U.S. Supreme Court Says it Again: Arbitration Agreements Should be Honored, and Not Singled Out for Negative Treatment by State CourtsAugust 10, 2017 | David Eisenberg
For years, the U.S. Supreme Court has made two fundamental principles crystal-clear:
- Under the Federal Arbitration Act, arbitration agreements are “valid, irrevocable, and enforceable”, except where grounds exist that could invalidate any type of contract (such as fraud, duress, or lack of consideration).
- As explained by the Supreme Court in its 2011 landmark Concepcion decision, though a court may invalidate an arbitration agreement based on “generally applicable contract defenses,” it may not do so based on legal rules that “apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” The FAA thus preempts any state rule that discriminates on its face against arbitration or that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements. Arbitration agreements must stand on an “equal footing” with other contracts.
Unfortunately, some state courts have failed to get the message. And the Supreme Court’s recent 7-1 decision in Kindred Nursing Centers L.P. v Clark, 137 S. Ct. 1421 (2017),forcefully drives home the point that contrived state court attempts to explain why a rule is not impermissibly targeted at arbitration agreements will be viewed dimly
In Kindred, the Kentucky Supreme Court adopted a “clear statement” rule, under which a general power of attorney that was otherwise valid to authorize the execution of contracts in general, would not validly authorize execution of an arbitration agreement unless the power of attorney expressly addressed that topic. Thus, when family members holding a power of attorney agreed to arbitrate claims regarding the care of their loved ones in a Kindred nursing home, the arbitration agreement was deemed invalid, because the family members’ power of attorney did not “clearly state” that they had the power to waive the right to a jury trial. The state court opined that “the divine God-given right” to a jury trial could not be contractually waived, absent “an explicit statement before an attorney-in fact” that could “relinquish that right on another’s behalf.”
Justice Kagan, writing pointedly for the 7-member majority, would have none of that. She wrote that beyond the FAA “prohibiting outright the arbitration of a particular type of claim”, the law likewise prohibits “any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of an arbitration agreement.” To the Kentucky court’s suggestion that its rule “could also apply when an agent endeavored to waive other ‘fundamental constitutional rights held by a principal’,” the Court responded: “But what other rights, really? No Kentucky court, so far as we know, has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees.” Justice Kagan further noted the absence in Kentucky law of explicit authorization requirements as to settlement agreements or consents to a bench trial, both of which relinquish the right to a jury trial.
The Court further rebuffed Plaintiffs’ argument that the FAA applied only to contract enforcement, and not to contract formation, which was at issue in this case, emphasizing that:
- This argument was squarely contrary to the FAA’s text and case law; and
- “Adopting the respondents’ view would make it trivially easy for States to undermine the Act—indeed, to wholly defeat it. As the respondents have acknowledged, their reasoning would allow States to pronounce any attorney-in-fact incapable of signing an arbitration agreement—even if a power of attorney specifically authorized her to do so. . . . (After all, such a rule would speak to only the contract’s formation.) And why stop there? If the respondents were right, States could just as easily declare everyone incompetent to sign arbitration agreements. (That rule too would address only formation.) The FAA would then mean nothing at all—its provisions rendered helpless to prevent even the most blatant discrimination against arbitration.”
The Supreme Court’s message in support of the enforceability of arbitration agreements seems unmistakable. But a number of states’ courts (including Missouri, California, and others), while routinely accepting arbitration agreements governing commercial disputes, still seem to bristle at enforcing arbitration agreements between consumers and manufacturers or retailers; or between employees and their employer. State courts that look for reasons not to place all arbitration agreements on an “equal footing” with other contracts in general, do so at their peril.
