In a case of great significance to the 2003 medical and tort liability reforms, the Texas Supreme Court has upheld the application of the dollar-for-dollar settlement credit and ordered the trial court to award part of the plaintiff’s damages in periodic payments, as required by Chapter 74, CPRC. The case attracted intense interest, drawing amicus responses from TCJL, Texas Association of Defense Counsel, Texas Alliance for Patient Access, Texas Medical Association, Texas Osteopathic Medical Association, and Texas Hospital Association. TCJL’s brief, as you may recall from our previous reporting on this case, concentrated on a single issue of overriding concern to the Texas business and health care community: the application of the settlement credit when the “claimant” includes both the injured party and another person seeking recovery based on the harm to the injured party (i.e., a derivative claim) (see § 33.011(1), CPRC).
Jesus Virlar, M.D. and GMG Health Systems Associates, P.A., a/k/a and d/b/a Gonzaba Medical Group v. Jo Ann Puente (No. 20-0923) arose out of a medical malpractice case involving a patient who suffered complications from gastric bypass surgery that left her with serious brain dysfunction requiring 24-hour long term care. The plaintiff, her mother (as guardian for the plaintiff’s minor daughter), and plaintiff’s daughter sued the physicians (Virlar, Patel, and Martinez), their employer (Gonzaba), Metropolitan Methodist Hospital, and other providers for negligence seeking damages for physical pain, mental anguish, loss of earnings, loss of future earning capacity, and past and future medical expenses. The plaintiff’s minor daughter alleged past and future damages for loss of parental consortium, emotional trauma, and loss of care, maintenance, companionship and other damages. The plaintiff’s mother alleged separate damages for loss of services resulting from her daughter’s injury.
Prior to trial, the plaintiff’s mother and daughter settled with all defendants except Dr. Virlar, Gonzaba, and Dr. Martinez. They nonsuited their claims with all defendants, including those against the doctors and the employer. The plaintiff, Puente, settled with or nonsuited her claims against all defendants except Dr. Virlar, Dr. Martinez, and their employer, Gonzaba. The jury assigned responsibility to Virlar (60%) and Patel (40%) and awarded the plaintiff $133,202 for past loss of earnings, $888,429 for future loss of earning capacity, and $13,263,874.86 for future medical expenses. The defendants filed a motion to apply a settlement credit for the plaintiff’s, plaintiff’s mother, and minor child’s settlements with the other defendants, as well as for an order for periodic payments of the future medical expenses. The trial court denied both motions and entered judgment against Virlar and Gonzaba for $14,109.349.02.
The defendants appealed to the San Antonio Court of Appeals. In a split decision, with Chief Justice Marion and Justice Alvarez filing separate concurring and dissenting opinions, the court of appeals upheld the judgment, subject to ordering a remittitur of $8,000 on the future loss of earning capacity award. The court of appeals rejected the plaintiff’s motion to remit the total award by $434,000 to cure potential error from the trial court’s denial of the defendants’ motion for settlement credit. The defendants appealed.
SCOTX overturned the court of appeals’ majority opinion in two respects: the application of the settlement credit and whether the trial court should have awarded some of the future damages in periodic payments. As to the settlement credit, the court of appeals acknowledged that under §33.012(c), CPRC, the defendants were entitled to a credit. The court likewise agreed that the definition of “claimant” in §33.011(1) includes a derivative claimant, as the plaintiff’s mother and daughter were here. But rather than simply applying the plain language of the statute (as the dissenters Chief Justice Marion and Justice Alvarez would have done), the majority held that to the extent these sections reduced the plaintiff’s award of economic damages (noneconomic damages are of course capped in health care liability actions), they violated the Open Courts provision of the Texas Constitution (Art. 1, §13). The majority relied heavily, indeed almost exclusively, on SCOTX’s holding in Lucas v. United States, 757 S.W.2d 687 (Tex. 1988), which struck down Texas’ then-statutory cap on damages in health care liability cases as violating open courts.
In an opinion by Justice Busby, SCOTX rejected the majority opinion’s Open Courts ruling “[b]ecause [plaintiff] has not lost a common-law remedy.” First, the Court addressed plaintiff’s argument that her daughter’s settlement should not be credited against her mother’s damages. The Court disagreed on the basis of the plain language of § 33.011(1)(B), which defines “claimant” as “any person who is seeking . . . recovery of damages for the injury . . . of [another] person.” Here plaintiff’s daughter sought recovery for her mother’s injury. Consequently, the Court stated, “the claimant here is [the daughter] as well as [the mother], and Chapter 33 requires that the total damages awarded to [the mother] be reduced by the dollar amount of [the daughter’s] settlement with [the hospital]: $3.3 million.”
