Must Utah pay attorney fees when recovering medical assistance from settlement proceeds? State of Utah v. McCoy Explained

In State of Utah v. McCoy, the Utah Supreme Court addressed when the state must pay attorney fees under the Utah Medical Benefits Recovery Act when recovering medical assistance from settlement proceeds.

Background and Facts

David Sevey was injured in a slip-and-fall accident at a K-Mart store. The state paid $8,846.92 in medical assistance. Sevey’s attorney, John McCoy, requested consent from the Office of Recovery Services to represent the state’s interests in pursuing the tortfeasor. When ORS refused consent and indicated it would pursue recovery directly, McCoy explicitly excluded the state’s claim from his settlement negotiations with the defendant’s insurer. McCoy settled for $27,800 and placed $8,846.92 in his trust account. The state then sued McCoy to recover the full amount without paying attorney fees.

Key Legal Issues

The court addressed three main issues: (1) whether federal anti-lien statutes preempted the state’s recovery; (2) whether the state could recover from settlement proceeds when the attorney explicitly excluded the state’s claim; and (3) whether the state must pay attorney fees when recovering directly from settlement proceeds without having consented to the attorney’s representation.

Court’s Analysis and Holding

The court rejected the federal preemption argument, finding that settlement proceeds don’t become the recipient’s “property” until after state reimbursement. Regarding recovery rights, the court held that under the Act’s assignment by operation of law provisions, the state was entitled to recover the full $8,846.92 regardless of McCoy’s exclusion of the claim. Most significantly, the court interpreted the attorney fee provision broadly, finding that while the statute limits costs to cases with consent, the attorney fee language simply states the state “may not pay more than 33% of its total recovery for attorney’s fees” without requiring consent.

Practice Implications

This decision establishes that attorneys can recover fees from the state even without consent when the state chooses to recover from settlement proceeds. However, practitioners must still comply with notice requirements and cooperation duties. The court noted that while this outcome may seem unfair to injured parties, it reflects the legislature’s policy choice in structuring the Medical Benefits Recovery Act.