WALTER ANSLEY, et al., Plaintiffs/Appellees/Cross-Appellants, v. BANNER HEALTH NETWORK, et al., Defendants/Appellants/Cross-Appellees.
No. 1 CA-CV 17-0075
ARIZONA COURT OF APPEALS DIVISION ONE
FILED 3-12-2019
Appeal from the Superior Court in Maricopa County No. CV2012-007665 The Honorable J. Richard Gama, Judge, Retired The Honorable Dawn M. Bergin, Judge AFFIRMED IN PART; REVERSED IN PART; REMANDED
COUNSEL
Levenbaum Trachtenberg, PLC, Phoenix
By Geoffrey M. Trachtenberg, Justin Henry
Co-Counsel for Plaintiffs/Appellees/Cross-Appellants
The Entrekin Law Firm, Phoenix
By B. Lance Entrekin
Co-Counsel for Plaintiffs/Appellees/Cross-Appellants
Gammage & Burnham, PLC, Phoenix
By Richard B. Burnham, Cameron C. Artigue, Christopher L. Hering
Counsel for Defendants/Appellants/Cross-Appellees
OPINION
Presiding Judge Diane M. Johnsen delivered the opinion of the Court, in which Judge Kent E. Cattani and Judge Jennifer M. Perkins joined.
J O H N S E N,
¶1 Banner Health Network and other hospital groups (“the Hospitals“) each contracted with the Arizona Health Care Cost Containment System (“AHCCCS“) to serve AHCCCS members. The plaintiffs in this case (“the Patients“) received settlements or damage awards from third-party tortfeasors for injuries that required treatment at the Hospitals. The Patients sued to enjoin the Hospitals from enforcing liens on their tort recoveries for the balance between the rates the Hospitals agreed to accept from AHCCCS and what the Hospitals would have charged non-AHCCCS patients. We hold that
FACTS AND PROCEDURAL HISTORY
¶2 The Hospitals recorded their liens pursuant to two statutes,
¶3 In their complaint, the Patients alleged federal Medicaid law preempts the Arizona lien statutes in cases such as theirs, and sought an injunction barring the Hospitals from recording liens on their tort recoveries. The Patients argued the liens constitute impermissible “balance billing,” a term describing a health-care provider‘s effort to collect from a patient “the difference in the amount paid by Medicaid, or a state plan like AHCCCS, and the amount” the provider typically charges. Abbott v. Banner Health Network, 239 Ariz. 409, 412, ¶ 9 (2016).
¶4 Early in the litigation, the superior court dismissed a group of plaintiffs who had settled their lien claims with the Hospitals and entered partial final judgment as to those plaintiffs pursuant to
¶5 Meanwhile, the superior court certified the remaining plaintiffs as a class, and both sides moved for summary judgment on the preemption issue. The superior court ruled in favor of the Patients on their claim for a declaratory judgment, holding that when a hospital has accepted payment from AHCCCS for treating a patient,
¶6 The Hospitals appealed the preemption ruling and injunction, and the Patients cross-appealed the judgment against them on their contract claim. We have jurisdiction pursuant to
DISCUSSION
A. Introduction.
¶7 In our initial opinion in the current appeal, we did not address the superior court‘s order granting the Patients’ claim for a declaratory judgment that federal law preempts the Hospitals’ state-law lien rights. We concluded instead that the Patients were
¶8 The Hospitals moved for reconsideration, arguing for the first time that under Astra USA, Inc. v. Santa Clara County, 563 U.S. 110 (2011), the Patients could not sue as third-party beneficiaries of the contracts because the federal law on which they based their claim affords no private right of action. The Hospitals’ argument under Astra requires us to address the issue we deferred in our initial opinion. For that reason, we withdraw that opinion and issue this one in its place.
B. Federal Law Preempts the Hospitals’ Lien Rights.
¶9 Federal law may preempt state law by express preemption, field preemption or conflict preemption. Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 698-99 (1984); White Mtn. Health Ctr., Inc. v. Maricopa County, 241 Ariz. 230, 239-40, ¶ 33 (App. 2016).2 The issue here – conflict preemption – arises when state law stands as an obstacle to the achievement of Congress‘s full purpose, or when compliance with both federal and state laws is impossible. Crisp, 467 U.S. at 699; White Mtn., 241 Ariz. at 240, ¶ 33. A federal regulation has the same preemptive effect as a federal statute. Crisp, 467 U.S. at 699. Thus, a federal regulation may render unenforceable a state law that is otherwise consistent with federal law. City of New York v. F.C.C., 486 U.S. 57, 63-64 (1988).
