Atheer Ammanuel Hanna and Babylon Transportation, Inc. v. Medstar Funding, LLC

ACCEPTED
03-14-00732-CV
5377959
THIRD COURT OF APPEALS
AUSTIN, TEXAS
5/21/2015 12:18:35 PM
JEFFREY D. KYLE
CLERK
NO. 03-L4-00732-CV

IN THE COURT OF APPEALS FILED IN
THIRD IUDICIAL DISTRICT 3rd COURT OF APPEALS
AUSTIN, TEXAS
AUSTIN, TEXAS 5/21/2015 12:18:35 PM
JEFFREY D. KYLE
Clerk
ATHEER HANNA,

Appellant,

VS

MEDSTAR FUNDING, LP

Appellee.

On Appeal From The 345rH |udicial District Court for
Travis County, Texas
Trial Court Case No. D-1-GN-14-001432-CV

APPELLANT'S REPLY BRIEF

FRANK G. CAWLEY
State Bar No. 24006978
Whitehurst & Cawley, L.L.P.
4560 Belt Line Rd., Suite 200
Addisoru Texas 75001
(e72) 503-5455
(972) 503-6155 - Facsimile
Email: fcawley@whitehurstlaw.com
ATTORNEYS FOR APPELLANT

ORAL ARGUMENT REQUESTED
 TABLE OF CONTENTS

TABLE OF CONTENTS 11, 111

INDEX OF AUTHORITIES ... iv, v

SUMMARY OF REPLY 1

ARGUMENTS AND AUTHORITIES IN REPLY .J-

A. Medstar's business model is not a true factor and is designed to
circumvent Section 41.0105 and Haygood v. Escabedo .........3

B The plain language of Section 41.0105 precludes the recovery of
Medstarts commission or business profït margin, which are
clearly not "medical or healthcare expense.oo .......5

C. Matte's contractual liability to Medstar does not make medical
expenses that have not been and will not be paid to a medical
provider recoverable.. . ...6

D. Medstaros assignment of Mattets medical providers' claims does
not transform Medstar into a medical provider .........8

E The amounts Medstar paid Matte's providers and the contracts
between Matte and those providers are relevant to determine the
reasonable value of medical services .......9

F' Medstar's proposed stipulation that it paid a reduced rate does
not negate the need for payment and contract information..........11

G. Denying Appellant access to the requested information would
deprive him of his due process right to be heard and present
evidence ..................11

CONCLUSION AND PRAYER 13

CERTIFICATE, OF SERVICE t5

l1
CERTIFICATE OF COMPLIANCE l6

lll
 INDEX OF AUTHORITIES

Case Law:

Dodd v. Cruz,
223 CaI. App. 4th 933, 942 (Cal. App. 2d Dist. 2014). ... .10

Fuentes v. Shevin,
407 U.S. 67,80,92 S. Ct. 1983, 32L.F,d.2d556,569 (t972)..... .t2

Galaviz v. C.R. Eng. Inc.,
2012 U.S. Dist. LEXIS 53866, *8-9 (W.D. Tex. Apr.17,2012) 10

Haygood v. Escabedo,
356 S.\M.3d 390, 391 (Tex.20ll) ......3 5 6 7 9

In the Interest of BMN,
570 S.W.2d 493,502 (Tex. Civ. App. - Texarkana 1978, no writ). ..........12

Perry v. Del Rio,
67 S.W.3d 85,92(Tex.2001). ......12

Ranger Ins. Co. v. Ward,
1 07 S.W.3 d 820, 829 (Tex. App.-Texarkana 2003, pet. denied). .......... ...5

Tex. Mut. Ins. Co. v. Apollo Enters.,
2009 Tex. App. LEXIS 8315 (Tex. App.Austin Oct.29,2009). ....8,9

Turcotte v. Trevino,
499 S.W.2d 705,723 (Tex. Civ. App. - Corpus Christi 1973, writ refd

Statutes and Codes:

Tsx. Crv. Pnec. & Rpvr. Coon $41.0105 r, 2,3, 5, 6, 8,9

TBx. CoNsr. art I, $ 19 l1

U.S. Constitution... 1l

lv
Miscellaneous:

Letter dated May 20,2015 from the Honorable Andrew Bench, 196th Judicial
District Court for Hunt County, Texas. ..Exhibit A

v
 SUMMARY OF REPLY

The issue in this appeal is whether evidence of the amounts Medstar

paid to Adrian Matte's medical providers and the contracts between

Medstar and his providers is discoverable. The issue is not whether Civil

Practice & Remedies Code Section 41.0105 applies to limit Matte's recovery

or whether the amounts paid to Matte's medical providers represents the

reasonable value of the services. Those issues are for the trial court in Hunt

County to decide. This evidence is necessary for the fair adjudication of

Defendant's defenses because without it, Defendant would be deprived of

his constitutional due process right to be heard on the issues and present

evidence in his defense.