“Jurisdictional Discovery” Is Not a Magical Incantation to Ward Off Timely Dismissal of a Case Filed in the Wrong ForumJuly 14, 2017 | Angela Higgins
In the wake of Bristol-Myers-Squibb and other game-changing personal jurisdiction decisions from the U.S. Supreme Court and the Missouri courts this year, plaintiffs are chanting “jurisdictional discovery” as if it is a magical incantation to ward off the timely and necessary dismissal of claims improperly filed in the wrong forum. Few if any could even identify what information they believe they could obtain through such discovery that would save their doomed cases, and the courts should curtail the needless, expensive, and harassing discovery proposed by forum shoppers who should never have gained access to the forum in the first place.
Limited jurisdictional discovery” seems so enticing to judges, as if it is fair or proper to allow forum-shopping plaintiffs to continue to subject non-resident defendants to the burden and expense of discovery in the wrong forum. The “primary concern” in assessing personal jurisdiction, however, is “the burden on the defendant.” Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773, 198 L.Ed.2d 395, 403 (2017). Subjecting a non-resident defendant to futile discovery in a case filed in the wrong forum simply prolongs the burden on the defendant in a case in which the forum state lacks authority to act. Definitive rulings in BMS, BNSF v. Tyrrell, and Dolan should not permit months of pointless discovery in cases that must, under the law, be dismissed for lack of personal jurisdiction.
I. PLEADING JURISDICTION IS PLAINTIFF’S BURDEN, AND JURISDICTIONAL DISCOVERY IS UNNECESSARY IF ADEQUATE FACTS (NOT CONCLUSIONS) SUPPORTING JURISDICTION HAVE BEEN PLED
As an initial matter, it is plaintiff’s burden to plead personal jurisdiction. Conway v. Royalite Plastics, Ltd., 12 S.W.3d 314, 318 (Mo. banc 2000); Dever v. Hentzen Coatings, Inc., 380 F.3d 1070, 1072 (8th Cir. 2004). In many instances, jurisdictional allegations in these cases are entirely lacking in any facts, whether pled with knowledge or upon information and belief, that would establish personal jurisdiction under the applicable legal standards, and these complaints and petitions are therefore subject to dismissal on the pleadings, without conducting any discovery.
A plaintiff who has failed to meet her pleading burden should certainly not be granted permission to conduct discovery, as she has not properly invoked the jurisdiction of the court. “In order to be entitled to discovery, plaintiff is required to have alleged facts in the petition which, if true, establish jurisdiction.” Mello v. Giliberto, 73 S.W.3d 669, 674 (Mo. App. E.D. 2002). “In the absence of such alleged facts, plaintiff is not entitled to discovery.” Id. Legal conclusions are not sufficient, actual facts are required. Id.
Furthermore, under Fed. R. Civ. P. 11 and the Missouri equivalent, Mo. R. Civ. P. 55.03, a plaintiff must have a factual basis, formed after reasonable inquiry, for all allegations in the complaint or petition, including her jurisdictional allegations. The allegations are required to have “evidentiary support,” or to be specifically identified as being made upon information and belief. See Fed. R. Civ. P. 11(b)(3); Mo. R. Civ. P. 55.03(c)(3). Moreover, the attorney is certifying that the claims “and other legal contentions” (including contentions as to the existence of personal jurisdiction) are warranted by existing law or a non-frivolous argument for the modification of existing law. Fed. R. Civ. P. 11(b)(2); Mo. R. Civ. P. 55.03(c)(2).
From the outset, then, a plaintiff who suggests the need to conduct “jurisdictional discovery” is generally admitting either that she failed to plead sufficient jurisdictional facts (in which case she is not entitled to discovery) or that she lacked a basis for making such allegations in the complaint or petition, in which case she has violated Rule 11. Plaintiffs should not be caught flat-footed and at a loss to defend their choice of forum, they should have had sufficient grounds to withstand a motion to dismiss for lack of jurisdiction before the petition or complaint was filed. Other jurisdictions have recognized this:
Complaints should not be filed in matters where plaintiffs intend to find out in discovery whether or not, and against whom, they have a cause of action. Absent exigent circumstances, plaintiffs’ counsel should not file a complaint until sufficient information is obtained, and plaintiffs’ counsel believes in good faith that each plaintiff has an appropriate cause of action to assert against a defendant in the jurisdiction where the complaint is to be filed. To do otherwise is an abuse of the system, and is sanctionable.
