 22 A lien is broadly defined as [a] legal right or interest that a creditor has in another s property, lasting usu[ally] until a debt or duty that it secures is satisfied. 23 The concept of a lien originated simply as the right of a mechanic, artisan or other laborer to retain possession of personal property upon which he has made repairs until the price for his services had been paid. 24 Thus, the original lien enforcement mechanism was literally for the lienholder to refuse to return property in its possession until the owner produced payment for services rendered. 25 In modern jurisprudence, the use of liens has been extended primarily through state legislative action to a wide variety of interests and occupational enterprises. 26 Some of these liens, unlike the more traditional lien, 27 attach to a debtor s non-material rights or interests. 28 Specifically, 21. See infra Part IV.B (arguing that this legislative intervention should preclude any shift in attorney fees from a patient to a healthcare provider) A NORMAN J. SINGER & J.D. SHAMBIE SINGER, STATUTES AND STATUTORY CONSTRUCTION 70:2 (7th ed & Supp. 2012). 23. BLACK S LAW DICTIONARY 1006 (9th ed. 2009). 24. E.A. STEVENS, LIENS AND PRIORITY AND FORECLOSURE OF LIENS 1 (1922). 25. Id. 26. E.g., IOWA CODE (2011) (providing specifically that liens may be obtained by landlords, agricultural-supply dealers, harvesters, contractors, miners, artisans, operators of cold-storage lockers, custom-cattle-feedlot operators, veterinarians, hospitals, and hotelkeepers, among others). 27. To use an elementary example, a traditional mechanic s lien attaches only to the interests in an improved property of the person contracting for construction. Diversified Mortg. Investors v. Lloyd D. Blaylock Gen. Contractor, Inc., 576 S.W.2d 794, 805 (Tex. 1978). Thus, if the solicitor of the construction does not have any interest in the property, a mechanic s lien provides no security to the creditor contractor. Id. 28. See Robert D. Lee, Priority of the Attorney s Charging Lien, 24 J. LEGAL PROF. 477, 477 (2000) ( Many states now provide for the creation and priority of the attorney s lien by statute, which has been said to give the attorney an equitable ownership interest in the cause of action itself, superior to that of the client. ); Alaina N. Stout, Statutory Liens for Health Care Providers: The Effectiveness of Laws Allowing Providers to Assert Liens on Settlements or Judgments from Third Party Tortfeasors, HEALTH LAW., Aug. 2006, at 10, 10 (asserting that a key feature distinguishing statutory healthcare liens from traditional liens is that they do not attach to property).

6 1768 IOWA LAW REVIEW [Vol. 98:1763 some modern lien iterations attach to the value of a debtor s legal claim or cause of action. 29 The healthcare lien is such a lien. A healthcare lien is a legal interest that a healthcare provider may secure against a patient s legal claim or cause of action arising from treated injuries when the provider has not received full compensation for treatment rendered to that patient. 30 Healthcare liens attach to any monetary recovery that the patient may secure against a third party whether through a judgment, verdict, or settlement normally in the amount of the reasonable charge for the medical treatment provided. 31 Healthcare providers typically assert these liens after treating a patient for injuries sustained at the hands of a third-party tortfeasor, entitling the provider to a share of the proceeds of that patient s personal injury claim. 32 The prevailing policy objective behind state healthcare lien statutes is to enable healthcare providers to secure some compensation for their treatment of uninsured or underinsured individuals. 33 Providers usually invoke these liens only when a patient lacks comprehensive health insurance and is thus likely unable to pay for treatment. 34 Federal law essentially compels hospitals to provide emergency-room care to all who seek it, without ascertaining a prospective patient s ability to pay. 35 Given the extremely high cost of emergency medical care, the losses associated with treating such uninsured patients can be a heavy burden for hospitals to bear. 36 Thus, healthcare lien statutes help to preserve the financial viability 29. See supra note Erik V. Larson & Diana L. Panian, Successfully Discharging Medical Liens in Personal Injury Cases, 32 CUMB. L. REV. 349, (2002). 31. Id. at Id. 33. See Buchanan v. Beirne Lumber Co., 124 S.W.2d 813, 815 (Ark. 1939) (providing that the purpose of healthcare lien statutes is to offset the provider s losses, particularly from the treatment of the uninsured); In re Bloomquist, 523 N.W.2d 352, 356 (Neb. 1994) (same); Shelby Cnty. Health Care Corp. v. Nationwide Mut. Ins. Co., 325 S.W.3d 88, 93 (Tenn. 2010) (same). 34. Typically, an insurance provider will pay an insured patient s medical bills immediately and seek to recover that payment through subrogation. Johnny C. Parker, The Made Whole Doctrine: Unraveling the Enigma Wrapped in the Mystery of Insurance Subrogation, 70 MO. L. REV. 723, 723 (2005). 35. Federal legislation achieves this compulsion primarily by making the treatment of all patrons to a hospital s emergency room a prerequisite to receiving Medicare and Medicaid funding. 42 U.S.C. 1395dd (2006). Medicare and Medicaid funding is an absolutely essential source of revenue for hospitals across the nation. See Christopher Flavelle, Hospitals and Nursing Homes Brace for Medicare Cuts, BLOOMBERG BUSINESSWEEK (Oct. 4, 2012), businessweek.com/articles/ /hospitals-and-nursing-homes-brace-for-medicare-cuts ( Hospitals will get $450 billion next year from Medicare, the program for the elderly, and Medicaid, the program for the poor. That s almost half their total funding, according to federal projections.... Losing any of that money will hurt bottom lines and test business models. ). 36. See EMTALA, AM. COLL. EMERGENCY PHYSICIANS, id=25936 (last visited Feb. 14, 2013) ( The burden of uncompensated care is growing, closing

