Case Summary: Distribution of Settlement to Lien Holders



North Carolina Baptist Hospitals, Inc. v. Crowson
155 N. C. App. 746 (2003)
North Carolina Court of Appeals

Background

This case arose out of the settlement of a personal injury action. The defendant is the attorney of the patient, who did not disburse funds from the settlement to the plaintiff (hospital) and instead made payments to two other medical service providers.

Procedural History

The district court ruled in favor of the attorney, and the hospital appealed to the North Carolina Court of Appeals.

Facts

Christopher Reid (Reid) was injured in an automobile accident, and treated at by the plaintiff for his injuries. The total cost of medical services to Reid was $38,234.85. Reid retained Crowson to represent him in a personal injury suit to recover damages for injuries sustained as a result of the accident. The plaintiff provided Crowson with written notice of the medical lien, which covered the value of the medical services provided to Reid.

Shortly after notice of the lien, Crowson contacted the plaintiff and stated that although a settlement had been reached in favor of Reid, the funds were insufficient to compensate the plaintiff. The attorney informed the plaintiff that, in addition to the amount owed to the hospital, Reid also owed a balance to two other entities with valid medical liens. After paying both of those provider liens almost in full, the defendant notified the plaintiff that there were no settlement funds remaining to pay their lien. The plaintiff then sought and thereafter obtained a default judgment against Crowson. The trial court granted summary judgment to the defendant and dismissed the case.

Rules of Law

The trial court’s dismissal was based on the fact that Crowson acted in accordance with N.C.G.S. §§ 44-49 and 44-50, which at the time did not permit an attorney to disburse funds recovered from a personal injury settlement in a non-proportional manner. In this case, rather than equally distributing the amount among the three creditors, the attorney paid two of them, and left the third creditor with no compensation.

The language of the statutes places no restriction on the method of distribution of monies among valid lien holders. Because of the lack of such language, the court upheld the ruling of the district court, and ruled in favor of the defendant.

Important Changes Since the Crowson Decision

After pressure from medical providers, the North Carolina legislature made changes to the law. As of October 2003, an attorney is now required to make distribution of third-party settlement proceeds to providers with valid liens, on a pro-rata basis. This would effectively provide all lien holders with some amount of money, rather than certain providers receiving compensation while others receive nothing.



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