Allstate Indemnity Company v. Memorial Herman Health System

Reversed and Remanded and Memorandum Opinion filed June 26, 2014.
In The
Fourteenth Court of Appeals
NO. 14-13-00307-CV
ALLSTATE INDEMNITY COMPANY, Appellant
V.
MEMORIAL HERMANN HEALTH SYSTEM, Appellee
On Appeal from the 80th District Court
Harris County, Texas
Trial Court Cause No. 2012-01705
OPINION
The primary dispute in this case is whether an insurer that settles a
negligence claim against its insured without first satisfying a hospital lien has
standing to request declaratory relief concerning its rights to contest the charges for
services reflected on the lien. Concluding that the insurer does not have standing,
the trial court granted the hospital’s plea to the jurisdiction, dismissed the insurer’s
petition for declaratory relief, and granted summary judgment in favor of the
hospital on its counterclaim for damages and attorney’s fees based on the insurer’s
payment of settlement funds to the patient in violation of the hospital’s lien. For
the reasons explained below, we reverse the trial court’s rulings and remand for
further proceedings.
FACTUAL AND PROCEDURAL BACKGROUND
In May 2011, R.M. received emergency care at a hospital in the Memorial
Hermann hospital system for injuries sustained in a motor vehicle accident with
D.W., an Allstate insured.1 The charges for R.M.’s diagnosis and treatment totaled
$4,956.50. The next month, Memorial Hermann timely filed and perfected a
hospital lien in the public records of Harris County. See Tex. Prop. Code §§
55.001–.008 (the “Hospital Lien Statute”). In November, Allstate paid R.M.
$2,118.12 on behalf of D.W. to settle R.M.’s claims against D.W. The hospital
lien, however, was not dismissed or discharged.
Memorial Hermann sent a demand letter to Allstate, contending that
Allstate’s payment to R.M. was in direct violation of Memorial Hermann’s hospital
lien and seeking payment of $4,956.50. At some point, Allstate obtained a
professional review of Memorial Hermann’s charges to determine whether R.M.’s
treatment and costs were reasonable and necessary. Based on that review, Allstate
tendered to Memorial Hermann $1,081.88 for the “reasonable services provided”
to R.M.
Allstate also filed a petition for declaratory judgment seeking a declaration
that, under section 55.004 of the Hospital Lien Statute, Allstate has the right to
challenge the reasonableness and necessity of Memorial Hermann’s billed services.
Alternatively, Allstate requested a declaration that section 55.004 violates the due
process protections afforded by the United States and Texas Constitutions.
1
The parties have identified the individuals involved by their initials in the appellate
briefing, and we will do the same in this opinion.
2
Memorial Hermann answered and asserted a counterclaim against Allstate for
payment of settlement proceeds to R.M. in violation of Memorial Hermann’s
hospital lien.
Memorial Hermann also filed a plea to the jurisdiction, which the trial court
granted on April 27, 2012, dismissing Allstate’s petition. On January 9, 2013, the
trial court granted summary judgment in Memorial Hermann’s favor on its
counterclaim. By a modified judgment signed March 12, 2013, the trial court
awarded Memorial Hermann $2,118.12 in actual damages (the amount Allstate
paid R.M. in settlement), $2,500 in attorney’s fees, and pre-judgment interest.
That same day, the trial court overruled Allstate’s motion for new trial.
On appeal, Allstate contends that the trial court erred by (1) granting
Memorial Hermann’s plea to the jurisdiction, (2) granting summary judgment in
favor of Memorial Hermann, and (3) awarding Memorial Hermann attorney’s fees
and pre-judgment interest.
I. THE PLEA TO THE JURISDICTION
In its first issue, Allstate contends that the trial court erred in granting
Memorial Hermann’s plea to the jurisdiction because its petition alleged facts
affirmatively demonstrating that the district court has subject-matter jurisdiction
and Allstate has standing to bring its action under the Uniform Declaratory
Judgments Act (UDJA). See Tex. Civ. Prac. & Rem. Code §§ 37.001–011.
Memorial Hermann responds that Allstate lacks standing to sue on the transaction
between Memorial Hermann and R.M. because Allstate is a stranger to the
transaction.
A. Standards of Review
A plea to the jurisdiction challenges the court’s authority to decide a case.
