A Funny Business Records Subpoena ...

Dodd v. Cruz, No. B247493 (Feb. 5, 2013)

The court of appeal holds that the merits of a motion to quash a deposition subpoena seeking business records can be addressed as part of an interlocutory appeal of sanctions awarded along with a quashal. The court then reverses the quashal because the documents sought were, in fact, discoverable. 

The first time I was ever in a California state courtroom was when I was put on a civil jury. Back then, I was the law clerk for a federal district court judge. I had a fairly decent grasp of the law. I had worked on a few high-stakes federal trials, and watched a few more. But I had very little practical understanding of the way the sausage was made, particularly in state trial courts. 

In my case, the defendant had rear-ended plaintiffs on the shoulder of the 2 freeway at a relatively low speed. Plaintiffs’ complained of spinal injuries of the kind that are difficult to prove or disprove, and most of their roughly $40,000 in purported damages consisted of charges they rung up with a chiropractor who worked on a “lien basis.” That is, the chiropractor took no payment upfront from the plaintiffs. Instead, although it was not really clear how much treatment the plaintiffs actually received, he worked for a lien on any recovery in their yet-to-be-filed personal injury case. He would recover his rather generous bills if plaintiffs won a judgment. Ultimately, although liability was all-but-uncontested, plaintiffs and their chiropractor went home disappointed with an award of a small fraction of their requested damages. I think we might have awarded part of the Bluebook value of the driver plaintiff’s late-model Camaro.

I learned three lessons from that experience that stick with me to this day. First, litigants represented by what appeared to be competent counsel actually go to trial in cases with only $40,000 in dispute. Second, never send a jury to deliberations at 3:30 on a Friday. Suffice it to say, there were nine votes in that box for just about anything, provided we weren't coming back on Monday. And third, don't put a lawyer on a jury unless you really have to. Why? Because other than me, there was another lawyer on the jury. (The venire must have been full of oddballs.) This other lawyer, who was elected foreman, was more attuned than I to the occasionally gritty reality of some parts of the legal business. And during deliberations, he stated his opinion about just how shady he thought a work-for-lien arrangement is. He pretty much tubed plaintiffs’ hope for a full recovery in the first ten minutes.* Which was fine with most of the jury, who wanted to get home. (Meanwhile, the defendant’s attorney probably thought it was his closing argument that carried the day . . . .)

I digress . . .

In this case, defendant is trying to get actual evidence of the kind of arrangement the lawyer saw as suspect in the jury room. As with my jury service, this is a personal injury case arising out of a motor vehicle accident. Plaintiff got shoulder surgery in connection with his alleged injuries. The surgery center, to which the plaintiff had been referred by his attorney, worked on a lien basis. Although it wasn’t disclosed to the plaintiff prior to the surgery, the center’s bill was somewhere between $40,000 and $50,000. The center then sold its account receivable and lien to a factor—an entity that buys accounts for collection. The president of the factor just happened to be (maybe not so coincidentally) the plaintiff’s attorney. Sensing something dicey afoot, Defendant served a deposition subpoena on the factor for documents related to its purchase of the A/R and lien. The factor moved to quash on relevance grounds. The trial court granted the motion and awarded $5,600 in sanctions for attorneys’ fees and costs the factor incurred on litigating the motion. The defendant appealed.

The court first resolves an issue regarding the appealability of the quashal. Discovery orders, of course, are not in themselves orders subject to interlocutory appeal. But orders awarding sanctions of more than $5,000 are. Since if the motion was erroneously granted there could be no sanction; the merits of the sanctions are thus inextricably intertwined with the merits of the motion to quash. Consequently, the court holds that it could review the merits of the motion in this appeal.

Turning to the merits, the court starts by reviewing the generally broad scope of permissible discovery. In doing so, it gives some solid quotables that no doubt will make it into future moving parties’ briefs. Statements like: (1) “Under the Civil Discovery Act (§ 2016.010 et seq.), the scope of permissible discovery is very broad.”; (2) “Although the superior court has discretion in granting or denying discovery motions, it is obligated to construe the discovery statutes liberally in favor of disclosure.”; and (3) “The broad scope of permissible discovery under the Civil Discovery Act ‘is equally applicable to discovery of information from a nonparty as it is to parties in the pending suit.’” As to the subpoena in this case, the question at hand is whether the documents related to the factoring transaction meet that broad standard in being reasonably calculated to lead to the discovery of admissible evidence.

The court holds they do, particularly as to the plaintiff’s measure of damages. A personal injury plaintiff is generally entitled to recover the lesser of his past medical costs incurred and the reasonable value of the services he received. (I.e., if plaintiff overpaid for the services—as might happen, for instance, if his doctor and attorney are in cahoots—only their actual reasonable value is recoverable as damages.) And because of the completely irrational and byzantine nature of medical billing in the U.S. healthcare system, the California Supreme Court has held that what a medical service provider purports to charge for its services is not itself relevant to the measure of plaintiff’s damages. That number often has little or no bearing on reality. What can be relevant, albeit circumstantially, is what the provider is ultimately willing to accept as payment.

Here, the documents about the factoring, while not necessarily themselves admissible, could lead to the discovery of admissible evidence in various ways. First, they could show what the surgery center believed to be the actual, reasonable value of plaintiff’s treatment. Second, they could be provided to an expert witness as a basis for forming an opinion on the value of the services. Third, they could lead to the discovery of admissible evidence regarding what amounts less than the full billed value the surgery center was willing to take as payment. Finally—after dropping a zinger footnote that points out the rank conflict of interest between the plaintiff’s attorney’s role in representing his client, on one hand, and in being the president of the factor, on the other—the court holds that because the documents are discoverable on these grounds, it does not need not decide whether the documents were also discoverable as to collusion between the surgery center, the factor, and the plaintiff’s attorney.

Reversed.

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*I don’t mean to suggest here that the lawyer did anything improper. He didn’t do any of his own investigation and he never suggested in the slightest that anyone act contrary to the instructions. He just expressed his opinion that he didn’t believe the chiropractor was running a legit operation because lien-basis payment arrangements were suspect to him. And given his experience, the other jurors were inclined to listen. Jurors are instructed to “use your common sense and experience in deciding whether testimony is true and accurate.” So Angelinos know people drive fast on freeways whenever they can. Accountants understand money. Lou Reed’s experience and common sense might have warned him “that women never really faint and that villains always blink their eyes.” And some lawyers are going to know about the grimmer realities of the legal biz. As much as we might want them to, people can’t compartmentalize, which is why we get voir dire and why we sometimes impose heuristics like “no lawyers” and “no ponytail guys” in the first place.