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Rice v. Denley (9/26/97), 944 P 2d 497
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
MICHAEL L. RICE, )
) Supreme Court No. S-7342
) Superior Court No.
v. ) 4FA-93-2882 CI
KIMBERLY L. DENLEY, ) O P I N I O N
Appellee. ) [No. 4890 - September 26, 1997]
Appeal from the Superior Court of the State of
Alaska, Fourth Judicial District, Fairbanks,
Mary E. Greene, Judge.
Appearances: Clifford W. Holst, Law Offices of
Clifford W. Holst, Anchorage, for Appellant. Lloyd I. Hoppner,
Hoppner & Paskvan, P.C., Fairbanks, for Appellee.
Before: Compton, Chief Justice, Rabinowitz,
Matthews, Eastaugh, and Fabe, Justices.
Michael Rice appeals from a superior court order granting
Kimberly Denley's motion to reduce a settlement agreement to
judgment. We reverse and remand for further proceedings.
II. FACTS AND PROCEEDINGS
In January 1993 Kimberly Denley and Michael Rice were
involved in an automobile accident. As a result of the accident
Denley incurred medical expenses, $6,780 of which were paid by her
first-party insurer, Colonial Insurance Company of California.
Denley thereafter filed a complaint against Rice alleging
negligence and seeking compensation for her medical expenses
(without excluding medical expenses which had been paid by her
insurer), lost wages, pain and suffering, and other damages.
Rice was insured by Allstate Insurance Company. In April
1993, before Denley instituted suit against Rice, Colonial advised
Lloyd Hoppner (Denley's attorney in the Rice litigation) that "we
will pursue our own subrogation with Allstate Insurance in this
matter." Over the course of the next year, Colonial wrote Allstate
on three occasions, seeking reimbursement for the medical expenses
it paid on behalf of Denley. Colonial's final letter in this
series stated in part: "After your investigation, please let us
hear from you concerning payment of our subrogation claim. We do
not want your settlement check issued jointly to our insured and
Colonial Insurance Company of California." It also appears that
Colonial and Allstate agreed to submit to arbitration Colonial's
subrogation claim. Rice asserts that he was unaware of the
communications between Allstate and Colonial regarding the latter's
efforts to have Allstate reimburse it for the Denley medical
expenses it had paid.
In 1994 Denley filed for voluntary bankruptcy. In her
bankruptcy petition Denley listed Colonial as a potential creditor
in connection with a "[p]ossible claim"related to her automobile
accident for an unknown and disputed amount. [Fn. 1]
On April 14, 1995, a settlement conference was held
before Superior Court Judge Richard Savell. Denley and her
attorney were present, as were Rice's attorney and a representative
of Allstate. The parties purported to reach a settlement in open
court for "the full total sum of $20,000 full, normal releases."
[Fn. 2] Just prior to the conclusion of the in-court proceedings,
Rice's attorney (Clifford Holst) inquired: "I just want to make
sure it's clear. This would include any and all liens and costs
and fees incurred?" Judge Savell replied "Yes,"and Denley's
attorney responded, "Yeah. Well, those have all been discharged by
Subsequently, on April 18, 1995, Rice's attorney wrote to
Denley's attorney, stating that Denley "will have the
responsibility to deal with Colonial on the first-party lien."
Counsel for Denley responded, stating in part:
We did not state on the record that my client
would "have the responsibility to deal with Colonial on the first-
party lien." We did state on the record that my client would be
responsible for any "liens." Colonial does not have a "lien."
Colonial asserted a right of subrogation under its policy . . . .
Counsel for Rice responded with a letter and a check for
$15,000.30, stating, "This is the sum owed your client, less the
amount owed Colonial."
