HIGHLAND PARK IMMUNE FROM SUIT FOR DEATH OF OFFICER PERFORMING EXTRA-DUTY SECURITY SERVICE AT PRIVATE RESIDENCE

Town of Highland Park v. McCullers

Dallas Court of Appeals, No. 05-19-01431-CV (June 29, 2021)

Chief Justice Burns (Dissent linked here), and Justices Pedersen, III (Opinion linked here) and Goldstein (Concurrence linked here)

Lyndon Bittle

               The Town of Highland Park cannot be sued by the survivors of an off-duty police officer killed in a flash flood while providing security at a private residence through an arrangement coordinated by the Town, according to a divided Dallas Court of Appeals panel. 

        SMU police officer Calvin Marcus McCullers accepted an assignment offered by the Highland Park Department of Public Safety to provide after-hours security, at a property owner’s expense, for a private residence then under construction. A little more than two hours after he arrived at the property in his personal car, a torrential downpour flooded the area where he was parked and swept him and his car over an embankment into Turtle Creek. His body was discovered several weeks later on the banks of the Trinity River more than three miles downstream. 

        Officer McCullers’s survivors sued Highland Park and others for negligence and other torts. Asserting governmental immunity from such claims, Highland Park filed a plea to the jurisdiction, which the trial court denied after the parties conducted limited discovery. On interlocutory appeal, the core issue was whether coordinating a program to provide security services to private residences by off-duty police officers is an exercise of “police protection” and thus a governmental function for which the Town is generally immune from suit, or a “proprietary” function to which immunity does not apply. 

        The distinction between governmental and proprietary functions, which applies only to municipalities, is codified in the Texas Tort Claims Act, chapter 101 of the Civil Practice and Remedies Code. The TTCA defines proprietary functions as those “that a municipality may, in its discretion, perform in the interests of the inhabitants of the municipality”—but not including the list of 36 functions expressly identified as governmental functions. The first item on this list is “police and fire protection and control.” Justices Pedersen and Goldstein, in separate opinions, held “the Town’s coordination of Officer McCullers to provide law enforcement services” at the residence was an exercise of “the governmental function of police protection.” Justice Goldstein’s concurrence, elaborating on the statutory analysis, cited precedent that plaintiffs “may not split various aspects of a city’s operation into discrete functions and recharacterize certain of those functions as proprietary.” She concluded her opinion by noting “the ongoing struggle associated with judicial analysis and application of the governmental-proprietary dichotomy” and other aspects of governmental immunity. She urged the Legislature to provide “more certainty” on these issues for Texas citizens and governmental bodies. 

        Chief Justice Burns, dissenting, said his “colleagues rely on labels instead of function.” He denied that coordinating “private security services for private property owners,” so that an off-duty officer was “essentially functioning as a night-watchman for one citizen,” fits within the statutory meaning of “police protection.” Instead, applying the factors articulated by the Texas Supreme Court for breach-of-contract claims in Wasson Interests, Inc. v. City of Jacksonville (1998), he concluded that “in providing private security services” Highland Park “was acting in a proprietary role.” 

        One final note: finding the program is a governmental function does not necessarily end the immunity analysis. Under the TTCA, governmental immunity is waived in circumstances involving “personal injury or death caused by a condition or use of tangible personal or real property”—if the plaintiff complies with statutory notice requirements or the governmental entity has “actual notice” of the injuries and its potential liability. Justice Pedersen, extensively describing the record and controlling precedent, concluded plaintiffs failed to provide timely notice and rejected plaintiffs’ argument that Highland Park had actual subjective knowledge of its alleged fault in causing or contributing to the officer’s death. Justice Goldstein concurred in a footnote, while identifying the “actual subjective awareness” test as ripe for review by the Legislature. Chief Justice Burns did not mention this issue.  

SCOTx Holds Academy Sports Immune from Suit for Selling Assault Rifle Used in Sutherland Springs Mass Shooting

In re Academy, Ltd.