¶10 Medicaid is a “cooperative federal-state program” that pays for health care for the needy and the disabled. Douglas v. Indep. Living Ctr. of So. Calif., 565 U.S. 606, 610 (2012);
¶11 A fundamental principle of the program is that “Medicaid is essentially a payer of last resort.” Kozlowski, 42 F.3d at 1447. Toward that end, patients must assign to the state Medicaid agency their rights “to any payment from a third party that has a legal liability to pay for care and services available under the plan.”
¶12 Consistent with these rules aimed at limiting the costs that the state Medicaid agency ultimately bears, Arizona law grants AHCCCS a lien against a patient‘s recovery from a tortfeasor so that AHCCCS can recover what it has paid to treat the patient.
¶13 Under all these authorities, there is no dispute that if a tortfeasor‘s liability becomes apparent after AHCCCS has paid a hospital, AHCCCS may demand reimbursement from the tortfeasor. See
¶14 The Hospitals’ liens are based on two Arizona statutes. As relevant here,
is entitled to a lien for the care and treatment or transportation of an injured person. The lien shall be for the claimant‘s customary charges for care and treatment [and] extends to all claims of liability or indemnity, except health insurance and underinsured and uninsured motorist coverage . . . , for damages accruing to the person to whom the services are rendered . . . on account of the injuries that gave rise to the claims and that required the services.
The other statute specifically applies to hospitals that serve AHCCCS members and states:
Payment received by a hospital from [AHCCCS] . . . is considered payment by [AHCCCS] of [AHCCCS‘s] liability for the hospital bill. A hospital may collect any unpaid portion of its bill from other third-party payors or in situations covered by [A.R.S. § 33-931].
¶15 The Patients argue the Hospitals’ liens are invalid under
¶16 A lien is a means of securing a debt; without a debt, there can be no lien. See Matlow v. Matlow, 89 Ariz. 293, 298 (1961) (“In the absence of an obligation to be secured there can be no lien.“). Once a hospital has accepted payment from AHCCCS for treating a patient, the patient owes the hospital nothing beyond a “deductible, coinsurance or copayment.”
¶17 Although this is an issue of first impression in Arizona, each court addressing the issue elsewhere has come to the same conclusion. See Bowling, 410 F.3d at 315 (“By accepting the Medicaid payment, the service provider accepts the terms of the contract – specifically that the Medicaid amount is payment in full.“); Taylor v. Louisiana ex rel. Dep‘t of Health & Hosps., 7 F. Supp. 3d 641, 644 (M.D. La. 2013) (“Congress did not intend for providers to receive Medicaid reimbursement for patient care and then intercept funds that the patient would otherwise receive.“); Lizer v. Eagle Air Med. Corp., 308 F. Supp. 2d 1006, 1009-10 (D. Ariz. 2004) (§ 447.15 preempts right of provider that has accepted payment from AHCCCS to assert lien against patient‘s tort recovery under
¶18 The Hospitals argue that “payment in full” under § 447.15 only limits a provider‘s right to payment from the state Medicaid agency or the patient and does not prevent them from intercepting the balance from a third-party tortfeasor. As stated, however, that interpretation is contrary to Arizona law, under which a patient has a property interest in his or her tort recovery. See Samsel, 204 Ariz. at 7, ¶ 21.
¶19 The Hospitals contend that “Congress has never articulated a federal interest in protecting the tort recoveries of Medicaid
¶20 The Hospitals also point to two HHS documents they claim are inconsistent with our analysis. The first document is a response by the Health Care Financing Administration to a comment submitted on a draft of a related regulation issued in 1990. See 55 Fed. Reg. 1423-02, at 1428 (Jan. 16, 1990) (codified at
¶21 The second HHS document the Hospitals cite is a 1997 letter from the Acting Director of the Health Care Financing Administration. According to the Hospitals, the letter construed § 447.15 to permit a provider that has treated a Medicaid patient to return the state agency‘s payment and seek its customary rates from the patient‘s tort recovery. But the letter does not constitute formal agency policy or even guidance. See Bowling, 410 F.3d at 318 (referenced letter “is neither listed on the [agency] website . . . nor published elsewhere“).
