Levenbaum & Cohen Blog

When I started to read Dennis v. Ryan, a memorandum decision from Division One today, I started to get excited.

It seemed as though Jack Levine had finally gotten the break-through he’s been working on for so many years: getting the courts to see that, medical bills and records are all that’s needed to create a triable fact as to whether care is reasonable, necessary and even casually related. After all, the Court of Appeals reversed the trial court’s exclusion of certain medical records and bills in a trial where there was “no medical testimony” presented “to establish that . . . the medical care was reasonable and necessary.”

But upon closer examination, I think the Court got to the right result in this case for quite the wrong reason or, at a minimum, created substantially more confusion on the topic.

The essential fact seized upon by the Court of Appeals in this case was that there was a stipulation to enter certain medical records and bills into evidence, although there was a reservation to argue the reasonableness of the charges and necessity of subject care. Yet, in short, despite the stipulation to enter those documents into evidence, the trial court later “un-admitted” them based upon the defendant’s assertion that plaintiff had not presented “testimony” regarding reasonableness or necessity. The Court of Appeals viewed this un-admission as a violation of the stipulation and, therefore, reversed. They did so, however, all while buying into a bizarre concept that the trial court was otherwise right: that is, additional testimonial evidence is generally necessary on the issues or reasonableness and necessity to somehow get those documents admitted.

As many of you know, the parties’ forgoing stipulation is common. Parties routinely agree to forgo calling custodians of records to set forth exceptions to the hearsay rule a/k/a business records exception and other hurdles to laying the foundation for admission of documents which are, quite obviously, authentic records. Likewise, without addressing the issue of burden, parties routinely agree to allow for argument as to “reasonableness” and “necessity” to the extent such issues are raised by the Personal Injury RAJI’s (Damages 1). Where the trial court and this Court of Appeals gets screwy is that they morph this factual issue into an evidentiary issue.

Over the years, many people have taken the position that, notwithstanding the RAJIs, there is no requirement that puts the “burden” on plaintiffs to “prove” medical expenses are “reasonable” or that procedures were “necessary.” Rather, people have argued, it is an affirmative defense and the burden is on the defense. Jack Levine has also long argued that, regardless of who has such a burden, medical bills and records themselves are at least evidence the charges are reasonable and that the care was necessary.

Still, these topics remain subject to considerable dispute, so it was not entirely surprising to read the trial court’s view that “I believe that [it] is the law in Arizona, that the Plaintiff must establish the reasonableness and necessity of all medical treatment.” While we may disagree with this assertion, we are used to being saddled with the burden of proof and/or dealing with trial courts who embrace this contested view.

The Court of Appeals, though, took it a step further. They claimed that, “[i]n addition to authenticity, the traditional foundation required for the admission of medical bills is a showing of reasonableness and necessity,” citing, with a “”see” qualifier, their opinion in Larsen v. Decker, 196 Ariz. 239, 995 P.2d 281 (App. 2000), which admittedly tends to support this nonsensical thinking. The problem, however, is this is all an illusory, judge-made addition to the Rules of Evidence which clearly permit the admission of relevant documents which are subject to hearsay exceptions.

In Larson the Court of Appeals wrongly sustained a trial judge’s evaluation of medical care based upon his review of the records. For example, Larson notes that the trial court excluded the evidence “because [Dr.] Immerman re-took x-rays that had been taken the prior week during Larsen’s hospital stay and no testimony showed that either they or the chiropractic treatments were necessary because of the auto accident.” Such inquiry clearly goes well-beyond what the trial judge is supposed to do – i.e., determine whether the evidence is “sufficiently reliable.” It is certainly not for the trial judge to decide whether the evidence – i.e., records and bills – itself sufficiently proves (assuming the burden is on the plaintiff) reasonableness or necessity.

That is for the jury. That is why it is in a RAJI.

This case furthers the Court of Appeals incorrect views that (a) reasonableness and necessity is something plaintiffs must prove and (b) evidence of reasonableness and necessity are necessary to admit medical records and bills. Indeed, based on this latter suggestion, one must have testimony about reasonableness and necessity to prove reasonableness and necessity since the documents themselves, as Jack points out, are evidence of the reasonableness and necessity of care.

