In early February we told you that SCOTX accepted review of a case involving the application of a central provision of the 2003 medical liability reforms. Last Friday the Court issued an opinion in Columbia Valley Health Care System, L.P. d/b/a Valley Regional Medical Center v. A.M.A., A Minor, By and Through His Mother, Ana Ramirez, as Next Friend and Ana Ramirez, Individually (No. 20-0681) that provides additional clarity to the trial and appellate courts regarding the proper application of §74.503, CPRC. The statute requires, upon request of a defendant physician, health care provider, or claimant, the trial court to “order that medical, health care, or custodial services awarded in a health care liability claim be paid in whole or in part in periodic payments rather than by lump-sum payment.” The purpose of the statute—and the reason it is so important to Chapter 74 in its totality—is to prevent the potential windfall from unused future damages awards that are paid in a lump sum up front. Consistent with other provisions in Chapter 74, §74.503 aims to assure that claimants are made whole for their economic damages, while introducing much needed predictability into medical liability litigation. This predictability allows health care providers and liability insurers to measure their risks accordingly, lowering the cost of liability and thereby expanding access to health care.
In this case, however, the Corpus Christi Court of Appeals affirmed a trial court judgment that would have thoroughly undermined and defeated the purpose of the statute. The facts are tragic, involving an infant born with the umbilical cord wrapped around its neck who developed cerebral palsy. The plaintiffs sued the hospital alleging negligence by the nursing staff, which the plaintiffs claim delayed calling the mother’s OB/GYN during the infant’s birth, resulting in hypoxia that caused the infant’s brain injury. The jury awarded damages in excess of $10.2 million, of which just over $9 million were for future damages before the minor turned 18, and about $1.2 million for future damages after the minor turned 18. The trial judge refused the hospital’s request for a jury charge on the minor’s life expectancy and annualized future medical expenses. When the jury came back with a verdict of 15-plus years of future medical expenses, the trial court limited periodic payments for the future damages to only five years ($604,000 per year) and 30% of the total verdict, leaving more than $7 million, which the trial court ordered to be paid immediately in cash to the plaintiffs and to the plaintiffs’ attorneys (despite the lack of evidence of a present or imminent need for that award). When the hospital moved for findings of fact and conclusions of law to support the judgment, the trial court refused.
The Corpus Christi Court of Appeals found no error in the jury charge, the trial court’s judgment, or the trial court’s refusal to make findings of fact and conclusions of law. The court’s holding turned largely on a construction of §74.503 that ignored the plain language of the statute. Specifically, the statute provides that “the court shall make a specific finding of the dollar amount of periodic payments that will compensate the claimant for the future damages.” §74.503(c). Further, the “court shall specify in its judgment ordering the payment of future damages by periodic payments the: (1) recipient of the payments; (2) dollar amount of the payments; (3) interval between payments; and (4) number of payments or the period of time over which payments must be made.” §74.503(d). Here the trial court plainly changed the verdict, ordering periodic payments of only about $3 million to “compensate the claimant for the future damages” (emphasis added). What about the other $7 million, which the jury designated as part of the future damages? The trial court thus manufactured the windfall the statute was specifically designed to prevent. (Moreover, making the hospital pay it to the plaintiffs’ attorneys, who are not parties to the lawsuit, seems improper on its face.)
As the hospital’s brief on the merits argued, the plaintiffs in this case had their cake and ate it, too:
The intent to thwart the statute with these conflicting machinations is undisguised. After plying the jury with evidence to secure a $10 million-plus jury verdict covering over fifteen years of future medical expenses, Plaintiffs pulled a bait-and-switch. They petitioned the trial court to enter new findings and a judgment limiting A.M.A.’s life expectancy to five years and future medical to $3.020,000 for the limited purpose of evading the statute. In other words, Plaintiffs sought to maximize the jury’s award of future healthcare expenses, but then petitioned the trial court to set aside their sought-after jury findings to avoid the statute’s application. As a result, the trial court exempted over 70% of the jury’s $10,268,000 future healthcare verdict from the termination provision of the statute. Petitioner’s Brief on the Merits at 37-8.
The court of appeals’ decision thus allowed the trial court the latitude to gut §74.503 and give plaintiffs’ lawyers, in the words of the hospital’s brief, a “roadmap” to convert future medicals that should be paid periodically into up front lump sum payments that will not terminate upon the death of the injured person, as the Legislature intended. Another effect of the court of appeals’ decision was to provide access to a much larger amount of “actual” damages than the Legislature meant to grant in §74.503. One might see this strategy as a way to circumvent the cap on non-economic damages and significantly increase settlement values (which the cap and provisions such as §74.503 were meant to rationalize in the first place).
In an opinion by Justice Young, SCOTX reversed the court of appeals’ and remanded to the trial court for further proceedings consistent with this opinion and that in Regent Care of San Antonio, L.P. v. Detrick, 610 S.W.3d 830 (Tex. 2020). In Regent Care, among other things, SCOTX held that § 74.503 requires the trial court, not the jury, to structure the jury award into periodic payments or lump sum based on life expectancy and annual medical expenses. In performing this duty, the court may ask the jury for specific findings but is under no statutory compulsion to submit a “granular charge” to the jury. At the same time, however, Justice Young pointed out that the “entire structure of the statute makes it essential that the trial court rely on and point to probative evidence regarding its disposition” (citing Regent Care). Here the trial court had no such evidence for structuring the award so that 70% of the award would be paid in a lump sum. Moreover, the trial court’s impermissibly contradicted the jury award, which called for future damages to be paid until the plaintiff’s eighteenth birthday, rather than the eighth birthday called for in the order. This constituted an abuse of discretion.
The trial court likewise erred in ordering the creation of a special needs trust with the remainder of the lump sum award reverting to the plaintiff’s parents if the plaintiff died while periodic payments were being made. Section 74.506(b) provides that a defendant’s obligation to make periodic payments ceases upon the death of the recipient (except for future loss of earnings). Here the trial court structured the award to “evade that requirement. . . . Beyond being an abuse of discretion to structure periodic payments in a way that contravenes the jury’s verdict, it is an abuse of discretion to impose a lump-sum payment without evidence supporting the need for an immediate payment of a lump-sum payment.” Finally, the trial court relied on no evidence showing why or for what purpose the trial court withdrew funds from the periodic payments for a lump-sum payment. While a trial court has discretion to order only part of the award to be paid periodically, the record must show that “a lump-sum payment is warranted to meet expenses expected soon after trial” (quoting Regent Care).
The case now returns to the trial court for reconsideration of the structure of the award, “including the statutory provision governing calculations necessary for payment of attorney’s fees.” This proviso is important because we suspect that one of the reasons the trial court put most of the money into a lump-sum payment was to allow the plaintiff’s attorneys to get their full fee up front. Section 74.507 provides that the court shall calculate attorney’s fees based on the discounted present value of the total value of the periodic payments based on the plaintiff’s life expectancy. We will be interested to see if the trial court follows through. If it doesn’t, we may see this issue in the appellate courts once more.