3
Heckman v. Williamson Cnty., 369 S.W.3d 137, 149 (Tex. 2012). We review de
novo a trial court’s ruling on a plea to the jurisdiction. Tex. Dept. of Parks and
Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004).
The plaintiff must allege facts affirmatively demonstrating that the trial court
has subject-matter jurisdiction. Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 446 (Tex. 1993). The plea must be determined without delving into
the merits of the case. Bland Indep. Sch. Dist. v. Blue, 34 S.W.3d 547, 554 (Tex.
2000). The court construes the plaintiff’s pleadings liberally, taking all factual
assertions as true, and looks to the plaintiff’s intent. Heckman, 369 S.W.3d at 150.
In deciding a plea to the jurisdiction, the reviewing court considers only the
plaintiff’s pleadings and the evidence pertinent to the jurisdictional inquiry. See
Blue, 34 S.W.3d at 555. If a plea to the jurisdiction challenges the existence of
jurisdictional facts, the court considers relevant evidence by the parties when
necessary to resolve the jurisdictional issues raised. Miranda, 133 S.W.3d at 227.
If the evidence is undisputed or fails to raise a fact question on the jurisdictional
issue, then the court rules on the plea to the jurisdiction as a matter of law. Id. at
228. If the evidence creates a fact question regarding the jurisdictional issue, then
the plea to the jurisdiction must be denied. See id. at 227–28.
B. Does Allstate Have Standing to Seek a Declaration of Its Rights,
Status, or Other Legal Relations Affected by the Hospital Lien
Statute?
Standing is implicit in the concept of subject-matter jurisdiction. Tex. Ass’n
of Bus., 852 S.W.2d at 443. “The issue of standing focuses on whether a party has
a sufficient relationship with the lawsuit so as to have a ‘justiciable interest’ in its
outcome . . . .” Austin Nursing Ctr., Inc. v. Lovato, 171 S.W.3d 845, 848
(Tex. 2005). The doctrine of justiciability is rooted in two provisions of the Texas
4
Constitution: the separation of powers provision and the open courts provision.
Heckman, 369 S.W.3d at 147. The separation of powers provision prohibits courts
from issuing advisory opinions, and the open courts provision contemplates access
to the courts only for those litigants suffering an injury. See id; Tex. Ass’n of Bus.,
852 S.W.2d at 444. Thus, standing requires that there be a real controversy
between the parties that actually will be determined by the judicial declaration
sought. Lovato, 171 S.W.3d at 849.
Under the Uniform Declaratory Judgments Act, a person interested under a
written contract or “whose rights, status, or other legal relations are affected by a
statute . . . may have determined any question of construction or validity arising
under the . . . statute . . . and obtain a declaration of rights, status, or other legal
relations thereunder.” Tex. Civ. Prac. & Rem Code § 37.004(a).2 A declaratory
judgment is appropriate only if a justiciable controversy exists concerning the
rights and status of the parties and the controversy will be resolved by the
declaration sought. Bonham State Bank v. Beadle, 907 S.W.2d 465, 467 (Tex.
1995); WesternGeco, L.L.C. v. Input/Output, Inc., 246 S.W.3d 776, 781 (Tex.
App.—Houston [14th Dist.] 2008, no pet.). There must be a real and substantial
controversy involving a genuine conflict of tangible interests and not merely a
theoretical dispute. Bonham State Bank, 907 S.W.2d at 467; WesternGeco, L.L.C.,
246 S.W.3d at 781.
In its petition, Allstate recited the underlying facts of the automobile
accident between R.M. and D.W., its insured, and alleged that it attempted to
negotiate a settlement of R.M.’s personal-injury claim against D.W. Allstate also
2
For purposes of the UDJA, a “person” is defined as “an individual, partnership, joint-
stock company, unincorporated association, or society, or municipal or other corporation of any
character.” Tex. Civ. Prac. & Rem. Code § 37.001. Memorial Hermann does not argue that
Allstate is not a person entitled to invoke the UDJA.
5
alleged that through “professional review” it determined “the reasonable and
necessary treatment and costs concerning R.M.” Allstate then alleged that
“[Memorial Hermann] has taken the position, pursuant to Texas statute
(specifically the hospital lien statute, Chapter 55 of the Texas Property Code), it
should be paid the full amount it billed in regard to R.M., demanded full payment,
and denied that [Allstate] has any right to challenge the charges.” Based on the
alleged facts, Allstate requested “a declaration concerning its rights to contest the
amount claimed by [Memorial Hermann] by its hospital lien, to clarify its rights
and obligations under the statute.” Specifically, Allstate requested that the court
“declare that, pursuant to section 55.004 of the Texas Property Code, [Allstate] has
the right to challenge the reasonableness and necessity of the billed services.”
