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Dodd v. Cruz: A Response to Attempts to Circumvent Howell and Corenbaum

It has been two years since the California Supreme Court’s seminal decision in Howell v. Hamilton Meats & Provisions, Inc. (2011) 52 Cal.4th 541 (Howell), which held that personal injury plaintiffs are limited to recovering the amounts actually paid for medical costs, not the inflated amount “billed” by their medical providers.  Subsequently, the court in Corenbaum v. Lampkin (2013) 215 Cal.App.4th 1308 (Corenbaum), confirmed that Howell turned on general principles of universal application and should be applied broadly, when it held the billed amounts for past medical treatments were not admissible at trial for any purposes. 

Recognizing the implication of these decisions, the Plaintiff’s bar has developed novel strategies designed to circumvent the holdings of Howell and Corenbaum and distort the value of cases. The most recent trend among these strategies is for plaintiff’s counsel to direct their clients to medical providers who will treat on a lien basis and provide unreasonably high billed amounts for their services which are "unpaid" as of the time of trial.  However, earlier this year the California Second District Court Of Appeal issued an opinion in Dodd v. Cruz 223 Cal.App.4th 933, which recognized that critical information from third party medical lien purchasers is discoverable because it is relevant to the "reasonable value" of past medical services provided.  In doing so, the court struck a blow against the machinations of plaintiff’s counsel in seeking to circumvent these clear legal principles.

Dodd arose out of an automobile accident between plaintiff Dodd and defendant Cruz.  Dodd contended he sustained a shoulder injury, specifically a torn rotator cuff.  Dodd underwent a shoulder surgery at Coast Surgery Center of South Bay ("Coast").  Before the surgery, Dodd knew that the procedure would be on a lien basis, but did not know what Coast's actual charges would be.  He subsequently learned Coast's final surgery bill was between $40,000 and $50,000.  On the same day as Dodd’s surgery, Coast sold to Medical Finance LLC (“MedFi”) its account receivable and lien against Dodd for payment of its charges.  (MedFi asserts it is in the business of purchasing accounts receivable from businesses, including healthcare providers, "at a discount.")

During litigation, Cruz' attorney served MedFi with a deposition subpoena for production of business records, including any "lien contracts" with Coast and any evidence of the amount MedFi paid for its lien on Dodd's recovery, if any, against Cruz.  MedFi filed a motion to quash Cruz's subpoena and sought monetary sanctions against Cruz and her counsel.  The trial court granted MedFi 's motion quashing the subpoena and issued monetary sanctions on Cruz. Cruz appealed the court's orders.

The Court of Appeal reversed and held that the subpoena was reasonably calculated to lead to the discovery of admissible evidence relating to the reasonable value of Coast’s services.  The court held that the subpoenaed documents, for example, could reveal what Coast believed was the reasonable value of its services, i.e. what amount it sold the lien for apart from its calculation of the expense and risk of collection.  In addition, the court held that the defendant's subpoena to MedFi was also reasonably calculated to lead to the discovery of admissible evidence relating to the amount of medical expenses Dodd actually incurred.  Although Dodd and MedFi maintained Dodd was responsible for the full amount Coast billed for the surgery, the Court determined “Cruz is entitled to obtain documents relating to MedFi’s collection activity and policies and procedures, because they may support Cruz’s position that Dodd is not actually responsible for the full amount billed.”

Update: On June 11, 2014, the California Supreme Court ordered Dodd depublished, which means it can no longer be cited as precedent.  Not surprisingly, the requests to depublish Dodd were submitted by the Consumer Attorneys of California (CAOC) and several medical lien “factors” companies that buy healthcare providers’ bills at a deep discount to profit in collecting those bills.  Nevertheless, Dodd provides a blueprint for how defendants may conduct discovery on both the healthcare providers as well as the finance companies to whom they sell their liens as part of a “failure to mitigate” defense.  Indeed, Howell and Corenbaum turn on the issues of detriment and reasonable value.  In the context of payments for past or future medical expenses, this means the amounts actually paid or incurred, not the inflated amounts “billed” by medical providers.  Consequently, defendants may still use these legal principles to deter the plaintiff’s threat of blackboarding high economic damages at trial in an attempt to leverage high settlements.

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