Supreme Court of Texas, No. 19-0497 (June 25, 2021)

Justice Lehrmann (Opinion, linked here), Justice Boyd Concurring (linked here)

Ken Carroll

        In November 2017, Devin Kelley shot 25 people to death, and wounded 20 more, in the First Baptist Church in Sutherland Springs, Texas. Kelley wielded a semi-automatic assault rifle he purchased from an Academy Sports store in San Antonio. Academy sold the rifle as part of a pre-packaged unit that included a 30-round large-capacity magazine (“LCM”), with a single SKU number and a single price for all components in the package. Kelley should not have been able to purchase the rifle, because he had been convicted of domestic assault in a military court-martial. But the Air Force failed to have that disqualifying conviction information entered on the Criminal Background Check System, and so that system green-lighted the sale when Academy ran the required check. The survivors and families of the victims of the shooting argued the sale shouldn’t have happened for a second reason: Kelley was a Colorado resident, and Colorado prohibits LCMs like that sold as part of the package bought by Kelley. In fact, another retailer—Dick’s Sporting Goods—had previously refused to sell to Kelley. But Academy interpreted the laws to allow this sale in Texas. So, Kelley got his gun. Survivors and families of victims sued the government in federal court for failing to enter the shooter’s conviction information on the background-check system. Holcombe v. United States, No. 5:18-cv-00555-XR (W.D. Tex.). And they sued Academy in state court for selling the gun-and-LCM package to the shooter, an out-of-state resident.

        In the state court case, Academy moved for summary judgment under the federal Protection of Lawful Commerce in Arms Act (“PLCAA”), which protects firearms retailers and manufacturers from certain claims arising out of the criminal conduct of gun purchasers. The trial court denied summary judgment, and the Fourth Court of Appeals refused to disturb that ruling. But the Texas Supreme Court granted mandamus and overturned that decision, finding the PLCAA did in fact bar the plaintiffs’ lawsuit against Academy.

        The Court rejected the plaintiffs’ arguments that their case fell within either of two exceptions to the PLCAA. First, the Court held the sale did not run afoul of the federal Gun Control Act, violation of which would fall within the “predicate exception” to the PLCAA. The Gun Control Act prohibits sales to out-of-state buyers unless “the sale, delivery, and receipt fully comply with the legal conditions of sale in both such States,” i.e., the state of sale and the state of the purchaser’s residence. There was no dispute it would not have been legal in Colorado for Kelley to buy the package he bought from Academy, containing the 30-round LCM. The Supreme Court, however, ruled that the Gun Control Act addressed only sales of “firearms” but not LCMs—even though, in this instance, the pre-packaged unit bought by the shooter contained both, and there could have been no “sale” of the “firearm” without the LCM. Second, it rejected application of the PLCAA exception for “negligent entrustment” claims, ruling that Texas does not recognize a claim for negligent entrustment based on the sale of a chattel, as opposed to temporary entrustment where the owner retains ultimate control. Finally, the Court concluded mandamus was appropriate because the PLCAA protected gun retailers and manufacturers from being subjected to lawsuits, rather than merely providing them a defense from liability—something that could have been addressed on appeal from a final judgment, rather by mandamus.

        For those disappointed Academy claimants who are also plaintiffs in the Holcombe lawsuit against the government, there may be a small silver lining in the Supreme Court’s decision. The government has designated Academy a “responsible third party” in that case, seeking to have the court allocate some of the responsibility for the shooting to Academy, based on the government’s contention that Academy did in fact violate federal and Colorado gun laws. If such responsibility were assigned to Academy, that would reduce the government’s own liability to the plaintiffs and, with it, the plaintiffs’ potential recovery. Now, however, there’s a chance the trial court in Holcombe will strike the designation of Academy as a responsible third party, based on the Texas Supreme Court’s decision. That, however, remains to be seen.

SCOT Holds Amazon Not Liable for Defective Products It Markets for Other Vendors

Amazon.com, Inc. v. McMillan

Supreme Court of Texas, No. 20-0979 (June 25, 2021)

Opinion by Justice Busby (linked here)

Dissent by Justice Boyd (linked here)

Lyndon Bittle

        Answering a question certified by the Fifth Circuit, the Texas Supreme Court held Amazon is not a “seller” under Texas product liability law when it does not hold title to the product but controls the process of the transaction and delivery through the “Fulfillment by Amazon” program.