The discussion regarding whether Section 41.0105 applies and the

reasonable value of medical expenses is solely for the purpose of
establishing that these issues are undecided, are the subject of sharp
debate, and strong arguments exist that Texas law does not allow for the

recovery of medical expenses in excess of the amount the medical
providers accepted. These factors militate in favor of requiring the
production of the requested information so as to allow the Hunt County

trial court to decide the issues thus paving the way for appellate court

I
review of this important issue of first impression. In fact, because it lacks

the ability to compel production of this informatiory the Hunt County trial

court has postponed the trial of the case until this appeal has been

completed. This strongly suggests that the Hunt County trial court wants

this information in order to determine the admissibility of evidence of

medical care expenses.

Boiled down to its essence, Medstar's goal is to prevent any Texas

courts from deciding whether a plaintiff may recover more than the

amounts Medstar pays to medical providers in full satisfaction of a
plaintiffs debt. By concealing the amounts it pays to and its contracts with

providers, Medstar effectively deprives Appellant of the right to be heard

on the issue of whether Section 41.0105 applies to Medstar's business

model or whether the amount Medstar and medical providers agree upon

represents the reasonable value of the services. Concealing this information

also deprives the trial court in Hunt County from deciding these issues and

appellate courts from reviewing the trial courls decision.

Conspicuously absent from Appellee's Brief is any argument
regarding any alleged harm associated with producing information to

Appellant subject to a protective order. Neither Appellant nor his counsel

2
are competitors of Medstar, and thus, there is no danger that the

information will be used to Medstar's competitive disadvantage. In fact,

Medstar has produced this information subject to a protective order in the

past. (RR 464-469). And given the importance of the information, the lack of

harm to Medstar militates in favor of requiring the production of the

information.

ARGUMENT AND AUTHORITIES

A. Medsta{s business model is not a true factor and is designed to
circumvent Section 4L.0105 and Høygood a. Escøbedo.

Medstar attempts cloak its business model into the broader "medical

factoring industry" in an effort to conceal its true purpose. While the

factoring industry in general is legitimate, Medstar's business is not a true

factoring arrangement. It is a carefully designed scheme to circumvent
Section 41.0105 and the Texas Supreme Courfs decision in Høygood a

Escabedo. If successful, Escabedo and Section 41.0105 will become nullities.

In a true factoring arrangement, the factor purchases a business'

accounts receivable and proceeds to attempt to collect on the account from

the debtor with whom the factor has no pre-existing relationship. That is

inherently an adversarial, debtor-collector relationship. Flere, Medstar

J
interacted with Matte before purchasing his accounts. (Appellee's Brief at

10). This involves an agreement with Matte to seek repayment from third

parties - the tort defendants. Unlike a true factoring arrangement, this is a
collusive arrangement with the purpose of entrepreneurial profit.

Further distinguishing Medstar's business from true factoring

arrangements is that Medstar and Matte's medical providers agreed to

rates for services before those services were performed or any account

existed. (CR 162). The medical providers then aver that the full list charges

remain owed to the providers.l In other words, the medical providers

know the amount they have accepted, but execute affidavits swearing that

they are owed a larger amount. This is pure fiction writing. Most likely,

this is because Medstar collaborates with medical providers in crafting the

affidavits. (CR 331). This adds another layer of collusion. In addition to the

collusion between Matte and Medstar, now the medical providers are

complicit even though they no longer have any financial interest in Matte's

recovery.

