SHADE ≠ TREE OWNERSHIP

4415 W Lovers Lane, LLC v. Stanton
Dallas Court of Appeals, No. 05-17-01363-CV (July 12, 2018)
Bridges (opinion linked here), Myers, and Schenck
The Stantons sued 4415 W Lovers Lane, LLC and got a temporary injunction preventing the company from cutting down a large tree growing along the property line between them. The Stantons were building a house on their property, and they claimed the design of the house “was to include a large window to look out on to the large elm tree.” They argued removal of the tree “would diminish the current market and intrinsic value” of their property. The Court of Appeals dissolved the injunction, finding the Stantons had not established a probable right to recovery because they did not own the tree. Mr. Stanton testified that only about one-fifth of the trunk crossed over the property line onto his property, but argued the canopy (and resulting shade) covered half the house, and the tree provided privacy. But the appellate court was not convinced, citing a Texas Supreme Court opinion from 1900 holding that “a tree and all its roots and branches belong to the owner of the soil upon which its trunk stands.” And it noted that trees that start life on one property and grow onto a neighboring property do not automatically become boundary-line trees, and thus joint property, merely by touching a property line.

KMH SCOTX: INSURANCE AGENTS MAY KNOW MORE ABOUT REASONABLE AND NECESSARY MEDICAL EXPENSES THAN DOCTORS AND HOSPITALS

Gunn v. McCoy
Supreme Court of Texas, No. 16-0125 (June 15, 2018)
Justice Green’s opinion linked here
The central issue in this medical malpractice case was whether the plaintiffs put on legally sufficient evidence that the patient’s hypoxic brain injury was caused by the defendant doctor’s failure to administer fresh frozen plasma to counteract the patient’s severe blood loss, as opposed to being caused by naturally-occurring blood clots in the brain. The Court held that the jury could have reasonably accepted the testimony of plaintiffs’ expert over defendants’ expert and affirmed a multi-million judgment against the doctor.

But of more general significance was the Court’s holding regarding medical-expense affidavits. CPRC section 18.001 governs proving expenses by affidavit, and it is common to use section 18.001 affidavits as evidence of the reasonableness and necessity of past medical expenses. Unless a controverting affidavit is served as provided by section 18.001, an affidavit stating that the amount a person charged for a service was reasonable at the time and place that the service was provided and that the service was necessary is sufficient evidence to support a finding of fact that the amount charged was reasonable and that the service was necessary. To comply with this section, an affidavit must be made by “(A) the person who provided the service; or (B) the person in charge of records showing the service provided and the charge made.” Consistent with other parts of the CPRC, the amount listed on the affidavit must be limited to the amount actually paid or incurred, not the amount billed.

Typically, these affidavits are signed by someone in the medical provider’s office and, in this case, the plaintiffs submitted 14 provider affidavits regarding the reasonableness and necessity of the patient’s past medical expenses based on the amounts billed. Plaintiffs later withdrew those affidavits, however, and replaced them with affidavits from subrogation agents for the health insurance carriers that had actually paid the patient’s medical expenses. The new affidavits reflected the amounts actually paid. But defendants objected to these affidavits arguing that section 18.001 limits the proper affiants to providers or the record custodians for those providers.

The Court disagreed. It held that, in today’s complex healthcare marketplace, the “list price” charged by a medical provider bears very little resemblance to the price ultimately paid by an insurance carrier or the federal government through the Medicare or Medicaid programs. Indeed, “it is not uncommon or surprising that a given medical provider may have no basis for knowing what is a ‘reasonable’ fee for a specific service.” By contrast, insurance companies regularly negotiate with providers to agree upon the actual prices and maintain records and databases of both the list prices and the actual prices of specific treatments and procedures. The Court concluded that insurance agents are, therefore, “generally well-suited to determine the reasonableness of medical expenses.” In addition, although the Court acknowledged that doctors are in the best position to determine what medical care is necessary, “for better or for worse, in the context of our health care system, what is ‘necessary’ is often heavily influenced by insurance companies and by what treatments and procedures they are willing to cover.” So, the Court held the subrogation agents’ affidavits were sufficient under section 18.001 to establish the reasonableness and necessity of past medical expenses.