The Supreme Court just issued an opinion in Lake v. City of Phx, braodly construing Arizona’s public records law.  The case concerns access to metadata embedded in electronic records which can show, among other things, whether electronic records were subsequently altered.  The Court reversed the Court of Appeals, which gave a narrow construction to the (surprisingly) undefined term “public record” and held that, “if a public entity maintains a public record in an electronic format, then the electronic version, including any embedded metadata, is subject to disclosure under our public records laws.”

This is certainly good news since, as we all know, the devil is in the details.

Did you know that a confidentiality clause can have tax consequences? This was the subject of a United States Tax Court opinion in Amos v. IRS (2003), the case where Dennis Rodman kicked a courtside TV cameraman in the groin.

The Court held that, if a portion of a settlement is attributable to a confidentiality agreement, that portion is taxable.

It is not clear what the long-term effects are for this holding, but there are ways to deal with it. For example, you will want to make sure any clause in a settlement agreement provides that the confidentiality agreement is mutual, and that no additional consideration is being paid for it. In the alternative, you should negotiate an additional and specific amount being paid in consideration for a confidentiality clause, recognizing the tax implications.

Obviously, consult a tax professional for up to date tax advice on this type of issue.

A recent national poll revealed that as many as 34% of homeowners do not even know what type of mortgage they had on their home. So, perhaps not surprisingly, many employees and business owners are unaware of the terms governing their contracts.

If you have a business dispute the first thing you need is get to know your written contract — what’s that, you don’t have one? Well, then you probably won’t get too far, since the old saying is that “an oral contract is only as good as the paper it is printed on.”

Your contract will govern the entire outcome and will be used to glean the parties’ intent in places where it is silent. Typically, the contract will not only provide the respective obligations of the parties, but may control where the dispute is heard (e.g., the “venue”), what types of dispute resolution is permissible (e.g., arbitration, mediation, etc.), the applicable law (e.g., while typically the state where the contract was prepared, parties can elect other applicable law), or even the available remedies (e.g., many contracts contain “liquidated damages” clauses).

Unfortunately, many people do not take the time to understand their contracts until there is a problem. If you are surprised at how many people do not know what type of mortgage they have, ask yourself if you really know the terms of your business contract.

A New York personal injury lawyer was recently disbarred for basically “being an asshole.” Although I can hardly endorse his brash style (e.g., telling the judge to “Kiss my tuchis!”), it is interesting what other New York attorneys had to say: “Personally, I find him abrasive, angry, tough, fierce, and frightening,” says attorney Ron Kuby. “You know, the qualities you usually want in a lawyer.”

This raises the question: what kind of lawyer do you want for your case? Do you really want an “abrasive, angry, tough, fierce, and frightening” attorney? Is that really what you need? What good do that do?

As colorful and entertaining as it may be to watch such lawyers chew out their opponents, the reality is that most clients are not well-served by such tactics. To the contrary, judges and juries typically do not embrace hostile attorneys and, sometimes, such tactics can backfire, and badly.

Don’t get me wrong; you also do not want a lawyer who is afraid of their own shadow. My point is that you should select a lawyer who knows how to “pick their battles” and who can “fight smart,” not just a scrapper who picks a fight with anyone within earshot.

Most states have adopted a form of comparative fault. The idea behind newer comparative fault laws is to ameliorate some of the harsh results of the common law, but it can have the opposite effect in the business context.

In a “pure” comparative fault state, such as Arizona, a defendant is only responsible for the percentage of fault assigned to it by the jury. So, while your damages maybe $1 million dollars, if a defendant is only found responsible for 1% of the damage, they are only liable for $10,000. Seems fair, right?

While it is frequently fair, application of comparative fault to business torts can lead to some surprising results.

Take, for example, a commercial broker that represents two parties in a real estate transaction (a bad idea, but it happens every day) — let’s call them Party A and Party B. Suppose the broker helps Party A improperly misrepresent an important aspect of a transaction that results in a substantial loss to Party B. Suppose further that the broker does this for no other reason than to “get the deal done” to get his commission (again, a bad idea, but it happens all the time).

Party A sues the broker and Party B, but Party B is long gone and/or, as is often the case, is uncollectible. The broker shrugs and says he really did nothing terribly wrong, and certainly did not profit from any misrepresentation beyond receiving his regular commission. The broker says he should not receive much blame, if any, since it was Party B really made out like a bandit.

