Pro-Business Theme Pervades Recent Rulings from the California and United States Supreme Courts

While political debates at all levels of government seem to reach a fever pitch on each and every issue being decided, the Supreme Courts of both the United States and California have recently issued a string of rulings that reflect what is almost unanimously viewed by Court observers as an anti-consumer trend. Since such decisions are purported to be “non-political” — issued by Justices who on the national level receive lifetime appointments, and at the state level in California are appointed and only face infrequent “retention elections” — they regularly fly under the radar of the mass media, and are only closely scrutinized by those in the legal profession. Nevertheless, several decisions issued during the last sessions of the United States and California Supreme Courts, are worth noting, as they will significant impacts not only on the practices of Plaintiffs’ attorneys, but on the rights and access to justice for consumers nationwide. Furthermore, one anxiously awaited decision of the California Supreme Court warrants a more thorough analysis due to the immediate and pervasive impact it will have on the vast majority of personal injury cases currently pending in California.

Pliva, Inc. v. Mensing: The United States Supreme Court Limits Liability for Generic Drug Makers

Continuing the development of inconsistencies in the area of federal preemption, the United States Supreme court held in Pliva, Inc. v. Mensing (2011) 131 S.Ct. 2567,that state law failure to warn claims against manufacturers of generic prescription drugs are preempted by federal law.

This decision was striking insofar as it represented a complete about-face from the Court’s decision just two years ago in Wyeth v. Levine (2009) 129 S.Ct. 1187, wherein the Court held that a state law failure to warn claim was not preempted as against the manufacture of a brand name prescription drug. In Wyeth, the Court found that although the original warnings had been approved when the New Drug Application for the drug was approved, further changes to the warnings were possible through a federal drug labeling regulation that allowed strengthening of a drug’s label without FDA approval. (Id. at 1191, 1196.)

This finding of federal preemption will have the practical effect of denying Californians the right to proceed with state law claims against manufacturers of generic prescription drugs when insufficient warnings regarding the drug’s usage are provided, when such claims could nevertheless still be brought against the manufacturer of the brand name of the same drug.

AT&T, Mobility, LLC v. Concepcion: Consumer Contract Arbitration Agreements Enforceable: The Beginning of the End of Consumer Class Actions

AT&T, Mobility, LLC v. Concepcion (2010) 131 S.Ct. 1740 (“Concepcion”), marked what many legal observers and scholars fear may be the end of consumer class actions.

After the United States District Court for the Southern District of California and Ninth Circuit both found AT&T’s arbitration requirement and class action waiver unconscionable, the United States Supreme Court held that the Federal Arbitration Act pre-empted state law contract laws, such that customers could be required to arbitrate any disputes arising out of their cellular phone contracts, individually.Id. at 1744 — 1745, 1753.)

The practical effect of the holding is easy illustrated: If one million consumers have a valid $100 claim against, for example, their cellular phone carriers, but it costs each at least $500 to conduct the contractually required individual arbitration, consumers will elect not to pursue their valid claims (which would result in a net loss of $400).

Class actions provide consumers with a valuable way to pool claims and resources so that valid claims can be brought to hold corporations to task when consumers are wronged. With Concepcion, the United States Supreme Court has further empowered big business to act without any fear or reprisal from consumers based on the fine print in a boilerplate consumer contract.

Seabright Ins. Co. v. US Airways, Inc.: Hirers of Contractors Have No Duty To Provide Safe Workplace for Employees of Hired Contractors: Cal-OSHA Non-Delegable Duty Only Applies to One’s Own Employees

(Editor’s Note: At the time of publication the California Supreme Court extended the time it had to consider modification or rehearing of the Seabright decision to November 21, 2011. Thus, as with Howell, discussed in detail below, although this decision is not final, its potential impact on member’s practices and consumer’s rights makes it worthy of a brief discussion.)

Seabright Ins. Co. v. US Airways, Inc. (2011) 76 Cal. Comp. Cases 728 the employee of a subcontractor hired to maintain a luggage conveyor was injured by a conveyor that was missing a safety guard, in violation of Cal-OSHA safety regulations. (Seabright, supra, 76 Cal.Comp. Cases at 730.)

US Airways (the hirer of the subcontractor and owner of the conveyor) brought a motion for summary judgment based on Privette v. Superior Court (1993) 5 Cal.4th 689 and Hooker v. Dept. of Trans. (2002) 27 Cal.4th 198, asserting that they did not retain control over the work of the contractor and did not “affirmatively contribute” to the injury. (Id.) The trial court granted the motion, but the Court of Appeal reversed, holding that under Cal-OSHA, US Airways owed a nondelegable duty to ensure the conveyor had the required safety guards and that whether the absence of the guards “affirmatively contributed” to causing the injury was a triable question of fact. (Id. at 731.)

