Wednesday, April 21, 2021

FYI: Ill App Ct (1st Dist) Holds Assignment of Medical Lien to Funding Company Unlawful

The Appellate Court of Illinois First District, Sixth Division, recently reversed in part and affirmed in part a trial court's dismissal of a putative class action plaintiff's claim that one of the defendants, a healthcare provider from whom the plaintiff received medical treatment following a personal injury, attempted to unlawfully assign its statutory lien against the plaintiff's personal injury settlement to the other defendant, a financial services company and non-healthcare provider.

 

The Court held that the plaintiff had adequately alleged that the defendants' improper use of the lien procedure deprived her of a right she would otherwise have enjoyed -- namely, the right to presently possess her settlement proceeds -- and remanded back to the trial court for further proceedings.

 

A copy of the opinion is available at:  Link to Opinion

 

In 2016, the plaintiff suffered personal injuries in a vehicular accident and sought treatment from the first defendant, a provider of physical therapy services. In 2017, the first defendant sent a notice of medical lien to the plaintiff's personal injury attorney.

 

In the notice of medical lien, the first defendant claimed a lien in the amount of $11,943.00, the charges for healthcare services provided to the plaintiff, against any recovery she might obtain from the unnamed party or parties responsible for her injuries.

 

A little over two months later, the plaintiff's attorney received another letter from the first defendant, stating in part, "we have partnered with [the second defendant, a billing company] to manage the medical receivable(s) listed" and "from this day forward we ask that you correspond with them as it relates to obtaining lien satisfaction payoff amounts."

 

On the same day, the plaintiff's attorney received a new notice of medical lien from the second defendant, which stated that "the second defendant is now the billing company for the above and has taken assignment for a medical lien in the amount of $11,943.00 for services rendered to [the plaintiff]."

 

Seeking to represent a nationwide class of similarly situated individuals who, in or after 2013, had been served with notices regarding liens purportedly assigned to the second defendant, the plaintiff asserted claims against the defendants for (1) violation of the Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815 ILCS 505/1 et seq.), (2) unjust enrichment, (3) injunctive relief, (4) negligence, (5) negligent misrepresentation, and (6) declaratory relief.

 

The plaintiff alleged that by serving unauthorized notices of assigned liens, the defendants had misrepresented or concealed from her and the proposed class that (1) the first defendant had no authority to assign its liens and (2) the second defendant, as a non-health care provider, had no authority to serve or present notice of a lien under 10(e) of the Health Care Services Lien Act (Lien Act) to the Plaintiff for payment.

 

The trial court granted the defendants' motion to dismiss. With respect to her consumer fraud claim, the trial court concluded, among other things, that any omission on the defendants' part regarding the legality of the lien assignment was immaterial because the plaintiff still owed money for the services she had received. The trial court also concluded that, absent any attempt to enforce the lien, the defendants had not been unjustly enriched at the plaintiff's expense. And the trial court agreed with the defendants that the plaintiff's claims for negligence and negligent misrepresentation were barred by the economic loss doctrine.

 

The trial court also dismissed the plaintiff's equitable claims, noting that an injunction is "not a [separate] cause of action." Plaintiff's request for declaratory relief was also improper, the trial court concluded, because she was asking the court "to determine [that] what ha[d] already occurred was wrong, not to… set the stage for going forward." The trial court believed that "[t]he most straightforward way to address this" was for the plaintiff to avail herself of the lien adjudication procedure provided for in the Lien Act. 

 

After the trial court denied her motion to vacate or reconsider and her motion to amend the complaint, the plaintiff timely appealed.

 

The plaintiff's claims stemmed from her allegation that section 10(e) of the Lien Act prohibits the assignment of health care services liens to third parties. Section 10(e) provides that "[p]ayments under [health care services] liens shall be made directly to the health care professionals and health care providers," 770 ILCS 23/10(e). Section 10(e) lacks any provision expressly allowing for the assignment of such liens.

 

In support of this reading of the statute, the plaintiff cited Wilson v. F.B. McAfoos & Co., 344 Ill. App. 3d 452, 457 (2003), where the court held that liens under the Physicians Lien Act (770 ILCS 80/0.01 et seq.), a precursor to the Lien Act, were not assignable as a matter of law. Wilson, 344 Ill. App. 3d at 457.