The jury is asked to compare the fault of the broker and Party B. Even though the entire mess would not have occurred but for the involvement of the duplicitous broker, it is easy to see where a jury would assign the bulk of the fault to the “primary” scoundrel (Party B) and less fault to the “secondary” scoundrel (the broker). As you can imagine, a result assigning the bulk of the fault to uncollectible Party B is not exactly fair to Party A, but that is what Party A will have to accept since that is the law in most comparative fault states.

Surprising result in Webb v. Gittlen, a new opinion from the Arizona Supreme Court which holds that a professional negligence claim against an insurance agent is assignable. Although a long overdue holding, it highlights the badly misunderstood law concerning assignments, including the scope and justification of anti-assignment law (see my earlier article on Assignments vs. Liens in the Personal Injury Context).

To be sure, how many modern opinions rely upon 400-year old case law from “Lord Coke”? This one does.

The opinion is a actually a good read in that the Supreme Court takes us through centuries of anti-assignment history and jurisprudence, neatly summarizing Arizona law on this issue as follows:

The current principles under Arizona law for determining if an unliquidated claim may be assigned can be summarized as follows: (1) claims generally are assignable except those involving personal injury; (2) the legislature may specify whether particular claims are assignable; and (3) absent legislative direction, public policy considerations should guide courts in determining whether to depart from the general rule.

The Court then turned to the case at issue and, without specifically saying so, seemed to accept that a claim against an insurance agent — relating to a wrongful death claim — does not “involve a personal injury.” While I think this is clearly correct, it is surprising how often the issue gets ignored or taken for granted — namely, what constitutes an unlawful assignment of a personal injury claim?

For example, is a medical lien an unlawful assignment of a personal injury claims? Why not? Since most personal injury attorneys encounter these every day, wouldn’t it make sense to know whether they are valid and why? Well, this opinion may shed some light on the issue where Court stated as follows:

Arizona case law generally allows the assignment of unliquidated legal claims except those involving personal injury. This distinction reflects the evolution of the common law, which once held that “choses in action” could not be assigned, except to the crown. Welch v. Mandeville, 14 U.S. (1 Wheat.) 233, 237 n.a (1816). A legal claim is one type of “chose in action,” but the concept also encompasses “debts of all kinds” and “rights to recover ownership or possession of real or personal property.”

While not the focus of the opinion, the Court’s discussion of the affirmative assignably of “legal claims” and “debts of all kinds” is important. For instance, even though a medical lien creates an interest in a person’s bodily injury recovery, maybe it is a valid “legal claim” since it covers a “debt.” But if you think this is a slam-dunk, consider what the same Court said in Allstate Ins. Co. v. Druke, 118 Ariz. 301, 576 P.2d 489 (1978):

Whatever the form, whatever the label, whatever the theory, the result is the same. The [documents] create an interest in any recovery against a third party for bodily injury. Such an arrangement, if made or contracted for prior to settlement or judgment, is the legal equivalent of an assignment and therefore unenforceable.

Id. at 304, 576 P.2d at 492; Lo Piano v. Hunter, 173 Ariz. 172, 175-76, 840 P.2d 1037, 1040-43 (App. 1992) (holding that reimbursement provision was an unenforceable assignment of a personal injury claim). So it is still up in the air whether such assignments are valid.

Anyway, the substantive thrust of the Court’s holding was to explain the difference between assignments of legal malpractice claims and professional negligence claims against insurance agents. Without holding whether legal malpractice claims were assignable, the Court went on to “assume they are not” and distinguished the attorney-client relationship with the insurance agent-client relationship, essentially saying that the later was of a lesser duty (i.e., generally not a fiduciary, which was a bit of a surprise to me) and drawing on other differences (without saying why the differences made a difference by the way). The Court just concluded that the relationship with an insurance agent was not “uniquely personal” to justify making claims against an insurance agent non-assignable.

Next, the Court addressed public policy arguments. Surely, the best line in this section is the following refreshing dose of common sense to the argument that allowing such assignments would “commercialize” the insurer-client relationship: “Although the agent-client relationship has personal dimensions, it arises from a commercial transaction - the purchase of insurance. It is therefore odd to suggest that it should not be commercialized.” This, of course, begs the question — isn’t the relationship between an attorney and client commercial? That is, it involves the commercial exchange of money for services, so why should it get any different treatment?