        As discussed in a previous Sua Sponte post, the McMillan plaintiffs allege injuries to a 19-month-old child who swallowed a battery from a TV remote purchased on Amazon’s website. The listed seller was “USA Shopping 7693,” which Amazon traced to a vendor account owned by Hu Xi Jie—an individual or company that neither Amazon nor plaintiffs have been able to contact or serve. Amazon’s potential liability for the child’s injuries turns on whether it is a “seller” of the product under the Texas Products Liability Act, chapter 82 of the Civil Practice and Remedies Code. A federal district court held Amazon was a seller, i.e., “engaged in the business of distributing or otherwise placing” the product in the stream of commerce. The court certified its order for interlocutory appeal under 28 U.S.C. § 1292(b), and the Fifth Circuit submitted the issue to the Texas Supreme Court in January 2021.

        Fifth Circuit Judge (and former Texas Supreme Court Justice) Don Willett authored the opinion certifying the question, noting the Supreme Court’s “track record of resolving cases promptly.” Justice Busby’s opinion acknowledges the Fifth Circuit’s comment and responds in a footnote, “Challenge accepted.”

        The case focuses on a specific (albeit large) subset of Amazon transactions—products listed on the product-description and order-confirmation pages as “sold by” a vendor other than Amazon and delivered from Amazon warehouses through the “Fulfillment by Amazon” (FBA) program. These transactions differ from other purchases, including products listed as “sold by” and delivered by Amazon, products listed as “sold by” third parties and shipped directly to customers by the vendor, and products sold through other websites or stores and delivered through the FBA program.

        The Supreme Court’s construction of the Product Liability Act’s definition of “seller” is grounded in the presumption that “the Legislature uses statutory language with complete knowledge of the existing law and with reference to it.” (Quotation omitted.) Because the statutory definition is virtually identical to that of section 402A of the Second Restatement of Torts and Texas cases applying it, the Court concludes the statute “does not expand liability for those not considered sellers under common law.” Accordingly, the Court holds “Amazon is not a ‘seller’ under Texas law when it does not hold or relinquish title to an allegedly defective product.” It cannot, therefore, be liable as a non-manufacturing seller under the Product Liability Act.

        Justice Boyd, joined by Justice Devine, dissented, and would have answered the certified question “by holding that Amazon.com is a seller under [the statute] when it ‘controls the process of the transaction and delivery’ of a product through its FBA program, regardless of whether it ever holds title to the product.” This construction is compelled, said the dissent, by the plain meaning of the statute’s language when it was enacted in 1993. The dissent acknowledged the presumption that the Legislature was aware of case law when enacting a similar definition, but insisted “we may not presume that it was aware of what we would hold twenty-eight years later.”

Appraisal Based on Non-Comparable Sales Fails Reliability Test

Bank of Texas v. Collin Central Appraisal District

Dallas Court of Appeals, No. 05-19-00568-CV (June 22, 2021)

Justices Myers, Nowell (Opinion linked here), and Goldstein

Lyndon Bittle

        Bank of Texas appealed a judgment denying its challenge to CCAD’s tax appraisal of two properties. The bank argued the trial court abused its discretion by striking the bank’s appraisal experts for not properly applying the “income method,” one of three appraisal methods recognized by the Tax Code. The Dallas Court of Appeals affirmed, holding the trial court could reasonably have concluded “that the comparables relied on by the [bank’s] appraisers, rents for office buildings and retail properties, were not comparable to the property being valued, branch banks.” This “analytical gap” failed the reliability test articulated by the Texas Supreme Court in Gammill v. Jack Williams Chevrolet (1998) and its progeny.

        The appeals court rejected the bank’s argument (a common refrain of proponents of expert opinions) that CCAD’s complaints went “to the weight of the evidence, not its admissibility.” The court explained that whether an “appraisal is based on non-comparable sales is an issue for the trial court in determining admissibility,” and thus within its discretion. The appeals court also rejected the notion that “real estate appraisers are unique and somehow different from other experts; that their testimony is for the jury and not subject to reliability requirements.” To the contrary, the court said, “Courts must act as gatekeepers of expert testimony; appraisers do not get a free pass.”

Abandoning Prior Acceleration Avoids Statute of Limitations on Foreclosure

Florey v. U.S. Bank, N.A.