¶22 As applied to the Patients and the Hospitals in this case,
¶23 The Hospitals argue that when CMS, the division of HHS that oversees Medicaid, approved Arizona‘s AHCCCS plan, it impliedly approved the two Arizona
¶24 In their motion for reconsideration, the Hospitals assert that Douglas, 565 U.S. at 614, teaches that CMS reviews state statutes when it approves a state‘s Medicaid plan, and that CMS will not approve a plan without approving the statutes. At issue in Douglas, however, were three statutes California enacted to change payment provisions in its state Medicaid plan – the Supreme Court even described the measures as “statutory amendments to its plan.” Id. at 613. In the absence of any other authority, we do not read Douglas to stand for the proposition that CMS reviews any and all state statutes that might bear on patients’ and providers’ rights when it approves a state‘s Medicaid plan. See Olszewski, 30 Cal. 4th at 825.
¶25 The Hospitals similarly argue the AHCCCS plan allows providers to use liens to balance bill. But the Arizona plan does not address balance billing, let alone endorse it. For their contention to the contrary, the Hospitals rely on a brief portion of “Attachment 4.19-A,” a 66-page section of the AHCCCS plan titled “Methods and Standards for Establishing Payment Rates [for] Inpatient Hospital Care.” In the definitions section, Attachment 4.19-A provides as follows:
Prospective rates are inpatient hospital rates defined in advance of a payment period and represent payment in full for covered services excluding any quick-pay discounts, slow pay penalties, and third party payments regardless of billed charges or individual hospital costs.
The Hospitals contend this language means that after a hospital has accepted “payment in full” from AHCCCS for treating a patient, it may impose a lien on the patient‘s tort recovery as a permissible “third party payment.”
¶26 But the brief reference in Attachment 4.19 to “third party payments” in a section of the plan specifying the rates AHCCCS will pay hospitals does not constitute an endorsement of a hospital‘s right to accept payment from AHCCCS, then impose a lien on the patient‘s tort recovery for more. The word “lien” is not even used. As set out in ¶ 11, supra, because AHCCCS is the “payer of last resort,” a hospital must determine whether a third party may be liable for the cost of treatment before the hospital bills AHCCCS. If the hospital ascertains that a third party is liable, it may bill AHCCCS only for the difference between what it has recovered from the third party and the AHCCCS scheduled rate. Against that backdrop, the reference to “third party payment” in Attachment 4.19-A refers to a payment made before the hospital accepts payment from AHCCCS, not after.
¶27 The Hospitals also point to A.A.C. R9-22-1007 as support for their contention that Arizona‘s AHCCCS plan allows balance billing. The cited regulation is titled “Notification for Perfection, Recording, and Assignment of AHCCCS Liens.” It requires that when a hospital has treated an AHCCCS member for an injury “reflecting the probable
¶28 The Hospitals’ argument that the AHCCCS plan permits them to use liens to balance bill patients also disregards the mandate in A.A.C. R9-22-702(B), under which a provider “must accept payment from [AHCCCS] or a contractor as payment in full.” Beyond repeating the requirement prescribed by
¶29 In short, the provisions the Hospitals cite in the Arizona plan are part and parcel of a provider‘s duty under the plan to “cost avoid” before it bills AHCCCS, not a license to accept payment from AHCCCS, then enforce a lien against the patient‘s tort recovery for the balance between that payment and what the provider would have charged another patient. Accordingly, we hold that when CMS approved the AHCCCS plan, it did not authorize providers to accept payment from AHCCCS, then enforce liens against patients’ recoveries from tortfeasors.
¶30 In their motion for reconsideration, the Hospitals cite Murphy v. Nat‘l Collegiate Athletic Ass‘n, 138 S. Ct. 1461, 1479 (2018), in arguing
¶31 The Hospitals contend that, like the gambling statute in Murphy, the Medicaid Act and
¶32 In sum, we conclude that federal law, specifically
C. The Patients’ Claim for Injunctive and Declaratory Relief Based on Preemption.
¶33 Given our conclusion that Medicaid law preempts the Arizona lien statutes, if the Hospitals had sued the Patients or their lawyers to enforce liens against the Patients’ tort recoveries, the Hospitals’ claim would be barred by preemption under the Supremacy Clause of the United States Constitution. See, e.g., PLIVA, Inc. v. Mensing, 564 U.S. 604, 617 (2011) (“Where state and federal law ‘directly conflict,’ state law must give way.“) (citation omitted). In such a situation, the federal law “effectively repeal[s] contrary state law.” Id. at 621; see Armstrong v. Exceptional Child Center, Inc., 135 S. Ct. 1378, 1384 (2015) (“[O]nce a case or controversy properly comes before a court, judges are bound by federal law.“). But the Patients are the plaintiffs here, and they sued seeking to use preemption as a sword (to enjoin the Hospitals from enforcing the liens) rather than as a shield (to defeat a mirror-image suit by the Hospitals).
