IN THE

SUPREME COURT OF THE STATE OF ARIZONA

JACKIE ABBOTT; ROBERT BERGANSKY; RAYMOND BROWN; NICHOLAS 

BIGLER; RICHARD CAMPUZANO; DALTON GORMEY; TRACY JAMES;

STEPHANIE KRUEGER; ZAINAB MOHAMED; ROBERT PIERSON; LUCAS SMITH;

ROBERT VAN STEENBURGH; AMBER WINTERS; CHRISTINA YERKEY; AND 

STEVEN YOUNG,

Plaintiffs/Appellants.

v.

BANNER HEALTH NETWORK FKA BANNER HEALTH, INC., AN ARIZONA 

CORPORATION; DIGNITY HEALTH FKA CATHOLIC HEALTHCARE WEST, A 

CALIFORNIA CORPORATION; SCOTTSDALE HEALTHCARE CORP., AN 

ARIZONA CORPORATION; NORTHWEST HOSPITAL LLC, A DELAWARE 

CORPORATION; NORTHERN ARIZONA HEALTHCARE CORP., AN ARIZONA 

CORPORATION; JOHN C. LINCOLN HEALTH NETWORK, AN ARIZONA 

CORPORATION; UNIVERSITY MEDICAL CENTER CORP., AN ARIZONA 

CORPORATION; CARONDELET HEALTH NETWORK, AN ARIZONA 

CORPORATION; TUCSON MEDICAL CENTER, AN ARIZONA CORPORATION;

ORO VALLEY HOSPITAL, LLC, A DELAWARE CORPORATION,

Defendants/Appellees,

No. CV-15-0013-PR

Filed May 23, 2016

Appeal from the Superior Court in Maricopa County

The Honorable J. Richard Gama, Judge

No. CV2012-007665

AFFIRMED

Opinion of the Court of Appeals, Division One

236 Ariz. 436, 341 P.3d 478 (App. 2014)

REVERSED

COUNSEL:

David L. Abney, Knapp & Roberts P.C., Scottsdale; Geoffrey M. 

Trachtenberg (argued), Levenbaum Trachtenberg PLC, Phoenix; and B. 

Lance Entrekin, The Entrekin Law Firm, Phoenix, Attorneys for Jackie 

Abbott, Robert Bergansky, Raymond Brown, Nicholas Bigler, Richard 

Campuzano, Dalton Gormey, Tracy James, Stephanie Krueger, Zainab 
ABBOTT v. BANNER HEALTH NETWORK

Opinion of the Court

2

Mohamed, Robert Pierson, Lucas Smith, Robert Van Steenburgh, Amber 

Winters, Christina Yerkey, and Steven Young

Richard B. Burnham, Cameron C. Artigue (argued), Christopher L. Hering, 

Gammage & Burnham P.L.C., Phoenix, Attorneys for Banner Health 

Network, Banner Health Inc., Dignity Health, Catholic Healthcare West, 

Scottsdale Healthcare Corp., Northwest Hospital LLC, Northern Arizona 

Healthcare Corp, John C. Lincoln Health Network, University Medical 

Center Corp., Carondelet Health Network, Tucson Medical Center, and Oro 

Valley Hospital, LLC

Stanley G. Feldman, Haralson, Miller, Pitt, Feldman & McAnally, P.L.C., 

Tucson; Adam Studnicki, Studnicki Law Firm, P.C., Scottsdale, and Lincoln 

Combs, Gallagher & Kennedy, P.A., Phoenix, Attorneys for Amici Curiae 

Arizona Association for Justice/Arizona Trial Lawyers Association

JUSTICE BRUTINEL authored the opinion of the Court, in which CHIEF 

JUSTICE BALES, VICE CHIEF JUSTICE PELANDER, JUSTICE TIMMER,

and JUSTICE BERCH (RETIRED) joined.