7 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1769 of hospitals by providing them an efficient, relatively secure mechanism to mitigate these losses. The healthcare lien has now achieved nearly nationwide acceptance. Forty-one states, as well as the District of Columbia, have enacted statutes implementing some form of healthcare lien. 37 Some of these state healthcare lien statutes apply only to certain designated healthcare providers, such as hospitals 38 or charitable institutions, 39 but other statutes enable virtually all healthcare providers to secure liens. 40 These statutes also vary with respect to the caps that they place on a healthcare provider s lien: some states limit the value of the lien to a fixed percentage of the patient s total recovery 41 or a specific dollar amount 42 regardless of the reasonable cost of the care provided, and the majority of states allow the provider to many emergency departments, decreasing resources for everyone and threatening the ability of emergency departments to care for all patients. ); infra Part IV.B.1 (discussing at greater length the financial difficulties associated with treating the uninsured). 37. ALA. CODE to -375 (1991); ALASKA STAT (2012); ARIZ. REV. STAT. ANN to -936 (2007); ARK. CODE ANN to -117 (2003 & Supp. 2011); CAL. CIV. CODE (West 2012); COLO. REV. STAT to -106 (2012); CONN. GEN. STAT (2011); DEL. CODE ANN. tit. 25, (2009); D.C. CODE to -205 (2001); GA. CODE ANN to -477 (2002 & Supp. 2012); HAW. REV. STAT (2006); IDAHO CODE ANN to -705 (2003); 770 ILL. COMP. STAT. 23/10 to 23/45 (2010); IND. CODE ANN to -8 (West 2002 & Supp. 2012); IOWA CODE (2013); KAN. STAT. ANN to -409 (2002); LA. REV. STAT. ANN. 9:4751 :4755 (2007 & Supp. 2013); ME. REV. STAT. tit. 10, (2009); MD. CODE ANN., COM. LAW to -605 (LexisNexis 2005); MASS. GEN. LAWS ch. 111, 70A 70D (2010); MINN. STAT (2010 & Supp. 2011); MO. REV. STAT (2000 & Supp. 2010); MONT. CODE ANN to (2009); NEB. REV. STAT to -402 (2010); NEV. REV. STAT (2011); N.H. REV. STAT. ANN. 448-A:1 :4 (2002); N.J. STAT. ANN. 2A:44-35 to -46 (West 2000); N.M. STAT. ANN to -7 (1995); N.Y. LIEN LAW 189 (McKinney 2007); N.C. GEN. STAT to -51 (2011); N.D. CENT. CODE to -11 (2004); OKLA. STAT. tit. 42, (2011 & Supp. 2012); OR. REV. STAT (2011); R.I. GEN. LAWS to -8 (2012); S.D. CODIFIED LAWS to -9 (2004); TENN. CODE ANN to -107 (2012); TEX. PROP. CODE ANN (West 2007 & Supp. 2012); UTAH CODE ANN to -8 (LexisNexis 2010); VT. STAT. ANN. tit. 18, (2002); VA. CODE ANN to (2007 & Supp. 2012); WASH. REV. CODE (2010); WIS. STAT (2010). 38. E.g., ALA. CODE to -375; CAL. CIV. CODE ; COLO. REV. STAT to E.g., DEL. CODE ANN. tit. 25, ; N.Y. LIEN LAW 189; WIS. STAT E.g., ARK. CODE ANN to -117 (enabling a wide variety of healthcare providers to secure liens); GA. CODE ANN to -477 (same); HAW. REV. STAT (same). 41. E.g., 770 ILL. COMP. STAT. 23/10 to 23/45; MD. CODE ANN., COM. LAW to -605; N.C. GEN. STAT to -51; TENN. CODE ANN to E.g., KAN. STAT. ANN to -409; VA. CODE ANN to

8 1770 IOWA LAW REVIEW [Vol. 98:1763 secure a lien for the full reasonable, usual, and necessary charge for the treatment. 43 B. THE COMMON FUND DOCTRINE The common fund doctrine is a principle of equity which provides that a litigant or a lawyer who recovers a common fund for the benefit of persons other than himself or his client is entitled to a reasonable attorney s fee from the fund as a whole. 44 The basic purpose of the common fund doctrine is to prevent persons who obtain the benefit of a lawsuit without contributing to its cost from being unjustly enriched at the successful litigant s expense. 45 Any analysis of the common fund doctrine begins with the premise that it represents an exception to the predominant rule in the American legal system. The so-called American rule states that a prevailing party may not ordinarily recover attorneys fees accrued in attaining that victory, either from another party to the litigation or from a third party. 46 American courts instituted the policy as a deliberate departure from the English practice of requiring the losing party in litigation to pay the winning party s attorney fees and court costs. 47 However, American courts have outlined three situations where deviation from the American rule may be appropriate: when a party knowingly and intentionally violates a court order; 48 when a party act[s] in bad faith, vexatiously, wantonly, or for oppressive reasons ; 49 or when the common fund doctrine is applicable. 50 Thus, the common fund doctrine holds a unique place in American jurisprudence as an exception to the prevailing national policy on attorney fees that is based on equitable, rather than punitive or deterrent, considerations. 51 American courts have applied the common fund doctrine in a variety of contexts that present a substantial risk of unjust enrichment. Insurance subrogation claims are perhaps the quintessential example of this 43. E.g., UTAH CODE ANN to -8 (LexisNexis 2010) (capping a healthcare provider s lien at the reasonable charge for the patient s care); see also NEB. REV. STAT to -402 (2010) (same); WIS. STAT (2010) (same). 44. Boeing Co. v. Van Gemert, 444 U.S. 472, 478 (1980). 45. Id. 46. Shimman v. Int l Union of Operating Eng rs, Local 18, 744 F.2d 1226, 1229 (6th Cir. 1984). 47. Conte v. Flota Mercante del Estado, 277 F.2d 664, 672 (2d Cir. 1960) (noting that the American departure from the English rule stemm[ed] initially from the colonies distrust of lawyers and continued because of a belief that the English system favored the wealthy and unduly penalized the losing party ). 48. Chambers v. NASCO, Inc., 501 U.S. 32, 45 (1991) (citing Fleischmann Distilling Corp. v. Maier Brewing Co., 386 U.S. 714, 718 (1967)). 49. F.D. Rich Co. v. U.S. ex rel. Indus. Lumber Co., 417 U.S. 116, 129 (1974). 50. Chambers, 501 U.S. at Id.