Dallas Court of Appeals, No. 05-20-00306-CV (June 22, 2021)

Justices Osborne, Reichek (Opinion, linked here), and Nowell

Ken Carroll

        Where a borrower defaults on a loan secured by real estate and the noteholder accelerates that loan, foreclosure must occur within four years after acceleration—unless the noteholder abandons that acceleration, which resets the limitations clock.

        The Floreys defaulted on their home equity loan. Nationstar Mortgage, the holder of the note, sent the Floreys a notice of default and then a notice accelerating the debt, both in 2013. But for many months after those notices, Nationstar said nothing further about acceleration and continued to send the Floreys monthly mortgage statements seeking only the current and past due amounts rather than the full amount of the loan, and even offering them the option to pay off the loan with no “prepayment penalty.” Those monthly notices made no reference to the acceleration. In August 2017, Nationstar filed an application for expedited foreclosure under Tex. R. Civ. P. 736, expressly relying on the 2013 notice of default, but not the notice of acceleration. But the trial court denied that application, and Nationstar then sold the note to U.S. Bank, which in 2019 sent the Floreys a new notice of default and acceleration and again sought to pursue expedited foreclosure under Tex. R. Civ. P. 736. The Floreys opposed that request and sought to quiet title, arguing that “U.S.Bank’s attempt to foreclose the lien was not timely brought within the four-year limitations period” and “[b]ecause the limitations period had expired, … the lien was no longer valid.” The trial court, however, granted summary judgment to U.S. Bank and the Court of Appeals affirmed. 

        “The pivotal issue,” the appeals court said, was “whether the 2013 acceleration of the Floreys’ note [by Nationstar] was abandoned.” If it was, then “the contract [was] restored to its original condition, including restoring the loan’s original maturity date and resetting the statute of limitations.” “Once a debt has been accelerated, the note holder may unilaterally waive or abandon the acceleration so long as the borrower neither objects to the abandonment nor detrimentally relied on the acceleration. … Abandonment can occur either expressly through a clear repudiation of the right, or impliedly through conduct inconsistent with a claim to the right.” Where the facts are undisputed, whether acceleration has been abandoned is a question of law. Here, Nationstar’s repeated monthly notices, sent after its notice of acceleration, that sought only monthly payments and made no mention of acceleration—and in fact, were inconsistent with acceleration—were sufficient to establish Nationstar’s abandonment of the 2013 acceleration. The foreclosure limitations clock, therefore, was re-set and didn’t start ticking again until U.S. Bank served its own notices of default and acceleration in 2019. U.S. Bank’s foreclosure, therefore, was not time-barred.

No Implied Ratification Where Contract Required Express Written Consent

BPX Operating Company v. Strickhausen

Supreme Court of Texas, No. 19-0567 (June 11, 2021)

Justice Blacklock (opinion available here)

Justice Boyd Dissent (available here)

Kelli Hinson

        Ms. Strickhausen’s mineral lease with BPX prohibited pooling her tract with others without her “express written consent.” Nevertheless, BPX pooled several tracts, including Strickhausen’s property, to create a 320-acre unit. Unlike Strickhausen’s lease, her neighbors’ leases permitted pooling. BPX attempted to obtain Strickhausen’s written consent or ratification of the pooling, but Strickhausen consistently refused and repeatedly objected to BPX’s activity. As the parties continued to communicate and discuss a settlement or other resolution, BPX began paying Strickhausen pooled royalties rather than on a “tract participation basis.” When Strickhausen finally sued BPX for breach of contract, BPX alleged Strickhausen had ratified the pooling by cashing her royalty checks. The trial court granted summary judgment in favor of BPX, but the San Antonio Court of Appeals reversed.

        In a 5-4 decision, the SCOTX sided with the appellate court and Strickhausen. The Court acknowledged that acceptance of royalty checks can, in some circumstances, constitute implied ratification. But it noted that Strickhausen—unlike her neighboring lessors and the lessors in prior cases—bargained for a lease that strictly prohibited pooling “under any circumstances” without her “express written consent.” “[A]ll her subsequent actions should be examined in light of both parties’ knowledge of this element of their agreement. A party armed with a lease prohibiting pooling without express, written consent should have less reason to worry about mistakenly giving her implied, unwritten consent than does a party not protected by such a clause.” The communications between the parties also demonstrated that Strickhausen was not consenting to the pooling and was actively trying to reach a settlement agreement with BPX. Strickhausen’s acceptance of royalty checks held less weight than it might in other cases because Strichhausen was entitled to significant royalties with or without pooling. The Court held she reasonably could have viewed the checks as payment towards what she believed she was owed without pooling.

