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Kendrick v. Standard Oil Co.

MARCH 23, 1967.




Appeal from the Circuit Court of Cook County; the Hon. BEN SCHWARTZ, Judge, presiding. Affirmed.


This is a consolidation of two appeals: Theodore Kendrick appeals from a summary judgment order which held that the United States of America was the rightful owner of a fund deposited with the Clerk of the Circuit Court, and the attorneys for Kendrick appeal from an order dismissing their petition for intervention and for the declaration of an attorney's lien. Kendrick, a war veteran, was injured in an accident in November, 1959, and was confined in the Veterans' Administration Hospital at Hines, Illinois, from November 20, 1959, to June 16, 1960. As an honorably discharged veteran he was admitted to the hospital because, at the time of his injuries, he was unable to pay the necessary expenses for medical services. The principal issue concerns the right of the United States (on behalf of the Administrator of Veterans' Affairs) to recover the reasonable costs of the treatment rendered him during his hospitalization.

The day before his discharge from the hospital, Kendrick voluntarily signed a document entitled "Power of Attorney and Agreement" whereby he transferred to the administrator his claims against any third parties who, because of their tortious conduct, might be liable to him for the cost of his hospital care. On March 20, 1961, he filed a complaint against the Standard Oil Company and Charles and Teddy Tarr to recover for the personal injuries he sustained. Two days later the administrator notified him through his attorneys, and the Tarrs through their insurer, of a lien in the amount of $5,061.98, asserted pursuant to the Illinois Hospital Liens Act, against any proceeds of a suit or settlement arising out of Kendrick's claim. On September 28, 1964, an agreed judgment of $38,000 was entered against the Tarrs, and by agreement Kendrick took nothing by his suit against Standard Oil.

The Tarrs, stating that they were disinterested parties to the controversy between Kendrick and the administrator, petitioned the court to accept their check of $5,061.98 payable to Kendrick and his attorneys out of the $38,000 judgment and to hold the check until presented with a valid release of the hospital lien or further order of the court. The petition was granted and the check was deposited with the clerk. Kendrick then filed a third-party complaint against the United States alleging that the administrator was not entitled to a hospital lien under the Illinois statute and that the agreed judgment was not intended by the Tarrs or himself to compensate him for the hospitalization costs. The United States moved to dismiss on the grounds of sovereign immunity. Its motion was granted and it then asked, and was given leave, to intervene. Its petition in intervention referred to the agreement entered into by Kendrick, the notice of lien given to the defendants, the entry of the judgment and the deposit of the check with the clerk of the court; and it asserted a lien right and claim to the deposited fund. Kendrick's answer alleged that he was a veteran entitled under Federal law (38 U.S.C. § 610 (1958)) to hospital services without charge, that the assignment of a portion of his tort claim to the administrator was without consideration and was void since it sought to transfer a cause of action for personal injuries, and that the administrator was not entitled to assert a lien under the Illinois statute. The United States moved for summary judgment and its motion was granted.

Kendrick first urges several legal impediments to the administrator's recovery of the fund: (1) no Federal statute or regulation authorized the administration to request his execution of the document entitled "Power of Attorney and Agreement," (2) the agreement amounted to an assignment of a cause of action for personal injuries and as such was void under Illinois law and (3) no consideration was given in exchange for his signing the agreement.

Title 38 U.S.C. § 610, provides that:

"The Administrator, within the limits of Veterans' Administration facilities, may furnish hospital care which he determines is needed to —

"(1) a veteran of any war . . . for any . . . disability if such veteran is unable to defray the expenses of necessary hospital care. . . ." (38 U.S.C. § 610(a) (1958).)

This section has been construed to require that an honorably discharged veteran who has signed an affidavit that he is unable to defray his hospitalization expenses must receive treatment without charge. United States v. Harleysville Mut. Cas. Co., 150 F. Supp. 326 (DC Md 1957). It has been held that the administrator lacks authority to devitalize this right in a veteran or to condition its enjoyment by regulation. United States v. St. Paul Mercury Indemnity Co., 133 F. Supp. 726 (DC Neb 1955).