9 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1771 application. 52 When an insured individual pursues a personal-injury action, their insurance provider may make a subrogation claim to a share of the proceeds of any verdict, judgment, or settlement in order to recover the expenses that the insurer incurred in the wake of the policyholder s injury. 53 Were the law to permit the insurer to satisfy its subrogation claim without paying any portion of the legal fees accrued in securing the fund from which the claim was satisfied, the insurer would be enriched at the expense of the policyholder who bore the full cost of pursuing the personal-injury action. 54 Thus, the common fund doctrine effects an equitable resolution by mandating that an attorney s contingency fee be taken from the fund as a whole before it is divided among beneficiaries rather than exclusively from the litigating plaintiff s share of the fund. 55 Courts have applied the common fund doctrine in a similar way in other contexts, including class actions 56 and workmen s compensation claims. 57 The chief goal of the doctrine is the same in all of its applications: to prevent individuals from unfairly profiting from litigation efforts and expenses undertaken by others. C. THE COMMON FUND DOCTRINE APPLIED TO HEALTHCARE LIENS Throughout the last several decades, state courts across the nation have faced the question of whether the common fund doctrine should be used to reduce a healthcare provider s lien recovery by a pro rata share of the attorney fees a patient accrued in obtaining a judgment, verdict, or settlement. Very few state healthcare lien statutes explicitly delineate the distribution of liability for the patient s attorney fees, 58 and thus the vast majority of state legislatures have left it to the courts to determine whether 52. See Gary Wickert, Taking on the Common Fund Doctrine, NAT L ASS N MUT. INS. COS., (last modified Sept. 7, 2005, 3:18 PM) (discussing the prevalence of the common fund doctrine and how it effects insurance providers). 53. See supra note See Guiel v. Allstate Ins. Co., 756 A.2d 777, 780 (Vt. 2000) ( When an insurance company lays claim to subrogation proceeds, obviously someone has to collect them, and attorneys rarely work for free. It is grossly inequitable to expect an insured, or other claimant, in the process of protecting his own interest, to protect those of the company as well and still pay counsel for his labors out of his own pocket, or out of the proceeds of the remaining funds. (quoting 8A JOHN ALAN APPLEMAN & JEAN APPLEMAN, INSURANCE LAW AND PRACTICE , at 335 (1981))). 55. See id. 56. Boeing Co. v. Van Gemert, 444 U.S. 472, (1980). 57. Flynn v. State Comp. Ins. Fund, 2002 MT 279, 18, 312 Mont. 410, 60 P.3d Currently, three states Montana, Nebraska, and Nevada have language in their healthcare lien statutes explicitly rejecting any reduction in a healthcare provider s lien for attorney fees. See MONT. CODE. ANN (3) (2011); NEB. REV. STAT (2010); NEV. REV. STAT (2011). Iowa s healthcare lien statute, on the other hand, embraces this reduction. IOWA CODE 582.1A(5) (2013).

10 1772 IOWA LAW REVIEW [Vol. 98:1763 to use the common fund doctrine to shift a share of that liability to the lienholder. The strong majority of the states with established precedent on the issue have rejected this application of the doctrine, 59 but a line of cases has recently emerged that reaches the opposite conclusion. 60 State high courts have heard cases and made rulings on this issue as recently as March of 2011, 61 and many states with healthcare lien statutes have no established case law regarding this issue. Therefore, the applicability of the common fund doctrine to healthcare liens is still very much an issue of contention for judges and policymakers across the nation. III. THE SPLIT AMONG STATE APPELLATE COURTS State appellate courts established all existing precedents regarding the compatibility of the common fund doctrine with healthcare lien statutes within the last forty years. 62 The healthcare lien statutes interpreted in these cases varied in important ways, 63 and consequently, many of the cases establishing precedents on this topic hinge to some degree on the unique aspects of the state s lien statute. 64 However, many of these decisions also featured arguments based on broader legal principles and public-policy considerations that have national resonance, and it is those arguments, rather than arguments based on the idiosyncrasies of a particular state 59. See Mitchell v. Huntsville Hosp., 598 So. 2d 1358 (Ala. 1992); City & Cnty. of S.F. v. Sweet, 906 P.2d 1196 (Cal. 1995); Trevino v. HHL Fin. Servs., Inc., 928 P.2d 766 (Colo. App. 1996), aff d, 945 P.2d 1345 (Colo. 1997); Hosp. Bd. of Dirs. of Lee Cnty. v. McCray, 456 So. 2d 936 (Fla. Dist. Ct. App. 1984); Watts v. Promina Gwinnett Health Sys., Inc., 530 S.E.2d 14 (Ga. Ct. App. 2000); Kenneth F. White, Chtd. v. St. Alphonsus Reg l Med. Ctr., 31 P.3d 926 (Idaho Ct. App. 2001); Wendling v. S. Ill. Hosp. Servs., 950 N.E.2d 646 (Ill. 2011); Nat l Ins. Ass n v. Parkview Mem l Hosp., 590 N.E.2d 1141 (Ind. Ct. App. 1992); Harlow v. Lloyd, 809 P.2d 1228 (Kan. Ct. App. 1991); Mena v. Muhleisen Props., (La. App. 5 Cir. 2/15/95); 652 So. 2d 65; Hillcrest Med. Ctr. v. Fleming, 643 P.2d 868 (Okla. Civ. App. 1982); Martino v. Dyer, No. M COA-R3-CV, 2000 WL (Tenn. Ct. App. Nov. 22, 2000); Bashara v. Baptist Mem l Hosp. Sys., 685 S.W.2d 307 (Tex. 1985). 60. See Alaska Native Tribal Health Consortium v. Settlement Funds Held for or to Be Paid on Behalf of E.R. ex rel. Ridley, 84 P.3d 418 (Alaska 2004); In re Bloomquist, 523 N.W.2d 352 (Neb. 1994); Martinez v. St. Joseph Healthcare Sys., 871 P.2d 1363 (N.M. 1994). 61. Wendling, 950 N.E.2d See supra notes See supra Part II.A (explaining the differences in state healthcare lien statutes across the nation). 64. See, e.g., Harlow, 809 P.2d at 1230 (citing the fact that the Kansas healthcare lien statute entitled the hospital to exactly $5,000 as a reason to not permit that amount to be reduced by a pro rata share of the patient s attorney fees); In re Bloomquist, 523 N.W.2d at 357 ( It is difficult to generalize from the [state cases regarding the common fund doctrine and healthcare liens] due to disparate statutory schemes. ); Martinez, 871 P.2d at (arguing that the New Mexico statute is distinguishable from certain healthcare lien statutes in other states in that the New Mexico statute did not limit[] recovery to non-profit or public hospitals ).

