Legal News

Leung v. Verdugo Hills Hospital (Aug. 23, 2012) 12 C.D.O.S. 9646, in which the California Supreme Court abolishes the common law release rule

In March of last year, I summarized the appellate court decision Leung v. Verdugo Hills Hospital in which Division Four of the Second Appellate District took the unusual step of asking the California Supreme Court to grant review of its decision to do away with the common law release rule and “fashion and new common law rule concerning the effect of a non-good faith settlement on a non-settling tortfeasor’s liability.” The Supreme Court granted review and last Friday abrogated the common law release rule. In so doing, the court found the common law release rule leads to "harsh results" for plaintiffs and is inconsistent with California's joint and several liability laws. After concluding that the common law release rule no longer exists and the hospital remains jointly and severally liable for plaintiff's economic damages, it reversed the decision by the Court of Appeal and remanded the matter for determination of damages, including issues raised by the hospital on appeal, but not addressed by the court at that time given its application of the common law release rule.

Briefly, at the center of the Leung case was the sympathetic young plaintiff, Aidan Leung, who suffered irreversible neurologic injury at 6 days of age after he developed kernicterus. At issue was who bore responsibility for the failure to diagnose and treat the condition which resulted in severe brain damage to the infant. Through his mother and guardian ad litem, Aidan sued his pediatrician, Dr. Steven Wayne Nishibayashi, and Verdugo Hills Hospital, where he was delivered and cared for after birth. Before trial, Leung settled with his pediatrician for policy limits of $1 million. In exchange for the settlement, Dr. Nishibayashi obtained a full release; he also agreed to participate in the trial during which the jury would allocate any liability between him and the hospital and set the amount of damages. After the settlement between the doctor and plaintiff, the trail court denied the doctor’s motion to find the settlement was in good faith pursuant to CCP sections 877 and 877.6; it felt the doctor’s settlement payment was “grossly disproportionate” to his relative liability for the baby’s injuries and the expected recovery. The plaintiff and pediatrician went ahead with the settlement anyway. Significantly, the record showed Aidan’s parents had determined it was “economically unfeasible” to try to obtain more from the doctor than his policy limits.

At trial, the jury found both the doctor and the hospital negligent and awarded over $78,000 in past medical expenses, $250,000 in general damages and over $82 million in future medical costs (reduced to $14 million present value) and $13 million in future lost earnings (with a present value of $1,154,000). The jury found the hospital 40% negligent, Dr. Nishibayashi 55% negligent and the parents each 2.5% negligent. On appeal, the gravity of the injury, the huge award, and the doctor’s percentage of fault played a part in the appellate court's request that the Supreme Court revisit the common law release rule, despite the fact the doctor had settled for policy limits. These factors also played a role in the Supreme Court's decision, as it used the relatively small settlement amount by the pediatrician, compared to the jury's award and apportionment of liability against him, as evidence of how the common law release rule can lead to "harsh results."

The Supreme Court said: The rationale for the common law release rule was "that there could be only one compensation for a joint wrong and since each joint tortfeasor was responsible for the whole damage, payment by any one of them satisfied plaintiff's claim against all." (Cites omitted.) That rationale assumes that the amount paid in settlement to a plaintiff in return for releasing one joint tortfeasor from liability always provides full compensation for all of the plaintiff's injuries, and that therefore anything recovered by the plaintiff beyond that amount necessarily constitutes a double or excess recovery. The assumption, however, is unjustified.... In light of the unjust and inequitable results the common law release rule can bring about, as shown in this case, we hold that the rule is no longer to be followed in California.

In so holding, the court also overruled a number of its own decisions, "and their progeny, to the extent they are inconsistent with the views expressed here."

The court went on to determine the effect its ruling has on the apportionment of liability among joint tortfeasors in cases when one settles for an amount not found to be in good faith by a court, and considered the effect its decision would have on tort plaintiffs, settling and non-settling tort defendants, existing law, and the public policy to promote settlements. It reviewed the history in California of joint and several liability and comparative fault and described the available options as 1) setoff-with-contribution, 2) setoff-without-contribution, and 3) proportionate-share approach.

In reviewing the ways in which the other two approaches would work, and whether they are consistent with established liability principles, the court observed that the Legislature expressly limited the second apportionment method--setoff without contribution--to settlements made in good faith under CCP section 877. Therefore, that apportionment method was not available in this case. It found option 3, proportionate-share apportionment, as inconsistent with the principles of joint and several liability in California when a defendant settles without a finding by the trial court that the settlement was made in good faith. The court held, therefore, that

....when a settlement with a tortfeasor has judicially been determined not to have been made in good faith (see Code Civ. Proc., sections 877, 877.6, subd.(c)), nonsettling joint tortfeasors remain jointly and severally liable, the amount paid in settlement is credited against any damages awarded against the nonsettling tortfeasors, and the nonsettling tortfeasors are entitled to contribution from the settling tortfeasor for amounts paid in excess of their equitable shares of liability.

