Tort Reform Damage Caps in California, and Beyond

In last month's newsletter we looked at California's 25-year-old medical malpractice award damage cap legislation ' the Medical Injury Compensation Reform Act (MICRA) ' and began to explore arguments for and against its constitutionality. We now continue that discussion.

Usurping Judicial Powers

Plaintiffs in California have also contended recently that, by enacting the noneconomic damage limitation statute as part of MICRA, the legislature infringed on the judiciary's powers in violation of the California Constitution. See Cal. Const., art. III, ' 3 (“The powers of state government are legislative, executive, and judicial. Persons charged with the exercise of one power may not exercise either of the others except as permitted by this Constitution”); art. VI, ' 1 (“The judicial power of this State is vested in the Supreme Court, courts of appeal, and superior courts, all of which are courts of record”); see generally People v. Bunn (2002) 27 Cal.4th 1, 14.) According to this argument, the legislature's enactment improperly takes over the purely judicial function of determining the maximum award of noneconomic damages. But the legislature's action was well within its constitutional role. (See Fein, supra, 38 Cal.3d at p. 1574 (“'the Legislature possesses broad authority to modify the scope and nature of [a plaintiff's] damages'”).

When the California legislature enacted section 3333.2, it did not single out the noneconomic damage award for the plaintiff in any particular case. Rather, the legislature, employing its “far-reaching power to weigh competing interests and determine social policy” (Bunn, supra, 27 Cal.4th at p. 15), passed a “generally applicable mechanism” (Mandel v. Myers (1981) 29 Cal.3d 531, 551) to modify the common law by limiting noneconomic damages in all medical malpractice cases. This was the exercise of a quintessentially legislative prerogative. As stated in Franklin, “There can be little doubt that were a legislative body to review a dispute between two parties and resolve the compensation to be awarded, the activity would be a judicial one reserved to courts and juries. On the other hand, when a legislative body, without regard to facts of a particular case, dispute or incident, but rather as a matter of policy and rule determines for all citizens in all incidents that may occur thereafter that recovery will be limited, the function is legislative, completely analogous to the adoption or repeal of causes of action and remedies therefor. Juries function as parts of the dispute resolution apparatus between parties; a legislature functions to make rules in advance of disputes to be applied to the disputes. The Court here can discern no blurring of the lines separating these functions in this case where Maryland adopted a prospective law limiting awards for pain and suffering.” Franklin, supra, 704 F.Supp. at p. 1331; see Rhyne v. K-Mart Corp. (2004) 358 N.C. 160, 168 (statutory damage limitation “does not grant the General Assembly the authority to remit excessive awards on a case-by-case basis. Rather ' [the] function [of imposing a limit] is wholly distinct from that within the trial court's authority to apply fixed laws to individual controversies”).

The California Supreme Court rejected a similar separation-of-powers challenge to another MICRA limitation. In Roa, supra, 37 Cal.3d 920, the court upheld the statutory limitation on the amount of the contingent fee that an attorney can charge a medical malpractice plaintiff (Cal. Bus. & Prof. Code, ' 6146). The plaintiffs there argued that in light of the court's inherent power to review attorney fee contracts and to prevent overreaching and unfairness, the question of the appropriateness of attorney fees was a matter committed solely to the judicial branch. Roa, at p. 933. The court held, however, that “legislative bodies have imposed limits on attorney fees in a variety of fields throughout our history. Applicable California authority expressly refutes the claim that the Legislature has no power to act in this setting.”

Equal Protection and the Effects of Inflation

Another line of recent attacks on MICRA involves the question of equal protection. In Fein, supra, 38 Cal.3d 137, the California Supreme Court expressly rejected the argument that section 3333.2's limit on noneconomic damages violates equal protection principles. Plaintiffs have nonetheless claimed that, because of inflation since section 3333.2's enactment, the statute has become an equal protection violation. The answer to that argument is that any perceived inequities arising from changes in the economy are not of constitutional dimension.