11 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1773 statute, that are analyzed in this Note. For the purposes of this analysis, the development of this jurisprudence may be analyzed in three distinct phases: (1) the era from 1971 to 1992 of uniform rejection of the application of the common fund doctrine to healthcare liens, (2) Martinez v. St. Joseph Healthcare System and the emergence of a contrary position, and (3) the split among the states in the wake of Martinez from 1994 to A. THE EARLY ERA: The earliest state court rulings consistently rejected the application of the common fund doctrine to healthcare liens. 65 Though they are far from uniform, these cases seem to use two predominate lines of argument for refusing to redistribute the patient s attorney fees: (1) that no implied contract exists between the attorney and the hospital, and (2) that the healthcare provider is not a subrogee of any part of the patient s interest in the litigation. 1. The Implied-Contract Argument State court decisions throughout this era frequently used a contractbased analysis as a starting point for rejecting any shift in attorney fees from a patient to a lien-holding healthcare provider. The prevailing rule on the collection of attorney fees is that an attorney may recover only for services rendered pursuant to an express or implied contract. 66 The only express contract an attorney enters into in these circumstances is with the patient typically in the form of a contingency agreement 67 rather than with the lien-holding healthcare provider. Thus, in order to make an argument based on contract principles that he should be entitled to collect a pro rata share of his fees from a healthcare provider, an attorney must persuade the court 65. A possible exception is the 1977 Minnesota Supreme Court case of Keene v. Stattman, 256 N.W.2d 295 (Minn. 1977). In Keene, the court held that a county hospital, when it has not participated in seeking recovery from the tortfeasors, must bear the pro rata burden of collecting the medical costs it extends to the patients. Id. at 297 (quoting Robertson v. Johnson, 200 N.W.2d 316, 320 (Minn. 1972)) (internal quotation marks omitted). Significantly, however, the hospital on which the court imposed this liability for attorney fees did not have a formal, statutory lien against the patient s judgment. See id. at Thus, despite the fact that the underlying justifications for the Minnesota court s position seem apropos to a case involving statutory healthcare liens, courts in other states have not regarded Keene as precedent in favor of the extension of the common fund doctrine to healthcare liens. See City & Cnty. of S.F. v. Sweet, 906 P.2d 1196, 1205 (Cal. 1995) (citing Martinez as the only case in which a state court had applied the common fund doctrine to the proceeds of these liens); Wendling, 950 N.E.2d 646 (failing to mention Keene as precedent in favor of this use of the common fund doctrine). 66. Broadlawns Polk Cnty. Hosp. ex rel. Fenton v. Estate of Major, 271 N.W.2d 714, 716 (Iowa 1978). 67. See Adam Shajnfeld, A Critical Survey of the Law, Ethics, and Economics of Attorney Contingent Fee Arrangements, 54 N.Y.L. SCH. L. REV. 773, 774 ( ) (describing contingency-fee agreements as ubiquitous in the American legal system).

12 1774 IOWA LAW REVIEW [Vol. 98:1763 that he entered into either an implied-in-fact or an implied-in-law contract with that provider. Courts setting these early precedents found the argument for an implied-in-fact contract a contract that is inferred from the circumstances 68 between the healthcare provider and the attorney to be unconvincing. 69 No court denied that an attorney who secures a monetary award from which a healthcare provider can draw compensation confers a material benefit on that provider. These courts concluded, however, that such benefits were merely incidental to the provider and thus did not constitute a basis for an implied-in-fact contract. 70 These courts found that the attorneys efforts were primarily for the benefit of the patients whom they formally represented, and that any monetary benefits to healthcare providers were merely secondary effects of those efforts. 71 Therefore, these courts deemed the mere fact that the healthcare provider received a benefit absent any showing that that benefit was sought expressly for the provider insufficient to forge an implied-in-fact contract with the patient s attorney. After courts rejected these implied-in-fact contract arguments, the next question analyzed in many of these cases was whether an implied-in-law contract a contract created by law for reasons of justice 72 exists between a patient s attorney and a provider. In these cases, patients often argued that the reason of justice warranting an implied-in-law contract was the unjust enrichment of the healthcare provider. 73 Unjust enrichment exists when money or property has been placed in a party s possession such that in equity and good conscience the party should not retain it. 74 Many patients contended that the benefit to the healthcare provider from their attorney s 68. Balt. & Ohio R.R. v. United States, 261 U.S. 592, 597 (1923) ( [A]n agreement implied in fact... is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding. ). 69. See, e.g., Broadlawns, 271 N.W.2d at 716 ( There is no evidence of any contact between the hospital and defendant attorney out of which a contract could be implied in fact. ). 70. See, e.g., id. ( [T]his case is governed by the general rule that [t]here is no implied promise to pay an attorney whom one has not employed, because of incidental benefits derived from his services. (second alternation in original) (quoting Grimball v. Cruse, 70 Ala. 534, 544 (1881)); Sisters of Charity of Providence of Mont. v. Nichols, 483 P.2d 279, 283 (Mont. 1971) ( The fact that an incidental benefit was also received by the hospital from her attorneys services in the form of settlement proceeds from which its bill could be paid does not, in itself, create an implied contract by the hospital to pay her attorneys for their services. ). 71. See, e.g., Mitchell v. Huntsville Hosp., 598 So. 2d 1358, 1361 (Ala. 1992) ( [The attorney] did not seek recovery... on behalf of a group that included his clients and the Hospital; he acted simply on behalf of his clients. ). 72. RESTATEMENT (SECOND) OF CONTRACTS 4 cmt. b (1981). 73. See Lynch v. Deaconess Med. Ctr., 776 P.2d 681, 683 (Wash. 1989) (discussing the patient s attorney s argument that an implied-in-fact contract or quasi-contract existed as a result of the unjust enrichment of the hospital). 74. Id.