Harold’s Auto Parts, Inc. v. Mangialardi, 889 So.2d 493, 494 (Miss. 2004) (emphasis original).
A plaintiff does not need jurisdictional discovery if she has alleged sufficient facts, even upon information and belief, that, if true, would be sufficient to establish the jurisdiction of the trial court to proceed. See State ex rel. Deere & Co. v. Pinnell, 454 S.W.2d 889, 893 (Mo. 1970). In virtually every case, to establish personal jurisdiction a plaintiff must allege the occurrence of specific conduct by the defendant within the forum state that gives rise to the plaintiff’s cause of action. As discussed more fully below, it would be rare for the plaintiff to be unable to allege such conduct, even upon information and belief, if there were a good-faith basis under the established law to support personal jurisdiction. In actuality, plaintiffs seeking “jurisdictional discovery” are generally seeking to buy time to concoct a plausible theory for jurisdiction, or to leverage settlement.
This highlights the murky legal justification for “jurisdictional discovery” – if there are sufficient factual allegations that, if true, would establish jurisdiction, then a motion to dismiss must be denied, as there is no need for plaintiff to adduce evidence to meet her pleading burden. “[T]his court is limited to deciding whether the pleadings are sufficient to survive the motion to dismiss.” Hollinger v. Sifers, 122 S.W.3d 112, 115 (Mo. App. W.D. 2003). If, on the other hand, plaintiff has failed to plead sufficient factual allegations to establish personal jurisdiction, she has failed to meet her pleading burden and is not entitled to discovery. See Mello, 73 S.W.3d at 674. Discovery is not a panacea to cure pleading defects, particularly not where a party is expressly permitted to plead upon information and belief.
II. THE BASIS, IF ANY, FOR CONTACT-BASED SPECIFIC PERSONAL JURISDICTION IS ALMOST ALWAYS WITHIN THE KNOWLEDGE OF PLAINTIFF
In nearly all circumstances, personal jurisdiction must be founded upon some conduct by the defendant within the forum state that gave rise to the plaintiff’s cause of action. The exercise of personal jurisdiction over non-residents is called “long-arm” jurisdiction. The Missouri courts’ authority to exercise long-arm jurisdiction is constrained by the Missouri statutes and the U.S. Constitution. Missouri’s long-arm statute expressly affords contact-based specific jurisdiction over the person of non-resident defendants. See Shouse v. RFB Const. Co., Inc., 10 S.W.3d 189, 193 (Mo. App. W.D. 1999). Specific jurisdiction is called “contact-based” because such jurisdiction only exists for a cause of action “arising from” certain specified conduct by the defendant within the forum state. See Mo. Rev. Stat. § 506.500.1. “In order for a court to exercise specific jurisdiction over a claim, there must be an ‘affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State.’” Bristol-Myers Squibb, 198 L.Ed.2d at 404. “For specific jurisdiction, a defendant’s general connections with the forum are not enough. As we have said, ‘[a] corporation’s ‘continuous activity of some sorts within a state . . . is not enough to support the demand that the corporation be amenable to suits unrelated to that activity.’” Id.
Missouri’s long-arm jurisdiction statute provides:
Any person or firm, whether or not a citizen or resident of this state, or any corporation, who in person or through an agent does any of the acts enumerated in this section, thereby submits such person, firm, or corporation, and, if an individual, his personal representative, to the jurisdiction of the courts of this state as to any cause of action arising from the doing of any of such acts:
(1) The transaction of any business within this state;
(2) The making of any contract within this state;
(3) The commission of a tortious act within this state;
. . . .