Denley then moved for an order reducing the settlement
agreement to judgment. Rice opposed the motion, contending that
there was a material issue of fact as to settlement terms, and that
the settlement was therefore unenforceable. After hearing oral
argument, Superior Court Judge Mary E. Greene granted the motion to
reduce the settlement to judgment, ruling that the settlement
agreement included only liens, and that liens and subrogated claims
were "two different things."[Fn. 3]
The superior court then entered judgment on Denley's
motion. The superior court's judgment also included prejudgment
interest from April 18, 1995, and an award of $514.52 in attorney's
Rice now appeals from this judgment.
III. STANDARD OF REVIEW
In ruling upon a motion to enter judgment on a settlement
agreement reached on the record, the superior court "has discretion
to deny the motion if the court determines that material issues of
fact exist as to the existence of the settlement agreement or to a
material term of the settlement." Pavek v. Curran, 754 P.2d 1125,
1126 (Alaska 1988). Accordingly, we review the superior court's
ruling for clear abuse of discretion. Barber v. Barber, 837 P.2d
714, 716 n.2 (Alaska 1992).
A. Did the Parties Enter Into a Settlement?
In Interior Credit Bureau, Inc. v. Bussing, 559 P.2d 104,
106-07 (Alaska 1977), we said that
where there is no dispute as to the material
terms of a settlement, the provisions of Civil Rule 81(e) are met
if both parties admit either in writing filed with the clerk or
orally in open court that a settlement had been reached. [Fn. 4]
Before this court, Rice contends that the superior court
erred in holding that he had agreed to settle the Denley litigation
on terms that excluded Colonial's interest. Rice further argues
that his reasonable expectations were that the settlement would
extinguish all claims arising out of the Denley litigation. In
support of this contention, Rice asserts he was aware of Denley's
pending bankruptcy case and the fact that in the bankruptcy court
Denley had identified Colonial as a creditor. Rice additionally
argues that the terms "lien"and "subrogation claim"have been used
interchangeably, citing 3 Marilyn Minzer et al., Damages in Tort
Actions, sec. 17.21, at 17-77, -, at 17-82 (1991), and notes
that Colonial would have a lien on any monies recovered by Denley.
Rice asks that this court hold that no contract was
formed, or if we conclude that a settlement agreement was reached
that excluded Colonial's medical payment interest, that we grant
him rescissionary relief on the basis of either Rice's unilateral
mistake as to a material term, or void the agreement on the basis
of the parties' mutual mistake. Alternatively, Rice argues that
since there exists a disputed factual issue as to the parties'
intent to form a contract on the terms stated by the superior
court, the case should be remanded for trial.
Denley, in turn, argues that the superior court's
judgment should be sustained since no issue of material fact as to
the terms of the settlement has been raised. Denley emphasizes
that the term "lien"is a well-defined legal word of art and that
Colonial never possessed either a statutory, equitable, or
contractual lien. In this regard, Denley states that not only has
she declined to sue for the subrogree's claim, but that Colonial
has specifically advised both Denley and Allstate that it would
prove its own subrogation claims, and is pursuing these claims
against Allstate in arbitration proceedings.
Based on our study of the record, we think that Rice has
made out a strong case for reversing the superior court's holding
that the settlement agreement contemplated that Denley would not
pay Colonial's claim from the settlement proceeds. We reach this
conclusion for the following reasons.
First, it is clear that the terms "lien"and "subrogation
lien"are used interchangeably. Our own decisions reflect this
usage. In Grow v. Ruggles, 860 P.2d 1225, 1226 (Alaska 1993), Grow
drove his vehicle into Ruggles's vehicle, and Ruggles's insurer
paid some of her medical bills out of her medical payment policy.
We stated that Ruggles's insurer "thereafter claimed a lien and
subrogation rights against Grow's liability policy." Id. In
determining whether Ruggles owed Grow attorney's fees under Alaska
Civil Rule 68(b)(1), we recognized that Grow's settlement offer
required Ruggles to reimburse her insurer for the payments she had
received for her medical bills. See id. at 1227-28. In Jaso v.
