Existence of Outstanding Medicare Lien Not Sufficient to Stall Settlement Payment

In Keith Karpinski v. Smitty’s Bar, Inc. (No. A143381), the California Court of Appeal for the First District held that the satisfaction of statutory liens, including those imposed by Medicare, is not necessarily a condition precedent to a plaintiff’s receipt of settlement funds.

This dispute arose pursuant to a settlement agreement reached in a personal injury case involving a bar fight. The plaintiff settled with the defendant bar for $40,000, and subsequently moved for entry of judgment. The bar opposed the plaintiff’s motion, arguing that because liens had been imposed against the settlement for payments made by Medicare and the California Victims of Crime program, those entities should be included on any settlement check made out to the plaintiff. The trial court disagreed and granted the plaintiff’s motion to enforce the settlement.

On appeal, the bar argued that the plaintiff’s satisfaction of any outstanding liens related to the action was a condition precedent to his receipt of the settlement funds. The First District approached this argument by examining the pertinent terms of the parties’ agreement in order to determine their intent. The Court found the agreement provided that the plaintiff and his attorney would “negotiate, satisfy and dispose of all liens” and would indemnify and hold harmless the bar and its insurer “with respect to all past, present, and future lien claims.” It further specifically provided the plaintiff would indemnify the bar, its insurer and its attorneys from any liability for liens arising under state or federal statutes including Medicare.

In opposition to these terms, the bar directed the Court to a general provision in the agreement indicating the plaintiff had no outstanding liens related to the action, and argued such provision required any outstanding liens be resolved prior to plaintiff’s payment. The Court disagreed, finding this term was a boilerplate liens provision, and “when a general and particular provision are inconsistent, the latter is paramount to the former.” Moreover, the Court found the parties could have negotiated the inclusion of a term requiring the plaintiff to pay any liens as a precondition to his receipt of the settlement funds yet they failed to do so.

The Court also addressed the bar’s concern regarding its statutory obligation to reimburse Medicare in the event the plaintiff failed to pay the lien. Finding no California case on point, the Court followed a recent Georgia Court of Appeals decision, which held that where a plaintiff has acknowledged his responsibility to pay a Medicare lien in writing, there is no basis for the protection of such lien by making Medicare (or any government agency) a co-payee on a settlement check, as this “quite obviously is not an efficient way to resolve personal injury lawsuits.”1 As a result, the Court found no support for the bar’s position that the plaintiff must satisfy any liens prior to his receipt of settlement funds, and accordingly upheld the trial court’s judgment.

Overall, the Karpinski decision serves as an invaluable guide for settlement negotiations in California personal injury cases, indicating that any desired precondition for the payment of liens, including Medicare, should be specifically included as a term of parties’ agreements.

1Hearn v. Dollar Rent A Car, Inc. (Ga.Ct.App. 2012) 726 S.E.2d 661

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April 15, 2016