Mo. Rev. Stat. § 506.500.1 (emphasis added). The three types of conduct listed here are the most common bases for asserting specific jurisdiction against a non-resident defendant.
When plaintiffs press for “jurisdictional discovery,” they should be required to identify specifically what information they seek that would tend to establish one of these bases for the exercise of specific personal jurisdiction. Moreover, plaintiffs should be required to plausibly establish that this information would be uniquely within the knowledge of the defendant – not public information, and not already known to the plaintiff. Otherwise, there is no need for the non-resident defendant to be subjected to the burden and expense of formal discovery.
The long-arm statute’s grant of personal jurisdiction based upon the “transaction of any business within the state” is intended to confer jurisdiction over nonresidents “who enter into various kinds of transactions with residents of Missouri.” Capitol Indemn. Corp. v. Citizens National Bank of Fort Scott, N.A., 8 S.W.3d 893, 904 (Mo. App. W.D. 2000) (emphasis added). That transaction must be “the transaction sued upon.” Id. (emphasis added). It is difficult to imagine how plaintiff would be unable, after reasonable inquiry prior to filing her complaint or petition, to identify the Missouri resident with whom the non-resident defendant was doing business in a transaction out of which the plaintiff’s own claim arises. If plaintiff has a theory of how the defendant engaged in wrongful conduct, she must have enough information to plausibly allege facts identifying the Missouri business partner with whom the defendant was engaging in such conduct.
Similarly, for the Court to exercise jurisdiction of the non-residents because of their contracting in the State of Missouri, plaintiff’s claims against the non-residents must arise out of a contract that was entered into in the State of Missouri. See Mo. Rev. Stat. § 506.500.1(2). The plaintiff’s claim must arise out of that specific contract. How can plaintiff not know enough to identity the contract, and the Missouri contracting party, if she alleges she was damaged as a direct result of the contract?
In order to rely upon the “tortious act” provision of the long-arm statute, a plaintiff is required to show that the non-resident defendant committed a tort in Missouri and that this specific tortious conduct caused the plaintiff’s injuries. Hollinger v. Sifers, 122 S.W.3d 112, 116 (Mo. App. W.D. 2003). To invoke personal jurisdiction under the “tortious conduct” prong of the Missouri long-arm statute, then, plaintiff is alleging that she was directly injured as a result of tortious conduct by the defendant within the forum state. Plaintiff knows where she was prescribed the medication. She knows where her treating physician is located. She knows where she purchased the product at issue. If the defendant has a manufacturing plant within the state, plaintiff can meet her pleading burden by alleging, even upon information and belief, that the product was defectively manufactured at that plant. Given the standards of Rule 11 and Missouri Rule 55.03, how can plaintiff be unable to allege, even upon information and belief, what allegedly wrongful conduct by the defendant occurred in Missouri? How could she, or her counsel, have conducted a minimally sufficient inquiry under Rule 11 or Missouri Rule 55.03 into the claim before filing it and not have some basis to allege facts identifying tortious conduct by the defendant within the forum state?
It is difficult to conceive of a circumstance in which a plaintiff would legitimately need “jurisdictional discovery” to establish contact-based specific personal jurisdiction, because her cause of action arises out of the defendant’s conduct within the forum state and should be known to plaintiff. Plaintiffs attempt to cloud these issues in an aura of mystery, when in fact there is rarely anything mysterious to the person who alleges that she was harmed by the conduct about where the conduct occurred.
In fact, in actual practice “jurisdictional discovery” is nearly always a fishing expedition directed at discovering corporate organization, sales, employees, office locations, and other matters that relate to general jurisdiction. As general jurisdiction almost never applies, discovery on these issues is rarely appropriate, and, therefore, “jurisdictional discovery” is rarely appropriate. At a minimum, under the Dolan and BMS tests, a plaintiff seeking such discovery should be required to identify whether she seeks to establish specific or general personal jurisdiction, and what colorable basis she has to believe that discovery would reveal facts that would establish one of these ground for personal jurisdiction.