Federal laws also provide that the administrator has authority to make rules and regulations necessary or appropriate to carry out the laws administered by the Veterans' Administration (38 U.S.C. § 210 (c) (1958)) and that he shall prescribe rules and procedures governing the furnishing of hospital care and limitations in connection with the furnishing of such care (38 U.S.C. § 621(1), (2) (1958)). Acting under this authority the administrator adopted the following regulation:

"Persons hospitalized . . . who it is believed may be entitled to hospital care or medical or surgical treatment or to reimbursement for all or part of the cost thereof, by reason of statutory, contractual or other relationships with third parties, including those liable for damages by reason of negligence or other legal wrong, will not be furnished hospital treatment without charge therefor to the extent of the amount for which such third parties are or will become liable, and such patients will be requested to execute appropriate assignment or other instrument which will entitle the Administrator of Veterans Affairs — on behalf of the United States — to receive and to collect, directly or as assignee, from third party or parties, to the extent of the amounts for which such third party is liable, the cost of such care and treatment as determined under the applicable rules and regulations. . . . Notice of assignment will be mailed promptly to the party or parties believed to be liable. When the amount of charges is ascertained the bill therefor will be mailed such party or parties, . . ." (16 FR 12093, Nov 30, 1951; 38 C.F.R. § 17.48(d) (1951).)

The regulation does not purport to authorize collection of the hospital costs from the veteran; it is intended to allow the administrator to recover from any third party liable to the veteran. As the court observed in United States v. St. Paul Mercury Indemnity Co., 238 F.2d 594 (8th Cir 1956), the purpose of the regulation is evidenced by its provisions for the taking of an "assignment" by the administrator of any such rights as the veteran may have, for the billing of the third party by the administrator and for the right of the administrator to make collection from the third party. In the instant case the administrator did not demand that Kendrick sign the agreement as a condition to his admission to the hospital or coerce him to sign it before he was discharged. It is undisputed that on the last day of his hospitalization Kendrick was asked to sign and voluntarily did so. The regulation comports with the above cited statutes and so has the force of law. Jones v. United States, 189 F.2d 601 (8th Cir 1951). The administrator acted within his authority when he obtained from Kendrick the transference of his claim against his tort-feasors for the amount of the hospital expenses.

Kendrick cites North Chicago St. R. Co. v. Ackley, 171 Ill. 100, 49 N.E. 222 (1898) and Wilcox v. Bierd, 330 Ill. 571, 162 NE 170 (1928) in support of his position that the agreement was an assignment of a cause of action for personal injuries and was violative of the public policy of Illinois and void. We believe that the agreement did not violate the public policy of Illinois or Federal policy. The Illinois Hospital Liens Act authorizes a nonprofit hospital which has treated an injured person to recover the amount of its reasonable charges from the third party liable to the injured person; the statute accomplishes this by granting the hospital a lien upon the claims and causes of action of the injured person. Ill Rev Stats, (1965), c 82 § 97. A comparable Federal statute, enacted to supplement the existing means of recovery by the United States of the cost of hospitalization it is compelled to furnish, provides for collection from the third party by subrogating the United States to any right or claim which the injured person has against the third party. 42 U.S.C. § 2651 (1963). (In his motion for summary judgment the administrator relied solely on the agreement; he did not utilize the Federal statute because it did not become effective until two and a half years after Kendrick was hospitalized, and he abandoned his claim of a lien pursuant to the Illinois statute because Federal policy requires that the administrator's method of recovery be uniform throughout the nation. (United States v. Harleysville Mut. Cas. Co., supra.)) It is true that the agreement is drafted in terms of an assignment:

"For a valuable consideration I hereby assign to the Administrator . . . to the extent hereinafter indicated, all claims, demands, entitlements, judgments, administrative awards, and the proceeds thereof, and all causes of action which I now have, and which I may have hereafter, by reason of any liability of third parties entitling me to hospital care, or medical or surgical treatment, or to reimbursement for all or part of the cost of any ...

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