Alternatively, Allstate requested a declaration that section 55.004 violates the due
process protections of the United States and Texas Constitutions.
Memorial Hermann contends that Allstate lacks standing to seek the
declaratory relief requested for two reasons: (a) Allstate is merely seeking an
advisory opinion; and (2) Allstate has suffered no injury. We conclude that both
arguments are without merit.
1. Allstate does not seek an advisory opinion.
Memorial Hermann first complains that Allstate’s petition is merely “a
thinly veiled attempt to change the current state of the law in Texas regarding the
amount of a hospital lien asserted in a given case.” According to Memorial
Hermann, Allstate is “a complete stranger” to the transaction between Memorial
Hermann and R.M. and is seeking an advisory opinion from the trial court in an
attempt to change the Hospital Lien Statute “instead of seeking redress for its
complaint in the legislature.”
The Hospital Lien Statute provides that a hospital has a lien on a cause of
6
action or a claim of an individual who receives hospital services for injuries caused
by an accident that is attributed to the negligence of another person. For the lien to
attach, the individual must be admitted to a hospital not later than 72 hours after
the accident. See Tex. Prop. Code § 55.002(a).
The lien is for the amount of the hospital’s charges for services provided to
the injured individual during the first 100 days of the injured individual’s
hospitalization, and it may also include the amount of a physician’s reasonable and
necessary charges for emergency hospital care services. Id. § 55.004(a)–(c). But
the lien does not cover “charges for other services that exceed a reasonable and
regular rate for the services.” Id. § 55.004(d). A hospital must take specific steps to
secure its lien. See id. § 55.005.
The lien attaches to the plaintiff’s cause of action, a judgment, or the
proceeds of a settlement. Id. at 55.003(a). A release of a cause of action to which a
lien may attach is not valid unless the hospital has been paid in full or made a party
to the release. See id. § 55.007(a)(1), (3). It is undisputed that R.W. was admitted
to Memorial Hermann not later than 72 hours after the accident and that Memorial
Hermann timely and properly secured its lien. It is also undisputed that Allstate
settled R.M.’s claim while the lien remained unsatisfied. The parties’ dispute
concerns whether and to what extent Allstate may challenge the reasonableness
and necessity of the charged services made the basis for Memorial Hermann’s lien.
The crux of Memorial Hermann’s argument is that Allstate is not a party to a
contractual relationship between Memorial Hermann and R.M. The plain language
of the UDJA reflects, however, that it may apply not only to a person interested
under a contract, but also to “a person . . . whose rights, status, or legal relations”
are affected by a statute. See Tex. Civ. Prac. & Rem. Code § 37.004(a). Allstate is
affected by the Hospital Lien Statute because it specifically provides that Memorial
7
Hermann’s lien attaches to the proceeds of D.W.’s automobile-liability insurance
policy with Allstate. See Tex. Prop. Code § 55.003(b)(2) (providing that a hospital
lien attaches to “public liability insurance carried by the insured that protects the
insured against loss caused by an accident or collision”). Memorial Hermann does
not argue otherwise.
Moreover, some courts have held the Hospital Lien Statute establishes a
separate cause of action against an insurer independent of the patient’s obligation
to pay the hospital’s bill. See Baylor Univ. Med. Ctr. v. Borders, 581 S.W.2d 731,
733 (Tex. Civ. App.—Dallas 1979, writ ref’d n.r.e.) (stating that, in passing the
statute, the legislature intended to give a hospital a separate cause of action to
satisfy its lien); see also Republic Ins. Co. v. Shotwell, 407 S.W.2d 864, 866 (Tex.
Civ. App.—Amarillo 1966, writ ref’d n.r.e.) (holding that a hospital with a secured
lien has a cause of action against an insurance company that disburses funds
without honoring the lien). Indeed, Memorial Hermann filed a counterclaim
against Allstate asserting it was damaged in the amount of $4,956.50 due to
Allstate’s alleged violation of the Hospital Lien Statute, and the trial court
ultimately awarded Memorial Hermann $2,118.12 in actual damages.