¶34 Citing Armstrong, the Hospitals argue the Patients’ claims for declaratory and injunctive relief based on preemption are not cognizable. The plaintiffs in Armstrong were health-care providers who sued the director of the Idaho Department of Health and Welfare, alleging that state‘s Medicaid plan paid them less than federal law required. 135 S. Ct. at 1382. At issue was § 30(A) of the Medicaid Act, which requires states to set payment rates for medical providers that “are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan” at levels comparable to those available to the general public. 135 S. Ct. at 1382 (quoting
¶35 In ruling against the providers, the Supreme Court held the Supremacy Clause “is not the source of any federal rights, and certainly does not create a cause of action.” Id. at 1383 (quotations and citations omitted). “It instructs courts what to do when state and federal law clash, but is silent regarding who may enforce federal laws in court, and in what circumstances they may do so.” Id. The Court acknowledged a long line of cases allowing “injunctive relief against state officers who are violating, or planning to violate, federal law.” Id. at 1384, citing Ex parte Young, 209 U.S. 123, 150-51 (1908); Osborn v. Bank of United States, 9 Wheat. 738, 838-39, 844 (1824). But notwithstanding those cases, a court‘s power to grant equitable relief based on federal preemption “is subject to express and implied statutory limitations.” Armstrong, 135 S. Ct. at 1385. Thus, a preemption claim is not cognizable if Congress has precluded private enforcement of the applicable federal law or otherwise has “displace[d] the equitable relief that is traditionally available to enforce federal law.” Id. at 1385-86.
¶36 Applying that rule, the Armstrong Court examined § 30(A) of the Medicaid Act to discern whether Congress intended “to foreclose equitable relief” based on that provision. 135 S. Ct. at 1385 (quotation omitted). The Court identified “[t]wo aspects” of § 30(A) that it held “establish Congress‘s ‘intent to foreclose’ equitable relief.” Id. First, Congress created just one remedy “for a
¶37 The Hospitals argue that when it comes to enforcing the federal ban on balance billing under
¶38 But the Hospitals’ argument sweeps too broadly. Contrary to their assertion, Armstrong does not support the proposition that Congress intended to foreclose any claim to enjoin a non-state actor from exercising a state-law right preempted by any provision of Medicaid law. Although the Armstrong Court held there is no private right of action against a state official to enforce § 30(A) of the Medicaid Act, five of the nine justices declined to hold that no provision of the Medicaid Act may be privately enforced. See 135 S. Ct. at 1388 (Justice Breyer declining to join Part IV of Justice Scalia‘s five-member majority opinion).
¶39 As for the narrow legal issue actually decided in Armstrong – that providers may not sue to enjoin a state‘s violation of § 30(A) of the Medicaid Act – neither of the two grounds the Court cited for that decision applies here. In the first place, § 1396c of the Medicaid Act, which the Court held is the exclusive remedy for a violation of § 30(A), does not provide the exclusive remedy – or any remedy – for the preemption violation at issue here. The providers in Armstrong argued the rates in the Idaho Medicaid plan violated § 30(A) because they were too low. In rejecting their claim, the Court held that when a state Medicaid plan fails to comply with the federal act, the only remedy “is the withholding of Medicaid funds by the Secretary of Health and Human Services.” 135 S. Ct. at 1385, citing
¶40 But here, and in contrast to the plaintiffs in Armstrong, the Patients do not contend anything in Arizona‘s AHCCCS plan is preempted by federal law. They have no complaint with the Arizona plan or how AHCCCS implements the Arizona plan. Instead, they claim federal law preempts the Hospitals’ rights to enforce liens that state law otherwise allows. As we have held, supra ¶¶ 22-28, Arizona‘s AHCCCS plan neither incorporates nor countenances application of the Arizona lien statutes under the circumstances presented here. When hospitals seek to intercept AHCCCS members’ tort recoveries, they are exercising their rights under state statute, not under the AHCCCS plan or the administration of that plan subject to review by HHS. For that reason, § 1396c of the Medicaid Act is irrelevant to the Patients’ claim against the Hospitals, and the Hospitals cite no authority to the contrary. See Tohono O‘odham Nation v. Ducey, 130 F. Supp. 3d 1301 (D. Ariz. 2015) (equitable relief barred by Armstrong when “Congress had created a remedy” and “entrusted that remedy to the executive branch, not the courts“).