It is probably too much to hope for, namely — the complete abolition of anti-assignment law — and even though it sometimes helps our clients in the lien context, it has always seemed unnecessarily paternalistic and outdated to me, especially the nonsense about “trafficking in personal injury claims.” Still, it was nice to see the Court tip its hat, in footnote 3, to commentators “who advocate allowing assignment of all tort claims.”

In fact, the Court alluded to the inconsistent and strange genesis of the non-assignablity issue, noting that “[a]s courts became more accessible and litigation a more accepted means for resolving disputes, the prohibition on assignment gradually became the exception rather than the rule.” The Court explained that the rationale behind the “exception” of prohibiting assignment of personal injury claims was basically tied to the idea that the claims were “personal” and did not survive death, therefore, they could not be assigned during the person’s lifetime. But the Court observed:

This “survivability” test did not itself survive in Arizona after 1955, when the legislature enacted a [now amended] statute providing for the survival of most causes of action, including personal injury claims. Although this statute undermined one rationale for refusing to allow the assignment of personal injury claims, courts did not abolish the rule. Instead, they resurrected the common law public policy rationale - fear of vexatious litigation.

In other words, the reason we still have non-assignment law today is simply a function of judicial activism from 50 years ago. So it’s possible that, one day, courts will see it differently — afterall, who would have thought the Court would permit assignment of a claim against an insurance agent, but not a lawyer?

Real estate is one of this author’s favorite “hobbies” of late — call it schadenfreude, but the real estate roller coaster is at least as good as reality television, and better than Grey’s Anatomy. As a result, it is not surprising that we should see more real estate cases come out of the woodwork, especially those related to foreclosure.

Today Division One published Roberts v. Robert, which deals with tax lien foreclosure actions. You may not know it, but there is a whole world of investment out there where people buy “tax liens” from local governments and, when the real estate taxes are not paid after three years, the owners of the tax liens foreclose and obtain title to the real property.

The only way to avoid the foreclosure is to “redeem” the tax lien by paying the back taxes, interest and other penalties before the owner of the lien completes the foreclosure action (which wipes out the ability to “redeem”). A.R.S. § 42-18201(A)

A.R.S. § 42-18515 identifies who may redeem a tax lien. It states that a tax lien may be redeemed by: (1) the owner; (2) the owner’s agent, assignee or attorney; or (3) any person who has a legal or equitable claim in the property, including a certificate of purchase of a different date.

So back to the Roberts case. What happened there is that the owner of the property died intestate (i.e., without a will) and the owners of the tax liens brought a foreclosure action but failed to name one of the heirs of the decedent (i.e., a son) in the complaint. The owners of the tax lien obtained a default judgment which, they believed, eliminated anyone’s right to redeem the tax liens.

A full year later, the long, lost son intervenes in the action in the superior court, moving to set aside the default judgment because he was not made a party or served with the complaint. The trial court not only denied his application to set aside the default judgment, but actually imposed Rule 11 sanctions on him for making the pitch that he was entitled to be a party to the foreclosure action.

The Court of Appeals reversed. The Roberts court explained that, “[a]lthough . . . A.R.S. § 42-18151 does not specifically state that an heir may redeem a tax lien, by operation of law an heir succeeds to the ownership interest of the decedent in real property.” The Court went on to explain, “[i]n Arizona, title to a decedent’s real property devolves directly to his or her heirs and devisees, and this is true whether the estate has been or is being administered.” Indeed, A.R.S. § 14-3101(A) states:

Upon the death of a person, his separate property and his share of community property devolves to the persons to whom the property is devised by his last will, or to those indicated as substitutes for them in cases involving lapse, renunciation or other circumstances affecting the devolution of testate estates, or in the absence of testamentary disposition to his heirs, or to those indicated as substitutes for them in cases involving renunciation or other circumstances affecting the devolution of intestate estates.

The Court held that, “[u]nder A.R.S. § 42-18151, Roberts, either as an owner or a person having a legal claim in the property, became entitled to redeem the tax liens.”

