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Gilman v. Dalby

August 10, 2009


APPEAL from a judgment after an order granting summary judgment of the Superior Court of Sacramento County, Loren E. McMaster, Judge. Reversed in part and remanded with directions. (Super.Ct.No. 04AS03166).

The opinion of the court was delivered by: Scotland , P. J.


The nature of medical liens and attorney liens, and their priority with respect to a monetary recovery obtained in a lawsuit by an injured plaintiff against a tortfeasor, are subjects that consume much of a personal injury plaintiff lawyer‟s time; and they have been the subjects of numerous appellate decisions.

(See, e.g., Fletcher v. Davis (2004) 33 Cal.4th 61; Cetenko v. United California Bank (1982) 30 Cal.3d 528; Waltrip v. Kim berlin (2008) 164 Cal.App.4th 517; Pangborn Plumbing Corp. v. Carruthers & Skiffington (2002) 97 Cal.App.4th 1039; Wujcik v. Wujcik (1994) 21 Cal.App.4th 1790; Nicoletti v. Lizzoli (1981) 124 Cal.App.3d 361; see also Carroll v. Interstate Brands Corp. (2002) 99 Cal.App.4th 1168.)

However, the parties in this proceeding have not pointed to, and we have not found, any decision that has directly decided which of a contractual medical lien and an attorney lien for fees and costs of litigation has priority over the other. We address the question now, without repeating all that has already been said about medical liens and attorney liens.

Plaintiff, Kevan Gilman, is in the business of paying, at a discount, the cost of medical services provided to an injured person, and obtaining from the medical provider and the injured person an assignment of the medical lien for the full amount, to be collected from a judgment that might be obtained by the person in a lawsuit against the tortfeasor who caused the injury. The medical provider agrees to the arrangement to ensure that it immediately receives some compensation for the services it provides to a person who lacks the resources to pay for them. The patient agrees to the arrangement in order to obtain the services that otherwise might not be provided. And Gilman agrees to the arrangement in hopes of getting more money via the medical lien than he paid for it.

Defendants, Lena Dalby, Roger Dreyer, Joseph Babich, Robert Buccola, William Callaham, and the law firm of Dreyer, Babich, Buccola & Callaham, were retained by an injured person who had entered into such an arrangement with Gilman while the person was represented by another attorney.

Things did not come out as Gilman, defendants, and the injured person hoped. The lawsuit was settled for slightly less than what was spent in litigation costs, and defendants waived their right to attorney fees under their contingency fee agreement, "due to the fact that the settlement amount was less than the total of office costs that had been incurred."

Claiming he is entitled to payment on his lien from the amount of the settlement, Gilman sued defendants for, among other things, breach of fiduciary duty and conversion. Defendants‟ answer asserted, among other things, that Gilman‟s complaint failed to state facts sufficient to constitute causes of action and that "there were other liens superior and prior to [Gilman‟s] lien"; thus, defendants "were legally bound to pay said superior and prior liens, before any payment could be made to [Gilman]."

Gilman appeals from the judgment entered in favor of defendants after the trial court sustained their demurrer to the cause of action for breach of fiduciary duty and granted their motion for summary judgment on the other causes of action. He contests only the rulings on his claims of breach of fiduciary duty and conversion, as well as the order granting defendants‟ request for attorney fees and costs.

As we shall explain, Gilman was not defendants‟ client and, because defendants had not signed the lien, they did not have any contractual duty to him. His complaint is devoid of any allegations showing a traditionally recognized fiduciary relationship. The fact that defendants were "aware of" Gilman‟s lien is not enough to create a fiduciary duty. Thus, the trial court correctly sustained, without leave to amend, the demurrer to the breach of fiduciary duty cause of action. As to the claim of conversion, we conclude that, as a matter of equity and public policy, defendants‟ purported attorney lien for costs had priority over Gilman‟s medical lien, regardless of which came first in time. Because the purported attorney lien for costs exceeded the amount of the settlement, there was nothing left for Gilman to collect via his lien, and thus there was no basis for a claim of conversion. However, in the summary judgment proceeding, defendants did not submit any evidence that they had an attorney lien against the recovery, thus failing to establish that they were entitled to deduct their litigation costs from the settlement proceeds. Consequently, we will reverse the summary judgment entered in defendant‟s favor on the conversion cause of action and remand the matter for further proceedings on that claim. It follows that we must reverse the award of attorney fees and costs predicated upon defendants being the prevailing parties.


Gilman is in the practice of "factoring medical accounts" and operates under the fictitious business name of Lien Medical.

He pays, at a discount, the medical bills of injured persons who are pursuing litigation to recover damages for their injuries, and then obtains an assignment of the medical providers‟ accounts receivable. He also obtains contractual liens from the injured persons and their counsel, which give Gilman liens against any recoveries obtained in the lawsuits.

In April 2001, James DaPrato was in an automobile accident. Sacramento MRI Center provided medical services to DaPrato on May 4, 2001, and then sold and assigned to Lien Medical all of the Center‟s right, title, and interest in DaPrato‟s account. On the same day, DaPrato signed a contractual lien, which gave Lien Medical a lien against any recovery that DaPrato might receive in litigation to recover damages for his injuries. The lien states: "With respect to any and all monies received as a result of this INCIDENT, you are not to disburse any such monies prior to paying LIEN MEDICAL in full for the lien that LIEN MEDICAL holds as a result of this INCIDENT. YOU must pay LIEN MEDICAL in full within 30 days of receipt of any monies received as a result of this INCIDENT." DaPrato agreed that he remained personally liable for the money owed to Lien Medical.

DaPrato‟s attorney, Paige Hibbert, also signed the lien and agreed to notify Lien Medical of any substitution of attorney and to provide the successor attorney with a copy of the lien.

In July 2001, DaPrato changed attorneys, retaining Dalby, an attorney with defendants‟ law firm. According to Gilman, Dalby was aware of the lien, but Dalby and the other defendants did not sign the lien.

DaPrato settled his lawsuit in June 2003 for $6,500, which was less than the litigation costs of $6,882.47, including filing fees; the cost of process service, deposition fees, and deposition transcripts; expenses for records and postage; and other costs of professional services. Defendant Dalby submitted a declaration stating defendants should have received 30 percent of the $6,500 award, i.e., $1,950, but waived their fees because the amount of the settlement was less than the amount of litigation costs.

Thus, other than covering most of their costs, defendants did not receive any money from the settlement; nor did DaPrato and Gilman. According to Dalby, "[t]here were no settlement proceeds subject to any lien."

Gilman sued Dalby, her law firm, and the individual members of the firm for breach of contract, account stated, open book account, conversion, unjust enrichment, ...

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