¶42 By contrast, the Patients’ claim is not based on § 30(A) but instead on
¶43 In sum, the Patients’ preemption claim presents neither of the concerns that caused the Armstrong Court to conclude that Congress intended to preclude equitable relief to the providers in that case. The Patients’ claim is not grounded in the AHCCCS plan that CMS approved and therefore does not implicate the single remedy of administrative review that the Court cited in Armstrong. 135 S. Ct. at 1385. And the Patients’ contention that
D. The Hospitals Breached a Contract Duty to Patients by Imposing the Liens.
¶44 Federal law spells out the provisions that must be contained in the Participating Provider Agreements (“PPAs“) that a state enters with providers to serve patients under Medicaid. See
1. Rights as third-party beneficiaries of the PPAs.
¶45 Under Arizona law, a contract may allow a claim by a purported third-party beneficiary only if (1) “an intention to benefit [the claimant is] indicated in the contract itself“; (2) “[t]he contemplated benefit [is] both intentional and direct“; and (3) “it . . . definitely appear[s] that the parties intend to recognize the third party as the primary party in interest.” Nahom v. Blue Cross & Blue Shield of Ariz., Inc., 180 Ariz. 548, 552 (App. 1994) (quoting Norton v. First Fed. Sav., 128 Ariz. 176, 178 (1981)). In Nahom we held that a patient was a third-party beneficiary entitled to enforce a hospital‘s agreement with the patient‘s insurer to accept the insurer‘s payment as payment in full. Id. at 550-51, 552.
2. Incorporation of federal law.
¶47 Interpretation of the PPAs is a matter of law that we review de novo. Grosvenor Holdings, L.C. v. Figueroa, 222 Ariz. 588, 593, ¶ 9 (App. 2009). A contract incorporates the law in force at the time of its execution. State ex rel. Romley v. Gaines, 205 Ariz. 138, 142, ¶ 13 (App. 2003) (“Regardless of the language of a contract, it is always to be construed in the light of the law then in force.“) (quotation and alteration omitted); Ward v. Chevron U.S.A. Inc., 123 Ariz. 208, 209 (App. 1979) (“The law in force at [the date of execution] form[s] a part of each contract.“). Therefore, “a valid statute is automatically part of any contract affected by it, even if the statute is not specifically mentioned in the contract.” Banner Health v. Med. Sav. Ins. Co., 216 Ariz. 146, 150, ¶ 15 (App. 2007) (quoting Higginbottom v. State, 203 Ariz. 139, 142, ¶ 11 (App. 2002)). The same is true with other legal provisions affecting the rights of the parties in effect at the time of execution. See, e.g., Colman v. Button, 42 Ariz. 141, 144 (1933) (constitution); Rehart v. Clark, 448 F.2d 170, 173 (9th Cir. 1971) (regulation); cf. Qwest Corp. v. City of Chandler, 222 Ariz. 474, 484-85, ¶ 34 (App. 2009) (common law).
¶48 At the time the Hospitals entered the PPAs, the Arizona lien statutes at issue here,
¶49 Two versions of express “compliance-with-law” clauses in the PPAs bolster our conclusion that the contracts required the Hospitals to comply with
6. The Provider shall comply with all federal, State and local laws, rules, regulations, standards and executive orders governing performance of duties under this Agreement, without limitation to those designated within this Agreement.
The like provision in the second version simply stated that the provider agrees “[t]o comply with all applicable Federal and State laws and regulations.”