The Court framed the issue as “whether defendant US Airways could and did delegate to [the] independent contractor any duty it owed to the [independent contractor’s] employees to comply with the safety requirements of Cal-OSHA.” (Id. at 732.) The Seabright held that all duties imposed on an employer by Cal-OSHA were delegated by the hirer to the independent contractor and that the non-delegable duty doctrine was inapplicable to the matter at hand. (Id. at 736.)

This holding further weakens an injured workers ability to be fully compensated for injuries caused by a third party, and limits “justice” in such instances to remedies provided through the workers compensation system.

Howell v. Hamilton Meats & Provisions, Inc.: Despite the Collateral Source Rule, The Benefit of an Injured Consumer Having Health Insurance Now Inures to the Tortfeasor.

Undoubtedly the case most closely watched by California’s Plaintiffs’attorneys in the most recent session of the California Supreme Court was Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541.Editor’s Note: the Howell decision will not be final as of this publication, but its potential impact on the practices of OCTLA members warrants its discussion nonetheless.) In Howell the California Supreme Court openly acknowledged siding with the minority of jurisdictions nationally, but nevertheless held that a Plaintiff may only recover the amount paid for past medical care, irrespective of the amount billed for such past treatment. (Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541, 566, fn 10, 567.)

In Howell, the plaintiff was injured in an automobile collision. Medical bills for her past medical care totaled just short of $190,000. (Id. at 549.) However, insurance payments and co-payments for this care totaled approximately $60,000. (Id. at 550.) The trial court denied the defendant’s motion in limine to exclude amounts billed but not paid for plaintiff’s treatment, agreeing to address the need for any reductions in a post trial hearing. (Id. at 549.)

Following trial on the matter, the jury awarded plaintiff the full amount billed for the medical treatment. (Id. at 549-550.) Following a post-trial hearing, the court reduced the award of past damages by just over $130,000, ” ‘to reflect the amount the medical providers accepted as payment in full.'” (Id. at 550.) The Court of Appeal reversed the reduction stating if violated the collateral source rule. (Id.) The California Supreme Court granted defendant’s petition for review. (Id.)

The Howell court conducted a review of previous decisions discussing amounts paid for past medical care versus amounts billed for such treatment in various contexts, including Hanif v. Housing Authority (1988) 200 Cal.App.3d 623, Nishihama v. City and County of San Francisco (2001) 93 Cal.App.4th 298; Olszewski v. Scripps Health (2003) 30 Cal.4th 798; Parnell v. Adventist Health System/West (2005) 35 Cal.4th 595 and Katiuzhinsky v. Perry (2007) 152 Cal.App.4th 1288.

Following review of the cases, the Howell court then framed the issues presented by the amount billed versus amount paid debate through the following four questions:(1) Was Hanif correct that a tort plaintiff can recover only what has been paid or incurred for medical care, even if that is less than the reasonable value of the services rendered?

(2) Even if Hanif, which involved Medi-Cal payments, reached the right result on its facts, does its logic extend to plaintiffs covered by private insurance?

(3) Does limiting the plaintiff’s recovery to the amounts paid and owed on his or her behalf confer a windfall on the tortfeasor, defeating the policy goals of the collateral source rule?

(4) Is the difference between the providers’ full billings and the amounts they have agreed to accept form a patient’s insurer as full payment — what the appellate court below called the “negotiated rate differential”—a benefit the patient receives from his or her health insurance policy subject to the collateral source rule?

(Howell, supra., 52 Cal.4th at 555.)

In a nutshell, the Court answered the questions as follows: (1) Yes; (2) Yes; (3) No; (4) No.

In answering the first question, the court essentially reasoned that irrespective of the source of the discount (including a collateral source insurer), if a discounted amount was accepted as full payment for past medical care, Plaintiff did not “incur” liability in any amount beyond the amount accepted for full payment, stating:

“if the plaintiff negotiates a discount and thereby receives services for less than might reasonably be charged, the plaintiff has not suffered a pecuniary loss or other detriment in the greater amount and therefore cannot recover damages for that amount. The same rule applies when a collateral source, such as the plaintiff’s health insurer, has obtained a discount for its payments on the plaintiff’s behalf.”(Id.)