The tripartite collusion inherent in Medstar's business model and

manipulation of evidence makes it clear that the object is to circumvent the

' cR 78, 81., 84, 9'J., 99, 1.06, 113, 120, 1.27, 130

4
limitations set forth in Section 41.0105 and the Texas Supreme Courfs

holding in Escnbedo. Collusive attempts to circumvent the law violate

public policy. Ranger Ins. Co. a. Wørd, 107 S.W.3d 820, 829 (Tex. App.-

Texarkana 2003, pet. denied)

B. The plain language of Section 41.0L05 precludes the recovery of
Medstar's commission or business profit margin, which are clearly
not "medical or healthcar"
"*p"or".7
In order to be recoverable, expenses must be "medical or healthcare

expenses. Tex.Crv.Pnec.Rsir¿. Coos S41.0105. Medical or healthcare

expenses are those that are paid or will be paid to a medical or healthcare

provider. lnEscabedo, the Texas Supreme Court held:

"We agree with the court of appeals that this statute limits recovery,
and consequently the evidence at trial, to expenses that the proaider
has a legal right to be paid....Thus, "actually paid and incuïted"
means expenses that have been or will be paid, and excludes the
difference between such amount and char ges the seraice proaider bills
but has no right to be pøid."

Hay good a. D e Escøbedo, 356 S.W.3d 390, 391 (Tex. 2011) (emphasis added).

Here, the difference between the amount Medstar paid Matte's

providers and the list charges does not constitute "medical or healthcare

expenses" because this amount is not and never will be paid to a medical

provider. Rather, this amount constitutes Medstar's commission or

5
business profit margirç not "medical or healthcare expenses." It is

undisputed that Matte's medical providers have no right to any additional

payments. Thus, according to the plain language of Section 41.0105 and the

holding inË,scnbedo, this amount is not recoverable.

Medstar contends that Section 41.0105 does not apply to their

business model because Medstar does not pay the medical providers on

Matte's behalf. Flowever, Medstar admits that it reached agreements with

Matte's medical providers to pay a reduced rate for services before any

treatment was provided. (CR 162). This arrangement can only be described

as paying Matte's medical providers for his benefit, or in other words, on

his behalf. At the very least, the Hunt County trial court could interpret

this arrangement as payment on Matte's behalf and only submit evidence

of actual payments to the jrry. Thus, evidence of the contracts and actual

payments is necessary for a decision on this issue.

liability to Medstar does not make medical
C. Matte's contractual
expenses that have not been and will not be paid to a medical
provider recoverable.

As set forth above, according to the Texas Supreme Court, Section

41.0105 limits recovery to expenses that are paid or will be paid to a

medical or healthcare provider. Medstar argues that Section 4L.0105 does

6
not apply here because the rationale underlying the Texas Supreme Court's

holding in Escøbedo was to prevent the plaintiff from obtaining a windfall

Flere, the argument goes, Matte will not obtain a windfall because he owes

the medical providers' full list charges to Medstar. And semantically,

Medstar contends that it will not receive a windfall because it expected to

earn a profit all along. So according to Medstar, the identity of the

beneficiary of the amount in excess of what the medical providers accepted

(whether called a windfall or a profit) is the distinguishing factor.

However, Matte's obligation to repay Medstar has no connection to

the amount he can recover in a tort lawsuit. As an example, if a jury finds

that a plaintiff's medical expenses are urueasonably high and awards a

lesser amount, that plaintiff is still obligated to pay his medical providers

for their full charges. That plaintiff's separate contractual obligation to pay

his providers does not compel an award for the full amount of the charges

The same result applies here. The fact that Matte obligated himself to pay

Medstar an amount in excess of what his providers agreed to accept does

not render that amount recoverable

In additiory Medstar's argument is essentially that the legislature and

the Texas Supreme Court prohibit a plaintiff from obtaining a windfall by

7
recovering an amount in excess of the amount paid or owed to medical

providers, but allow such a recovery if the windfall is transferred to a third

par$ in the form of business profit. Whether characterized as a windfall or

profit, the amount in excess of what the providers accepted is not

recoverable. If it were, juries will not be determining medical expenses,brt

instead, they will be deciding profits for a non-party lurking in the

shadows.

D. Medstar's assignment of Matte's medical providers' claims does
not transform Medstar into a medical provider.

Medstar acknowledges that the Texas Supreme Court held that

Section 41.0105 limits a claimant's recovery to medical expenses the
provider has a legal right to be paid. (Appellee's Brief at 20). Flowever,

Medstar appears to contend that by virtue of the assignments from Matte's

medical providers, Medstar is transformed into a medical provider for

purposes of interpreting Section 41.0105. However, although an assignee

stands in the shoes of an assignor, an assignee of a healthcare provider

does not become a healthcare provider. Tex. MuL Ins. Co. u. ApoIIo Enters,,

2009 Tex. App. LEXIS 8315 (Tex. App.Austin Oct.29,2009)(not designated

for publication). Further, the common law principle that an assignee stands

I
in the shoes of an assignor does not apply where it would frustrate the

legislature's intent as reflected in statutes. Id.