III. GENERAL JURISDICTION IS EXCEPTIONALLY LIMITED AND RARELY APPLICABLE
As to individuals, “general jurisdiction” applies only to the state in which the individual is domiciled. Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014). Accordingly, allegations of general jurisdiction over non-resident individual defendants (often employees or other representatives of corporate defendants) are utterly frivolous under settled law.
“A court normally can exercise general jurisdiction over a corporation only when the corporation’s place of incorporation or its principal place of business is in the forum state.” State ex rel. Norfolk S. Ry. v. Dolan, 512 S.W.3d 41, 46 (Mo. banc 2017); Daimler, 134 S. Ct. at 760 & 761 n.19; see BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549, 1554 (May 30, 2017). The U.S. Supreme Court just this term again held that the mere fact that a defendant conducts in-state business is not sufficient to permit the exercise of general jurisdiction over claims that are unrelated to the forum state. See Tyrrell, 137 S. Ct. 1549. Of course, Bristol-Myers-Squibb (
Only an “exceptional case” will escape this rule. Daimler, 134 S. Ct. at 760 & 761 n.19. This is where the corporate is “essentially at home” in a state where it is not incorporated and does not have a principal place of business. See id. To be a “home state,” the forum state must be a “nerve-center” of activities of the company. Dolan, 512 S.W.3d. at 48. Initially, it is difficult to imagine how a forum state could be a “nerve center” of a business and not be the business’s principal place of business, unless perhaps the business is a foreign-based company with a substantial U.S. presence in a particular state. At a minimum, “nerve center” suggests that something close to the majority of the business’s activities within the U.S. must occur within the forum state.
An allegation of “substantial, continuous and systematic contacts” with the forum state is facially insufficient to plead general jurisdiction.
The Supreme Court observed that finding a corporation at home wherever it does business would destroy the distinction between general and specific jurisdiction, for “[a] corporation that operates in many places can scarcely be deemed at home in all of them. Otherwise, ‘at home’ would be synonymous with ‘doing business’ tests framed before specific jurisdiction evolved in the United States.” Id. For this reason, when “a corporation is neither incorporated nor maintains its principal place of business in a state, mere contacts, no matter how ‘systematic and continuous,’ are extraordinarily unlikely to add up to an ‘exceptional case.’” Brown, 814 F.3d. at 629.
Dolan, 512 S.W.3d at 48 (emphasis added); see also Tyrrell, Slip Op. at 11.
Many of the reported cases show that the courts often accept, uncritically, incantations of the magic of “jurisdictional discovery.” “Discovery is often necessary because jurisdictional requirements rest on facts that can be disputed, for instance, the domicile of the parties.” Pudlowski v. St. Louis Rams, LLC, 829 F.3d 963, 964-65 (8th Cir. 2016). As to corporate defendants, it seems unlikely that there would be any legitimate factual dispute about domicile, however – the company’s state of incorporation is a matter of public record, and corporate registration records generally also reflect the company’s principal place of business, and a corporate defendant sophisticated enough to have multiple options for domicile will usually have a web presence identifying its headquarters. Courts that are authorizing jurisdictional discovery should take seriously their obligations to enforce Rule 11 or its local equivalent, and to the extent that any discovery is permitted, limit it to facts that are plausibly in dispute and that can only be proven through discovery of the defendant.
For a defendant that has raised an objection to the court’s personal jurisdiction, there are considerable expenses and burdens associated with discovery in a forum in which the action is, in all likelihood, improperly filed. A plaintiff seeking such discovery should be required to articulate what jurisdictional facts are “in dispute” before discovery can be permitted. Texas, at least nominally, applies this standard:
[A]ppellant’s counsel told the trial court, “I can’t plead specific facts until I have the facts. I can only get the facts through discovery.” However, appellant was required to provide the court with a colorable basis or reason to believe that discovery would reveal sufficient minimum contacts. Barron v. Vanier, 190 S.W.3d 841, 849-50 (Tex. App.—Fort Worth 2006, no pet.); Haferkamp v. Grunstein, No. 11-10-00194-CV, 2012 Tex. App. LEXIS 3706, at *25 (11th App. May 10, 2012).