13 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1775 efforts came without any corresponding cost to that provider, amounting to gratuitous legal services. 75 These courts, however, rejected these unjustenrichment arguments chiefly because the patient the attorney s client already owed the provider the full lien amount. 76 The healthcare provider, in merely receiving payment for an outstanding debt, could not be said to have attained any benefit that it should not in good conscience be permitted to retain. 77 Simply put, many of these courts held that healthcare providers were not unjustly enriched by the efforts of their patient s attorney and, thus, no basis existed for finding an implied-in-law contract that would justify imposing liability on the provider for any share of the patient s attorney fees. 2. The Subrogation Argument In a related analysis, state courts setting precedents throughout this period also held that no subrogation relationship existed between the healthcare provider and its patient. 78 A party holds a right of subrogation if that party pays the debt of another and is, consequently, entitled to all the rights of the [debtor] to enforce his right to be reimbursed. 79 A subrogation relationship is an impetus for the application of the common fund doctrine, obligating the subrogee to pay a share of the attorney fees incurred by the subrogor. 80 Many advocates of the use of the common fund doctrine in these cases argued that the healthcare provider s position was analogous to that of an insurer paying the medical bills of a patient and thereafter standing as a subrogee of that patient with respect to the dollar amount of those bills. 81 These courts rejected this argument for several reasons. 75. See id. (noting the patient s attorney s argument that he had conferred a benefit on the hospital without receiving any compensation for that benefit). 76. See Broadlawns Polk Cnty. Hosp. ex rel. Fenton v. Estate of Major, 271 N.W.2d 714, 717 (Iowa 1978) (declaring that the hospital had a right to its full lien recovery because it was the creditor of the estate of its former patient); Lynch, 776 P.2d at 683 (holding that the hospital only received the amount the patient owed from the lien). 77. In fact, the Iowa Supreme Court reasoned that if a hospital was required to pay a share of its patient s attorney fees, the patient would, in effect, pay less than the full cost of the medical care, and thus, the hospital would have an unjust enrichment claim. Broadlawns, 271 N.W.2d at See Sisters of Charity of Providence of Mont. v. Nichols, 483 P.2d 279, 283 (Mont. 1971) (holding that no subrogation relationship existed between the patient and her healthcare provider); Bashara v. Baptist Mem l Hosp. Sys., 685 S.W.2d 307, 311 (Tex. 1985) (same); Lynch, 776 at 683 (same). 79. Pearlman v. Reliance Ins. Co., 371 U.S. 132, (1962). 80. See Johnny Parker, The Common Fund Doctrine: Coming of Age in the Law of Insurance Subrogation, 31 IND. L. REV. 313, (1998). 81. See Sisters of Charity, 483 P.2d at 283 (noting the patient s argument that the hospital enforcing its lien was in a position analogous to an insurance provider who had a subrogation claim); Bashara, 685 S.W.2d at 311 (same); Lynch, 776 P.2d at (same).

14 1776 IOWA LAW REVIEW [Vol. 98:1763 First, the courts reasoned that healthcare providers are in no way unjustly enriched in this context, and without some threat of unjust enrichment, no subrogation relationship can exist. 82 The courts noted that a subrogation relationship is, at its core, an equitable arrangement designed to prevent unjust enrichment. 83 As mentioned above, these courts generally did not consider a hospital s receipt of a lien recovery equal to the amount charged for services provided to a patient a form of unjust enrichment, 84 and thus, the courts found these subrogation arguments fallacious. Second, many courts held that subrogation arguments were inapt in this context because a healthcare provider does not stand[] in the shoes of its debtor patient. 85 Upon payment of a policyholder s bills, an insurer assumes all of the policyholder s rights pursuant to those bills it stands in the shoes of the patient. 86 One decision noted that the hospital lien statute does not give [a hospital] a right to substitute itself in place of its patient. 87 These healthcare lien statutes do not grant the provider an independent cause of action against the tortfeasor but simply give it an interest in the proceeds of a claim or settlement. 88 These cases found that the healthcare provider and his patient do not stand on equal bases as claimants against the fund 89 and, thus, no patient can make a subrogation claim that would justify compelling a lien-holding hospital to pay a pro rata share of that patient s attorney fees. 90 Finally, several courts expressed a general discomfort with any extension of subrogation principles to a creditor debtor relationship. 91 Crucially, an insurer that becomes a subrogee of its policyholder is not a 82. See Nat l Ins. Ass n v. Parkview Mem l Hosp., 590 N.E.2d 1141, 1144 (Ind. Ct. App. 1992) (holding that the healthcare provider was entitled to all money received from execution of its lien and, thus, subrogation arguments were inappropriate in this context); Bashara, 685 S.W.2d at (same); Lynch, 776 P.2d at 684 (same). 83. Lynch, 776 P.2d at See supra Part III.A Bashara, 685 S.W.2d at 311 (holding that the hospital does not stand[] in the shoes of its patients in pursuing its lien); see also Sisters of Charity, 483 P.2d at 283 ( [T]he hospital s claim and lien is based upon a debt owed the hospital by its patient in whose shoes it does not stand for any purpose.... ). 86. See Nat l Ins. Ass n, 590 N.E.2d at Id. 88. Id. 89. Broadlawns Polk Cnty. Hosp. ex rel. Fenton v. Estate of Major, 271 N.W.2d 714, 717 (Iowa 1978). 90. See Bashara, 685 S.W.2d at 311; Lynch v. Deaconess Med. Ctr., 776 P.2d 681, 684 (Wash. 1989). 91. See Bashara, 685 S.W.2d at (holding that there is no reason to expand the common fund doctrine to this debtor creditor relationship ); Lynch, 776 P.2d at 684 ( We therefore will not expand the doctrine of equitable subrogation to debtor creditor relationships. ).

