Money For Nothing: Can You Collect for Expenses Nobody Will Ever Pay?

Most people know that their health insurers don't actually pay one hundred cents on the dollar to doctors and hospitals for covered medical bills. In return for a guaranteed flow of patients, the medical providers have agreed to accept a discounted payment as payment in full. But what to do with that fact in measuring a plaintiff's damages for medical expenses in a personal injury case? For twenty years, the answer under California law has been provided by two decisions, Hanif v. Housing Authority (1988) 200 Cal.App.3d 635 and Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298: the plaintiff introduces his or her full, undiscounted medical bills at trial, and the court reduces any award, if necessary, to the amount actually paid by the plaintiff or insurer in post-trial motions. This straightforward rule comes into play daily across California as insurers and the bar value claims and seek settlements.

In late November, the Fourth District Court of Appeal rejected Hanif and Nishihama, holding that the collateral source rule bars a trial court from reducing a plaintiff's judgment for medical expenses to reflect the "phantom" portion of the bill which will never be paid by anyone. Howell v. Hamilton Meats & Provisions, Inc. (2009) 179 Cal.App.4th 686. The defendant has petitioned the Supreme Court to review the conflict, and several parties have sought depublication. Just minutes ago, the Supreme Court granted review, automatically depublishing Howell.

Can't Get An Opinion?: Sue the Court!

A party in case before the Texas Supreme Court grew so frustrated by waiting for an opinion almost three years after oral argument that it sued the justices in federal court, alleging due process violations. Coincidentally (or not) the Supreme Court issued an opinion eight days later.

The court heard oral arguments in Southwestern Bell Tel. Co. v. Marketing on Hold, Inc. in March, 2007. The case was an interlocutory appeal of a class certification order entered in litigation challenging Southwestern Bell's right to charge certain municipal fees. The issues on appeal centered on whether Marketing on Hold, a phone bill auditing firm that had an taken assignment of rights as part of its fee to its business customers had standing in the case and whether it constituted an "adequate" class representative.

The parties had heard nothing further from the case by February, 2010. Marketing on Hold took the unusual step of of suing the justices of the Texas Supreme Court in a federal district court in Austin. It argued that the lengthy delay in rendering a decision would cause documentary evidence to be lost and the memory of witnesses to fade, thereby violating its federal due process rights. The case sought only declaratory relief.

Only eight days after the suit was filed the Supreme Court issued its opinion in the case, No. 05-0748, February 19, 2010. The court held that the assignment of rights was valid and conferred standing on Marketing On Hold. Nevertheless, because Marketing On Hold had only a fractional interest in the claim by virtue of its assignment, it had an incentive to settle for less consideration and to minimize its own expenses. It was not, therefore, an adequate class representative. The certification order was reversed. The case divided the court, 5-3.

The frustration of litigants involved in seemingly interminable proceedings is understandable. The tactic of suing an appellate court to force an opinion is both extreme and likely to be ineffective. Not only is a federal district court extremely unlikely to intervene in the internal procedures of a state appellate court, the suit is apt to make a bad impression on the appellate court justices. As Marketing On Hold learned, "be careful what you wish for..."

Illinois Supreme Court Will Hear Heavy Docket of Civil Cases in March

The Illinois Supreme Court has published its docket book for the March term, and the Court's docket call will be heavy on civil matters this month in Springfield. On March 10, the Court will hear argument in Founders Insurance Co. v. Munoz, which involves the entitlement exclusion in personal automobile insurance policies, and Speed District 802 v. Warning, which involves an unfair labor practices charge arising out of the termination of a teacher's contract. The next day, the Court hears Pekin Insurance Co. v. Wilson, which presents issues of the scope of evidence relevant to an insurer's duty to defend, Krywin v. Chicago Transit Authority, which relates to a common carrier's potential duty to clear away natural accumulations of snow and ice, and Clerk v. The Children's Memorial Hospital, which involves the scope of Illinois' cause of action for wrongful birth. On March 16, the Court will hear argument in Baumgartner v. Baumgartner. There, the principal issue is whether incarceration is an act of self-emancipation terminating the support obligation in a divorce decree. The Court will also hear K. Miller Construction Co. v. McGinnis, which involves the construction of the Home Repair and Remodeling Act. Finally, on March 17, the Court hears Cwik v. Giannoulias, a putative class action alleging that the state's practice of not paying interest or income earned by reclaimed property while in the state's custody is an unconstitutional taking of property without compensation. Decisions in each of these cases should come later in the year.