Even if the equal protection argument is considered, MICRA limits continue to withstand scrutiny. The right to sue for negligently inflicted injuries is not a fundamental interest; therefore, the MICRA cap on noneconomic damages should be upheld if it bears a “rational relationship” to a legitimate legislative goal. Brown v. Merlo (1973) 8 Cal.3d 855, 862, fn. 2; see Fein, supra, 38 Cal.3d at pp. 157-158, 162; American Bank & Trust, supra, 36 Cal.3d at p. 373, fn. 12.

Section 3333.2 is but one part of MICRA, and the purpose of the entire statutory scheme was to address the crisis in California's health care system caused by skyrocketing medical malpractice insurance premiums. The Supreme Court concluded that section 3333.2 is rationally related to that legislative purpose. Fein, supra, 38 Cal.3d at p. 162.

Today, the statute continues to serve the legitimate goal of controlling the cost of medical malpractice insurance by controlling the cost of malpractice litigation. See American Bank & Trust, supra, 36 Cal.3d at pp. 363-364 (MICRA “attacked the problem on several fronts,” including “attempt[ing] to reduce the cost and increase the efficiency of medical malpractice litigation by revising a number of legal rules applicable to such litigation”).

The implication of an inflation-based equal protection challenge to the $250,000 MICRA cap of section 3333.2 is the notion that, in order to treat plaintiffs who sue at different times the same way, section 3333.2 cannot provide a set dollar limit on noneconomic damages. Presumably, plaintiffs would require a limit that is indexed to increase with inflation or that is expressed as a percentage of a plaintiff's noneconomic damages. The legislature, however, had a rational basis for not doing so, as the California Supreme Court has found.

First, as noted, a primary goal of MICRA was “to reduce the cost ' of medical malpractice litigation.” American Bank & Trust, supra, 36 Cal.3d at p. 364. This goal of reducing costs is clearly not furthered by increasing the amount of noneconomic damages that can be paid.

Second, the California Supreme Court in Fein specifically rejected the argument that “the $250,000 limit is unconstitutional because the Legislature could have realized its hoped-for cost savings by mandating a fixed-percentage reduction of all noneconomic damage awards.” Fein, supra, 38 Cal.3d at pp. 162-163. The court explained that “[o]ne of the problems identified in the legislative hearings [before MICRA's enactment] was the unpredictability of the size of large noneconomic damage awards, resulting from the inherent difficulties in valuing such damages and the great disparity in the price tag which different juries placed on such losses. The Legislature could reasonably have determined that an across-the-board limit would provide a more stable base on which to calculate insurance rates.” Id. at p. 163; see also Western Steamship, supra, 8 Cal.4th at p. 112. As with the overall goal of reducing malpractice litigation costs, the Supreme Court concluded that providing a more stable base on which to calculate insurance rates was a “ground[] [that] provides a sufficient rationale for the $250,000 limit.” Fein, at p. 163.

Inflation and the passage of time have not changed the constitutional calculus for section 3333.2. The fixed limit on noneconomic damages is still serving the goals of reducing the cost of medical malpractice litigation and providing a stable base on which to determine insurance rates, which the Supreme Court held are legitimate state purposes. Plaintiffs may complain that the statute is perhaps doing its job too well. But as the California Supreme Court held in Fein, “we may [not] properly strike down a statute simply because we disagree with the wisdom of the law or because we believe that there is a fairer method for dealing with the problem.” Fein, supra, 38 Cal.3d at p. 163.

In Other States

Other state courts have to come to the same conclusion in evaluating similar arguments. For example, in Verba v. Ghaphery (2001) 210 W.Va. 30, the court held: “We do not believe that the mere passage of time has rendered the medical malpractice cap unconstitutional or invalid. 'Presumably the legislature was aware of the effects of inflation and could have opted for some cap indexed to inflation. That the legislature did not index the cap to inflation but set forth an absolute dollar amount does not render the cap unconstitutional.' This Court 'may not sit as a superlegislature to judge the wisdom or desirability of legislative policy determinations made in areas that neither affect fundamental rights nor proceed along suspect lines.'” Id. at pp. 411-412; accord, Gourley, supra, 663 N.W.2d at p. 69.

David M. Axelrad, a member of this newsletter's Board of Editors, and David S. Ettinger are partners at the appellate firm of Horvitz & Levy in Encino, CA.

