Opinion
NOT TO BE PUBLISHED
APPEAL from the Superior Court of San Bernardino County No. SCVSS133134. Frank Gafkowski, Jr., Judge. (Retired judge of the former Mun. Ct. for the Southeast Jud. Dist. of L.A., assigned by the Chief Justice pursuant to art. VI, § 6 of the Cal. Const.)
Law Office of Alastair R. McCloskey and Alastair R. McCloskey for Defendants and Appellants.
Westphal Law Group and Wesley B. Westphal for Plaintiff and Respondent.
OPINION
McKinster, J.
Defendant and appellant Frank Ennix is a licensed attorney who was representing Donyel Johnson in a personal injury action. Johnson and defendant signed a lien agreement for chiropractic treatment from plaintiff and respondent Phillips Chiropractic, Inc. (Phillips), a corporation operated by Dr. Marvin Phillips, D.C. (Dr. Phillips). After defendant received settlement moneys from the tortfeasor, Phillips demanded that its lien be paid. Phillips sued both Johnson and defendant for payment for the chiropractic services it had rendered. The trial court found defendant liable under the lien agreement; defendant had failed to interplead the settlement funds with the court. Defendant appeals, urging that the court erred in finding him jointly and severally liable to pay the chiropractic treatment fees. We modify the judgment and affirm.
FACTS AND PROCEDURAL HISTORY
In March 2004, Johnson was severely injured in an automobile crash, when her vehicle was broadsided by an SUV. Johnson retained defendant to represent her in an action against the other driver. Johnson sought treatment with Phillips for injuries to her low back, neck and shoulder. Before treatment began, Johnson signed a lien agreement with Phillips, authorizing payment of the doctor’s treatment bills from any judgment or settlement proceeds, and agreeing to be directly responsible for all Phillips’s treatment bills. Defendant, as Johnson’s attorney, also signed the lien agreement, agreeing to “observe all the terms of this lien stated above and agree[ing] to withhold and pay directly and promptly to Dr. Marvin Phillips such sums in full as may be due and owing him from any payments, settlement, judgment or verdict as may be necessary to adequately protect and fully compensate said Doctor.”
Dr. Phillips treated Johnson for several months in 2004. Dr. Phillips took X-rays, applied electrical stimulation to areas such as the thoracic and lumbar spine, performed ultrasound on the left shoulder and left knee, applied traction to the cervical and lumbar spine and did chiropractic manipulations. Phillips’s billings ultimately totaled $10,186.
The tortfeasor apparently carried only the minimum required insurance; the tortfeasor’s insurance carrier settled for the policy limits of $15,000. Defendant paid himself his attorney fee of $5,000 and advised Phillips that he had a balance remaining of $10,000 to divide among the various medical providers and lien holders.
The special damages claims included: Doctor’s Medical Center of Montclair, $1,129.30; Pinnacle Medical Group, $215; Millennium Imaging, $3,426; Dr. Kenneth Burres, $440; Dr. Bijan Zardouz, $1,609.18; Millennium Imaging, $1,533; Dr. Michael Minehart, $2,960; Santa Teresita Hospital, $3,413.55; Dr. Sharon Choi, $800; Neuro Surgical Associates, $6,279.81; Loma Linda University Medical Center, $77,192.81; Phillips Chiropractic, $10,186; totaling $109,184.65.
Johnson was unhappy with the progress of the chiropractic treatments. Although Dr. Phillips reported improvement in Johnson’s various conditions, Johnson still complained of low back pain and numbness in her legs. She consulted with Dr. Burres, who reported that Johnson had failed to improve on conservative therapy and recommended that she was a candidate for surgery. Johnson apparently underwent surgery in October 2004, and still experienced low back pain and left leg numbness, with the addition of new numbness in her right leg, which she had not experienced before the surgery.
Dr. Phillips reported that, as of Johnson’s last treatment visit, in September 2004: “1. Headaches 70 percent improved. [¶] 2. Neck pain 40-50 percent improved. [¶] 3. Left shoulder pain 75 percent improved. [¶] 4. Left arm pain 70 percent improved. [¶] 5. Midback pain 30 percent improved. [¶] 6. Low back pain 20 percent improved. [¶] 7. Left leg numbness 60 percent improved. [¶] 8. Left knee pain 60 percent improved. [¶] 9. Chest pain 80-85 percent improved. [¶] 10. Loss of appetite. Same as initial visit.” (Capitalization altered.)