Since the Court found that Roberts had a right to redeem, the next question was whether the foreclosure judgment eliminated his right to redeem since he was not joined as a defendant in the lien foreclosure action. Despite the lienholders’ claim that it would have been impossible to locate Roberts, the Court disagreed and stated that:

A diligent search and inquiry for heirs is all that is required, similar to the type of diligence required to justify and effect service of process by publication. Thus, depending on the circumstances, a tax lien holder may need to examine public records or court records, or may need to ask relatives, friends, or neighbors of a decedent property owner about the existence of heirs.

The Court also stated that “when, as here, the tax lien certificate holder has reason to believe the property owner has died leaving heirs, and, after exercising appropriate due diligence, has been unable to locate those heirs, the unknown heirs can be made parties and served with process by publication.” The Court found that Roberts was not served and that there was no reasonable effort made to locate him so that the default judgment was ineffective as to his rights to redeem. Accordingly, the Court reversed the trial court’s judgment, including the Court’s Rule 11 sanctions against Roberts.

There’s a new case out from Division Two, Cullen v. Koty-Leavitt Insurance, which deals with the reasonable expectations doctrine in the UIM setting. The case is not particularly fascinating from a substantive perspective, but it raises questions about potential legal malpractice exposure.

In sum, Cullen filed a UIM claim based upon the fact that his family was given the right to privately use a business vehicle. The vehicle was owned by the business, Sierrita Mining and Ranch Company, and had UIM coverage with Auto Owners. The named insured was the business, and there were no additional insureds.

Cullen was injured while riding in another vehicle and filed a UIM claim with Auto Owners. The insurer denied his UIM claim, he then filed suit and the trial court dismissed the action.

First, the Court of Appeals expressly adopted the Supreme Court’s holding in Bell Atlantic Corp. v. Twombly, the case that overruled the familiar Conley v. Gibson standard for dismissal.

This is a significant move and one wonders how the Arizona Court of Appeals, which is bound to follow the Arizona Supreme Court on such matters, saw fit to disregard the Arizona Supreme Court and unilaterally adopt the United States Supreme Court’s Twombly holding. In any event, doubt no further, the “notice pleading” landscape has changed in Arizona as follows:

“While a complaint attacked by a Rule 12(b)(6) . . . motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Instead, the complaint’s “[f]actual allegations must be enough to raise a right to relief above the speculative level.”

The Court stated “when a complaint fails to recite at least the basic facts supporting a claim for relief, we cannot see how a defendant would have fair notice of the nature and basis of the claim.” The Court then, turning its attention back to Cullen’s case, stated it was limiting its review to the facts alleged in the complaint and the terms of the insurance contract.

Second, the Court went on to state that “[i]t is clear that the UIM provision of the policy Auto Owners issued to Sierrita does not provide Cullen with UIM coverage.” This is pretty straight-forward since the only named insured was the business and Cullen was not injured while in the insured vehicle.

Third, the Court addressed the reasonable expectations argument. The Court explained that “[t]he [reasonable expectations] doctrine necessarily applies to the reasonable expectations of the contracting parties, not to the reasonable expectations of a hopeful insured, such as Cullen, who is a stranger to the insurance contract.” The Court concluded that “the reasonable expectations doctrine d[oes] not apply to an injured party who ‘had nothing to do with the purchase of the policy in question [and] never had an insurable interest or expectancy under the policy.’”

Then the Court gets cheeky. The Court stated that, despite Cullen’s status as a “stranger” to the insurance contract, “Cullen’s complaint is sufficient if the facts he alleged permit the inference Sierrita had a reasonable expectation Cullen would have portable UIM coverage under the policy it purchased from Auto Owners.”

Ho-hum, what could they be thinking? How about this: “In his briefs to this court, Cullen describes several factual scenarios that arguably could prove one of the above situations applies to his claim. His complaint, however, contains none of them. Although Cullen’s complaint conclusorily asserts he had a reasonable expectation of coverage, as we have explained, his expectations are not relevant here.” So, the Court affirmed the trial court and denied the insurers’ request for attorneys’ fees.

Message: if you want to avoid being sued, forget notice pleading, you better allege facts, facts, facts to support your legal claims.

Recent decision from Division One, Bohreer v. Erie Ins. Exch.. Bohreer holds that an Arizona court has general personal jurisdiction over a foreign insurer which has appointed the Director of Insurance as an agent for service of process and has not withdrawn such qualification or appointment, but has ceased doing business in the state prior to the acts underlying the complaint. The Court held that exercising such jurisdiction did not violate due process.