With respect to Section 41.0105, the Texas Supreme Court has held

that a claimanfs recovery is limited to medical expenses that have been or

will be paid to a medical or healthcare provider. Because Medstar's

assignments do not transform it into a medical provider, Matte cannot

recover amounts owed to Medstar. Further, the common law principle that

an assignee stands in the shoes of an assignor does not apply here because

it would frustrate the legislature's intent to limit recovery to amounts paid

or owed to medical providers, not entrepreneurial financiers.

E. The amounts Medstar paid Matte's providers and the contracts
between Medstar and those providers are relevant to determine the
reasonable value of medical services.

The rule the Texas Supreme Court set out in Escnbedo is that a

plaintiff is entitled to recover the lesser of the reasonable value of medical

services or the amount actually paid or the amount the medical provider is

legally entitled to recover. Thus, even if Section 41.0105 does not apply to a

factoring arrangement, the evidence reflecting the amount Matte's medical

providers agreed to accept is necessary for the fair adjudication of the

reasonable value of the services provided

9
 Medstar contends that Matte's medical providers' acceptance of a

reduced rate has no bearing on the reasonable value of the services. Rather,

Medstar argues that the reduced rate simply reflects the amount the

providers are willing to accept to avoid the uncertainties and risk
associated with collections. Ffowever, the timing of the transactions
undermines this argument.

As set forth above, Medstar and Matte's providers agreed upon a

reduced rate before any treatment was provided. (CR 162). The providers

were under no compulsion to treat Matte if they thought the proposed

rates were urueasonable. In other words, it is safe to presume that a for-

profit concern will only provide goods and services if the compensation is

sufficient to cover costs plus a reasonable profit. Otherwise, there is no

reason to provide the goods and services. The fact that Matte's medical

providers provided treatment knowing the amount they would be paid is

at least some evidence that the agreed upon rates were reasonable. Galaaiz

u. C.R. Erg. lnc.,2012U.S. Dist. LEXIS 53866, *8-9 (W.D. Tex. Apt. 17,2012);

Dodd u. Cruz, 223 Cal. App. 4th 933, 942 (CaL App. 2d Dist. 2014)(not

designated for publication).

t0
 F. Medstar's proposed stipulation that it paid a reduced rate does not
negate the need for payment and contract information.

Medstar argues that it will stipulate that it paid a reduced rate for

Matte's medical accounts, and thus, the issue is preserved for appellate

review. This argument ignores the other reasons payment and contract

information is necessary. For example, if the Hunt County trial court agrees

with Appellanfs arguments that only the paid amount is admissible, there

is no evidence to submit to the jury without this information.2 Second, if

the trial court decides that both the full amount of the providers' charges

and the amount actually paid should be submitted to the jury to determine

the reasonable value of the services, payment and contract information is

obviously necessary. Thus, Medstar's proposed stipulation does not negate

the need for this information.

G. Denying Appellant access to the requested information would
deprive him of his due process right to be heard and present
evidence.

Both the fourteenth amendment to the U.S. Constitution and article 1,

section 19 of the Texas Constitution provide that a person shall not be

deprived of life, liberty, or property without due process of law

2
This is a scenario that Medstar has apparently not anticipated. If the trial court takes this approach, it could result in
no recovery ofmedical expenses at all.

1l
Fundamental to the concept of due process is the right to be heard. Fuentes

a. Sheain, 407 U.S. 67,80,92 S. Ct. 1983,32L. Ed. 2d 556,569 (1972).The

right to be heard assures a full hearing before a court having jurisdiction

of the matter, the right to introduce evidence at a meaningful time and in a

meaningful manner, and to have judicial findings based upon that

evidence. Perry u. DeI Rio, 67 S.W.3d 85, 92 (Tex. 2001); Turcotte a. Treaino,

499 5.W.2d705,723 (Tex. Civ. App. -- Corpus Christi 1973, writ ref'd n.r.e.).

It includes also an opportunity to cross-examine witnesses, to produce
witnesses, and to be heard on questions of law.In the Interest of BMN,570

S.W.2d 493,502 (Tex. Civ. App. -- Texarkana 1978, no writ).