SCOT TWOFER ON “ULTRA VIRES”

Meyers v. JDC/Firethorne, Ltd.
Supreme Court of Texas, No. 17-0105 (June 8, 2018)
Justice Green’s Opinion linked here

City of Houston v. Houston Municipal Employees Pension System
Supreme Court of Texas, No. 17-0242 (June 8, 2018)
Justice Johnson’s Opinion linked here
The Texas Supreme Court issued two opinions on Friday, June 8, dealing with claims of governmental immunity and the concept of “ultra vires” actions. The cases reach different conclusions in applying immunity to different situations. In Meyers, the Court held a developer lacked standing to enjoin a county commissioner’s interference in a construction-application process over which the commissioner had no authority. In the Houston case, a dispute between two governmental bodies, the Court held the City had no discretion to circumvent a pension system’s determination of who was an “employee” for which the City was obligated to make pension contributions.

Meyers v. JDC/Firethorne, Ltd. involved a dispute between a land developer and an individual county commissioner in Fort Bend County. JDC/Firethorne complained that Meyers, the elected commissioner for the precinct in which JDC/Firethorne sought to develop a new subdivision, was improperly interfering with the processing of plat applications and construction plans it had submitted for several sections of the proposed development. The developer sued Meyers in his individual and official capacities, as well the County and its chief engineer. The claim against Meyers in his official capacity was based on the argument that he was acting ultra vires, i.e. outside his legal authority, in his efforts to have the chief engineer delay processing of the plat applications to “exact a concession” on a related project. Meyers filed a plea to the jurisdiction on governmental-immunity grounds, arguing that he was exercising his authority and acting within his discretion, not ultra vires.

The trial court denied the plea to the jurisdiction and entered an injunction ordering Meyers to “cease and desist … from instructing the [engineer] to ‘hold,’ ‘delay,’ or otherwise impede plats and construction plans submitted by JDC/Firethorne.” Meyers filed an interlocutory appeal, and the court of appeals affirmed. On review in the Texas Supreme Court, the parties continued to press their ultra vires arguments. The Supreme Court, however, took a different approach, sua sponte, and decided the core issue was whether the developer had standing to seek the injunction against Meyers.

The Court noted the plaintiff’s standing is essential to a court’s subject-matter jurisdiction, and has three elements: “the plaintiff suffered an injury, this injury is fairly traceable to the defendant’s conduct, and this injury is likely to be redressed by the requested relief.” The Court did not address the first two elements, finding the third dispositive. As the Court explained, “JDC/Firethorne’s insistence that Meyers has acted ‘without authority’ as to the plat-application process betrays the deficiency in standing—if Meyers has no legal power over the processing and presentment of plat applications, then JDC/Firethorne has not shown a substantial likelihood that its requested relief will remedy its alleged injury.” Under the County’s Regulation of Subdivisions, the county engineer was charged with processing plat applications and presenting them to the Commissioners Court. And Meyers “acts only as one member of a five-person body.” The Court noted, however, that the developer had sued “other defendants who could remedy its alleged injury”—the county engineer, the Commissioners Court, and the County. So, although the injunction against Meyers was vacated and the claims against him in his official capacity were dismissed, claims against him as an individual, as well as claims against the other defendants, remain in the trial court.

The second case, City of Houston v. Houston Municipal Employees Pension System, involved a dispute between two governmental entities, which the Court described as “a relationship that is not working out well.” Indeed, this was the Court’s second opinion addressing disputes concerning the Houston Pension System, which was organized and operates under section 6243h of the Texas Revised Civil Statutes. The City was required to contribute specific amounts to the Pension Fund for each City employee. To reduce its payment obligations, the City created three “local government corporations” and transferred many of its employees to those entities. The Pension System deemed all of the transferred individuals “employees” of the City, and a group of affected individuals, joined by the City, sued the Pension System. In Klumb v. Houston Municipal Employees Pension System, 458 S.W.3d 1 (Tex. 2015), the Court upheld the Pension System’s plea to the jurisdiction, holding its board did not act ultra vires when issuing its resolutions defining “employee” because the statute expressly granted that authority to the board.