¶50 The Hospitals argue the PPAs do not encompass subsequent changes in the law. See, e.g., Fla. E. Coast Ry. Co. v. CSX Transp., Inc., 42 F.3d 1125, 1130 (7th Cir. 1994) (“[S]ubsequent changes in the law that are not anticipated in the contract generally have no bearing on the terms of their agreement.“); Dairyland Greyhound Park, Inc. v. Doyle, 719 N.W.2d 408, 429-33 (Wis. 2006) (post-contract amendment to statute
¶51 The Hospitals argue otherwise, citing Arizona cases that refer to the medical-lien statutes and the rights they purport to grant AHCCCS providers. But none of the cases the Hospitals cite addresses (or even mentions) whether
¶52 The Hospitals also assert that the parties to the PPAs – the Hospitals themselves and AHCCCS – intended that the Hospitals would be able to enforce liens on patients’ recoveries from tortfeasors. In support of this argument, the Hospitals cite A.A.C. R9-22-1007. As discussed, ¶ 27 supra, however, we do not accept the Hospitals’ interpretation of that regulation. In any event, by agreeing in the PPAs to comply with federal law, the Hospitals agreed that a federal regulation preempting their state-law lien rights would trump any lien right allowed by AHCCCS regulation.
¶53 In their motion for reconsideration of our initial opinion in this appeal, the Hospitals argue that one may not sue as a third-party beneficiary of a contract that incorporates federal law when that federal law does not itself permit equitable relief. See Astra, 563 U.S. at 118. It was undisputed in Astra that the applicable federal law afforded the plaintiffs no private right of action. Id. at 113. Given our conclusion that the Patients may sue to enforce a breach of
¶54 Accordingly, the Hospitals breached a duty owed to the Patients under the PPAs when they imposed the liens at issue here because those liens were invalid under federal law. We hold the superior court erred when it denied the Patients’ motion for summary judgment on their claim for breach of the PPAs and direct entry of judgment in the Patients’ favor on that claim.
E. The Breadth of the Injunction.
¶55 The Hospitals argue the superior court lacked the power to grant the Patients injunctive relief on the Patients’ claim for breach of the PPAs. The injunction the court issued, however, was based not on the Patients’ contract claim but on their claim for equitable relief under general preemption principles. See generally
¶56 We review the superior court‘s grant of an injunction for abuse of discretion but review its application of law de novo. See Cheatham v. DiCiccio, 240 Ariz. 314, 317-18, ¶ 8 (2016). The superior court abuses its discretion if it applies the incorrect substantive law or injunction standard or bases “its decision on an erroneous material finding of fact.” TP Racing, L.L.L.P. v. Simms, 232 Ariz. 489, 492, ¶ 8 (App. 2013).
¶57 The Hospitals
¶58 The Hospitals, however, do not point to anything in the record showing that such a situation has occurred, and we normally will not issue advisory opinions on issues not squarely before us. Sw. Barricades, L.L.C. v. Traffic Mgmt., Inc., 240 Ariz. 139, 142, ¶ 17, n.3 (App. 2016). Should the situation the Hospitals posit arise, they “will be able, at that time, to apply to the superior court for appropriate modification” to the injunction. TP Racing, 232 Ariz. at 496, ¶ 25; see also State v. Portland Cement Ass‘n, 142 Ariz. 421, 425 (App. 1984) (court of original jurisdiction has power to modify its injunction when circumstances change).
F. Attorney‘s Fees.
¶59 After prevailing on their claim based on the Supremacy Clause, the Patients sought attorney‘s fees under the private attorney general doctrine, and the court entered an award of $1,221,902. See generally Arnold v. Ariz. Dep‘t of Health Servs., 160 Ariz. 593, 609 (1989) (private attorney general doctrine allows fees to party that has vindicated an important public right).
¶60 The Hospitals argue the private attorney general doctrine does not allow an award of fees on a preemption claim brought under the Supremacy Clause. See Alyeska Pipeline Serv. v. Wilderness Soc‘y, 421 U.S. 240, 245-71 (1975) (doctrine does not allow fees award in challenge to federal agency action); Challenge, Inc. v. State ex rel. Corbin, 138 Ariz. 200, 206 (App. 1983) (federal law governs availability of fees in claim brought under
¶61 In their motion for reconsideration, the Hospitals do not contend the hourly rates represented in the fees award are unreasonably high, but urge us to remand the fees award so that the superior court may exercise its discretion to decide whether to award fees under
¶62 In support of a fees award under
On behalf of the class and of themselves, Plaintiff acknowledges that Attorneys may apply to the Court for fees of up to 30% of all recoveries and relief obtained, plus advanced costs, all of which shall be fully subject to court approval. . . . In the event the Court awards an hourly fee to be paid by Defendants, Plaintiffs will support an application to the Court for a fee of $410 per hour for the two senior attorneys and $125 per hour for any billable paralegal time.