Supreme Court Adopts Nerve Center Test for Corporate Citizenship in Diversity

A corporation's citizenship for purposes of Federal diversity jurisdiction is governed by 28 U.S.C. 1332(c)(1): a corporation is a citizen of the state of its incorporation, and the state where its principal place of business is found. This morning, in a decision certain to have a major impact on the day-to-day functioning of the Federal courts -- and attorneys' analysis of whether removal is available in a particular case -- a unanimous Supreme Court adopted a bright-line test for determining a corporation's "principal place of business." Friend v. Hertz Corporation, No. 08-1107.

Until today, the circuits had been badly split on the proper test under Section 1332(c)(1). The Ninth Circuit -- which decided Friend -- applied a "place of operations" test, ignoring the corporate headquarters and considering where a company's plants, employees, retail locations and assets are located. Since California is the most populous state in the nation, the Court's test has meant, in practice, that national retailers -- even corporations strongly identified with other states -- are routinely deemed California citizens, making it impossible for many corporations sued in California state courts to seek removal to Federal court. In contrast, the Third Circuit applied the "center of corporate activities" test, looking to the place where the corporation's day-to-day activity and management is centered. The Seventh Circuit applied the "nerve center" test, asking merely where the "brain" of the corporation is located. Finally, the Fifth, Sixth, Eighth, Tenth and Eleventh Circuits applied a "totality of the circumstances" test, considering the character, business purpose, nerve center, management center and general operations of the corporation. As the Supreme Court noted, Moore's Federal Practice treatise devotes fourteen pages to describing the circuits' various tests.

The Supreme Court adopted a modified version of the Seventh Circuit's nerve center test: "we conclude that the phrase 'principal place of business' refers to the place where the corporation's high level officers direct, control, and coordinate the corporation's activities." This location will typically be the corporation's headquarters. The Court pointed to three sets of considerations justifying its holding. First, the statute refers to a "place" of business, not an entire "state." Second, the Court noted that a bright-line, easily applied test was a "major virtue" with respect to jurisdictional questions. Third, the Court commented that the statute's legislative history supported the view that Congress intended that a simple test should apply.

California Supreme Court Provides New Guidance to Courts Making "Choice-of-Law"

Today, in a widely anticipated decision, the California Supreme Court held that California's interest in protecting a current resident does not trump another state's interest in having its laws applied. This occurred in the context of an asbestos case. The defendant's conduct occurred in Oklahoma, at a time when plaintiff was present in and a resident of that state, and Oklahoma has its own substantive law - that differs from California's - governing the defendant's potential liability for its Oklahoma acts. (McCann v. Foster Wheeler LLC S162435). This decision should limit forum shopping and prevent California from becoming a litigation magnet for plaintiffs who seek to sue for injuries that might otherwise be time-barred.

Terry McCann was an Oklahoma resident in the 1950s. He claimed he was exposed to asbestos from a Foster Wheeler generator at a refinery in Tulsa in 1957. After his alleged exposure, he moved to California in 1975. He was diagnosed with mesothelioma in 2005. He filed suit against Foster Wheeler LLC in California state court.

Oklahoma has a 10-year statute of repose applicable to McCann's claim, which would bar McCann's lawsuit had he filed it in Oklahoma. However, McCann's suit was timely if measured by California's statute of limitations.

Foster Wheeler sought summary judgment, arguing that the timeliness of the action should be governed by Oklahoma law, rather than California law, and that under Oklahoma law McCann's cause of action against Foster Wheeler was barred by Oklahoma's statue of repose. The trial court agreed, finding that Oklahoma law governed the action, and McCann's claims were barred. The Court of Appeal reversed, concluding that McCann's residence in California at the time of his diagnosis trumped Oklahoma's interest in limiting liability embodied by its statute of repose.