After Klumb, the Pension System asked the City to provide payroll data and other related information on the transferred employees. The City did not provide the requested information, and did not contribute to the pension fund for those individuals. The Pension System sued for a writ of mandamus against the City, claiming it “acted ultra vires by failing to perform the purely ministerial function of providing the required employee information and by failing to budget for the retirement contributions.” The City filed a plea to the jurisdiction, which the trial court denied. The court of appeals affirmed, as did the Texas Supreme Court.

On the core issues, the Court held its holding in Klumb disposed of any argument concerning the Pension System’s statutory authority to define “employee,” and the statute “leaves no room for the City to exercise its discretion regarding whether the payments must be made” and the information provided. While the City retained discretion to determine how to comply, it had no discretion not to comply. Finally, the Court held the case was not rendered moot by 2017 amendments to the statute allowing the City to amortize its “legacy liability” over a thirty-year period.

UNINSURED MOTORIST COVERAGE REQUIRES LEGAL LIABILITY

Loncar v. Progressive County Mutual Insurance Co.
Dallas Court of Appeals, No. 05-16-00530-CV (May 24, 2018)
Justices Lang, Brown, and Whitehill (Opinion linked here)
Uninsured-motorist coverage protects you when you are injured or your car is damaged by another driver and that driver doesn’t have insurance that will cover your damages. Right? Not necessarily. The Dallas Court of Appeals affirmed a take-nothing judgment against a policyholder whose car was hit by a city fire truck because his claim against the city was barred by governmental immunity, and that precluded uninsured-motorist coverage under the terms of his policy.

Brian Loncar’s car collided with a City of Dallas fire truck in 2008, and Loncar sued the City and the fire-truck driver for personal injuries. The defendants filed a plea to the jurisdiction that was granted in part and denied in part. While the interlocutory appeal of the jurisdictional ruling was pending, Loncar amended his petition to add claims against Progressive, the primary insurer, and Chubb, the excess insurer, for their refusal to pay on his policies. Ultimately, all claims against the City and its employee were dismissed on governmental immunity grounds, and the Texas Supreme Court denied review. The trial court subsequently granted summary judgment for both insurers, and Loncar appealed.

The appeal turned on the language of the uninsured-motorist provisions in Loncar’s policies. A Texas standard form endorsement to the Progressive policy required the insurer to “pay damages which an insured is legally entitled to recover from the owner or operator of an uninsured motor vehicle because of bodily injury sustained by an insured.” (Emphasis added, internal quotations omitted.) The Chubb excess policy used used a different form, with language similar to that of the primary policy. The Court of Appeals held the plain meaning of both policies was that Loncar could not recover under the uninsured-motorist provisions because he was not “legally entitled to recover” anything from the owner or operator of the fire truck in light of the defendants’ immunity. The Court also rejected several arguments by which Loncar sought to recover under the excess policy even if the primary policy did not cover his damages. (Loncar died of unrelated causes during the appeal; the Court proceeded as if all parties were alive, under Rule 7.1(a)(1) of the appellate procedure rules.)

BRIDAL SHOP’S CLAIM BASED ON THE “STIGMA” OF EBOLA IS A HEALTH CARE LIABILITY CLAIM

Texas Health Resources v. Coming Attractions Bridal and Formal
Dallas Court of Appeals, No. 05-17-00773-CV (May 16, 2018)
Wright, Fillmore, and Stoddart (opinion available here)
Coming Attractions Bridal and Formal sued Texas Health Resources (THR), claiming THR was responsible for the failure of its business. It alleged THR “negligently failed to heed the warnings” from the CDC and others regarding the imminent threat of an Ebola outbreak in the United States and did not provide its nurses with the necessary training, instruction, and protective equipment to prevent the spread of the disease. A nurse at a THR hospital treated an Ebola patient and contracted the disease. Before she was diagnosed, however, she traveled to Ohio and tried on wedding dresses at Coming Attractions. Once she was diagnosed with Ebola, the Ohio health authorities insisted the store close for cleaning. When the store reopened, it was unable to “dispel the perceived Ebola risk and stigma,” and the store closed permanently.

