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Can You Collect Interest on a County Hospital Debt?

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One of the issues we have seen the plaintiff’s bar raise recently is whether it is a violation of Welfare and Institution Code section 17401 for an agency to collect interest on a debt owed to a county hospital. The answer depends on how the language of Welfare and Institution Code section 17401 is interpreted, and the court opinions are in conflict and impossible to reconcile. Thus, unfortunately, as in many areas of the FDCPA, the collection of interest on debts owed to a county hospital is not black and white. The purpose of this article is to provide some guidance as to the factors and parameters the courts employ in their analysis of determining how to interpret Welfare and Institution Code section 17401.

A. Welfare and Institution Code Section 17401 Protects Indigent County Hospital Debtors

Welfare & Institutions Code § 17401 provides, in its entirety, as follows:

§17401. Liens; suspension of enforcement; release; subordination; exempt property

No lien taken by a county pursuant to Section 17109 for care provided to a person in a county hospital shall be enforced against the home of that person (1) during his lifetime or that of his spouse, or (2) during the minority of his children if they reside in the home, or (3) during the lifetime of any dependent adult child who resides in the home and who is incapable of self-support because of mental or physical disability.

Any lien taken by a county for county hospital care shall be released immediately when the amount owing the county for that care is paid. The county shall render to a person to whom care has been provided in a county hospital a statement setting forth the charges upon which its claim for reimbursement is based. No interest or carrying charge shall be charged in connection with any debt incurred for county hospital care.

If a person against whose home a lien has been imposed for county hospital care desires to sell his home, the county shall release its lien against the original home and transfer it to the new home, provided that it finds that its security will not be impaired. If the person desires to borrow money for the purpose of making improvements to his home, using his home for security, the county shall subordinate its lien to the mortgage or other security interest given for the loan, if the county finds that its security will not be impaired.

If a person against whose home a lien has been imposed for county hospital care has the home acquired by a public entity for public use, the county shall release its lien against the original home and transfer it to any new home the person acquires.

No lien shall be taken pursuant to Section 17109 against the home of a person for care provided him in a county hospital, if he was confined to the county hospital as the result of a diagnosis of tuberculosis.

No lien shall be taken pursuant to this part against the home or other property of any relative, except for a parent of a minor or a spouse, liable for the support of a person confined in a county hospital or otherwise receiving aid under this part.

In no way do the authorizations and limitations expressed in this section enlarge upon the power of counties to take or impose liens under existing law. Nothing contained in this section shall be construed to permit a county to impose a lien for aid or other assistance granted under any public assistance program established by this code for which federal funds are received by this state, or under the aid to the potentially self-supporting blind program. (Emphasis added).

Of course, if section 17401 prohibits the collection of interest from all county hospital debtors, a collector who attempt to collect interest from these debtors violates section 17401, and the collector would be subject to FDCPA liability under 15 U.S.C. § 1692e(5), which prohibits collectors from threatening “to take any action that cannot legally be taken.”

Whether the collection of such interest violated section 17401 boils down to whether the following language applies to all county hospital debtors or to those who are subject to a lien: “No interest or carrying charge shall be charged in connection with any debt incurred for county hospital care.” This has been addressed by one appellate division opinion, Espinoza v. Financial Credit, Kern County Superior Court Appellate Division, case no. CI-147399; however, this opinion was not published. The Northern District of California interpreted section 17401 in Lal v. CBA Collection Bureau, case no. C-01-1447 MMC, and this opinion was also not published. Finally, it appears that one trial court has addressed the scope of section 17401, and without the guidance of any published court opinions, decided the case in direct contradiction to the Espinoza and Lal decisions.

B. Under Espinoza and Lal, Section 17401 Applies Only if the County Hospital Has Perfected a Lien Against Its Debtor

In Espinoza v. Financial Credit, Kern County Superior Court Appellate Division, case no. CI-147399, the collection agency was attempting to collect interest on a debt incurred at a county hospital from a non-indigent debtor. The debtor argued that Welfare and Institutions Code section 17401 prohibited the collection of interest on debts owed to county hospital. The collection agency believed that Welfare and Institutions Code section 17401 was limited to instances where the Medically Indigent Adult Program was implicated and the county took a voluntary lien on a patient's home as a condition for providing treatment. The debtor was not indigent and the county had not taken a lien on the debtor’s home. The trial court decided that Welfare and Institutions Code section 17401 prohibited the collection agency from collecting interest. The collection agency appealed to the Appellate Division of the Kern County Superior Court. On October 5, 2000, the Appellate Division reversed the trial court’s decision, holding that the collection agency could collect interest on the debt incurred at the county hospital. The Appellate Division also ordered its opinion published, but the order was issued after the Appellate Division’s ruling had become final on October 20, 2000. Thus, the Appellate Division was divested of jurisdiction on October 20, 2000, and its publication order had no effect.

