Opinion ID: 2025443
Heading Depth: 2
Heading Rank: 3

Heading: Liens

Text: ¶ 65 Liens can be equitable, see O'Connell v. O'Connell, 2005 WI App 51, ¶ 13, 279 Wis.2d 406, 694 N.W.2d 429, contractual, see Yates v. Weinhardt, 224 Wis. 496, 502, 272 N.W. 347 (1937), or statutory, see, e.g., Wis. Stat. § 757.36. An equitable lien can arise when the following elements are present: (1) a debt, duty or obligation owing by one person to another; (2) a res to which that obligation fastens; and (3) a written contract[ ] showing an intention to charge some particular property with the payment of a debt. O'Connell, 279 Wis.2d 406, ¶ 13, 694 N.W.2d 429 (quoting McIntyre, 68 Wis.2d at 602, 229 N.W.2d 613). ¶ 66 In O'Connell, a prior owner of land, Gerald, sued to recover a greater share of the proceeds from the sale of the land than the other owners, Emmett and David, received because of additional work Gerald performed, which he claimed increased the sale price. O'Connell, 279 Wis.2d 406, ¶ 17, 694 N.W.2d 429. The defense to Gerald's claim was that it should have been brought before the property sold. Id., ¶ 18. The court of appeals concluded that Gerald's claim for an equitable lien on the proceeds did not have to be brought until the sale proceeds were received; and therefore, he could seek disproportionate reimbursement from the proceeds pursuant to Wis. Stat. § 842.02. Id. Under Wisconsin law, an equitable lien relates back to the time it was created by the parties' conduct. See In re Stoffregen, 206 B.R. 939, 944 (Bankr.E.D.Wis.1997). ¶ 67 Here, all the elements necessary for an equitable lien to attach to the settlement proceeds are present. First, it is undisputed that Hernandez had a debt to Yorgan for the chiropractic services he provided at the time that Hernandez's personal injury claim settled. Second, it is undisputed that settlement proceeds were obtained from Hernandez's personal injury claim and that the medical care Yorgan provided as a result of Hernandez's injury in the accident played a part in that settlement. Third, it is undisputed that Hernandez executed a written document that purported to assign her interest in the settlement proceeds and to create a lien on those proceeds, to the extent of the debt for the chiropractic services Yorgan provided. [6] Therefore, the only ways in which Yorgan would not have an equitable lien that is legally enforceable against the settlement proceeds is if the lien Hernandez granted to secure payment of the assignment did not attach to the settlement proceeds or it was not lawful in Wisconsin for some other reason. ¶ 68 I begin by examining whether proceeds to be received from a personal injury claim can constitute a res to which an equitable lien can attach. In Riegleman, the court of appeals held that a very similarly stated agreement did not create an equitable lien because there is no evidence that the personal benefit [Krieg] derived from the [medical] services provided by [the chiropractor] enhanced the value of the insurance settlement proceeds. Riegleman, 271 Wis.2d 798, ¶ 25 n. 4, 679 N.W.2d 857 (quoting In re Harris, 50 B.R. 157, 160 (Bankr.E.D.Wis.1985)). The court of appeals' conclusion is erroneous for two reasons. First, the lien in Riegleman was a contractual lien, as well as an equitable lien, yet the court ignored that basis for enforcement. [7] Second, an equitable lien arises under Wisconsin law when there is a written contract that demonstrates the parties' intent to satisfy a debt from a particular property. McIntyre, 68 Wis.2d at 602, 229 N.W.2d 613. Although contribution to an increase in value of the asset to which the lien attaches can be a rationale for creation of an equitable lien, it is not a prerequisite. O'Connell, 279 Wis.2d 406, ¶ 13, 694 N.W.2d 429. ¶ 69 A review of McIntyre is helpful to my analysis. There, a son and a mother had an agreement that at the time the mother sold her property, the son would receive a sum from the sale proceeds. McIntyre, 68 Wis.2d at 599, 229 N.W.2d 613. We analyzed whether the son had an equitable lien that could be enforced against subsequent purchasers. Id. at 600-03, 229 N.W.2d 613. We concluded that there was no equitable lien because at the time that the interest was conveyed, the mother did not owe the son for a debt then in existence. Id. at 602, 229 N.W.2d 613. Therefore, an element necessary to creating an equitable lien was not present, and accordingly, there was no enforceable lien. Id. at 602-03, 229 N.W.2d 613. ¶ 70 However, before reaching that conclusion, we discussed some of the arguments advanced by the parties. We concluded that although some liens are controlled by specific statutes that detail how lien priorities are to be ordered and how the right to pursue them arises, Wisconsin courts have recognized that notice of an existing lien given to a third party to whom the property is transferred can make that lien enforceable against the property after the transfer. See id. at 600-01, 229 N.W.2d 613; see also Carefree Homes, Inc. v. Prod. Credit Ass'n of Madison, 81 Wis.2d 541, 551-54, 260 N.W.2d 759 (1978). ¶ 71 In my view, the reasoning in Berkowitz v. Haigood, 256 N.J.Super. 