The Hospital moved to dismiss the claim on the grounds that it was a health care liability claim under Chapter 74 of the Texas Civil Practice & Remedies Code and that Coming Attractions failed to file an expert report as required by that statute. The trial court denied the motion, and the Hospital filed an interlocutory appeal. The Dallas Court of Appeals sided with THR, holding the claim was a health care liability claim and an expert report was required because the bridal shop’s allegations were “directly related to the provision of health care” and “directly implicate THR’s duties as a health care provider.” The safety duties THR allegedly violated are not “the types of duties that arise in an ordinary negligence case.” The appellate court also rejected Coming Attractions’ argument that it is not subject to Chapter 74 because it is not a “claimant” as defined in the statute. The Court noted that a claimant is any “person” who seeks to recover damages in a health care liability claim, and the term is not limited to patients or other natural persons.

LACHES BARS MANDAMUS IN ELECTION CASE

In re Martin
Dallas Court of Appeals, No. 05-18-00542-CV (May 10, 2018)
Francis, Evans (Opinion, available here), and Schenck
Christopher Martin and Tina Marie High Brumbelow are candidates in a run-off election for the office of district judge in Van Zandt County. A week before early voting was to begin, Martin sought a writ of mandamus ordering the Van Zandt County Republican Party Chair to declare Brumbelow ineligible to be a candidate in the run-off. Martin contended Brumbelow was not registered to vote in the district for six months prior to the election filing deadline as required by the Election Code. The Dallas Court of Appeals denied the petition, finding it was barred by laches. Mandamus is largely controlled by equitable principles, one of which is that “equity aids the diligent and not those who slumber on their rights.” The Court noted that Martin challenged Brumbelow’s eligibility almost two months after the primary election and less than a week before early voting in the run-off began and that Martin failed to explain why he did not challenge Brumbelow’s eligibility sooner. The timing of Martin’s petition effectively deprived Brumbelow of any opportunity to meaningfully respond, to marshal responsive facts and law, and to obtain counsel to defend the allegations before the early voting deadline. So, the Court concluded that Martin’s complaint was barred by laches. The Court also found that Martin failed to conclusively establish Brumbelow’s ineligibility and so did not establish that the Republican Party violated a “duty imposed by law” in refusing to declare her ineligible.

SPECIFIC-CAUSATION HURDLE TRIPS ANOTHER PLAINTIFF’S BENZENE JUDGMENT

E.I. DuPont de Nemours & Co. v. Hood
Dallas Court of Appeals, No. 05-16-00609-CV (May 8, 2018)
Justices Bridges (Opinion linked here), Myers, and Schenck
Holding the testimony of plaintiff’s experts was no evidence that benzene was the specific cause of a painter’s disease, the Dallas Court of Appeals reversed a $7 million judgment and rendered judgment for the defendant.

Virgil Hood worked for many years as an industrial painter, first for a tractor-trailer manufacturer and later for an airline. He was diagnosed with acute myelogenous leukemia (AML) in 2012, and filed a product liability lawsuit against several companies, including DuPont, alleging his exposure to benzene contained in products distributed by the defendants caused him to develop AML. After a jury trial, Hood was awarded just under $7 million.

The dispositive issue on appeal was whether the testimony of Hood’s experts was legally sufficient evidence to support the judgment. The Court followed the Texas Supreme Court’s direction in Havner to “undertake an almost de novo-like review and ... look beyond the expert’s bare testimony to determine the reliability of the theory underlying it.” Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 710 (Tex. 1997). As in Havner and many other cases, the plaintiff’s primary obstacle was to move beyond general causation—“benzene exposure is associated with AML”—and prove exposure to benzene (or other toxic substance) was the specific cause of his particular injury or disease.