15 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1777 creditor of the insured because it receives anterior compensation for any services it may provide to a patient in the form of insurance premiums. 92 If a court would treat a creditor hospital as a subrogee of the rights held by a debtor patient, why wouldn t all creditors receive this treatment with respect to the rights of their debtors? To apply an example used by the Montana Supreme Court, would a mortgagee of business property have a subrogation interest in any potential legal recovery achieved by the mortgagor business for the amount of the outstanding mortgage obligation? 93 This was a notion that these courts were unwilling to accept. B. MARTINEZ V. ST. JOSEPH HEALTHCARE SYSTEM In 1994, the New Mexico Supreme Court ended the national consensus against application of the common fund doctrine to healthcare liens. 94 In Martinez v. St. Joseph Healthcare System, the New Mexico high court held that a hospital s lien recovery should be reduced to account for a share of the attorney fees expended in attaining the recovery not because it found any implied contract or subrogation relationship between the parties, 95 but because the result was consistent with that court s conception of fairness in the circumstances. 96 In reaching its conclusion, the Martinez court emphasized the fact that the attorney s efforts created a fund and that the hospital s lien could only be satisfied out of that fund. 97 In effect, the court severed the question of the healthcare provider s general entitlement to compensation from the question of the provider s ability to recover specifically from the lien. 98 The court acknowledged that the hospital had a right to the money owed it regardless of whether the patient collected anything from the tortfeasor, but it reasoned that it was only through the efforts of the patient s attorney that the lien itself had any value. 99 Thus, the Martinez court indirectly attacked the assertion made by other state courts that the relationship between a hospital in possession of a lien and its patient is merely that of a creditor and debtor. According to Martinez, the lien itself differentiates that relationship from a simple debtor creditor relationship. 100 Furthermore, the court noted that, absent the lien, the 92. Sisters of Charity of Providence of Mont. v. Nichols, 483 P.2d 279, 283 (Mont. 1971). 93. Id. 94. Martinez v. St. Joseph Healthcare Sys., 871 P.2d 1363 (N.M. 1994). 95. Id. at 1366 (asserting that the court is not confronted with an issue of implied contract... or subrogation ). 96. Id. at Id. at Id. at Id Id. at 1367 ( If the attorney for the patient does not secure a judgment or settlement... the hospital/patient relationship truly is nothing more than a creditor/debtor relationship.... ).

16 1778 IOWA LAW REVIEW [Vol. 98:1763 healthcare provider would certainly have had to expend resources of its own volition in order to obtain any compensation from the patient. 101 Therefore, Martinez reasoned that it would be fundamentally unfair to permit the hospital to receive benefits from the lien without paying its prorated share of the legal expenses required to effectuate that lien. 102 The Martinez court also rejected the hospital s contention that this application of the common fund doctrine would lead to requir[ing] others who receive some benefit from the judgment to pay their portion of the fees. 103 The court in an unambiguous rejection of precedent from other states, particularly that of the Montana court in Sisters of Charity of Providence of Montana v. Nichols 104 concluded that courts could logically limit this application of the common fund doctrine so that it did not extend to all creditor debtor relationships. 105 The court reiterated its position that the hospital s lien against its patient s recovery distinguishes it from other creditors and, therefore, courts could limit the scope of the common fund doctrine to parties that have contract assignment, subrogation, or statutory lien rights. 106 Thus, Martinez rejected the claim that courts would need to apply the common fund doctrine to all creditors receiving incidental benefits from debtor recoveries if they applied it to healthcare liens. 107 C. THE POST-MARTINEZ ERA: The response to Martinez in other states was mixed. Most state appellate courts rejected the bulk of the Martinez analysis and, like earlier courts considering this issue, concluded that the common fund doctrine should not apply to healthcare lien recoveries. 108 Courts in at least two states, 101. Id Id. at Id. at Interestingly, the Martinez court began its analysis by professing that it did not intend to contradict the settled precedents of other states but simply found them distinguishable or inapposite. Id. at As the opinion proceeded, however, the court attacked these precedents more openly, particularly in a segment that clearly rejected the Sisters of Charity analysis. Id. at On the whole, it seems that Martinez can only be read as a departure from prior decisions in this area, and subsequent decisions by courts in other states have consistently treated it as such. See LaBombard v. Samaritan Health Sys., 991 P.2d 246, 253 (Ariz. Ct. App. 1998) (asserting that Martinez is a deviation from the prevailing view in state courts); see also Trevino v. HHL Fin. Servs., Inc., 928 P.2d 766, 770 (Colo. App. 1996) (rejecting the Martinez approach), aff d, 945 P.2d 1345 (Colo. 1997) Martinez, 871 P.2d at Id. at 1367 (emphasis added) Id. at See City & Cnty. of S.F. v. Sweet, 906 P.2d 1196 (Cal. 1995) (refusing to apply the common fund doctrine to healthcare liens); Trevino, 928 P.2d 766 (same); Watts v. Promina Gwinnett Health Sys., Inc., 530 S.E.2d 14 (Ga. Ct. App. 2000) (same); Kenneth F. White, Chtd. v. St. Alphonsus Reg l Med. Ctr., 31 P.3d 926 (Idaho Ct. App. 2001) (same); Wendling v. S. Ill. Hosp. Servs., 950 N.E.2d 646 (Ill. 2011) (same); Mena v. Muhleisen Props., (La. App. 5