McCarthy, 923 P.2d 795, 802 n.11 (Alaska 1996), this court affirmed
its characterization of Ruggles's insurer's interest as a
"subrogation lien." We said, "Allstate Insurance . . . asserted a
subrogation lien against the defendant's liability policy for
payments made to cover the plaintiff's medical expenses." Id.
Grow and Jaso demonstrate that "subrogation lien"has been used to
refer to the type of interest Colonial possesses. [Fn. 5]
Second, when Colonial paid Denley's medical expenses, it
in effect received an assignment by operation of contract and law
of Denley's claim (to the extent of payment) against Rice. In the
event Rice or Allstate transferred funds in settlement of Denley's
claim, including the portion which had been subrogated to Colonial,
Colonial had a claim on these funds to the extent of its payment.
Such a claim could be enforced either as a constructive trust or as
an equitable lien. See Restatement of Restitution sec.sec. 160-161
(1937). All of this demonstrates that there are circumstances in
which a subrogated claim can accurately be described as imposing an
encumbrance on the settlement funds; it thus falls within the
"lien"language of the agreement.
If it was clear that both parties intended that the
settlement agreement was only for the nonassigned portion of
Denley's claim, there would be no basis for Colonial to assert lien
rights against the settlement proceeds. Whether the parties so
intended is unclear. Rice's attorney used the lien language and,
as noted above, subrogation rights can give rise to liens on
settlement proceeds. Further, Denley's complaint included a
request for medical expenses without excluding medical expenses
which had been paid by her insurer.
These facts are favorable to Rice's position. However,
in Denley's favor, we note that Colonial asserted a claim against
Allstate; this indicates that Colonial intended to pursue
subrogation separate from Denley's complaint. It is possible that
Rice knew, or should have known, that Denley's claim did not
encompass Colonial's subrogated interest. We conclude that this
possibility requires a remand to the superior court to determine
whether the parties reached a meeting of the minds, rather than a
ruling as a matter of law that the settlement included Colonial's
subrogated claim. [Fn. 6]
B. Prejudgment Interest, Costs, and Attorney's Fees
Rice also challenges the superior court's award to Denley
of prejudgment interest from April 18, 1995, the date of Rice's
counsel's letter in which he wrote that Denley was responsible for
the "first-party lien"of Colonial. In its order granting
prejudgment interest the superior court determined that Denley "is
entitled to prejudgment interest from the date of the letter
written by Mr. Holst which breached the settlement agreement, April
18, 1995."Rice contends that this date is an inappropriate
starting point for the running of prejudgment interest since he
"was unaware of any dispute regarding the settlement agreement
until Mr. Hoppner replied to this letter approximately six weeks
later, denying any responsibility of the plaintiff to repay her
insurer and rejecting several sections of the release."[Fn. 7]
In opposition, Denley argues that the settlement
agreement was breached by Rice when, on April 18, 1995, he refused
to make full payment to Denley of the settlement amount. We
conclude that Denley's position is correct.
At what point prejudgment interest begins to accrue is a
question of law subject to this court's independent judgment.
Tookalook Sales and Serv. v. McGahan, 846 P.2d 127, 129 (Alaska
1993). In cases not involving personal injury, death, or property
damage, "all damages 'should carry interest from the time the cause
of action accrues, unless for some reason peculiar to an individual
case such an award of interest would do an injustice.'"Id.
(quoting State v. Phillips, 470 P.2d 266, 274 (Alaska 1970)).
Assuming on remand that the superior court again determines there
was a settlement contract entered into between Rice and Denley, and
that it did not cover Colonial's claim, we note our agreement with
the superior court's ruling that April 18, 1995, is the appropriate
date for the commencement of prejudgment interest. April 18, 1995,
marks both the time for performance under the settlement contract
and the date that Denley's cause of action for breach of the
settlement agreement accrued.