For example, if the defendant has stated, by reference to public filings or by affidavit, that it maintains no offices within the state, then surely plaintiff must be required to make a non-frivolous showing that discovery would disprove this fact. It cannot be enough that defendant alleges or affirms that “x” is a fact, and plaintiff is permitted to engage in discovery merely to “ask about x” – the relevant, quite permissive standard set out by the Eighth Circuit still requires that the fact be subject to dispute, and, moreover, it must be subject to dispute under the Rule 11 standard. Courts that do police these standards recognize that a plaintiff seeking “jurisdictional discovery” should be required to identify what facts she seeks to establish in discovery, and some colorable basis to believe that such facts do exist.
IV. DEPOSING AFFIANTS IS RARELY WARRANTED
In some cases, particularly with respect to allegations of general jurisdiction, a defendant may supply an affidavit from a corporate representative regarding quantification of the defendant’s business within or other contacts with the forum state. This, predictably, triggers a plaintiff’s request to depose the affiant. These depositions are generally improper under Rule 11 and Missouri Rule 55.03, are usually futile, and tend to harass the defendant rather than provide plaintiff with any useful information to save her case.
Initially, a motion to dismiss for lack of personal jurisdiction may be decided upon affidavits supplied by the defendant. In ruling on a motion to dismiss for lack of personal jurisdiction, a trial court may consider affidavits. Chromalloy American v. Elyria Found, 955 S.W.2d 1, 3 n.3 (Mo. banc 1997); Mello, 73 S.W.3d at 674. “[T]he motion is not addressed to the merits of the underlying action, but only to the limited question of personal jurisdiction.” Mello, 73 S.W.3d at 674. An affidavit is not a self-serving attempt by a defendant to gain an unfair advantage, it is a valid procedural tool to support a motion to dismiss for lack of personal jurisdiction, and courts should not reflexively permit depositions of affiants without good cause to disbelieve the sworn testimony contained in the affidavit. This is particularly true where jurisdiction is in question, because the court is obligated to ensure that the defendant’s due process rights to be subject to only lawful authority are safeguarded and that any encroachment upon such rights is as minimally invasive as necessary to resolve a legitimate factual dispute as to jurisdiction.
Defendants supplying affidavits in support of a motion to dismiss for lack of general personal jurisdiction are often in an untenable, Catch-22 situation. Usually, plaintiff has failed to meet her pleading burden under the Daimler, BMS, and/or Dolan standards. She should not be permitted to even conduct jurisdictional discovery. Plaintiff is required to plead facts establishing that the defendant is incorporated in the forum state, has its principal place of business there, or is “essentially at home” in the forum. It is plaintiff’s burden to plead jurisdiction, not defendant’s burden to offer evidence to disprove jurisdiction. However, the case law entertains this “quantum of business in the forum state” mathematical analysis that invites defendants to submit affidavits to disprove general jurisdiction. And the supplying of such affidavits should be legally sufficient – a motion to dismiss may be decided upon affidavits.
But plaintiffs will seemingly always assert a supposed need to depose the affiant. Such depositions are improper and usually intended to harass and inconvenience the defendant. Plaintiffs, who have failed to meet their burden to plead jurisdiction, are suggesting that non-resident corporate defendants would lie in an affidavit regarding jurisdictional facts, and courts are indulging plaintiffs in this absurd and offensive innuendo. A plaintiff confronted with an affidavit from a corporation with an international presence, stating that its sales in Missouri comprise a single-digit share of its overall revenues, should not be permitted to subject the non-resident defendant to “jurisdictional discovery” without a colorable basis to dispute the affidavit as being a lie.
