In 2009, Javier Escobar was injured in an auto accident that caused him to undergo extensive medical care at the Santa Clara Valley Medical Center - a hospital owned and operated by the County of Santa Clara (the “County”). Escobar later sued the other parties to the accident and was awarded $5.6 million. The County asserted a lien of approximately $1.25 million, which Escobar disputed on the grounds that it exceeded the reasonable value of the treatment, as established by the Workers' Compensation Appeals Board. With the dispute of the lien value ongoing, the underlying tortfeasor issued a check for the lien amount that was payable to both Santa Clara County and Escobar. Escobar refused to endorse the check over to the County, preventing the County from receiving payment. The County subsequently sued Escobar and the tortfeasor. The tortfeasor demurred on the grounds that it had issued checks to satisfy the judgment, and that it should not be a party to a dispute between Escobar and the County. The trial court sustained the demurrer, and an appeal by the County followed – captioned County of Santa Clara v. Escobar (2016) No. H038121.

On January 29, 2016, the California Court of Appeal, Sixth District, held that - at least when the lien holder is a government entity - it is improper for a tortfeasor to punt the issue of payment on the lien by issuing a single check to both claimants. The Court advised that the proper procedure would be for the conflicted tortfeasor to interplead the funds and allow the trial court to reach a determination as to the appropriate allocation of funds. Otherwise, the tortfeasor could face direct litigation from the lien holder.

Government Code Section 23004.1 provides that counties, which pay for medical treatment for a party injured by the tortfeasors “shall have a right to recover from said third person the reasonable value of the care and treatment so furnished or to be furnished, or shall, as to this right, be subrogated to any right or claim that the injured or diseased person.... In the event that the injured person, his guardian, personal representative, estate, survivors, or either of them brings an action for damages against the third person who is liable for the injury or disease, the county’s right of action shall abate during the pendency of such action, and continue as a first lien against any judgment recovered by the injured or diseased person, his guardian, personal representative, estate, or survivors, against the third person who is liable for the injury or disease….” After parsing the language of the statute, the Court of Appeal held that the law did not limit the County from asserting a claim against Escobar. Instead, it was permitted to directly sue the tortfeasor to recover the money that the tortfeasor had already paid out.

Although the case, and the underlying law, is particular to government entities holding liens, it can be instructive for all cases. While the Court of Appeal advised that the funds be interpleaded when lien amounts cannot be agreed upon, this is rarely necessary because a consensus is usually reached regarding lien values. In those instances, best practices dictate that each lien holder be issued a separate check for its share of a settlement or judgment. This takes the onus for cooperation and division away from the plaintiff, and allows the defendant to control its own circumstances by assuring that all interested parties receive payment - and most importantly, sign releases.

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