17 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1779 however, followed Martinez and found that state courts should reduce healthcare lien recoveries by a pro rata share of the attorney fees that the patient expended in obtaining the recovery from which the lien was satisfied. 109 The following Subparts describe both the holdings of courts adopting the Martinez view and the holdings of courts rejecting that view. 1. Cases Adopting the Martinez Application of the Common Fund Doctrine to Healthcare Liens The Nebraska and Alaska Supreme Courts both followed Martinez in holding that courts in their states should apply the common fund doctrine to healthcare liens. 110 The Nebraska case, In re Bloomquist, was decided in 1994, a few months after the Martinez decision; 111 the Alaska case, Alaska Native Tribal Health Consortium v. Settlement Funds Held for or to Be Paid on Behalf of E.R. ex rel. Ridley, was decided in In both cases, the courts explicitly endorsed, and heavily relied upon, the Martinez analysis, particularly its position that the common fund doctrine applied to recoveries from healthcare liens precisely because the lien itself would have had no value absent the efforts of the patient s attorney. 113 In addition to reiterating the arguments articulated in Martinez, however, the In re Bloomquist court expressed concern that preventing a patient from recovering a share of his attorney fees would actually limit the effectiveness of healthcare lien statutes. 114 The court was particularly concerned that failure to proportionally distribute attorney fees might reduce or even eliminate an indigent patient s incentive to actively pursue a cause of action against a tortfeasor. 115 As the court pointed out, the value of the healthcare lien itself and thus the hospital s claim pursuant to it is Cir. 2/15/95); 652 So. 2d 65 (same); Martino v. Dyer, No. M COA-R3-CV, 2000 WL (Tenn. Ct. App. Nov. 22, 2000) (same) Alaska Native Tribal Health Consortium v. Settlement Funds Held for or to Be Paid on Behalf of E.R. ex rel. Ridley, 84 P.3d 418 (Alaska 2004); In re Bloomquist, 523 N.W.2d 352 (Neb. 1994). The Arizona Court of Appeals 1998 ruling in LaBombard v. Samaritan Health System set an unclear precedent in this area. 991 P.2d 246 (Ariz. Ct. App. 1998). The court held that a hospital should be responsible for a pro rata share of its patient s attorney fees given that the hospital had no right of recovery independent of the lien. Id. at 254. In support of its ruling, the LaBombard court cited both Martinez and other contrary state court decisions favorably. Id. at Thus, the rule on this issue is not entirely clear See Alaska Native Tribal Health Consortium, 84 P.3d 418; In re Bloomquist, 523 N.W.2d 352. It should be noted that the Nebraska legislature responded to the In re Bloomquist decision by amending the state s healthcare lien statute to explicitly forbid any reduction of these liens for a share of the patient s attorney fees. See NEB. REV. STAT (2010) In re Bloomquist, 523 N.W.2d Alaska Native Tribal Health Consortium, 84 P.3d See id. at ; In re Bloomquist, 523 N.W.2d at In re Bloomquist, 523 N.W.2d at Id.

18 1780 IOWA LAW REVIEW [Vol. 98:1763 entirely dependent on the patient s vigorous pursuit of his or her claim. 116 Thus, the Nebraska court held that this application of the common fund doctrine was not only necessary to preserve fairness, as Martinez defined it, but was actually necessary to ensure that healthcare liens function properly Cases Rejecting the Martinez Application of the Common Fund Doctrine to Healthcare Liens State-court decisions rejecting the Martinez approach feature certain recurring themes. These opinions restated many of the dominant themes from the pre-martinez line of cases, particularly the absence of unjust enrichment 118 and the inapplicability of subrogation arguments. 119 However, some of these cases also made noteworthy arguments that directly or indirectly responded to the rationale used in Martinez. Specifically, some courts argued that despite assertions to the contrary in Martinez this proposed extension of the common fund doctrine could not fairly or reasonably be limited to the realm of healthcare liens but would necessarily extend to all creditor debtor relationships. Perhaps even more significantly, many courts also found that this application of the common fund doctrine would undermine the legislative intent underlying these healthcare lien statutes. These courts dismissed the Martinez hypothesis that healthcare providers have a recognized interest in the accumulation of a fund through their lien, and thus, the extension of the proration argument to others who may incidentally benefit is inappropriate 120 as illogical. 121 The California Supreme Court in City and County of San Francisco v. Sweet maintained that whenever a creditor s compensation is dependent on a debtor successfully securing a recovery from a legal claim irrespective of whether that creditor secures a formal lien on a judgment success in 116. See id. ( If the injured person elects not to prosecute a claim, then the lien itself is worthless. ) Id. at See Wendling v. S. Ill. Hosp. Servs., 950 N.E.2d 646, 651 (Ill. 2011) ( [T]he Hospitals were not unjustly enriched because their claims were not contingent on the plaintiffs rights against a third party or the creation of a fund. ); Martino v. Dyer, No. M COA-R3- CV, 2000 WL , at *5 (Tenn. Ct. App. Nov. 22, 2000) ( [W]e cannot see how receiving that payment [of the patient s medical bill] could be considered unjust enrichment. ) See Kenneth F. White, Chtd. v. St. Alphonsus Reg l Med. Ctr., 31 P.3d 926, 931 (Idaho Ct. App. 2001) ( A hospital does not stand in the shoes of the injured party as a subrogee does.... ); Martino, 2000 WL , at *5 ( None of the required elements to establish subrogation [are] present.... ) Martinez v. St. Joseph Healthcare Sys., 871 P.2d 1363, (N.M. 1994) See City & Cnty. of S.F. v. Sweet, 906 P.2d 1196, 1203 (Cal. 1995) ( The theory on which the Court of Appeal relied that a creditor would have no source from which to satisfy a debt owed by an indigent if the indigent had not achieved a tort recovery is not logically capable of limitation to indigent recipients of... hospital and medical care. ).