Hood offered the testimony of industrial hygienist James Stewart, who “calculated Hood’s dose of lifetime benzene exposure,” and Dr. Sheila Butler, who used Stewart’s calculation and compared several epidemiological studies “to supply the alleged causal link between Hood’s lifetime cumulative benzene dose and his development of AML.” In excruciating detail, the Court analyzed the data, assumptions, methodology, and studies underlying the experts’ opinions, and found fatal flaws rendering them unreliable. Concluding the expert opinions were “no evidence of causation,” the Court reversed and rendered a take-nothing judgment.

DEFENSE COUNSEL AS “SUB-AGENT” OF INSURED CLIENT?

McCain v. Promise House, Inc.
Dallas Court of Appeals, No. 05-16-00714-CV (May 2, 2018)
Justices Bridges (Opinion linked here), Fillmore, and Stoddart
Citing a policy provision giving a liability insurer the right to settle a claim against its policyholder without the policyholder’s consent, the Dallas Court of Appeals enforced a Rule 11 settlement agreement signed by the policyholder’s attorney (retained by the insurer) despite the policyholder’s objection. The opinion provides a roadmap for enforcing Rule 11 agreements, while raising troubling issues about the relationships between an insured client, its insurer-retained attorney, and the insurer. Is an appointed counsel the “sub-agent” of the insured client?

McCain sued Promise House, alleging that his son had been physically and sexually abused while a resident there. Promise House had liability insurance with Arch, and the policy included a “sexual or physical abuse” endorsement. That endorsement provided Arch would have the “right and duty to defend” Promise House against any suit making such allegations. So, when McCain filed suit, Promise House filed a claim with Arch, and Arch retained counsel who began defending the lawsuit for Promise House. In the same paragraph imposing the duty to defend, the policy authorized Arch to, “at [its] discretion, investigate any act of ‘sexual or physical abuse’ and settle any claim or ‘suit’ that may result.” Within a month after answering the lawsuit, the attorneys for Promise House—provided by Arch—entered into a Rule 11 settlement agreement with McCain, securing a full and final release in exchange for a payment of $400,000. About two months later, however, Promise House objected to the “proposed settlement” and took the position its attorney—the attorney provided by Arch—did not have the authority to enter into the settlement agreement on its behalf. That’s where things got interesting.

Upon learning of Promise House’s position, McCain filed the Rule 11 agreement with the court, and amended his petition to assert breach-of-contract claims against both Promise House and Arch. McCain argued, among other things, that the signature of Promise House’s attorney alone made the agreement enforceable, and that Arch had both a right and a duty to accept the settlement. Promise House argued its attorney was not authorized to execute the Rule 11 agreement, and did so without Promise House’s knowledge, consent, authorization, or approval. Arch agreed the policy gave it the right to settle, but denied it was a party to any contract with McCain. The parties filed cross motions for summary judgment, and the trial court entered a take-nothing judgment against McCain.

On appeal, McCain argued Promise House’s policy gave Arch the absolute right to settle all claims, and “Arch, through its assigned defense counsel, authorized and approved the settlement”that bound Arch to pay the $400,000. The Court of Appeals agreed, and reversed and rendered judgment against both Promise House and Arch.

The Court’s analysis has two key components: enforcement of Rule 11 agreements and the relationships between the insurer, the insured, and defense counsel. The Court confirmed that “a written settlement agreement may be enforced even though one party withdraws consent before judgment is rendered on the agreement.” To enforce the agreement, the offended party must, as McCain did here, pursue a separate breach-of-contract claim and establish the elements of such a claim. Although the agreement in this case contemplated the settlement would be “memorialized in a final settlement agreement,” the Court held it contained all the essential terms and was enforceable. The Court did not discuss whether—apart from the insurance issues—Promise House had rebutted the presumption that “an attorney retained for litigation [has] authority to enter into a settlement on behalf of a client.” City of Roanoke v. Town of Westlake, 111 S.W.3d 617, 629 (Tex. App.—Fort Worth 2003, pet. denied); see also Karle v. Innovative Direct Media, Ltd., 309 S.W.3d 762, 765 (Tex. App.—Dallas 2010, no pet.). It does not appear from the opinion that McCain had any reason to question the authority of Promise House ‘s attorney of record at the time the settlement was negotiated.