According to defendant, because Johnson did not feel she was improving with chiropractic treatment, defendant instructed Dr. Phillips to stop the treatments. At that time, Phillips’s billings totaled about $7,000. Dr. Phillips purportedly refused and insisted on continuing treatment. Then, Dr. Phillips allegedly refused to release Johnson’s records and to render a report unless Johnson returned for still more treatments. At that time, Phillips’s billings totaled about $8,000-$9,000. Defendant took the view that Dr. Phillips had improperly run up his bill, and was unreasonable in compromising on the distribution of the limited settlement funds.
Defendant had proposed a settlement under which Phillips would receive $3,500 of the $10,000 insurance funds. Phillips countered with $6,000. Johnson refused this proposal because she felt that Dr. Phillips had not significantly helped her, and he had forced her to take treatments she did not want. Phillips then offered to compromise its lien for $9,000. Defendant rejected this proposal as not a proportionate amount of the settlement funds.
Phillips then filed the instant suit against both Johnson and defendant. The complaint alleged causes of action for conversion, unjust enrichment, money had and received, constructive trust and breach of contract. The complaint sought the full amount of Phillips’s bill, $10,186, plus interest, punitive damages and costs and attorney fees. Defendant and Johnson filed their answer.
At a court trial, the only witnesses were Johnson, defendant, and Dr. Phillips.
Defendant proffered two theories of defense: first, Phillips’s bill was unreasonable, and the amount should be reduced. Dr. Phillips should have stopped treatment near the end of June 2004. Johnson had reported little improvement; Dr. Burres had opined that she was a candidate for surgery for her low back, which was her major complaint. Defendant asked for Dr. Phillips’s report and bill and sent a letter on July 9, 2004. Dr. Phillips had refused to discharge Johnson from treatment, however. According to defendant, Dr. Phillips essentially held the reports and records hostage to his continued treatment of Johnson.
Defendant’s other line of defense was that the lien agreement did not impose personal liability on him to pay Phillips’s bill.
Johnson’s testimony agreed with defendant’s, that she asked Dr. Phillips to stop treatment after she was cleared by Dr. Burres for surgery. She had treated with Dr. Phillips immediately after the accident, but noted little improvement. After Dr. Burres found that Johnson was a candidate for low back surgery, Johnson’s major complaint, she saw no need to continue chiropractic treatments. Dr. Phillips refused to release her paperwork on her and her attorney’s request to end treatment. Johnson testified that defendant “told me the only way to complete my case is to be going to the doctor until he releases my medical records.”
Dr. Phillips testified that he had provided treatment to several parts of Johnson’s body in addition to her low back. After Johnson received a referral for surgery on her back, she had to wait for several months for the surgery to be scheduled. Dr. Burres, the recommending surgeon, did not perform surgery on a lien (delayed payment) basis. In the meantime, Dr. Phillips continued treatments to maintain Johnson’s physical condition and her fitness as a surgical candidate. Despite Johnson’s testimony that she had felt no benefit from the chiropractic treatments, and even though Johnson’s low back was the least improved area, Dr. Phillips’s report indicated significant benefit and general resolution of other areas of treatment, such as the neck and shoulder.
Dr. Phillips conceded that defendant was entitled to take his attorney fees from the settlement funds, leaving $10,000 which was subject to the lien.
Defense counsel argued that, although Johnson, the patient, remained personally liable to pay in full for the treatment she received, defendant, as the patient’s attorney, had no personal liability. Defendant had deposited the settlement funds into his trust account. The defense also argued that Phillips’s bill was excessive.
The trial court determined that “the lien agreement does not create an obligation on the part of [defendant] to be responsible for the bill. It is not ‘I will pay it if she doesn’t pay it,’ it is not one of those kinds of liens.... [¶] This lien that he signed... promises to do his best efforts to see that the services are paid for; it is not a guarantee, it is a promise to make a good effort to see that the doctor is taken care of.” The court found that the entire amount of the bill was reasonable; Johnson had received over 20 treatments after the point at which Dr. Burres had found her a candidate for surgery. It was reasonable to continue treatments to maintain Johnson’s condition until surgery for her low back could be arranged, and Dr. Phillips also treated Johnson’s complaints and symptoms besides the low back. The meager amount of the settlement put defendant “in a pickle. Unfortunately, he should have deposited the money in the court, named them all and let them fight over the scraps, but he didn’t do that so to that extent, he is responsible; he broke his contract with the lien holder so to speak, the doctor, and both [defendant] and [Johnson] are jointly and sever[al]ly responsible for this obligation, $10,186 and that will be the court’s judgment.”