V. A MOTION OR MOTION RESPONSE SEEKING JURISDICTIONAL DISCOVERY IS SUBJECT TO RULE 11
Rule 11 provides that, by signing any pleading or motion or other paper presented to the court, an attorney “certifies” that “it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.” Fed. R. Civ. P. 11(b)(1). The Missouri rule is functionally identical, though by its terms more stringent even than the federal rule in encompassing “any argument” within the matters presented to the court that are certified not to be for any improper purpose. Mo. R. Civ. P. 55.03(c)(1).
It is impermissible for a plaintiff to file a motion or motion response seeking “jurisdictional discovery” as a means of treading water and keeping the case alive, where plaintiff’s position is not supported by evidentiary facts or justification under existing law. Where the highest courts have just, within the last few months, spoken on jurisdictional issues, it is difficult to imagine how a party could make a good-faith, non-frivolous argument to change the law on jurisdiction.
Although the 2017 session of the Missouri legislature was not geared to comprehensive tort reform, several key bills were passed that will bring significant changes to civil litigation in Missouri. These include changes to the collateral source rule and evidence of discounted medical bills, the adoption of the Daubert standard, and restraints on insurance bad faith claims.
I. COLLATERAL SOURCE RULE
On July 5, 2017, Governor Greitens signed Missouri Senate Bill 31, bringing needed changes to the collateral source rule. The collateral source rule generally prohibits a defendant from introducing evidence that part of a plaintiff’s loss was paid for by a party independent of the defendant, such as the plaintiff’s insurer or a public benefits program. Deck v. Teasley, 322 S.W.3d 536, 538 (Mo. banc 2010). However, this rule has been twisted to allow plaintiffs to offer evidence of full-price or “sticker price” medical bills, without regard to contractual adjustments for health insurance or limits on reimbursement established by public payors, on the premise that defendants should not benefit from discounting of the full-price medical bills. The counter-argument, of course, is that plaintiffs are then permitted to recover a windfall that far exceeds both their actual liability for medical care and the costs of health insurance premiums they have paid, and are permitted to present evidence of damages that is merely a legal fiction.
By way of background, older Missouri cases held that, if the evidence establishes that the plaintiff is not liable for payment, medical expenses have not been “incurred,” and plaintiff cannot recover for their value. See Morris v. Grand Ave. Ry. Co., 46 S.W.170 (Mo. 1898). In the workers’ compensation context, Missouri courts have determined that an employee is not entitled to compensation for healthcare provider write-offs. Mann v. Varney Construction, 23 S.W.3d 231, 233 (Mo. App. 2000) (employee not entitled to compensation for Medicaid write-off amounts when the total amount submitted to Medicaid will never be sought from claimant); accord, Lenzini v. Columbia Foods, 829 S.W.2d 482, 487 (Mo. App. 1992). “Implicit in both decisions is the requirement of actual liability [for the medical bills] on the part of the employee.” Farmer-Cummings v. Personnel Pool of Platte County, 110 S.W.3d 818, 821 (Mo. 2003). However, the Missouri courts have been reluctant to follow this approach outside the realm of workers’ compensation.
As part of the 2005 Missouri tort reform, Mo. Rev. Stat. § 490.715 was amended to include a new subsection 5 that addressed valuation of the medical expenses, including a provision that there was a rebuttable presumption that the “value” of medical treatment is “the dollar amount necessary to satisfy the financial obligation to the health care provider.” Plaintiffs were not permitted to introduce evidence of medical expenses that exceeded the reasonable “value” of medical care and treatment. See id.
Missouri cases, however, significantly undermined this statutory tort reform, by allowing evidence of “sticker price” bills to get to the jury upon a very low showing of the “reasonableness” of the full-price bills, which can be made by affidavits or the testimony of the health care providers. See Deck v. Teasley, 322 S.W.3d 536 (Mo. banc 2010). The bar to rebut the presumption was so low in practice that the statutory reform failed to have the desired effect.