342, 606 A.2d 1157, 1159-60 (1992), [8] is persuasive (concluding that where a patient made a clear and unequivocal assignment and gave a lien on future litigation proceeds to the treating chiropractor, and the attorney had knowledge of that lien, the lien was enforceable). [9] In Berkowitz, the attorney who handled the lawsuit did not sign the documents that purported to create an assignment of and a lien against the proceeds from a personal injury claim. Notwithstanding the lack of the attorney's signature, the court held the lien valid by using the following principles to analyze it: (1) settlement proceeds and proceeds derived from a judgment for a personal injury claim are assignable; (2) a valid assignment must contain clear evidence of the intent to transfer the person's rights and `the subject matter of the assignment must be described sufficiently to make it capable of being readily identified'; (3) [t]he assignment must be clear and unequivocal in order to be effective as to the obligor; (4) the obligor must be properly notified of the existence of the assignment; and (5) when notified of the assignment, the obligor is charged with the duty to pay the assignee, thereby giving effect to the lien on the proceeds. Berkowitz, 606 A.2d at 1159 (quotation and citations omitted). ¶ 72 All of the factors identified in Berkowitz are present here. First, the settlement proceeds from Hernandez's claim were assignable under Wisconsin law. Second, the plain wording of the contract between Yorgan and Hernandez evinces a clear intent to transfer Hernandez's rights in the settlement proceeds to the extent of the medical care Yorgan provided. Third, the unambiguous language of the assignment was clear and unequivocal. Fourth, Durkin was properly notified of the existence of the assignment and the lien through the copy of the contract he was provided more than two years before he settled Hernandez's lawsuit. Fifth, once notified of the assignment and lien, Durkin became an obligor with respect to his handling of the settlement proceeds. ¶ 73 In my view Yorgan also had a contractual lien. The contractual lien given here is little different from the lien one gives to a bank in the form of a mortgage in exchange for money to purchase a home. [10] What is necessary is offer, acceptance, consideration and a clear intent to place a lien on a particular property. Yates, 224 Wis. at 500-02, 272 N.W. 347. On its face, the contract between Hernandez and Yorgan satisfies the requirements necessary to creating a contractual lien. Also, Durkin does not claim that any of the elements necessary to creation of a contractual lien are missing here, nor does he assert that he did not have notice of the lien. Accordingly, under either the theory of an equitable lien or the theory that Yorgan had a contractual lien, Yorgan had a lien against the settlement proceeds that Durkin received. ¶ 74 Durkin was not free to deal with the settlement proceeds as though no lien existed. According to these facts, Yorgan had the right to enforce the lien against the settlement proceeds before Hernandez or Durkin was paid from them. See Stoffregen, 206 B.R. at 944. When Durkin distributed the settlement proceeds to himself and to Hernandez, he did what he had no lawful right to do. [11] ¶ 75 The majority opinion begins its analysis by looking to Riegleman. It points out a difference between the facts of Riegleman, and those of the case at bar: in Riegleman, the attorney signed the agreement and thereby assented to the terms of the agreement. Majority op., ¶ 14. Here, Durkin did not sign the agreement between Hernandez and Yorgan. However, Riegleman does not suggest that the signature of an attorney is necessary to concluding that an assignment is valid, but rather, it applied a basic contracts analysis that first determined whether the attorney was a party to the contract to pay the chiropractor, and then it addressed the obligations that followed from its initial conclusion. Riegleman, 271 Wis.2d 798, ¶ 27, 679 N.W.2d 857. And, as explained