Defendant appeals from the judgment.
ANALYSIS
I. Standard of Review
The facts as to defendant’s liability under the lien agreement are essentially undisputed. It is the legal effect of those facts which is in dispute. The issue is therefore one of law which we review de novo. (Ghirardo v. Antonioli (1994) 8 Cal.4th 791, 799; California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699.)
II. The Court Properly Found Defendant Liable on the Lien
Defendant urges that this case is controlled by Kaiser Foundation Health Plan, Inc. v. Aguiluz (1996) 47 Cal.App.4th 302 (Kaiser), and the foundational case of Miller v. Rau (1963) 216 Cal.App.2d 68 (Miller), which hold that “an attorney on notice of a third party’s contractual right to funds received on behalf of [a] client disburses those funds to [the] client at his [or her] own risk.” (Kaiser, at p. 305, citing Miller, at p. 68.)
Here, so far as the evidence shows, defendant held the settlement funds in his trust account. He did not wrongfully disburse the funds, as he did not disburse them to anyone, aside from taking his fee. Thus, he argues, he complied with the principles of Miller and Kaiser, and therefore has no liability to Phillips.
The lien for attorney fees was created when the fee agreement was executed (Cetenko v. United California Bank (1982) 30 Cal.3d 528, 534), and is prior to any later liens on the settlement proceeds. (Waltrip v. Kimberlin (2008) 164 Cal.App.4th 517, 525.) The portion of the settlement proceeds earned by and belonging to defendant, as the attorney, became fixed when defendant received the tortfeasor’s insurance policy limits. Defendant was duty bound not to commingle the fixed earned fees belonging to him with the remainder of the funds belonging to the client, and was required to remove the $5,000 attorney fees from the trust account at the earliest reasonable moment. (Rules Prof. Conduct, rule 4-100(A)(2); see Hooser v. Superior Court (2000) 84 Cal.App.4th 997, 1008.) The maximum amount that defendant held in trust for Johnson was therefore $10,000.
In Miller, supra, 216 Cal.App.2d 68, the plaintiff agreed with an aviation company (Aivex) to go in together on a joint venture purchase of some World War II airplanes. Aivex entered into a separate partnership agreement with Louis Cohen to raise funds to purchase the airplanes. Cohen, in turn, was actually acting for both himself and for another, David Bright, who was Cohen’s silent partner. (Id. at pp. 72-73.)
Defendant Rau was the attorney for Cohen and Bright; he never represented either Aivex or the plaintiff. The airplanes were sold, and the buyer made payments to Bright, to Rau, and to Aivex, and a third payment to Rau and Aivex. (Miller, supra, 216 Cal.App.2d at p. 74.) Aivex endorsed the joint checks, payments 2 and 3, and Rau held the funds in his trust account. Under the original joint venture agreement between the plaintiff and Aivex, the plaintiff was entitled to $30,264.98. Rau had received over $112,000 in payments 2 and 3. The plaintiff notified attorney Rau of his joint venture ownership interest in the airplanes and instructed attorney Rau not to disburse the funds without the plaintiff’s written consent. Despite this notice of the plaintiff’s ownership interest in the airplanes, Rau distributed the funds to Aivex under the partnership agreement between Aivex and Cohen. (Id. at pp. 73, 74.) The plaintiff brought an action for money and for an accounting against Rau. (Id. at p. 72.) The trial court gave judgment for the plaintiff against Rau for the entire amount of plaintiff’s share of the profits from the sale of the airplanes, or $30,264.98. (Id. at pp. 74-75.) The Court of Appeal affirmed, holding that Rau was properly held liable for converting the plaintiff’s interest in the airplanes. “Rau’s alternatives on being given notice by [the plaintiff] of (1) the latter’s claimed interest; (2) pendency of litigation; (3) [the plaintiff’s] claim of not being bound by the Aivex-Cohen partnership agreement; (4) [the plaintiff’s] notice that disbursement of sale proceeds required his written approval, were either (a) commencement of an action in interpleader, or (b) a decision on his (Rau’s) own as to whom to distribute the proceeds. He chose the latter course, but in so doing he took the risk of having to pay the person rightfully entitled to the funds if it turned out that the person to whom the distribution was made was not rightfully entitled thereto. [Citation.]” (Id. at p. 76.)
