In a decision out of the Court of Appeal of California, Karpinski v. Smitty’s Bar, Inc., 2016 Cal. App. LEXIS 277 (April 12, 2016), the Court affirmed the trial court’s decision to enforce a settlement between the Parties, despite the Defendant, Smitty’s Bar (“Smitty’s”) objections and attempts to delay settlement to ensure reimbursement of liens, particularly Medicare conditional payments.
The initial litigation was filed by Keith Karpinski (“Karpinski”) who alleged that Smitty’s, a bar in Sausalito, negligently allowed two intoxicated individuals to enter and remain in its bar and that the two men threatened and punched Karpinski in the face and head, causing serious injuries. Two years later, Smitty’s and Karpinski signed a formal settlement agreement in which Karpinski agreed to dismiss the complaint as to Smitty’s with prejudice in exchange for $40,000. The settlement agreement provided a general release of all claims against Smitty’s.
Subsequently, Karpinski filed a motion for entry of judgment pursuant to the settlement agreement. Smitty’s opposed the motion on the ground that liens had been imposed against the settlement amount by the federal government, based on Medicare payments to Karpinski, and by the state of California, based on crime victim compensation payments to Karpinski. Smitty’s asserted that it was willing to pay the settlement amount immediately if Karpinski would accept a check made out to him and both of the lienholders.
The trial court granted the motion to enforce the settlement, finding that the terms of the settlement agreement stated that Karpinski and his counsel would “negotiate, satisfy, and dispose of all liens.” Additionally, the settlement agreement did not state that Karpinski must do so before receiving payment. Furthermore, the settlement agreement requires Karpinski and his counsel to hold Smitty’s, its attorneys, and the Insurance Company (“Crusader”) harmless with respect to any lien claims. Lastly, the trial court found, while there may be concern over whether Karpinski and his counsel will honor the obligation to reimburse these liens, the Defendants have a remedy through the indemnification agreement if they do not.
Smitty’s then appealed the trial court’s decision. In affirming the trial court’s decision, the Court of Appeal agreed with the trial court’s reasoning. Additionally and in support of affirming the trial court’s reasoning, the Court of Appeal found that there was nothing in the settlement agreement demonstrating the existence of a condition precedent to payment of the $40,000 to Karpinski. The settlement agreement provided that Karpinski would satisfy all liens and indemnify Smitty’s, its attorneys, and Crusader with respect to any claim arising under a lien or other obligation. There is no provision in the settlement agreement which either expressly states or implies that Karpinski must satisfy the liens before it receives the settlement proceeds.
The Court of Appeal additionally found the reasoning of the Georgia Court of Appeals in Hearn v. Dollar Rent A Car, Inc. persuasive. In Hearn, the Georgia Court of Appeals found that public policy does not preclude a court from enforcing a settlement that does not include Medicare as a co-payee on a settlement check where the plaintiff signed a release acknowledging his responsibility to pay any Medicare claim and/or agreeing to indemnify the released parties.
Commentary: This case is a perfect reminder that if the Defendant wants to control the Medicare conditional payment reimbursement process, it must make this a key term to discuss during settlement negotiations and a key element outlined in the settlement agreement. Here, Smitty’s and its insurer had cause for concern: If Smitty’s did not reimburse the conditional payments, Medicare could switch the debtor to Smitty’s and/or its insurer pursuant to 42 § CFR 411.24 and require Smitty’s and/or its insurer to reimburse Medicare. Smitty’s would then have to enforce its indemnification agreement to recover, which depending on the financial viability of Karpinski, may have resulted in an uncollectable judgment.
Further, the consequences that a Defendant may face when leaving conditional payment reimbursement up to the Plaintiff attorney to handle is a potential action for double damages by the U.S. Government as well as the debt being sent to The Department of Treasury.
Knowing conditional payment exposures early on in the process and ensuring that Medicare is directly reimbursed is a Best Practice for primary payers so as to avoid future exposures. Involving an expert can save a great deal on litigation expenses. Contact us to assist with your Best Practices and ensure that your settlement language is properly constructed. We can be reached at firstname.lastname@example.org.
Heather Schwartz Sanderson, Esq., MSCC, CHPE, CLMP, CMSP
Chief Legal Officer
Franco Signor LLC