The Court found the attorney’s authority to settle in the client’s insurance policy under which the lawyer was appointed: “Arch retained counsel to represent Promise House; thus Arch became Promise House’s agent, and the attorney became Promise House’s sub-agent.” To support this holding, the Court relied on language in Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex. 1987). The Court did not mention the Supreme Court’s later repeated characterizations of the cited language in Ranger as dicta. See State Farm Mut. Auto. Ins. Co. v. Traver, 980 S.W.2d 625, 628 (Tex. 1998) (citing American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994)). In Traver, the Supreme Court reiterated the long-standing principle that a lawyer’s sole duty is “unqualified loyalty” to the client, even when the lawyer has been appointed and is being paid by an insurer. 980 S.W.2d at 627-28 (citing Employers Cas. Co. v. Tilley, 496 S.W.2d 552, 558 (Tex. 1973)). Although the Court in McCain does not articulate how Arch became a party to the settlement contract if the only signature was by counsel for Promise House, it appears to presume the same counsel represented both the insurer and the insured. While some other jurisdictions hold an appointed defense counsel effectively has two clients (the insurer and the insured), Texas is decidedly a “one-client” state.

Nevertheless, as the Court recognized, the policy granted Arch the right to settle claims in its discretion. (Disputes between Promise House and Arch remain pending in a separate lawsuit.) But as demonstrated here, exercising this right can be complicated without participation by the insured. An insured’s interference with its insurer’s right to settle could in some circumstances breach the insured’s duty to cooperate, and thus potentially undermine coverage under the policy. And because the Stowers duty is owed only to the insured, the insured’s objection to the settlement would negate the insurer’s duty to accept a reasonable settlement offer, though not its right to do so.

On the other hand, no one suggests McCain did not enter into the settlement in good faith, relying on the apparent authority of the defendant’s counsel of record. And Arch, from which the attorney received instructions, unquestionably intended to fund the settlement. So, a disinterested observer might conclude the Court reached the right, “common sense” result, but left a number of thorny issues unresolved.

Many, if not all, of these issues were briefed by the parties, but are not addressed in the opinion. Stay tuned for further developments.

YES, THE TCPA PROTECTS LAWYERS’ SPEECH, TOO

Youngkin v. Hines
Supreme Court of Texas, No. 16-0935 (April 17, 2018)
Justice Lehrmann (Opinion, linked here)
During trial in a property dispute, Youngkin, an attorney, negotiated a settlement between his clients, the Scotts, and Hines. Youngkin recited the terms of the settlement into the court record as prescribed by Texas Rule of Civil Procedure 11. Hines later argued the settlement entitled him to full ownership of a tract of land but that the Scotts deeded him only partial ownership. Hines sued the Scotts for fraud and breach of the settlement agreement. Hines also sued Youngkin for participating in the Scotts’ allegedly fraudulent scheme by, among other things, entering into the Rule 11 agreement on the Scotts’ behalf while purportedly knowing the Scotts had no intent to comply.

Youngkin moved to dismiss under the Texas Citizens Participation Act, Texas’s anti-SLAPP statute. The trial court and the court of appeals denied Youngkin’s request, but the Supreme Court of Texas disagreed, finding the claims against Youngkin should be dismissed. The Legislature enacted the TCPA for the purpose of “safeguard[ing] the constitutional rights of persons to petition, speak freely, [and] associate freely.” The TCPA applies when a claim is based on or related to the exercise of one of those rights. Once a court determines that the TCPA applies, a plaintiff must put forward prima facie evidence of each element of its claim to avoid dismissal. Alternatively, a defendant can obtain dismissal by establishing a defense by a preponderance of the evidence.