 

The Appellate Court agreed with the plaintiff's reading of the Lien Act and noted that the defendants and the trial court appear to have also recognized that a lien assignment from the first to the second defendant would have been invalid.

 

However, in the trial court's view, this would not give rise to a claim if the plaintiff suffered no harm from the assertion of an invalid assignment. The First Appellate District, however, held that the plaintiff properly alleged that she was damaged by the fact that an invalid lien was used to deprive her of money that she was entitled to possess (subject to the right of the holder of the debt to take other legal action to collect it) because as long as that lien was pending, her lawyer was required to hold that money in his IOLTA account.

 

The Appellate Court concluded that this is the sort of harm that equitable relief is intended to address. A party seeking a permanent injunction must demonstrate "(1) a clear and ascertainable right in need of protection, (2) irreparable harm if injunctive relief is not granted, and (3) no adequate remedy at law." Sparks v. Gray, 334 Ill. App. 3d 390, 395 (2002).

 

The Appellate Court reasoned that the plaintiff had alleged a clear and ascertainable right to the present possession of her encumbered settlement funds that is in need of protection. The Court believed that if the plaintiff could prove her allegations, then she would clearly be entitled to hold onto those funds while the matter of her debt was ascertained. And, in the Court's view, the lien adjudication procedure in section 30 of the Lien Act (770 ILCS 23/30) does not provide the plaintiff with an adequate remedy at law because nowhere has it been suggested that she could recoup the time value associated with the encumbrance of her funds through such a procedure.

 

The defendants argued that because the plaintiff alleged harm, and not just the threat of future harm, declaratory relief is unavailable to her. In support of this argument, they cited BMO Harris, N.A. v. Jackson Towers Condominium Ass'n, 2018 IL App (1st) 170781, where the court noted that "[t]he declaratory judgment process allows the circuit court to address a controversy after a dispute arises but before steps are taken that give rise to a claim for damages or other relief," so that the parties to the dispute may "learn the consequences of their action before acting." Id. ¶ 24.

 

The plaintiff in BMO Harris was a bank that elected to pay disputed post-sale assessments following a mortgage foreclosure sale and then, after the fact, sue for a declaration that it had no obligation to do so. Id. ¶ 1. However, the Appellate Court distinguished BMO Harris from this matter because, here, the plaintiff sought not an after-the-fact finding of liability, but a declaration of her existing rights to the settlement funds that had been withheld from her.

 

Therefore, the Appellate Court held that the trial court improperly dismissed the plaintiff's equitable claims for injunctive and declaratory relief. 

 

The Appellate Court did agree with the trial court's dismissal of the plaintiff's non-equitable claims, namely consumer fraud, unjust enrichment, negligence, and negligent misrepresentation.

 

However, the Court observed that the trial court only dismissed these claims with prejudice because it believed that the plaintiff was incapable of alleging harm flowing from the defendants' communications. Because the Court disagreed with that conclusion, and because the details of the defendants' transaction were unclear but likely to be revealed through discovery, the Court concluded that dismissal of these claims should be without prejudice. See Morr-Fitz, Inc. v. Blagojevich, 231 Ill. 2d 474, 488 (2008) ("[A] cause of action should not be dismissed with prejudice unless it is clear that no set of facts can be proved under the pleadings which would entitle plaintiffs to relief").

 

Because the Appellate Court concluded that the plaintiff's initial complaint adequately stated claims for injunctive and declaratory relief, it felt no need to consider whether the trial court erred in denying her leave to amend those claims. 

 

Accordingly, the Appellate Court reversed the trial court's dismissal of the plaintiff's claims for injunctive and declaratory relief and affirmed the dismissal of her claims for consumer fraud, unjust enrichment, negligence, and negligent misrepresentation.

 

However, because the Appellate Court believed it possible that grounds for successfully amending one or more of the dismissed claims could arise during discovery, dismissal of those claims was without prejudice. The Appellate Court remanded the case back to the trial court for further proceedings consistent with its ruling.

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
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Email: rwutscher@MauriceWutscher.com

 

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