JUSTICE BRUTINEL, opinion of the Court:

¶1 Petitioners are health care providers (“Hospitals”) who 

treated patients (“Patients”) injured by third parties. The Hospitals were 

paid by the Patients’ insurer, the Arizona Health Care Cost Containment 

System (“AHCCCS”), which had negotiated reduced rates with the 

Hospitals. The Hospitals then recorded liens against the Patients pursuant 

to A.R.S. § 33-931 and A.R.S. § 36-2903.01(G) for the difference between the 

amount typically charged for their treatment and the reduced amount paid 

by AHCCCS. In order to receive their personal injury settlements with the 

third parties, Patients settled with the Hospitals by paying negotiated 

amounts to release the liens.

¶2 We assume, without deciding, that—as Plaintiffs argue—

Arizona’s lien statutes are preempted by federal law. But, because there 

was a bona fide dispute about the enforceability of these liens when the 

Patients and Hospitals entered into settlement agreements to achieve lien 

releases (“accord and satisfaction agreements” or “agreements”), the 

agreements were supported by adequate consideration and addressed a 
ABBOTT v. BANNER HEALTH NETWORK

Opinion of the Court

3

proper subject matter. Consequently, the accord and satisfaction 

agreements are valid. 

 

I. BACKGROUND

¶3 The Patients, along with other patients who did not settle with 

the Hospitals, sued to set aside the accord and satisfaction agreements and

to recover the amounts paid to release the liens. The Hospitals moved to 

dismiss the complaint against the settling Patients pursuant to Arizona Rule 

of Civil Procedure 12(b)(6) for failing to state a claim because the parties 

had reached an accord and satisfaction. The Patients responded that the 

accord and satisfaction agreements were unenforceable because they lacked

a proper subject matter and consideration. They argued that 42 U.S.C. 

§ 1396a(a)(25)(C) preempted A.R.S. §§ 33-931 and 36-2903.01, which 

authorized the Hospitals’ liens. Because the accord and satisfaction 

agreements were based on invalid liens, the Patients asserted, the 

agreements violated public policy, had an improper purpose, and lacked 

consideration. The Patients also claimed that Provider Participation 

Agreements between the Hospitals and AHCCCS required the Hospitals to

“comply with all federal, State and local laws, regulations, standards, and 

executive orders governing performance of duties under this Agreement”

and thus also prohibited the liens as “balance billing”—the practice of 

billing a patient for the difference between the providers’ customary 

charges and what AHCCCS pays for services.

¶4 The trial court dismissed the Patients’ complaint stating, “it is

irrelevant whether federal law preempts Arizona law and prohibits 

hospitals from enforcing statutory liens on AHCCCS accounts . . . [because]

[a]ccord and satisfaction does not turn on whether Plaintiffs would have 

prevailed on the merits of the dispute that was settled.” The court 

concluded that the accord and satisfaction agreements were “final and 

binding regardless of the validity of the underlying claims.”

¶5 The court of appeals reversed. Abbott v. Banner Health 

Network, 236 Ariz. 436, 448 ¶ 37, 341 P.3d 478, 490 (App. 2014). Reasoning 

that the accord and satisfaction agreements were void because federal law 

preempts the Arizona laws allowing the liens, id. at 438 ¶ 1, 341 P.3d at 480,

the court held that there was not a “good faith dispute about the 

enforceability of the lien[s],” and therefore the accord and satisfaction 

agreements lacked both proper subject matter and consideration. Id. at 446–
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Opinion of the Court

4

47 ¶¶ 30–33, 341 P.3d at 478, 489 (stating that an agreement lacks proper 

subject matter if it is illegal or against public policy). The court concluded 

that “[i]f the underlying agreement is prohibited and unenforceable, an 

accord and satisfaction based on that agreement is also unenforceable.” Id.

at 443 ¶ 20, 341 P.3d at 485.

¶6 We granted review to determine whether the accord and 

satisfaction agreements between the Patients and the Hospitals are valid, 

which is an issue of statewide importance and likely to recur. We have 

jurisdiction under article 6, section 5(3), of the Arizona Constitution and 

A.R.S. § 12-120.24.