The superior court also awarded Denley attorney's fees
and costs associated with her motion to reduce the settlement
agreement to judgment. Alaska Civil Rule 82(a) provides that "the
prevailing party in a civil case shall be awarded attorney's fees
. . . ." Alaska Civil Rule 54(d) authorizes the award of costs to
the prevailing party. Because the money judgment in this case
merely represented enforcement of the prior settlement agreement,
and because the attorney's efforts needed to obtain relief were
minimal, the superior court varied the award of attorney's fees
called for by Rule 82(b)(1) and awarded Denley $514.52, or thirty
percent of her attorney's fees incurred after April 18, 1995. [Fn.
This court will reverse an award of attorney's fees only
if the award is arbitrary, capricious, manifestly unreasonable, or
the result of an improper motive. Mount Juneau Enter., Inc. v.
Juneau Empire, 891 P.2d 829, 834 (Alaska 1995). If upon completion
of the remand proceedings it is determined that Denley is the
prevailing party, then Denley is entitled to an award of attorney's
fees based on Denley's attorney's services subsequent to the date
of the remand. (Such an award would be in addition to the $514.52
attorney's fee award that was originally granted to Denley.)
The judgment of the superior court is REVERSED and
REMANDED for further proceedings not inconsistent with this
Denley's Schedule F listing of creditors filed in the
bankruptcy case also listed Allstate for an unknown amount in
regard to its "[p]ossible claim for attorney fees re auto
accident,"as well as Michael and Eileen Rice for an unknown amount
for a potential claim if Denley lost her suit against Rice.
Judge Savell's statement reads in full as follows:
[W]e've conducted a settlement conference.
We're on the record to put the settlement on the record. The case
will settle, Counsel, as I understand it for the full total sum of
$20,000 full, normal releases, and it is subject to approval by the
Trustee in Bankruptcy, but that approval or disapproval will not
reopen negotiations. Correct?
Judge Greene ruled as follows:
I find that the parties reached an agreement
for the payment of $20,000.00 for the full total sum, and that that
was to include any and all liens and costs and fees. The fact of
an agreement, I believe, is absolutely clear from the record, and
there is no material fact as to what those terms are. What there
is an issue as is to what those terms mean, and as I read Pavek and
the other cases involving settlement agreements, what that means is
that there is a dispute as to the meaning of the term as to whether
or not it should -- whether the term, "liens,"includes a
subrogated claim. . . . Clearly, whatever the plaintiffs owed
someone else, which was what a lien would necessarily be, could
have been discharged in that bankruptcy, and if it was what the
plaintiffs owe the insurance company versus what the insurance
company is owed by another insurance company, those are two
different things, and that appears to me what was being discussed
on the record and was agreed to by all parties.
By virtue of that, I will grant the
motion to reduce the settlement agreement to writing.
A settlement is a contract "provided that it meets minimal
contractual requirements." Singh v. State Farm Mut. Auto.
Ins. Co., 860 P.2d 1193, 1199 (Alaska 1993).
One commentator notes that there is "confusion of subrogation
and liens." 3 Marilyn Minzer et al., Damages in Tort Actions sec.
17.24, at 17-145 (1991). The commentator states:
[A]n insurer may exercise its right of
subrogation through a variety of procedural devices, including a
direct action against a tortfeasor, intervention on insured's third
party action, exercise of a lien, or an action against the insured
Id. at sec. 17.21, at 17-77.
As a consequence of this holding, we conclude that it is
unnecessary to address any other issue raised by the parties
concerning the validity of the settlement agreement.
Rice additionally argues that if there was any breach of the
settlement agreement, it did not occur until defense counsel sent
Denley a check for $15,000.30 for full satisfaction of the
The superior court ruled as to attorney's fees and costs as
Plaintiff is entitled to attorney fees under
Civil Rule 82. The court finds that an award of damages under Rule
82(b)(1) should be varied because it would not be equitable to do
so since the money judgment resulting here is merely enforcement of
the settlement and the attorney's work necessary to obtain the
recovery is small. Accordingly, the court will award 30% of
plaintiff's attorney fees incurred after April 18, 1995. Counsel
must submit detailed information regarding the billings. Costs
incurred after April 18, 1995, are to be awarded by the clerk of