19 2013] HEALTHCARE LIENS AND THE COMMON FUND DOCTRINE 1781 obtaining a monetary judgment or settlement... would create a fund from which the creditor could recover. 122 At the very least, according to Sweet, this expansion of the common fund doctrine must logically apply to all other liens attached to recoveries from legal claims or causes of action. 123 Apart from being illogical, some of these cases also found the Martinez approach to be unfair because it would force healthcare providers to shoulder a burden that is not borne by other creditors merely because it holds a lien on the tort recovery. 124 These cases emphatically rejected the notion that lien-holding healthcare providers should be uniquely eligible for the common fund doctrine simply by virtue of their means of recovery. Perhaps an even more salient argument that these cases propound is that the Martinez approach is contrary to the fundamental purpose of healthcare lien statutes. A Tennessee appellate court in Martino v. Dyer pointed out that, prior to the passage of these lien statutes, healthcare providers were frequently unable to collect from indigent patients even after those patients secured tort recoveries. 125 These cases asserted that [t]he obvious purpose of [healthcare lien] statutes is to enhance a hospital s ability to collect payment for services rendered to an accident victim. 126 A court applying the common fund doctrine would necessarily reduce a healthcare provider s lien recovery to a dollar amount significantly below the amount a healthcare lien statute guarantees, and therefore, these cases found that this application of the common fund doctrine would be antithetical to the statutes obvious purpose. 127 In summary, these cases to a much greater degree than pre-martinez precedents argued that the common fund doctrine conflicted with the policy goals for which state legislatures implemented healthcare lien statutes. IV. INTERVENTION BY STATE LEGISLATURES These conflicting state interpretations of facially similar healthcare lien statutes have created an ambiguous body of law on a topic that remains a live 122. Id Id. ( Logically, if several judgment creditors placed liens on a debtor plaintiff s cause of action because no other source of payment was available, the recovery of each creditor would be reduced by a share of the plaintiff s attorney fees proportionate to the debt owed that creditor. ) Kenneth F. White, 31 P.3d at Martino v. Dyer, No. M COA-R3-CV, 2000 WL , at *2 (Tenn. Ct. App. Nov. 22, 2000) ( The legislature recognized that hospitals were losing funds from providing care to individuals who later collected a settlement or judgment for their injuries but failed to pay their hospital bills. (quoting Tenn. Att y Gen. Op (May 13, 1994))) Kenneth F. White, 31 P.3d at 932 (emphasis omitted) Id. at 932 ( It would plainly impede this legislative purpose if this Court were to hold that the hospital s superior position as a lien holder will reduce its recovery.... (emphasis omitted)); see also Sweet, 906 P.2d at 1208 (holding that reapportionment of attorney fees would violate the legislative intent of providing the full amount of unpaid charges to the hospital).

20 1782 IOWA LAW REVIEW [Vol. 98:1763 legal controversy. 128 Powerful lobbies have expressed strong opinions on both sides of this issue, with hospitals and other healthcare providers protesting the reduction of their liens and trial attorneys advocating for an equitable distribution of their fees among the beneficiaries of their efforts. 129 This Note makes two basic arguments regarding the resolution of this issue: (1) state legislatures particularly those in the many states without any settled precedent on this topic should amend their state healthcare lien statutes to clearly express their position on the attorney fee issue; and (2) as a matter of public policy, these statutory amendments should explicitly forbid any shift in attorney fee liability that would reduce a healthcare provider s lien recovery. A. THE NEED FOR LEGISLATIVE ACTION IN THIS AREA The best solution to this conflict of authority is also the simplest: an affirmative statement by state legislatures as to whether a wholly statutory instrument the healthcare lien may be reduced by a pro rata share of the attorney fees expended to collect a recovery. This kind of legislative action would not be entirely unprecedented: the Iowa 130 and Nebraska 131 legislatures, for example, have amended their healthcare lien statutes to clearly reflect their intent. Ultimately, the determinative issue in this legal controversy is the intent of the legislature in enacting the healthcare lien statute, and thus, legislatures should take it upon themselves to amend their healthcare lien statutes to preclude state judiciaries from straying from legislative intent by following the wrong line of available precedents from other jurisdictions. Arguments in favor of this shift in attorney fee liability based on the relationship between the hospital and the patient s attorney that is, implied contract and subrogation arguments are relatively weak because such 128. For example, the Illinois Supreme Court rejected this application of the common fund doctrine in Wendling v. Southern Illinois Hospital Services in March 2011, reversing an intermediate appellate court ruling in favor of the doctrine a year earlier. 950 N.E.2d 646 (Ill. 2011). The Alaska Supreme Court also decided this issue relatively recently, issuing judgment in favor of lien reduction in January Alaska Native Tribal Health Consortium v. Settlement Funds Held for or to Be Paid on Behalf of E.R. ex rel. Ridley, 84 P.3d 418 (Alaska 2004) For example, in Wendling, both Cook County as an operator of hospitals in the state of Illinois and the Illinois Trial Lawyers Association filed amicus briefs. 950 N.E.2d at IOWA CODE 582.1A(5) (2013) ( A hospital that recovers from a judgment, verdict, or settlement pursuant to [the state s hospital-lien provision] shall be responsible for the pro rata share of the legal and administrative expenses incurred in obtaining the judgment, verdict, or settlement. ) NEB. REV. STAT (2010) (freeing healthcare providers collecting under the state healthcare lien statute from liability for attorney s fees and costs incurred by the injured person in securing the judgment, settlement, or compromise ). This amendment abrogated the Nebraska Supreme Court s decision in In re Bloomquist, and that court recognized it as such an abrogation. Parnell v. Good Samaritan Health Sys., Inc., 620 N.W.2d 354, 358 (Neb. 2000).