Priority Among Liens

Posted by Matthew Garretson

Question:
Is there priority among liens? For example, if there is an ERISA "lien" and a federal (military) lien, is there priority among the liens? Our client switched insurance during treatment and has these two liens and a state hospital (statutory) lien. It would seem that the statutory liens take priority over the contractual or ERISA lien. Any thoughts?

-Arizona Attorney

Answer:
The following statement, recently made by the Texas Supreme Court in the context of an ERISA lien dispute, is a concise illustration of the priority of liens:

“The three varieties of subrogation—equitable, contractual, and statutory—represent three separate and distinct rights that, while related, are independent of each other. Independent, however, does not mean co-equal. We generally adhere to the maxim that “equity follows the law,” which requires equitable doctrines to conform to contractual and statutory mandates, not the other way around. Where a valid contract prescribes particular remedies or imposes particular obligations, equity generally must yield unless the contract violates positive law or offends public policy.” See Fortis Benefits v. Cantu, — S.W.3d —-, 2007 WL 1861000 (Tex.) (Jun 29,2007).

Statutory liens – such as Medicare, Medicaid, or VA/military liens, should have first priority. Following this are contractual liens such as ERISA liens, which must be based upon contractual terms, so long as those terms do not run afoul of statutory language. After that are equitable liens (not in the context of Sereboff v. Mid Atlantic, which also uses the term to describe a contractual lien which meets the definition of “equitable relief”) founded not in contract or statute, but mere principles of equity.

In our practice, which heavily revolves around lien resolution, we have always taken the stance with ERISA lien holders that while their lien may be valid, it must take a back seat to statutory governmental liens held by Medicare and Medicaid. It has also generally been our practice that among statutory liens, Medicare and VA/military liens generally have first priority since they are federal, then Medicaid as pursued by the state government, and finally hospital liens which, although statutory, are also private and take a back seat to public funds.

I hope this information helps.