II. DISCUSSION

¶7 We review de novo an order granting a motion to dismiss for 

failure to state a claim. Coleman v. City of Mesa, 230 Ariz. 352, 355 ¶ 7, 284 

P.3d 863, 866 (2012).

¶8 The Hospitals’ liens are authorized by A.R.S. §§ 33-931(A) 

and 36-2903.01(G)(4). A.R.S. § 33-931 is the general medical lien statute. It 

provides hospitals an “entitle[ment] to a lien for the care and treatment or 

transportation of an injured person” that

extends to all claims of liability or indemnity, except health 

insurance and underinsured and uninsured motorist coverage as 

defined in § 20-259.01, for damages accruing to the person to whom 

the services are rendered, or to that person’s legal representative, on 

account of the injuries that gave rise to the claims and that required 

the services.

A.R.S. § 33-931(A). According to § 36-2903.01(G)(4), “A hospital may collect 

any unpaid portion of its bill from other third-party payors or in situations 

covered by title 33, chapter 7, article 3.” These Arizona statutes allow a 

hospital that accepts payments from AHCCCS to file liens to collect any 

unpaid portion of its bill from third-party payors for its “customary 

charges.” A.R.S. § 33-931(C).

¶9 On the other hand, federal Medicaid law explicitly prohibits 

balance billing. Specifically, 42 U.S.C. § 1396a(a)(25)(C) provides that when 

a person receives Medicaid assistance for which a third party is liable, the 

provider
ABBOTT v. BANNER HEALTH NETWORK

Opinion of the Court

5

may not seek to collect from the individual (or any financially 

responsible relative or representative of that individual) payment of 

an amount for that service (i) if the total of the amount of the 

liabilities of third parties for that service is at least equal to the 

amount payable for that service under the plan . . . .

And pursuant to 42 C.F.R. § 447.15:

A State plan must provide that the Medicaid agency must limit 

participation in the Medicaid program to providers who accept, as 

payment in full, the amounts paid by the agency plus any deductible, 

coinsurance or copayment required by the plan to be paid by the 

individual.

Together, these federal laws prohibit a medical care provider from 

collecting from the individual receiving care the difference in the amount 

paid by Medicaid, or a state plan like AHCCCS, and the amount typically 

charged.

¶10 The court of appeals concluded that Arizona law conflicts 

with applicable federal law and is thus preempted under article VI, section

2, of the United States Constitution. But courts should not unnecessarily 

decide constitutional questions. Petolicchio v. Santa Cruz Cty. Fair and Rodeo 

Ass’n, Inc., 177 Ariz. 256, 259, 866 P.2d 1342, 1345 (1994). Deciding whether 

the Arizona hospital lien statutes are preempted is unnecessary in 

determining whether the trial court properly considered and granted

Petitioners’ motion to dismiss.

¶11 Assuming, as noted above, that federal law preempts the 

Arizona lien statutes, we turn to the validity of the accord and satisfaction

agreements. An “accord and satisfaction discharges a contractual 

obligation or cause of action when the parties agree to exchange something 

of value in resolution of a claim or demand and then perform on that 

agreement, the accord being the agreement, and the satisfaction its 

execution or performance.” Best Choice Fund, LLC v. Low & Childers, P.C., 

228 Ariz. 502, 510 ¶ 24, 269 P.3d 678, 686 (App. 2011) (quoting Vance v. 

Hammer, 105 Ariz. 317, 319, 464 P.2d 340, 342 (1970)) (internal quotation 

marks omitted). The four elements of an accord and satisfaction are (1) 

proper subject matter, (2) competent parties, (3) assent or meeting of the 

minds of the parties, and (4) consideration. Vance, 105 Ariz. at 320, 464 P.2d 
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Opinion of the Court

6

at 343. The Patients contend that the first and fourth elements are lacking 

here.