The TCPA defines the exercise of the right to petition to include “a communication in or pertaining to ... a judicial proceeding.” Hines argued that Youngkin was merely speaking for his clients and was thus not exercising any personal First Amendment right entitled to protection under the TCPA, pointing to the purposes provision of the statute. The Court disagreed. It explained that the TCPA’s application is not restricted to activities protected by the First Amendment because the portion of the statute defining the “exercise of the right to petition” contains no such limitation. The Court ruled that under the plain language of the TCPA, Youngkin’s recitation of the Rule 11 agreement in open court was an exercise of the right to petition triggering application of the TCPA.

The Court then concluded Youngkin was entitled to dismissal because he established the affirmative defense of attorney immunity under the Court’s 2015 decision in Cantey Hanger, LLP v. Byrd. In Cantey Hanger, the Court held that an attorney’s liability to non-clients is limited to conduct outside the scope of his or her representation of his or her client or for conduct foreign to the duties of a lawyer. At bottom, the dispute between Hines and the Scotts turned on a disagreement over the substance of the settlement agreement. Youngkin’s negotiation of and subsequent advocacy for a favorable interpretation of that agreement in the service of his clients—“even if done improperly”—fell within the scope of his representation and thus afforded him attorney immunity and dismissal under the TCPA.

TEXAS SUPREME COURT ORDERS DISCOVERY TO DETERMINE REASONABLENESS OF HOSPITAL’S RATES

In re North Cypress Medical Center Operating Co., Ltd.
Supreme Court of Texas, No. 16-0851 (April 27, 2017)
Justice Lehrmann (opinion available here); Chief Justice Hecht dissenting (dissent available here)
Plaintiff sued North Cypress Medical Center Operating Co. (the “Hospital”), challenging the enforceability of the Hospital’s lien for medical services rendered to Plaintiff, who was uninsured. Noting the standard for discovery is lower than the standard for admissibility, the Court held the reimbursement rates a hospital receives from private insurance and federal healthcare programs are relevant to the reasonableness of charges to uninsured patients. The Court therefore required the Hospital to produce that information in discovery.

After providing emergency hospital services to Plaintiff following a car accident, the Hospital billed Plaintiff at its full “rack-rate” and asserted a hospital lien on that amount pursuant to Texas Property Code § 55.002(a), which allows hospitals a lien on money a plaintiff receives for medical expenses caused by the negligence of another person. After the Hospital and Plaintiff failed to reach an agreement on a reduced bill, Plaintiff sought a declaratory judgment that the Hospital’s charges were unreasonable and the lien was invalid to the extent it exceeded the reasonable and regular rate for the services the Hospital rendered. The trial court required the Hospital to produce documents and information concerning its reimbursement rates from private insurers and public payers such as Medicare and Medicaid for the same medical services provided to Plaintiff at the time in question. The Hospital sought mandamus relief, arguing the discovery sought was not relevant to the reasonableness of charges to uninsured patients because uninsured patients are not entitled to the benefits of negotiated rates. Several hospital systems filed amicus briefs in support of the Hospital’s position.

In its opinion ordering production of the contested documents and information, the majority noted that hospitals increasingly charge or quote a “full-price” rate but rarely actually collect that amount. The Court concluded the rates a hospital accepts as payment from the majority of its patients, even if they are differently situated than uninsured patients, are relevant to—but not dispositive of—the reasonableness of its charges for uninsured patients like the Plaintiff here. Because discovery sought must only be relevant to the cause of action, meaning it has “any tendency to make a fact ... more or less probable than it would be without the evidence,” the insured or negotiated rates were discoverable. The Court rejected the Hospital’s argument that the rates were confidential and proprietary, noting the insurance contracts could be produced pursuant to a confidentiality agreement.

The dissent observed that each patient, whether insured or not, is charged the full rate. Only if there is a negotiated rate with an insurance company or the government does a hospital agree to accept a lower rate, usually due to the benefits to the hospital of having increased patient volumes and ease of collections. The dissent noted that Plaintiff failed to show the rates charged by the Hospital were different than the rates charged to any other similarly-situated patient. Consequently, the dissent argued, insurance or other negotiated reimbursement rates are wholly irrelevant to charges for uninsured patients.

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