In last month's newsletter we looked at California's 25-year-old medical malpractice award damage cap legislation ' the Medical Injury Compensation Reform Act (MICRA) ' and began to explore arguments for and against its constitutionality. We now continue that discussion.

Usurping Judicial Powers

Plaintiffs in California have also contended recently that, by enacting the noneconomic damage limitation statute as part of MICRA, the legislature infringed on the judiciary's powers in violation of the California Constitution. See Cal. Const., art. III, ' 3 (“The powers of state government are legislative, executive, and judicial. Persons charged with the exercise of one power may not exercise either of the others except as permitted by this Constitution”); art. VI, ' 1 (“The judicial power of this State is vested in the Supreme Court, courts of appeal, and superior courts, all of which are courts of record”); see generally People v. Bunn (2002) 27 Cal.4th 1, 14.) According to this argument, the legislature's enactment improperly takes over the purely judicial function of determining the maximum award of noneconomic damages. But the legislature's action was well within its constitutional role. (See Fein, supra, 38 Cal.3d at p. 1574 (“'the Legislature possesses broad authority to modify the scope and nature of [a plaintiff's] damages'”).

When the California legislature enacted section 3333.2, it did not single out the noneconomic damage award for the plaintiff in any particular case. Rather, the legislature, employing its “far-reaching power to weigh competing interests and determine social policy” (Bunn, supra, 27 Cal.4th at p. 15), passed a “generally applicable mechanism” (Mandel v. Myers (1981) 29 Cal.3d 531, 551) to modify the common law by limiting noneconomic damages in all medical malpractice cases. This was the exercise of a quintessentially legislative prerogative. As stated in Franklin, “There can be little doubt that were a legislative body to review a dispute between two parties and resolve the compensation to be awarded, the activity would be a judicial one reserved to courts and juries. On the other hand, when a legislative body, without regard to facts of a particular case, dispute or incident, but rather as a matter of policy and rule determines for all citizens in all incidents that may occur thereafter that recovery will be limited, the function is legislative, completely analogous to the adoption or repeal of causes of action and remedies therefor. Juries function as parts of the dispute resolution apparatus between parties; a legislature functions to make rules in advance of disputes to be applied to the disputes. The Court here can discern no blurring of the lines separating these functions in this case where Maryland adopted a prospective law limiting awards for pain and suffering.” Franklin, supra, 704 F.Supp. at p. 1331; see Rhyne v. K-Mart Corp. (2004) 358 N.C. 160, 168 (statutory damage limitation “does not grant the General Assembly the authority to remit excessive awards on a case-by-case basis. Rather ' [the] function [of imposing a limit] is wholly distinct from that within the trial court's authority to apply fixed laws to individual controversies”).

The California Supreme Court rejected a similar separation-of-powers challenge to another MICRA limitation. In Roa, supra, 37 Cal.3d 920, the court upheld the statutory limitation on the amount of the contingent fee that an attorney can charge a medical malpractice plaintiff (Cal. Bus. & Prof. Code, ' 6146). The plaintiffs there argued that in light of the court's inherent power to review attorney fee contracts and to prevent overreaching and unfairness, the question of the appropriateness of attorney fees was a matter committed solely to the judicial branch. Roa, at p. 933. The court held, however, that “legislative bodies have imposed limits on attorney fees in a variety of fields throughout our history. Applicable California authority expressly refutes the claim that the Legislature has no power to act in this setting.”

Equal Protection and the Effects of Inflation

Another line of recent attacks on MICRA involves the question of equal protection. In Fein, supra, 38 Cal.3d 137, the California Supreme Court expressly rejected the argument that section 3333.2's limit on noneconomic damages violates equal protection principles. Plaintiffs have nonetheless claimed that, because of inflation since section 3333.2's enactment, the statute has become an equal protection violation. The answer to that argument is that any perceived inequities arising from changes in the economy are not of constitutional dimension.