¶12 The settlement of a bona fide dispute provides consideration 

if it is made fairly and in good faith. Brecht v. Hammons, 35 Ariz. 383, 389, 

278 P. 381, 383 (1929), disapproved on other grounds, Ariz. Pub. Serv. Co. v. S. 

Union Gas Co., 76 Ariz. 373, 382, 265 P.2d 435, 441 (1954). As this Court 

stated in Brecht:

The settlement of a controversy is valid and binding, not because it 

is the settlement of a valid claim, but because it is the settlement of a 

controversy. And when such settlement is characterized by good 

faith, the court will not look into the question of law or fact in dispute 

between the parties, and determine what is right. All that it needs to 

know is, that there was a controversy between the parties, each 

claiming in good faith rights in himself against the other and that 

such controversy has been settled.

Id. On the other hand, “the surrender of a claim which is known to be 

entirely without foundation either in law or at equity does not afford a 

sufficient consideration for a compromise.” Id. at 390, 278 P. at 383. If the 

matter in controversy was fairly considered by the parties to be unsettled 

at the time of the agreements, the settlement will not be unwound, even if 

the statutory provision creating the controversy is later determined to be

invalid. Id. at 390–91, 278 P. at 383 (citing Bofinger v. Tuyes, 120 U.S. 198 

(1887)). These principles align with the general proposition that settlements 

of disputed matters are favored by the law and will be upheld if fairly 

made. E.g., Brecht, 35 Ariz. at 390, 278 P. at 383; Phillips v. Musgrave, 23 Ariz. 

591, 594–95, 206 P. 164, 165 (1922).

¶13 Brecht is instructive here. At the time of the bank failure 

underlying that case, the Arizona Constitution imposed personal liability 

on stockholders of insolvent banks. Brecht, 35 Ariz. at 385–86, 278 P. at 382.

The state sued the bank’s stockholders and obtained a judgment against 

them. Id. The stockholders then settled with the state to satisfy the 

judgment. Id. After the settlement was finalized, this Court determined 

that the provision imposing personal liability on stockholders was 

preempted by federal law. Hammons v. Watkins, 33 Ariz. 76, 87, 262 P. 616, 

620 (1927); see Brecht, 35 Ariz. at 386, 278 P. at 382. In the stockholders’

subsequent suit to unwind the settlement, we found that there was a good 
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Opinion of the Court

7

faith controversy between the parties at the time of the settlement and held 

that the settlement was therefore binding. Brecht, 35 Ariz. at 391, 278 P. at 

383–84.

¶14 The Patients argue that the Hospitals’ liens asserted under 

Arizona law are illegal under federal Medicaid law, 42 C.F.R. § 447.15 and 

42 U.S.C. § 1396a(a)(25)(C). Further, because they are illegal they cannot 

constitute a proper subject for an accord and satisfaction, and thus the

agreements lack consideration. Under Brecht, however, the pertinent 

question is whether the legality of the liens (that is, whether federal 

Medicaid law preempts the Arizona laws authorizing the liens) was 

“settled” at the time of the agreement. The Hospitals argue that since 1984, 

A.R.S. § 36-2903.01(G)(4) has allowed hospitals to enforce provider-liens 

under A.R.S. § 33-931 after accepting payment from AHCCCS, and this 

statute is presumptively valid and constitutional.

¶15 Liens such as these have been authorized by Arizona statute

for more than thirty years without an Arizona appellate court suggesting 

that enforcement of such liens is preempted by federal law. Indeed, our 

courts have found such liens valid and enforceable. See Blankenbaker v. 

Jonovich, 205 Ariz. 383, 388 ¶ 22, 71 P.3d 910, 915 (2003) (noting that “the 

lien statutes extend to health care providers . . . the ability to enforce a lien 

against those liable to the patient for damages in order to secure the 

providers’ customary charges for care and treatment of an injured person”); 

LaBombard v. Samaritan Health Sys., 195 Ariz. 543, 551 ¶ 31, 991 P.2d 246, 254

(App. 1998) (holding that liens against the tort recovery of AHCCCS 

patients are enforceable despite there being “no right to recover directly” 

from the patient).

¶16 In addition, the federal statute and regulation, 42 U.S.C. 