The Hospitals argue
¶64 But the contingent-fee provision in the retainer agreement is broader than “damages” and applies to “all recoveries and relief obtained.” The “relief obtained” in this case is the injunction the Patients’ lawyers won against past, present and future liens by the Hospitals on tort recoveries by the plaintiff class. The Hospitals do not argue that the fees the superior court awarded exceed the ratio of 30% of the funds the injunction preserved for members of the class.
¶65 Otherwise, as for the amount of the award, the Hospitals contend the superior court abused its discretion by failing to discount the fees the Patients sought for work performed (1) in a similar federal-court case they voluntarily dismissed before commencing this one; and (2) on issues pertaining to the group of Abbott plaintiffs who had settled their lien claims with the Hospitals. “We review the amount of the superior court‘s attorney fees and costs awards for an abuse of discretion.” Lee v. ING Inv. Mgmt., LLC, 240 Ariz. 158, 161, ¶ 11 (App. 2016).
¶66 The Hospitals argue that more than $485,000 of the fees awarded were incurred not in this case but in a federal-court lawsuit the Patients filed, then voluntarily dismissed, before refiling their claims in superior court. The Patients contend that those fees included the time spent in “vet[ting] hundreds of potential class representatives” for the claims, researching Medicaid plans across the country and interviewing expert witnesses.
¶67 The Hospitals cite Vicari v. Lake Havasu City, 222 Ariz. 218, 223-24, ¶¶ 18-21 (App. 2009), for the proposition that the defendant is the prevailing party when a plaintiff voluntarily dismisses the complaint. The issue here, however, is whether a court abuses its discretion in awarding fees for legal work performed in connection with a prior case before dismissing it, when that work is integral to the plaintiff‘s successful prosecution of a subsequent claim. When the Hospitals objected in the superior court to the Patients’ request for the fees they incurred in the federal case, the Patients responded that the legal and factual research performed in that case was “clearly calculated to – and in fact did – bring about” their success in this case. Under the circumstances, the superior court did not abuse its discretion in declining to reduce the Patients’ fees to take into account work performed in the federal matter. See First Nat. Bank of Ariz. v. Cont‘l Bank, 138 Ariz. 194, 200 (App. 1983) (“pre-complaint investigation and evaluation of the potential claim is part of the process and expense of litigation“).
¶68 The Hospitals finally argue that the superior court abused its discretion in awarding fees for work performed for the group of patients whose claims were dismissed in Abbott II. The Hospitals contend that $60,442 of the fees the Patients were awarded was incurred in connection with superior court proceedings involving those plaintiffs.
¶69 In determining the reasonableness of the number of hours expended by an attorney, the superior court must consider whether the claimed work “would have been undertaken by a reasonable and prudent lawyer to advance or protect [the] client‘s interest.” Schweiger v. China Doll Rest., Inc., 138 Ariz. 183, 188 (1983). “Furthermore, time spent on unsuccessful issues or claims may not be compensable.” Id. On the other hand, when a party has “accomplished the result sought in the litigation, fees should be awarded for time spent even
¶70 When the superior court in this case ruled on the Patients’ fee request in 2014, that court could not know that the supreme court ultimately would reject the Abbott plaintiffs’ claims. Although the Hospitals addressed this issue in a motion for new trial filed after the case was reassigned to another division of the Maricopa County Superior Court, the judge newly assigned to the case declined to reconsider the fees award in light of the supreme court‘s decision in Abbott II.
¶71 Under the circumstances, we remand the fees award to the superior court so that it may exercise its discretion to review the Patients’ claim for the $60,442 in fees incurred in connection with the claims brought by the Abbott plaintiffs.
CONCLUSION
¶72 We hold that applicable federal law,
¶73 We also hold the Patients are third-party beneficiaries of the contracts the Hospitals entered with AHCCCS to serve AHCCCS members. Those contracts required the Hospitals to comply with federal law, including
¶74 Finally, we affirm the superior court‘s award of fees to the Patients, excepting only the amount of $60,442, which the Patients sought for work performed in connection with the Abbott case, and we direct the superior court on remand to reconsider that fees claim. We award the Patients their costs on appeal and their attorney‘s fees pursuant to
AMY M. WOOD • Clerk of the Court
FILED: AA