Even if the equal protection argument is considered, MICRA limits continue to withstand scrutiny. The right to sue for negligently inflicted injuries is not a fundamental interest; therefore, the MICRA cap on noneconomic damages should be upheld if it bears a “rational relationship” to a legitimate legislative goal. Brown v. Merlo (1973) 8 Cal.3d 855, 862, fn. 2; see Fein, supra, 38 Cal.3d at pp. 157-158, 162; American Bank & Trust, supra, 36 Cal.3d at p. 373, fn. 12.

Section 3333.2 is but one part of MICRA, and the purpose of the entire statutory scheme was to address the crisis in California's health care system caused by skyrocketing medical malpractice insurance premiums. The Supreme Court concluded that section 3333.2 is rationally related to that legislative purpose. Fein, supra, 38 Cal.3d at p. 162.

Today, the statute continues to serve the legitimate goal of controlling the cost of medical malpractice insurance by controlling the cost of malpractice litigation. See American Bank & Trust, supra, 36 Cal.3d at pp. 363-364 (MICRA “attacked the problem on several fronts,” including “attempt[ing] to reduce the cost and increase the efficiency of medical malpractice litigation by revising a number of legal rules applicable to such litigation”).

The implication of an inflation-based equal protection challenge to the $250,000 MICRA cap of section 3333.2 is the notion that, in order to treat plaintiffs who sue at different times the same way, section 3333.2 cannot provide a set dollar limit on noneconomic damages. Presumably, plaintiffs would require a limit that is indexed to increase with inflation or that is expressed as a percentage of a plaintiff's noneconomic damages. The legislature, however, had a rational basis for not doing so, as the California Supreme Court has found.

First, as noted, a primary goal of MICRA was “to reduce the cost ' of medical malpractice litigation.” American Bank & Trust, supra, 36 Cal.3d at p. 364. This goal of reducing costs is clearly not furthered by increasing the amount of noneconomic damages that can be paid.

Second, the California Supreme Court in Fein specifically rejected the argument that “the $250,000 limit is unconstitutional because the Legislature could have realized its hoped-for cost savings by mandating a fixed-percentage reduction of all noneconomic damage awards.” Fein, supra, 38 Cal.3d at pp. 162-163. The court explained that “[o]ne of the problems identified in the legislative hearings [before MICRA's enactment] was the unpredictability of the size of large noneconomic damage awards, resulting from the inherent difficulties in valuing such damages and the great disparity in the price tag which different juries placed on such losses. The Legislature could reasonably have determined that an across-the-board limit would provide a more stable base on which to calculate insurance rates.” Id. at p. 163; see also Western Steamship, supra, 8 Cal.4th at p. 112. As with the overall goal of reducing malpractice litigation costs, the Supreme Court concluded that providing a more stable base on which to calculate insurance rates was a “ground[] [that] provides a sufficient rationale for the $250,000 limit.” Fein, at p. 163.

Inflation and the passage of time have not changed the constitutional calculus for section 3333.2. The fixed limit on noneconomic damages is still serving the goals of reducing the cost of medical malpractice litigation and providing a stable base on which to determine insurance rates, which the Supreme Court held are legitimate state purposes. Plaintiffs may complain that the statute is perhaps doing its job too well. But as the California Supreme Court held in Fein, “we may [not] properly strike down a statute simply because we disagree with the wisdom of the law or because we believe that there is a fairer method for dealing with the problem.” Fein, supra, 38 Cal.3d at p. 163.

In Other States

Other state courts have to come to the same conclusion in evaluating similar arguments. For example, in Verba v. Ghaphery (2001) 210 W.Va. 30, the court held: “We do not believe that the mere passage of time has rendered the medical malpractice cap unconstitutional or invalid. 'Presumably the legislature was aware of the effects of inflation and could have opted for some cap indexed to inflation. That the legislature did not index the cap to inflation but set forth an absolute dollar amount does not render the cap unconstitutional.' This Court 'may not sit as a superlegislature to judge the wisdom or desirability of legislative policy determinations made in areas that neither affect fundamental rights nor proceed along suspect lines.'” Id. at pp. 411-412; accord, Gourley, supra, 663 N.W.2d at p. 69.

David M. Axelrad, a member of this newsletter's Board of Editors, and David S. Ettinger are partners at the appellate firm of Horvitz & Levy in Encino, CA.