above, Riegleman relied on Berkowitz where the assignment was not signed by the attorney. Id., ¶ 28, 606 A.2d 1157. However, the focus of this case is not whether Durkin contracted to pay Yorgan. Rather, the case turns on the legal sufficiency of Hernandez's contract with Yorgan, which assigned him an interest in the settlement proceeds and gave him a lien on those proceeds to secure payment for the medical care she received. ¶ 76 The majority provides three reasons for concluding that Yorgan's lien was not enforceable. I address them in turn. The majority first concludes that it is inappropriate to permit Yorgan to enforce his lien against Durkin because it was Hernandez, and not Durkin, who was unjustly enriched. Majority op., ¶ 39. The majority opinion places undue weight on that consideration. As we have shown and as the majority acknowledges, there is an accepted three-part test that courts are to apply to conclude that an equitable lien has been established; unjust enrichment is not required to establish an equitable lien. To the contrary, we have on multiple occasions analyzed lien claims and unjust enrichment claims in the same case with separate and distinct reasoning. See Carefree Homes, 81 Wis.2d at 545-49, 260 N.W.2d 759; see also Rock River Lumber Corp. v. Universal Mortgage Corp. of Wis., 82 Wis.2d 235, 239-41, 262 N.W.2d 114 (1978); S & M Rotogravure Serv. v. Baer, 77 Wis.2d 454, 461-63, 252 N.W.2d 913 (1977). ¶ 77 The majority also concludes that enforcing an equitable lien in this matter would seem to circumvent the general rule against attorney non-liability to third parties. Majority op., ¶ 39. I disagree. The policy of attorney non-liability to third parties has nothing to do with whether Yorgan has an equitable or contractual lien that is enforceable against the proceeds from Hernandez's settlement. The majority opinion's reliance on this theory is misplaced because allowing Yorgan to enforce a lien against the settlement proceeds that Durkin received is little different from permitting enforcement against settlement proceeds in the hands of an insurance company who has notice of an assignment and lien on them. See Associated Hosp. Serv., Inc. v. Milwaukee Auto. Mut. Ins. Co., 33 Wis.2d 170, 173-74, 147 N.W.2d 225 (1967) (concluding that a contract which provided for repayment of medical expenses paid on behalf of an insured, from any recovery obtained from a third party, was valid). In either case, when the holder of the funds is on notice of a claim to their ownership, it can pay the funds into court and ask for a declaratory judgment sorting out how the proceeds are to be distributed. ¶ 78 Finally, the majority explains that the enforcement of a lien against the proceeds Durkin received would circumvent the legislature's policy choice as reflected in existing statutory lien provisions for health care providers, which do not cover the situation before us. Majority op., ¶ 40. The majority's conclusion is that if the legislature intended a claim like Yorgan's to be enforceable under a lien theory, the legislature would have drafted a statute that addressed such a claim. I disagree that the legislature's creation of the statutory provision that provides for certain liens precludes a broader common law or equitable claim. See Stasey v. Miller, 168 Wis.2d 37, 60, 483 N.W.2d 221 (1992) (stating that [t]his court has recognized the existence, independent of statute, of common law charging liens that secure an attorney's payment from the proceeds of a judgment (footnote and citations omitted)). ¶ 79 As I explained earlier, public policy considerations strongly bolster the outcome that I advance. Yorgan provided needed medical care to a patient who was not able to pay for the care at the moment when she was most in need of care. The need for medical care arose out of the same accident as did the settlement proceeds. As is the case in most personal injury cases, Hernandez did not receive compensation immediately after the accident. This was despite the fact that she chose to settle short of trial. Without the promise to pay Yorgan from what she expected to receive from her claim, Hernandez was unable to pay for the care she received. Furthermore, as the majority itself acknowledges, it is not good policy to discourage health care providers from entering into agreements with patients for deferred payment. In a day and age when health care is expensive and options for the uninsured are few, that is a troubling outcome. In my view, other public policy reasons cited by the majority in support of its decision do not outweigh these pressing concerns.