Next, the Court determined that the application of the dollar-for-dollar credit to plaintiff’s recovery did not run afoul of the Open Courts provision, which “is implicated when the Legislature ‘withdraw[s] common-law remedies for well established common-law causes of action” [citing Lebohm v. City of Galveston, 275 S.W.2d 951, 955 (Tex. 1955)]. If the Legislature does withdraw such remedies, it must be “reasonable in substituting other remedies, or when it is [a] reasonable exercise of the police power in the interest of the general welfare” (additional citations omitted). Here the court of appeals neglected to analyze the first part of the Lebohm test. As the Court explained, “the legal principles addressing settlement credits and contribution—whether common-law or statutory—aim to vindicate the one-satisfaction rule and prevent collusion in settlements. Under common-law principles, [plaintiff] would recover less than she can recover under Chapter 33. Thus, the application of Chapter 33 here does not withdraw a remedy.” Here is how that works. Under common law, a plaintiff who settled with one defendant could only recover half of its damages against the remaining defendant (citations omitted). If the common law still applied, consequently, plaintiff could have only recovered $7 million, not the $10.8 million she would recover after application of the settlement credit. Following Duncan v. Cessna Aircraft Co., 665 S.w.2d 414, 430 (Tex. 1984), when Texas moved to a pure comparative fault system, plaintiff would have had her recovery reduced by the percentage of responsibility assigned to Dr. Virlar and Gonzaba, 60%, thus reducing her recovery to $8.5 million. In either case, Chapter 33 gives plaintiff a greater recovery than she would have had at common law and cannot be said to have lost a common-law remedy.
As to the periodic payments issue, the Court made several important holdings. First, plaintiff argued that Gonzaba and Dr. Virlar never pleaded for periodic payments and thus lost their opportunity to make a motion after trial. The statute, however, states that the periodic payments provision of Chapter 74, Subchapter K, does not become operative until the jury renders a verdict in excess of $100,000. § 74.502, CPRC. At that point, the trial court, not the jury, has the discretion to receive additional evidence for the purpose of structuring the award into periodic payments or a lump sum. “For these reasons,” the Court concluded, “we hold that a defendant may request periodic payments post-trial and that petitioners’ motion was timely.” Second, plaintiff asserted that Dr. Virlar could not make the required showing of financial responsibility necessary to assure full payment of the damages and could not rely on his employer’s assurance. But, the Court disagreed, “[b]ecause Gonzaba is vicariously liable for the full damages awarded against Dr. Virlar, he can rely on Gonzaba’s assurance of payment.” In other words, where respondeat superior, or vicarious liability, is present, both the employer and the employee “constitute a single defendant for purposes of applying section 74.505(a) [the financial responsibility requirement].” The rule would be different, however, if the joint tortfeasors were not related.
Finally, the Court found that Gonzaba provided sufficient evidence for the trial court to craft an award that complied with Chapter 74. The trial court held two post-verdict hearings on the matter. Plaintiff wanted its costs and attorney’s fees paid immediately. Defendants asserted that the plaintiff’s life care expert presented a plan for the projected future cost of plaintiff’s medical care, which “the trial court could have relief on” to determine “the dollar amount, timing, and number of periodic payments that would compensate [plaintiff] for her future damages.” Defendants further offered to purchase “an annuity with an interest rate sufficient to ensure the amounts paid in later years would grow to meet [plaintiff’s] needs. The use of such annuities is contemplated by Chapter 74” (citing § 74.505(b)(1)). The Court distinguished its holding in Regent Care of San Antonio, L.P. v. Detrick, 610 S.W.3d 830 (Tex. 2020), which upheld a trial court order dividing the award of future damages between a lump sum payment and periodic payments over the defendant’s objection that a larger share of the damages should have been payable periodically. Here, the Court noted, the trial court did not order any periodic payments, so “the question is simply whether there was evidence to support the findings required by section 74.503, thereby triggering the court’s obligation to order periodic payments in whole or in part.”
In view of the fact that plaintiff died while the appeal was pending, the Court remanded to the trial court to determine “how much of the award of future medical expenses she should have received in a lump sum and how much she was projected to incur periodically between the time of trial and her death.” Further, since periodic payments of future damages terminate upon the death of the recipient, “the court should not order petitioners to pay damages for any future medical expenses [plaintiff] was projected to incur after the date of her death.”
This decision is very significant, both for vindicating the settlement credit against an Open Courts challenge and for enforcing the crucially important Chapter 74 provision requiring at least some future damages to be paid periodically. It is worth pointing out that for all the criticism of the Legislature’s tort reform efforts over the past three decades, the statutes work the way they were intended to. And, as the Court observed, the settlement credit for which tort reform proponents advocated actually produced a more generous award in this case than the old common law would have done. Sometimes the law works better for one side, and sometimes for the other. The point is that the reforms achieve just results when considered at the systemic level, the level that determines whether Texas has a predictable and stable tort system or not. Judging by our state’s record of success in attracting new business and investment and enhancing access to health care, the verdict is clear. Still, as this case demonstrates, two decades after the 2003 reforms, our courts are still adding to the jurisprudence around those reforms. As long as that’s the case, our work on those reforms is never finished.