The Espinoza Court based its appellate decision after interpreting section 17401 in the Court’s October 5, 2000 ruling in. In its analysis, the Court went beyond the plain language of the statute to look at the statute as a whole. Taken as a whole, the purpose of Welfare and Institutions Code section 17401 is to address enforcement, suspension, release, subordination, and limitation of liens taken by a county hospital. Section 17401 is expressly applicable to “liens taken by a county for county hospital care” against the home. (Welf. & Inst. Code § 17401.) From even a cursory examination of the statute, every paragraph of Section 17401 sets or clarifies restrictions on a county hospital’s ability to take and enforce a lien against the home of a person receiving county hospital care.

If interpreting section 17401 was limited to an analysis of the plain language of that single sentence in the statute, the resulting interpretation would be out of context with the remaining language in Welfare and Institutions Code § 17401. Such an interpretation would be diametrically opposed to the plain meaning of the statute as a whole. “The words of the statute must be construed in context, keeping in mind the statutory purpose ... .” Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387. Such an approach is contrary to the rules of statutory construction. As stated by the Supreme Court, “the meaning of [a statute] may not be determined from a single word or sentence; the words must be construed in context, and provisions relating to the same subject matter must be harmonized to the extent possible.” Title Insurance & Trust Co. v. County of Riverside (1989) 48 Cal.3d 84, 91 (emphasis added).

The Supreme Court has already construed Section 17401 in a manner harmonious with the entire statutory scheme. Welfare and Institutions Code section 17401 “is contained in part five of division 9 of the Welfare & Institutions Code, which relates to general assistance programs (county relief to indigents). Section 17109 thereof provides that as a condition to the grant or continuation of aid to an indigent, the county may require the transfer of property or estate therein or lien thereon, as specified by the Board of Supervisors, as security for the monies so expended. Section 17401 relates to the enforcement of such liens.” Ogden v. Workman’s Comp. Appeals Board (1974) 11 Cal.3d 192, 203 (emphasis added).

The Court rejected the debtor’s argument that Lara v. Board of Supervisors (1976) 59 Cal.App.3d 399 required the Court to analyze the single sentence alone as a separate statement of law. The Lara Court had affirmed that a county may assign a debt to a private collection agency for collection, and briefly summarized the statutory scheme of Welfare and Institutions Code section 17400-17410 in a footnote. The footnote provides, in its entirety, as follows:

Welfare and Institutions Code sections 17400-17410 deal with termination and recovery of county assistance by the county. Section 17400 provides for the subordination and foreclosure of liens taken against the property of recipients of county medical care. Section 17401 provides limitations on the enforcement of liens so as to protect the recipient's home. It further prohibits charging interest in connection with any debt incurred for county hospital care, and allows the county to subordinate its lien in proper circumstances to allow a homeowner to improve on his property. The county's use of these liens is further limited by section 17407 and their release is provided for in section 17405. Section 17402 gives counties the power to attach the estates of recipients. Sections 17403-17404 provide the procedure and limitations on that procedure for suing former recipients who have subsequently obtained property. Section 17409 provides a schedule of properties which are exempt from attachment. As hereafter explained, the collection agency, as assignee of the delinquent accounts, is subject to all equities and defenses available to the debtor against the county.

Lara, supra, 59 Cal.App.3d at 406, fn. 2 (emphasis added).

As clearly demonstrated by the Lara Court’s brief summary, the entire statutory scheme relates to liens taken by a county against the home of a person receiving county hospital care. “[S]tatutes or statutory sections relating to the same subject must be harmonized, both internally and with each other, to the extent possible.” Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387. Welfare and Institutions Code section 17401, individually, and Sections 17400-17410, as a whole, is in harmony; each and every statutory provision relates to the same subject; the scope of, and restrictions on, a county’s lien rights against persons with unpaid debts for county health care services.

Furthermore, general words or statements contained in a statute are necessarily limited by the scope of the statute. “Particular expressions qualify those which are general.” Civil Code § 3534. Civil Code section 3534 is an expression of the doctrine of ejusdem generis which holds that:

where general words follow the enumeration of particular classes of persons or things, the general words will be construed as applicable only to persons or things of the same general nature or class as those enumerated. [It] is based on the obvious reason that if the [writer] has intended the general words to be used in their unrestricted sense, [he or she] would not have mentioned the particular things or classes of things which would in that event become mere surplusage.

Harris v. Capital Growth Investors XIV (1991) 52 Cal.3d 1142, 1160.

The plain meaning of Welfare and Institutions Code section 17401, as discussed above, does not provide a blanket prohibition to interest charges on county hospital collections. Rather, Section 17401 is expressly limited in scope to situations involving county liens against the home of indigent persons receiving county health care. However, if one interprets the single sentence contained in Welfare and Institutions Code section 17401 as a prohibition to charging interest on all county hospital debts, then an ambiguity exists because such an outcome would leave Section 17401 uncertain and subject to more than one interpretation. Of course, if every sentence in a statute were read to stand on its own, independent from the remainder, there would be no end to the ambiguities. Nevertheless, assuming there is any ambiguity, the legislative history supports interpreting Welfare and Institutions Code section 17401 to prohibit interest charges solely in the context of county liens against indigent persons homes.

This article is not to be considered legal advice by the author or Ellis Law Group, LLP. Any person or agency with specific legal questions must consult with the legal counsel of their choice.

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