Recently, the Supreme Court of Texas called into question whether the
Hospital Lien Statute creates a cause of action against a negligent third party or
that party’s liability insurer. See McAllen Hospitals, L.P. v. State Farm Cnty.
Mutual Ins. Co. of Tex., __ S.W.3d ___, 2014 WL 1998245, at *5–6 (Tex. May 16,
2014). The Court explained that, when a valid hospital lien is not paid out of the
proceeds of a patient’s settlement with a third party, section 55.007 invalidates the
release of the patient’s cause of action; consequently, “the patient’s cause of
action, previously settled, is revived, and the hospital retains its lien on that cause
of action.” Id. at *5 (citing Tex. Prop. Code § 55.007(a)). The Court went on to
8
comment that, “[b]ecause the Legislature specified a remedy for failure to properly
satisfy a hospital lien, and did not include a concomitant cause of action for
enforcement, we question the propriety of reading into the statute such an
additional remedy” and specifically called into question the Borders court’s
conclusion. Id. at *6. The Court did not reach the issue, however, holding that the
parties did not preserve the issue for review because they did not raise it in the
summary judgment proceedings below. Id. Similarly, the parties in this case have
not raised the issue in either the trial court or in their appellate briefs, and so we do
not address it.3
Based on the record before us, we conclude that Allstate is affected by
Memorial Hermann’s hospital lien because Allstate paid settlement funds to R.M.
on behalf of its insured after Memorial Hermann secured its lien; the lien attached
to the proceeds of the settlement; Allstate and Memorial Hermann disagreed
whether Allstate was liable for the full amount of the charges underlying the lien or
whether it may challenge the reasonableness and necessity of the charges; and
Allstate risked liability to Memorial Hermann for settling R.M.’s claim against its
insured in violation of the Hospital Lien Statute. Allstate requested judicial
declarations concerning the construction and validity of the Hospital Lien Statute
to resolve the parties’ dispute.
On these facts, Allstate has alleged a real and substantial controversy
involving a genuine conflict of tangible interests and not merely a theoretical
dispute. Bonham State Bank, 907 S.W.2d at 467; WesternGeco, L.L.C., 246
S.W.3d at 781. We conclude that a justiciable controversy exists as to the rights
3
After McAllen Hospitals issued, Allstate filed a motion for leave to file a post-
submission brief concerning whether Memorial Hermann may pursue its counterclaim for
violation of the hospital lien. Because of our disposition of this appeal, we deny Allstate’s
motion. Allstate may raise the issue in the trial court on remand.
9
and status of the parties and the controversy will be resolved by the declaration
sought. Bonham State Bank, 907 S.W.2d at 467; WesternGeco, L.L.C., 246 S.W.3d
at 781.
2. Allstate has alleged an injury.
Memorial Hermann next contends that Allstate has not suffered an injury
because R.M.’s settlement belongs to R.M. alone, not Allstate, and if Memorial
Hermann overcharged R.M. or conducted unnecessary tests as alleged, then it is
R.M. who is injured by the overcharging, not Allstate. Memorial Hermann also
argues that Allstate’s exposure to liability under the Hospital Lien Statute due to its
own failure to protect Memorial Hermann’s lien interest in R.M.’s settlement funds
does not mean that any alleged overcharging of R.M. caused Allstate to suffer an
injury for which it may sue Memorial Hermann. Memorial Hermann points out that
the measure of the damages the trial court awarded was the amount that Allstate
paid to R.M. in violation of the hospital lien ($2,118.12), not the amount of the
claimed lien ($4,956.50). Thus, Memorial Hermann reasons that because its lien
attaches to R.M.’s settlement, and the lien must be satisfied out of that settlement,
only R.M. can bring a “suit on the debt.”
In support of its argument, Memorial Hermann cites a single authority which
it contends “signals” that the patient alone has standing to challenge the amount of
the hospital lien. See Speegle v. Harris Methodist Health Sys., 303 S.W.3d 32(Tex. App.—Fort Worth 2009, pet. denied) (per curiam). Memorial Hermann notes
that in Speegle, the patient, not the insurer, brought a UDJA action challenging the
validity of the lien. See id. at 34. From this observation, Memorial Hermann
concludes that “there was no question that the petitioner had standing to challenge
the hospital lien because he was a party to the transaction for medical treatment in
exchange for the promise of payment.” But Speegle did not address whether an
10
insurer has standing to maintain a UDJA action or the reasonableness of the
hospital’s charges. Instead, the patient complained that the lien was invalid because
the hospital should have charged Medicare rather than create the lien. See id. at 35,
38. Therefore, Speegle is not instructive on the standing issue and, contrary to
Memorial Hermann’s argument, does not signal that only the patient may
challenge the reasonableness or validity of a hospital lien.