        The majority brushed off the dissent’s conclusion that “actions may speak louder than words,” holding that, on questions of contractual intent, “words matter a great deal—especially words in a written agreement that disavows implied unwritten agreements.”

        The dissent disagreed. It would have held that Strickhausen’s actions in accepting royalty payments that she should have known were calculated based on production from the pooled unit spoke louder than her words, despite the language of the contract and her prior protests.

Dallas Court Affirms 9-Figure Judgment Against Toyota Even Though Toyota Complied With All Applicable Safety Regulations

Toyota Motor Sales, U.S.A., Inc. v. Reavis

Dallas Court of Appeals, No. 05-19-00075-CV (June 3, 2021)

Justices Partida-Kipness and Nowell (opinion available here); Justice Schenck dissenting (here)

Kelli Hinson

The Reavis family was involved in a violent car accident in their Lexus, which resulted in the parents being propelled into the back seat, where they crashed into their small children, who suffered skull fractures and traumatic brain injuries as a result. The family sued Toyota, asserting design and marketing defects. Even though the vehicle complied with all applicable safety standards, the jury found against Toyota, awarding $242 million in damages, including $144 million in exemplary damages. Toyota appealed.

        Section 82.008(a) of the CPRC provides a rebuttable presumption that a product manufacturer is not liable for injury caused by a product that complied with federal mandatory safety standards. The presumption can be rebutted under § 82.008(b) if the plaintiff proves that the federal standards are “inadequate to protect the public from unreasonable risk of injury” or that the manufacturer withheld or misrepresented information relevant to the federal government’s determination of adequacy of the safety standards or regulations at issue.

        Toyota first argued that § 82.008(b) is preempted by federal law because it allows a jury to reject a federal agency’s determination of safety standards, but the Court held Toyota had waived that defense in the trial court.

        The Court upheld the jury’s determination that the federal standards are inadequate to protect the public, particularly the standard regarding seat-back strength. It noted that all automakers greatly exceed the mandatory standard—in fact, the Toyota seats at issue exceeded the standard by over 700%—so the standard must be inadequate. The Court also held there was evidence to support a finding that Toyota withheld or misrepresented information relevant to the adequacy of the safety standard. In particular, the Court noted a letter from Toyota to two senators in 2016 in which it stated that Toyota had a “long and robust safety culture.” The Court found this statement misleading in light of a deferred prosecution agreement Toyota had entered into in 2014 over misrepresentations made with regard to sudden unintended acceleration in some of its vehicles. The Court also held the jury could have rationally concluded that Toyota was misleading in claiming that the NHTSA was an “effective regulator” in light of Toyota’s extensive lobbying efforts with the agency. With the § 82.008(a) presumption rebutted, the Court held the evidence was sufficient for the jury to conclude that Toyota’s design was unreasonably dangerous.

        The Court also upheld the jury’s finding that Toyota failed to warn of the car’s dangers. Although the owner’s manual “strongly recommended” that children be placed in the rear seat, it did not warn of the danger that front seat occupants might be propelled into the back seat, injuring the children, in a rear-end collision.

        Justice Schenck filed a dissent, noting that “the record reflects no evidence of any automobile that has been marketed with both the seatback strength necessary to avoid the injuries here and the proposed seatbelt changes that would protect front seat occupants.” He expressed skepticism that “every car ever marketed and sold to this point could be ‘defective’ and that their manufacturers could all be subject to exemplary damages on this basis.” He also took issue with the Court’s affirmance of a design defect without evidence that fewer injuries and deaths would result from an alternative design taking into account all potential crash scenarios, not just the rear-end collision at issue in this case. He noted that additional protections for rear-end crashes could cause additional injuries in front-end crashes. Justice Schenck would have held the plaintiffs failed to rebut the §82.008(a) presumption of no liability. He characterized the Court’s conclusion that the federal standards were inadequate as ipse dixit and noted that Toyota’s alleged misrepresentations to regulators were unrelated to seatback strength or seatbelt function and so were not relevant to the “safety standards or regulations at issue in the action” under §82.008(b)(2).