Defendant here contends that he complied with the rule in Miller: “‘There was nothing in the defendant’s status as attorney for [his client]... which made it his duty to pay to his client money which he knew... belonged to plaintiff. [Citations.] The defendant had complete control over the money. It was his duty to hold for the plaintiff so much of the proceeds... as represented the plaintiff’s known interest in it.’ (Italics added.)” (Miller, supra, 216 Cal.App.2d at p. 76.) Defendant insists that he properly “‘h[e]ld for [Phillips] so much of the proceeds,’”—i.e., the $10,000—“‘as represented [Phillips’s] known interest in it.’” (Ibid.)
Nevertheless, defendant here was properly held liable for conversion. He may not simply hold the funds in perpetuity, and never disburse them to anyone. To refuse to disburse the funds to a rightful claimant is to exercise control and dominion over the money. (See Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 451-452 [“‘Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff’s ownership or right to possession of the property at the time of the conversion; the defendant’s conversion by a wrongful act or disposition of property rights; and damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use.’”].)
Thus, although defendant initially complied with Miller, in that he did not wrongfully disburse the funds to others, he still failed to comply by failing to interplead the disputed funds. Defense counsel at trial acknowledged as much in closing argument: “But I don’t think there is any personal liability that inures to [defendant]. Again, he had a contractual relationship with his client. He also had liens that he had signed with some of the other medical providers and he deposited the money in his trust fund. If there was a dispute then, of course, the other lien holders could file an action against the client and as in this case also against [defendant] and he could put the money up at that time.” (Italics added.) Mystifyingly, however, although a dispute did arise and a lien claimant did file an action against both Johnson and defendant, defendant never “put the money up” at any time.
Interpleader is an equitable action. (Virtanen v. O’Connell (2006) 140 Cal.App.4th 688, 698.) Defendant could have initiated the action himself and compelled the various lien claimants to sort the matter out, or he could have raised the matter in the action below, via cross-complaint. (Code Civ. Proc., § 386.) He could have deposited the disputed $10,000 into the court and thus discharged his liability.
Kaiser, supra, 47 Cal.App.4th 302, does not aid defendant. It simply reaffirms the Miller rule. In Kaiser, an injured motorcyclist incurred $23,070.26 in medical expenses, which Kaiser had paid. The motorcyclist hired attorney Aguiluz to sue the other driver. The injured motorcyclist had promised to reimburse Kaiser for the treatment costs from any judgment or settlement. The case eventually settled for $85,000. (Kaiser, at p. 304.) The attorney disbursed the entire amount of the settlement proceeds without protecting Kaiser’s equitable lien. (Id. at pp. 304, 307.)
Kaiser sued the motorcyclist and the attorney for breach of contract and constructive trust, and obtained a judgment for the $23,070.26. Essentially assuming that the equitable lien as between Kaiser and the motorcyclist was enforceable against the attorney, the Court of Appeal applied the Miller rule: by failing to hold or interplead the settlement funds, the attorney had taken the risk of having to pay the person rightfully entitled to the funds. The attorney had ample notice of Kaiser’s equitable lien and in fact had negotiated with Kaiser to compromise the amount of reimbursement. (Kaiser, supra, 47 Cal.App.4th at pp. 305, 307.)
Here, again, defendant had ample notice of Phillips’s lien, as well as other liens. While he has not wrongfully disbursed the funds to another, he has wrongfully refused to disburse the funds to a proper claimant.