Addressing the second question, the Howell court found that an injured party with privately paid for and obtained health insurance was “in the same position as the Hanif plaintiff, who also bore no personal liability for the providers’ charges.” (Id. at 557.) In adhering to this reasoning, the Court explicitly rejected that the reduced rate accepted by a care provider in the context of private insurance was not a gratuitous benefit to the injured party or his or her insurer, but rather the result of a commercial negotiation. (Id. at 558.)

In looking at the third question, the court undertook a perhaps unintentionally tortured analysis that strongly suggested (while at the same time explicitly denying) that hospital bills did not have a true relation to the value of services being rendered. (Id. at 561-562.)

Ultimately the court opined that:”it is not possible to say generally that providers’ full bills represent the real value of their services, nor that the discounted payments they accept from private insurers are mere arbitrary reductions. Accordingly, a tortfeasor who pays only the discounted amount as damages does not generally receive a windfall and is not generally undeterred from engaging in risky conduct.”

(Id. at 562.)

Finally, in addressing the fourth inquiry the court found that the

“negotiated rate differential” (the difference between the amount billed and amount actually paid) was not “collateral source benefit,” because at the time the treatment was rendered to the injured party, the insurer had already reached an agreement with the healthcare provider as to the amount that would be paid for the care, so the plaintiff would never be liable for the full amount of the bill. (Id. at 563.) Since the Plaintiff never incurs liability for the full bill, the collateral source rule is therefore inapplicable. (Id.) The Court later explains that any benefits are between the negotiating parties (health care provider and insurer) and that even insofar as Plaintiff benefits from the reduction, it is not provided “as ‘compensation for [the plaintiff’s] injuries.'”

(Id. citing Helfend v. Southern Cal. Rapid Transit Dist. (1970) 2 Cal.3d 1, 6.)

The Court then made clear the effect and reach of its ruling noting:

“We conclude the negotiated rate differential is not a collateral source payment or benefit subject to the collateral source rule. We emphasize, however, that the rule applies with full force here and in similar cases. Plaintiff here recovers the amounts paid on her behalf by her health insurer as well as her own out-of-pocket expenses.”

(Id. at 565.)

The Court further held that “an injured plaintiff whose medical expenses are paid through private insurance may recover as economic damages no more than the amounts paid by the plaintiff or his or her insurer for the medical services received or still owing at the time of trial.” (Id. at 566.)

With respect to the amount of payments made by the plaintiff’s insurer the court explicitly directed: “when a medical care provider has, by agreement of the plaintiff’s private health insurer, accepted as full payment for the plaintiff’s care an amount less than the provider’s full bill, evidence of that amount is relevant to prove the plaintiff’s damages for past medical expenses and, assuming it satisfies other rules of evidence, is admissible at trial. Evidence that such payments were made in whole or in part by an insurer remains, however, generally inadmissible under the evidentiary aspect of the collateral source rule. Where the provider has, by prior agreement, accepted less than a billed amount as full payment, evidence of the full billed amount is not itself relevant on the issue of past medical expenses.”

(Id. at 567.)

Despite the broad, clearly-stated reach of the ruling, the Court explicitly declined to rule on the admissibility of the full amount of the medical bills for other purposes, including general damage calculations (which has already been found proper by the California Supreme Court in Nishihama) or future medical expenses. (Id. at 567.) Equally interesting is one of the issues the Court did not address at all – the affect of the ruling on cases involving Health Maintenance Organizations (HMO’s), such as Kaiser Permanente.

One of many reasons that this decision has gained particular attention among the Plaintiffs’ bar is the fact that in siding with the majority, Chief Justice Tani Cantil-Sakauye appears to have made a 180 degree turn from her previous ruling on the issue while sitting on the California Court of Appeal. (King v. Willmett (2010) .) Additionally, the decision was 6-1, with all Justices of the California Supreme Court joining the majority, and only the Joan Dempsey Klein, Presiding Justice of the California Court of Appeal, Second Appellate District, Division Three, sitting on assignment, holding in dissent.

The California Supreme Court’s decision in Howell will surely be the source of many future legal articles and seminars, as plaintiff lawyers, defense lawyers and the Courts work to understand the import of this ruling and integrate it into actual practice.

In Conclusion

While the politicization of the judiciary is the increasingly frequent topic of scholarly research and writing, the reasons behind legal decisions matter little to citizens whose rights are continually limited by the courts’ holdings. The clear message from the four decisions discussed above is that the erosion of the rights and judicial remedies of individual consumers are quickly being abandoned in favor of increasing protection of the interests of big businesses and insurance companies.

Casey R. Johnson, Esq.