        With the money at stake and the importance of the § 82.008(a) presumption to auto manufacturers like Toyota, expect this one to go to the Supreme Court of Texas.

The Weather Is Not a “Person” for Allocating Responsibility

Panameno v. Williams

Dallas Court of Appeals, No. 05-19-01496-CV (June 1, 2021)

Chief Justice Burns and Justices Reichek and Carlyle (Opinion linked here)

Lyndon Bittle

           It was a dark and stormy night. Two cars collided. The defendant in a lawsuit about the accident testified that he “hit a large puddle of water, hydroplaned, and spun into a car in which Mr. Panameno was a passenger.” The defendant denied he was negligent, insisting he acted reasonably given the poor road conditions and bad weather. The district court defined “Act of God” and asked the jury to assign percentages of responsibility to the defendant and “Weather/Road Conditions.” The jury found plaintiff’s damages were $8,350 and allocated 25% to the defendant and 75% to the weather and road conditions. Accordingly, the trial court reduced plaintiff’s damages by 75%. Plaintiff appealed.

            The Dallas Court of Appeals reversed the judgment and remanded for a new trial, based on the text of the proportionate-responsibility statute, which requires the jury to determine the culpable persons and assign percentages of responsibility for “(1) each claimant; (2) each defendant; (3) each settling person; and (4) each responsible third party who has been designated.” TEX. CIV. PRAC. & REM. CODE § 33.003(a). The Court held “Weather/Road Conditions” was not “a person or party whose negligence was found to be a proximate cause” of plaintiff’s damages, so should not have been included in the proportionate-responsibility question. Any consideration of weather and road conditions is subsumed in assessing the parties’ negligence.

ARBITRATION AGREEMENT ENFORCED DESPITE EMPLOYEES’ SWORN DENIAL OF AGREEMENT AND E-SIGNATURES

Aerotek, Inc. v. Boyd

Supreme Court of Texas, No. 20-0290 (May 28, 2021)

Chief Justice Hecht (Opinion, linked here); Justice Boyd Dissenting (linked here)

Ken Carroll

In Aerotek, the Texas Supreme Court overturned the decisions of a trial court and court of appeals that refused to compel arbitration between the company and certain of its employees. In the process, the Court significantly bolstered parties’ ability to rely on electronic signatures and digital contracts.

When four Aerotek employees sued the company for discrimination and retaliation, Aerotek moved to compel arbitration of the dispute, relying on an arbitration agreement that it alleged was part of the employees’ digital “onboarding process.” Aerotek presented evidence that each of the employees had electronically signed both (1) the arbitration agreement and (2) an “Electronic Disclosure Agreement” by which the employee consented to be bound by Aerotek’s electronic hiring documents as though they had been signed manually and in person. Aerotek’s witnesses explained the security and reliability of its digital process, including that the protocol required the employees to have electronically “signed” the arbitration agreement before they could proceed with the rest of the “onboarding” procedures or submit their employment applications to Aerotek. An Aerotek employee further testified that the company could not alter the application and agreements once they had been submitted. Each of the plaintiff employees agreed he consented to the Electronic Disclosure Agreement, but expressly denied having electronically signed the arbitration agreement. Each asserted that the arbitration agreement was not even included among the materials displayed to him during the onboarding process. The trial court denied the motion to compel, and a divided court of appeals affirmed.

Applying the Texas Uniform Electronic Transactions Act, the Supreme Court held that, “once Aerotek proved its security procedures, the burden shifted to the Employees to demonstrate how their electronic signatures could have wound up on the [arbitration agreements] without their having placed them there themselves,” and most importantly, that “mere denials do not suffice” to sustain that burden. To contest an electronic signature, a party may “offer evidence that security procedures lack integrity or effectiveness and therefore cannot reliably be used to connect a computer record to a particular person,” the Court said, “but that attribution cannot be cast into doubt merely by denying the result that reliable procedures generate.”