The California Supreme Court disagreed: California's interest in affording a remedy to a current resident was insufficient to justify the choice of forum law over the law of another much more significantly involved jurisdiction.

GOTCHA! Ninth Circuit Reluctantly Dismisses Appeal That Was Timely When Notice of Appeal Was Filed

The Ninth Circuit recently found itself in the difficult position of having to dismiss an appeal that under its own precedent, was timely when filed, but became untimely after an intervening Supreme Court decision.

The plaintiffs brought a qui tam action against a researcher who allegedly made false statements to obtain funding from the federal government. (United States ex rel. Haight v. Catholic Healthcare West, No. 07-16857 (9th Cir. Feb. 4, 2010).) Qui tam is a fancy Latin phrase for a private enforcement action alleging fraud on the government.

The United States has a statutory right to intervene in qui tam actions, but it declined to do so here. The district court entered judgment for defendants, and the plaintiffs filed a notice of appeal 51 days later. But, you say, the time to appeal in federal court is only 30 days? Ordinarily true. But when the federal government is a “party,” the appellant has 60 days – not 30 – within which to appeal. (FRAP 4(1)(1)(B).) Under then-existing Ninth Circuit precedent, the government was a “party” to a qui tam – thereby allowing appeal within 60 days - even if it had declined to intervene. (Haycock v. Hughes Aircraft Co., (9th Cir. 1996) 98 F.3d 1100.)

But the U.S. Supreme Court recently held otherwise. Resolving a circuit split, it concluded that when the government declines to intervene, the shorter, 30 day, time to appeal applies. (United States ex rel. Eisenstein v. City of New York, New York (2009) 129 S. Ct. 2230.) The high court, while sympathetic to those who had relied on jurisdictions adopting the longer limit, deemed itself compelled to decide the jurisdictional question “irrespective of the possibility of harsh consequences.” (129 S. Ct. at 2236 n.4.) The Ninth Circuit strove mightily to avoid what it called this “inequitable” result, before it finally, relucantly, bowed to the inevitable.

California, As Usual, Is First To Decide: 2003 Medicare Act Preempts Enrollee’s State Law Claims Against Healthcare Service Plan

In 2003, Congress enacted the latest version of the Medicare Act. It contained far broader language than previous versions on what State law claims it preempted: "The standards established under this part shall supersede any State law or regulation (other than State licensing laws or State laws relating to plan solvency) with respect to MA [Medicare Advantage] plans which are offered by MA organizations under this part." (42 U.S.C. § 1395w-26(b)(3).)

The scope and meaning of this new preemption language is being litigated around the country, but as yet few cases have made their way through the appellate courts. One that has comes out of California (no surprise there.) In Yarick v. PacifiCare of California (2009) 179 Cal. App. 4th 1158, the State’s intermediate Court of Appeal held the 2003 Act expressly preempted the enrollee’s statutorily-based state causes of action, and impliedly preempted state common law claims. Yarick also rejected plaintiffs’ argument that the licensing exception in the preemption clause could save the claims. Months before, the Ninth Circuit Court of Appeals had reached a similar conclusion, but then granted rehearing. (Uhm v. Humana, Inc. (9th Cir. Docket No. 06-35672). Since the grant of rehearing thereby vacated the formerly-published opinion, the score rolled back to zero.

Now the score is back to Plans: 1; enrollees: 0. As of this writing, Yarick is the only published appellate case anywhere in the country to address the 2003 preemption defense on the merits. (Previously, the Eleventh Circuit Court of Appeals rejected an argument that the Medicare Act completely preempted state law claims to afford federal court's subject matter jurisdiction. (Dial v. Healthspring of Alabama, Inc. (11th Cir. 2008) 541 F.3d 1044).)

This is an important and recurring issue, and we haven’t heard the last of it. Expect to see all manner of decisions on this hot-button question from courts around the country. As those opinions come down, appellatestrategist will report on them, and provide a running total score.