§ 1396a(a)(25)(C) and 42 C.F.R. § 447.15, do not specifically address the 

collection of money owed to the patient by third-party tortfeasors. Several 

courts, however, have concluded that settlement proceeds belong to the 

patient and the federal prohibitions on balance billing apply. See, e.g.,

Spectrum Health Continuing Care Grp. v. Anna Marie Bowling Irrevocable Tr.

Dated June 27, 2002, 410 F.3d 304, 315 (6th Cir. 2005) (holding “the 

enforcement of [the medical provider’s] lien on the proceeds of the 

malpractice settlement to recover the balance of its customary fee is 

prohibited by federal and state law” and “[h]aving chosen to accept 

payment from Medicaid . . . [the medical provider] abandoned all rights to 
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Opinion of the Court

8

further recovery of its customary fee from the lien”); Evanston Hosp. v. 

Hauck, 1 F.3d 540, 543–44 (7th Cir. 1993) (holding a hospital was not 

permitted to return a Medicaid payment and sue the patient for its 

customary fee, and finding that allowing the hospital to recover the 

additional sum would make Medicaid “an insurance program for hospitals 

rather than for indigent patients”). The United States District Court for the 

District of Arizona has reached the same conclusion. Lizer v. Eagle Air Med. 

Corp., 308 F. Supp. 2d 1006, 1009 (D. Ariz. 2004) (“Congress passed the 

balance billing prohibition in order to protect eligible patients from having 

to pay additional sums for services already compensated by Medicaid. The 

accompanying regulation was passed in order to ensure that this purpose 

was carried out by preventing providers from intercepting funds on the 

way to a patient.”).

¶17 But these cases are not binding on Arizona state courts, and 

at the time of the accord and satisfaction agreements here, no Arizona 

appellate court had addressed the enforceability of Arizona’s medical lien 

statutes against third-party settlements obtained by Medicaid patients. 

Thus, while federal law may preempt state law in situations like these,

1 the 

issue was not settled in Arizona when these agreements were entered into. 

The stated public policy in Arizona, as reflected by our statutes, was that 

such liens were valid.

¶18 An accord and satisfaction has proper subject matter unless it 

is founded on a contract that violates statutes or is contrary to public policy. 

See 1800 Ocotillo, LLC v. WLB Grp., Inc., 219 Ariz. 200, 202 ¶ 7, 196 P.3d 222, 

224 (2008) (“Contract provisions are unenforceable if they violate legislation 

or other identifiable public policy.”). Here, Arizona law specifically 

authorized the liens that were settled. Because the statutory policy of 

Arizona is to allow such liens, they are a proper subject matter for the 

accord and satisfaction until such time as the Arizona laws authorizing the 

liens are clearly determined to be preempted by federal law. Thus, the 

accord and satisfaction agreements had a proper subject matter. Likewise, 

 

1 While this case was pending in the court of appeals, the superior 

court granted summary judgment in favor of other plaintiffs—patients

against whom hospital liens were asserted but who had not entered into 

accord and satisfaction agreements with hospitals—determining that the 

state statutes are preempted by federal law.
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Opinion of the Court

9

the settlement of the bona fide dispute served as consideration to support

the accord and satisfaction.

¶19 The Patients also suggest that A.R.S. §§ 36-2903.01(G)(4) and 

33-931(A) are preempted because the Provider Participation Agreements 

required the Hospitals to follow federal law. This argument begs the 

question. If it was not settled that such liens were preempted as prohibited 

balance billing under federal law, it was no more settled in an agreement 

incorporating that same federal law. The terms of the Provider 

Participation Agreement do not change the fact that the accord and 

satisfaction agreements resolved bona fide disputes. 

III. CONCLUSION

¶20 Based on the bona fide dispute about the enforceability of the 

liens when the Patients and Hospitals entered into the accord and 

satisfaction agreements, these agreements were supported by adequate 

consideration and had a proper subject matter. Consequently, the 

agreements are valid, and the trial court appropriately granted Hospitals’ 

motion to dismiss. We reverse the court of appeals’ opinion and affirm the 

trial court’s dismissal of the complaint and entry of judgment in favor of

the Hospitals.