Justice Boyd dissented. Relying on a 90-year-old decision of the Commission of Appeals, Ward v. Weaver, Justice Boyd would have held that “the employees’ sworn denials constitute legally sufficient evidence to create a fact issue” and that the Supreme Court “has no constitutional or other authority to weigh conflicting evidence” and resolve this case by crediting only the testimony presented by Aerotek and giving no weight to the employees’ sworn denials.

From a practical perspective, the Court’s decision enhances businesses’ ability to rely on electronic processes to prove agreements, further facilitating the state’s growing e-commerce economy. But the decision makes it more difficult for the average individual, with no expertise in the inner workings of such computer processes, to contest electronic records of transactions that he or she genuinely disputes.

NON-PARTY MEDICAL PROVIDERS REQUIRED TO GIVE DISCOVERY IN PERSONAL INJURY CASES ABOUT NEGOTIATED RATES AND COSTS

In re K & L Auto Crushers, LLC

Supreme Court of Texas, No. 19-1022 (May 28, 2021)

Justice Boyd (Opinion, linked here), Justice Huddle Dissenting (linked here)

Ken Carroll

In 2018, the Texas Supreme Court ruled in In re North Cypress Medical Center that “the negotiated rates a medical provider charged to patients’ private insurers and public-entity payors [like Medicare and Medicaid] were relevant and discoverable on the issue of the reasonableness of the ‘full’ rates the provider charged to an uninsured patient for the same services.” That ruling came in the context of a lawsuit between an uninsured patient and a provider, regarding a medical lien for payment of invoices priced at those “full,” non-negotiated rates.

In K & L Auto Crushers, the Supreme Court extended that rule to personal-injury cases, holding that the same reasoning applies where a defendant seeks discovery of negotiated rates to test the reasonableness of the amounts charged to the plaintiff for medical care for which that plaintiff seeks to recover. The Court rejected arguments that such discovery could lead to a windfall for defendants and less than full recovery for plaintiffs who are contractually obligated to pay the “full” rates for his or her treatment, rather than the rates negotiated with insurers or public payors. So, even where a medical provider is not a party to a personal-injury case—unlike the situation in a medical-lien case like North Cypress, where the provider is a party—a defendant who contests the reasonableness of the medical expenses sought by the plaintiff, based on the provider’s actual charges to the plaintiff, may be able to secure discovery from the plaintiff’s medical provider regarding its negotiated rates for the same services, as well as its actual costs for those services.

The Court cautioned that the benefits of such discovery and the burdens on third-party medical providers will have to be carefully weighed in each case. Such rate and cost discovery should be allowed only if it is “proportional” to the case at hand. The Supreme Court noted, however, that “where a responding [provider’s] own conscious, discretionary decision, such as how it chooses to store and organize its materials, causes discovery to be burdensome, the burden is not considered ‘undue.’” Because the plaintiff in K & L Auto Crushers sought more than a million dollars in medical expenses, the Court had little difficulty concluding that appropriately tailored discovery requests, modeled on its North Cypress opinion, were proportional.

Recently-appointed Justice Rebeca Huddle filed a concurring opinion, joined by Justices Guzman and Bland, “to emphasize that the nonparty discovery the Court authorizes today will not be appropriate in every personal-injury case—or even as to every provider in a particular personal-injury case.” If trial courts fail to carefully and actively apply the “proportionality” requirement acknowledged by the majority, Huddle warned, “the potential systemic cost to health care providers [from this newly authorized discovery] becomes eye-popping.”

As confirmed by the numerous amicus submissions in this case, whether North Cypress would be extended to personal injury cases was much anticipated—or dreaded—by both sides of the personal-injury bar and by medical providers. Under the newly effective federal Hospital Price Transparency rules, 45 C.F.R. Part 180, many providers (but not all) are now required to retain and publicly disclose much of the pricing information sought in K & L Auto Crushers and North Cypress. Parties requesting such pricing data may well be required to look to such publicly available information before seeking it via discovery from nonparty providers. And that may take some of the sting out of the K & L ruling at least for providers and information subject to that new rule. On the whole, now that the Supreme Court has expressly extended North Cypress to personal-injury cases, the main discovery battleground between defendants and plaintiffs and their nonparty medical providers likely will be the “proportionality” of the requested discovery in each individual case and with respect to each individual provider.