With the passage of SB 31, laudable carve-outs from the collateral source rule have been made. As to payments by or on behalf of the defendant, the statute used to provide that the defendant could offer evidence that these medical expenses had been paid, but not by whom. The new law clearly provides that, where the defendant or the defendant’s insurer or representative have paid a portion of plaintiff’s medical expenses, these sums are “not recoverable from” the defendant. Although this statute should provide a basis for motions in limine to exclude evidence of medical expenses paid by defendant, the revised statute also provides that, if a claim for these expenses is made at trial, the defendant is entitled to a credit against the judgment.
Critically, SB 31 changes § 490.715’s reference to the “value” of medical expenses, using instead the “actual cost” of medical care and treatment. The “actual cost of the medical care or treatment” is now defined as “a sum of money not to exceed the dollar amounts paid by or on behalf of a plaintiff or a patient whose care is at issue plus any remaining dollar amount necessary to satisfy the financial obligation for medical care or treatment by a health care provider after adjustment for any contractual discounts, price reduction, or write-off by any person or entity.” SB 31 (emphasis added).
II. ADOPTION OF THE DAUBERT STANDARD
House Bill 153, signed by Governor Greitens on March 28, 2017, adopts the Daubert standard for admission of expert opinion testimony. In State Board of Reg. v. McDonagh, 123 S.W.3d 146 (Mo. banc 2003), the Missouri Supreme Court held that Mo. Rev. Stat. § 490.065, not Frye or Daubert, controlled the admission of expert opinion testimony in civil cases. The opinion does, however, hold that federal cases applying Daubert are relevant to interpreting the Missouri statute. Citing Missouri Church of Scientology v. State Tax Commission, 560 S.W.2d 837, 839 (Mo. banc. 1977), the McDonagh Court held that “to the extent that Section 490.065 mirrors FRE 702 and FRE 703 . . . the cases interpreting those federal rules provide relevant and useful guidance.” McDonagh, 123 S.W.3d at 155.
The Court also noted that Section 490.065 contains language not present in the analogous federal rules of evidence, most particularly Section 490.065.3, which requires that the facts or data on which an expert bases and opinion or inference “must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject” and that these facts and data “must be otherwise reasonably reliable.” Id. at 152-153 (emphasis added). The McDonagh court construed this slight language difference to require an expert in a state court proceeding to establish that the facts and data on which she relied are reasonably relied upon by experts in that particular field. The Court contrasted its holding with Daubert’s interpretation of the slightly different language in the federal rule that an expert testifying in federal court need not necessarily identify the relevant scientific community or field in which the data and facts were accepted.
Under the prior standard, “the circuit court is responsible for determining (1) whether the expert is qualified; (2) the expert’s testimony will assist the trier of fact; (3) the expert’s testimony is based upon facts or data that are reasonably relied upon by experts in the field; and (4) the facts or data on which the expert relies are otherwise reasonably reliable.” Kivland v. Columbia Orthopaedic Group, LLP, 331 S.W.3d 299, 311 (Mo. banc 2011). Whether an expert’s opinion is supported by sufficient facts and evidence is a question of law for the Court. Vittengl v. Fox, 967 S.W.2d 269, 280-82 (Mo. App. W.D. 1998).
The amended statute retains the stricter “in the field” language from the prior iteration, requiring that “experts in the particular field would reasonably rely on those kinds of facts or data in forming an opinion on the subject.” Where the amendment gives the statute teeth is in setting standards for the expert’s methodology.
III. INSURANCE BAD FAITH REFORMOn July 5, 2017, Governor Greitens signed the Senate Substitute for the Senate Committee Substitute for the House Committee Substitute for House Bills 339 and 714, enacting significant insurance bad faith reform. We previously blogged about these bills here.
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