If Appellant is denied access to the information requested, he will be

deprived of his right to present evidence to the Hunt County trial court in

support of the argument that Matte is not entitled to recover amounts in

excess of the amount paid to the providers. Appellant will also be deprived

of the right to present evidence of the reasonable value of medical services

performed on Matte. Muted by the absence of evidence, Appellant will not

be heard. And Appellant will be deprived of the right to have judicial
findings based upon the evidence. Accordingly, Appellant is entitled to the

requested as a matter of fundamental due process.

T2
 In fact, because it lacks the ability to compel production of this
information, the Hunt County trial court has postponed the trial of the case

until this appeal has been completed. (Exhibit A). This strongly suggests

that the Hunt County trial court wants this information in order to

determine the admissibility of evidence of medical care expenses.

CONCLUSION AND PRAYER

Evidence of the amounts Medstar paid to and contracts with Matte's

medical providers is relevant and necessary to a fair adjudication of
Appellant's defenses against Matte's damage claims in the Hunt County

Action. If Appellant is denied access to this evidence, he will be deprived

of the ability to present it to the trial court and jury in the Hunt County

Action and consequently, to the court of appeals if necessary in violation of

fundamental due process rights. This evidence is unavailable from any

other source. Accordingly, the trial court abused its discretion in granting

Medstar's Objections, Motion To Quash and Motion For Protective Order.

13
Respectfully submitted,

. Erank
, G. Cawley
FRANK G. CAWLEY
State Bar No. 24006978
Whitehurst & Cawley, L.L.P.
4560 Belt Line Road, Suite 200
Addison, Texas 75001
972 / 503-5455 Telephone
972 / 503-6155 Facsimile
Email: fcaw hitehurstlaw.com

Attorneys for Appellant

t4
 CERTIFICATE OF SERVICE

The undersigned hereby certifies that a true and correct copy of the
foregoing document was forwarded to all counsel of record pursuant to the
Texas Rule of Appellate Procedure 9.5 on the 2L"t day of May, 2015.

Kirk L. Pittard
KEnY, DuRuev & PrrrenD, L.L.P.
1005 Heights Boulevard
Houston, Texas 77008
Email: kpittard@texasappeals.com

joe K. Crews
Cn¡ws Lew Fmv PC
70'l.Brazos, Suite 900
Austin, Texas 7870'/.,

Donald L. Crook, ]r.
WRyNg WnIGHT, L.L.P.
5707 Interstate Ten West
Antonio, Texa s 7820'I',
San
Email: dcrook@waynewright.com

/s/ Frank G. Cawlev
Frank G. Cawley

15
 CERTIFICATE OF COMPLIANCE

As required by Texas Rule of Appellate Procedure 9.a(i)(3), I certify
that there is a total of 3240 words in the foregoing computer-generated
document.

/ s/Frank G. Cawley
Frank G. Cawley

t6
 T96TH JTII}ICIAL I}ISTRICT COURT
F.O. BOX 1097 . GREDNVTLLE? TEXAS 754t13-r097
(903) 408.419û . FAx: (903) 40E-4189

J. ANDRTWSENÇH
ruNGE
JULIE DEARY
ÇOURT COORDIN.ÀTOR

May 20,2015

Vin Fac¡imile {9721 503-df55
Mr. Frank G. Cnwley
4560 Belt Line Road, Suite 200
Addiso¡t, Texas 75001

llia Facei¡üile (210) 734-996_5.
M¡. Donald L. Cook, Jr.
5707 Intersmæ Tsn lVest
San Antonio, Texa$ 78201

Re: cnuse No, 78573; Adricn Matte v. Atheer Am¡nuel Hanna, Edmor¡d Amanuel
H&nna, nnd Bcbyton Transportrtion, Inc"; In the lg6th Di*trict court, Hunt
Çountyo Texae

Dear Gentlemgn,

AftE¡ considering the argument and authorities of counsel, the Cou¡t has decided to continue the trial
of this oEse until suc]r !ìme as the Appeal of the Protective Order issued in Travis County, and
curently before the Third Court of Appeals, has been fully resolved. Due t0 t¡e unique t*otuut
çirçumstanoes of this case, and the Çou¡t's inability to compel the production of d.ocuments relevant
to the alleged dnmages in this Êase, a jury trial wixhout an opinion on thg relevance of the Medstar
Contracts would be a waste ofjudioial rËsources. Ouce the issue has been finally resolved, the Court
will immediately set the case for kial. Counsel for the Defendant is directed to prepare an ordçr
c'oneistent with this letter.

J. AndrewBench
Judge, 196ù Judicial Disuict Court

J,A_B/jd

EXHIBIT
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