Farmers Ins. Exchange v. Smith (1999) 71 Cal.App.4th 660 likewise offers defendant no comfort. In Farmers, Division Three of this Court took issue with the assumption in Kaiser that an equitable lien applied where the attorney held settlement proceeds and remitted them to the injured client, when the client owed a contractual obligation to his or her own insurer to reimburse the insurer for medical expenses paid. In other words, “[a]n insurer does not detrimentally rely on anything when it makes first party medical payments to one of its policyholders as a result of an auto accident. It is just doing what it contracted to do. Nor is a policyholder’s attorney unjustly enriched when he or she remits money to the client that the client is entitled to under the attorney-client agreement. The contractual relationship created by an insurance policy is between the insurer and the insured, not the insured’s attorney. The simple fact that an insurance policy obligates the policyholder to reimburse the insurer for first party medical payments later recovered from a third party does not create an independent obligation on the part of the insured's attorney to ‘insure’—for want of a better word—that the client lives up to his or her obligation. The attorney is not the client’s keeper.” (Id. at p. 662.)
Here, we are not dealing with first party insurance or with an equitable lien existing as between an injured policyholder and his or her own insurer. A first-party insurer pays the medical provider, on the agreement (terms of the policy) that the policyholder will reimburse the insurer out of any litigation proceeds. The attorney for the policyholder has no contractual relationship with the insurer and has made no promise to reimburse the insurer. Here, by contrast, we are dealing with a lien agreement with a direct medical provider; the provider has rendered services and has never been paid. The lien is express as to both the patient/client and the attorney, although the terms of the express lien are somewhat different as to each. While an attorney who receives settlement funds may not be co-opted into becoming a money collector or enforcer as between the client/insured and the client’s own insurance company, here defendant expressly and independently undertook to enforce the medical lien against the settlement proceeds.
Because of defendant’s express agreement to honor the terms of the lien agreement between Johnson and Phillips, defendant may properly be held liable for breach of that agreement. Although defendant may not have wrongfully disbursed the funds to another, he has wrongfully withheld the funds from the claimant. Although defendant could have interpleaded the funds defensively, to avoid multiplicity of suits over the many lien claims on the same fund (City of Morgan Hill v. Brown (1999) 71 Cal.App.4th 1114, 1122 [“The purpose of interpleader is to prevent a multiplicity of suits and double vexation”]), he elected not to do so. The trial court therefore properly gave judgment for Phillips against defendant.
III. Defendant Was Liable Only to the Extent of the Funds Subject to the Lien
The trial court held Johnson and defendant jointly and severally liable to Phillips for the entire amount of Phillips’s bill, $10,186. This was error. The only promise defendant made to Phillips was to honor the lien against the recovery from the tortfeasor. The fund subject to the lien was limited to $10,000; defendant’s own lien for his attorney fees had priority over the medical provider liens, and he properly removed $5,000 from the $15,000 recovered. The $15,000 sum represented the policy limits of the tortfeasor’s automobile insurance. Thus, the maximum amount available and subject to the medical provider liens was $10,000. As the trial court expressly recognized, defendant had given no guaranty, and had not promised to pay Phillips’s bill if Johnson did not. Even if Johnson remained responsible for the entirety of Phillips’s bill, defendant did not.
The trial court therefore erred in giving judgment of joint and several liability for the entire amount of $10,186. As the court below noted, defendant “should have deposited the money in the court, named them all and let them fight over the scraps, but he didn’t do that so to that extent, he is responsible....” (Italics added.) The extent of defendant’s responsibility was $10,000. We order the judgment modified to reflect this limit on defendant’s joint and several liability to Phillips.
DISPOSITION
The judgment is modified, as to defendant Frank M. Ennix only, to reflect damages payable to Phillips in the amount of $10,000. In all other respects, the judgment remains unchanged. As so modified, the judgment is affirmed. Respondent is awarded its costs on appeal.
We concur: RAMIREZ, P. J., MILLER, J.
The providers that had lien agreements were: Dr. Burres, $440; Dr. Choi, $800; Millennium Imaging, $3,426 & $1,533; Pinnacle, $215; Dr. Minehart, $2,960; Phillips, $10,186; Dr. Zardouz, $1,609.18; totaling $19,651.51 ($9,465.51 in addition to Phillips’s $10,186 claim).
As of the date of Johnson’s last examination, in February 2005, after surgery in October 2004, Johnson suffered: “1. Low back pain. Worse than on 9/20/04. [¶] 2. Left leg numbness. Worse than on 9/20/04. [¶] 3. Right leg numbness. New complaint since 9/20/04. [¶] 4. All other complaints same as on 9/20/04.” (Capitalization altered.)