The court explained "setoff-with-contribution apportionment does not change the respective positions of the parties and is fully consistent with both the comparative fault principle and the rule of joint and several liability" in California. Because the setoff-with-contribution "does not change the respective liabilities of the joint tortfeasors" it therefore provides "no incentive for them to enter into a settlement that is not in good faith." In cases in which a settlement was found to have been made in good faith, the proportionate share method will still be used precisely because it limits the liability of the "settling tortfeasor (who would be liable only for the settlement amount irrespective of the settling tortfeasor's proportionate share of liability), and ...the liability of the nonsettling tortfeasor (who, under principles of joint and several liability, would no longer be liable for the settling tortfeasor's proportionate share)." Such a result promotes good faith settlements.

In a portion of the decision that has garnered less attention, but could end up being problematic for med mal defendants, the Supreme Court affirmed the Court of Appeal's determination that the "evidence was sufficient to prove that negligence by the hospital was a legal cause of plaintiff's injuries." On review, the hospital took exception with the Court of Appeal's finding that causation in a medical negligence case is "adequately established if the evidence is sufficient to permit the jury to infer, that without the negligence there is a reasonable medical probability the plaintiff would have obtained a better result." (Emphasis added) In so doing, the jury may "draw upon ordinary human experience as to the probabilities of the case."

On review, the hospital maintained that a finding of causation in a medical negligence action requires an actual causal link between the negligence and injury, that the opinion of an expert is necessary to prove such causation, and that such testimony was lacking at trial. The Supreme Court disagreed, and in language that seems to undermine a fundamental requirement in med mal cases--the need for expert opinion testimony--said:

Even assuming that the appropriate standard applicable to plaintiff's claims against the hospital in this case is one of reasonable medical probability and that expert testimony is required (see generally Flowers v. Torrance Memorial Hospital Medical Center (1994) 8 Cal.4th 992, 996-999 [discussing standard of care in "ordinary" and "professional" negligence actions]), the evidence presented at trial was sufficient to support the jury's finding that the hospital's negligence was a legal cause of plaintiff's injury. (Emphasis added.)

The Supreme Court also rejected defendant hospital's arguments that 1) it can bear no liability for negligently practicing medicine "because a hospital does not practice medicine, [therefore] as a matter of public policy its conduct should not be considered a legal cause of plaintiff's injuries," or 2) it should not be required to provide medical advice "beyond directing the patient to call the doctor with concerns." The court pointed out that

...."[a]lthough hospitals do not practice medicine in the same sense as physicians, they do provide facilities and services in connection with the practice of medicine, and if they are negligent in doing so they can be held liable. Here, defendant hospital implicitly recognized that point when it requested, and the trial court gave, this jury instruction: "A hospital must provide procedures, policies, facilities, supplies, and qualified personnel reasonably necessary for the treatment of its patients."

The court then held that, upon review of the record, there was evidence sufficient to support the jury's finding that the acts or omissions of the hospital were a "legal cause" of plaintiff's brain injury. It is hard to know how, or even whether this language will end up affecting med mal cases as a whole, but I imagine plaintiffs will use this language in opposition to motions for summary judgment or other dispositive motions based on an argument there is no causation on the grounds that the matter should go to a jury because it could "infer" from the facts and ordinary human experience that there was causation, and therefore liability.

While the headline in the Recorder called the ruling a "Big Win for Plaintiffs," the practical implications of the decision on damages apportionment are limited to those cases in which a court finds a settlement was not made in good faith. Of note, the Supreme Court mentioned the fact the physician sought a writ of mandate from the appellate court to find his settlement was in good faith (the writ was denied), but since it was not part of the review, it was not before them. The fact that a policy-limit settlement can be found not to be in good faith is unfortunate--even with the potential for a high damages award against all or some defendants.

In our experience, judges tend to find policy limit settlements to be in good faith. However, I think it is fair to assume that, going forward in catastrophic damages cases at least, policy limit settlements could more regularly be challenged as "not in good faith" by co-defendants. This will have a very negative effect on co-defendant relations, as will the specter of post-trial contribution actions by and between codefendants following any settlement found not to be in good faith. The potential for animus between and among defense counsel is one of the reasons the Supreme Court ruled as it did in Leung--in order to encourage good faith settlements, and, effectively, punish those who enter into settlements that are not found to be in good faith.

After Leung, counsel for medical malpractice defendants who settle for policy limits in catastrophic damages cases, and who make unsuccessful motions for good faith determination, will probably want to take every possible step to get the settlement approved as in "good faith." This could include making petitions for a writ of mandate and, if necessary, review, if a defendant is determined to go forward with a "non-good-faith" settlement. This is obviously a very time-consuming and expensive proposition and one which undermines the goal of settlement to reduce cost and exposure; because in the end, the petitions may be unsuccessful and you find yourself back at square one with a policy limit settlement and potential exposure for contribution.