As discussed above, Allstate alleged that from its professional review it
determined that Memorial Hermann’s reasonable and necessary treatment and
costs concerning R.M. were less than the full amount billed, but Memorial
Hermann took the position that “it should be paid the full amount it billed in regard
to R.M., demanded full payment, and denied that [Allstate] has any right to
challenge the charges.”4 Alternatively, if the trial court determined Allstate was
precluded from challenging the amount of the lien, Allstate requested a declaration
that section 55.004 of the Hospital Lien Statute violates its constitutional right to
due process. To establish standing to challenge the constitutionality of a statute the
plaintiff must have suffered some actual or threatened injury under the statute that
unconstitutionally restricts its own rights. See Barshop v. Medina Cnty.
Underground Water Conservation Dist., 925 S.W.2d 618, 626 (Tex. 1996).
Contrary to Memorial Hermann’s contention, Allstate alleged a distinct injury
appropriate for resolution under the UDJA.
4
Moreover, Memorial Hermann ultimately obtained a judgment against Allstate for an
amount greater than that Allstate contended was reasonable and necessary. Specifically, in its
summary-judgment motion Memorial Hermann requested damages equal to the amount of the
settlement ($2,118.12) for the emergency hospital care it provided, but Allstate presented
summary-judgment evidence that its professional review revealed some of the treatment and
costs were unnecessary and therefore Memorial Hermann was only entitled to $1,081.88—an
amount roughly half of the $2,118.12 in actual damages the trial court awarded to Memorial
Hermann.
11
On this record, we conclude that the trial court erred in granting Memorial
Hermann’s plea to the jurisdiction. See Barshop, 925 S.W.2d at 626–27; Beadle,
907 S.W.2d at 467; WesternGeco, L.L.C., 246 S.W.3d at 781. We sustain
Allstate’s first issue.
II. THE SUMMARY JUDGMENT
In its summary-judgment motion, Memorial Hermann argued that Allstate
was liable for all amounts paid to R.M. in violation of Memorial Hermann’s
perfected hospital lien. In response, Allstate urged—as it had in response to
Memorial Hermann’s plea to the jurisdiction—that either it should be allowed to
challenge the reasonableness and necessity of the charged services upon which the
lien is based or the Hospital Lien Statute should be declared unconstitutional.5 As
discussed above, the trial court denied Allstate’s request for declaratory relief on
these same issues, concluding that Allstate lacked standing to assert them.
Presumably, then, the trial court also granted Memorial Hermann’s counterclaim
because it reasoned that Allstate lacked jurisdiction to assert these grounds against
Memorial Hermann’s counterclaim under the Hospital Lien Statute.6 Because we
have concluded that the trial court erred in determining that Allstate lacked
standing and in dismissing Allstate’s petition for declaratory relief, we likewise
sustain Allstate’s second issue and reverse the trial court’s summary-judgment
ruling.
5
Many of the underlying facts were stipulated, but both parties presented case law and
affidavits in support of their respective positions concerning Memorial Hermann’s charges for
the services provided to R.M. and whether Allstate was entitled to challenge the charges.
6
In its responsive brief, Memorial Hermann argues that because the trial court never
ruled on the issues of whether and how automobile-liability insurance carriers such as Allstate
can contest the amount of a hospital lien and the constitutionality of Property Code section
55.004, we should not address them in this appeal. On this point, we agree.
12
CONCLUSION
We sustain Allstate’s first and second issues and reverse and remand for
further proceedings consistent with this opinion. In so doing, we express no
opinion on the merits of the parties’ arguments concerning Allstate’s request for
declaratory relief or Memorial Hermann’s summary-judgment motion. We do not
reach Allstate’s third issue concerning attorney’s fees and prejudgment interest.
/s/ Ken Wise
Justice
Panel consists of Chief Justice Frost and Justices Jamison and Wise.
13