                                     NO. 07-07-0351-CV

                               IN THE COURT OF APPEALS

                        FOR THE SEVENTH DISTRICT OF TEXAS

                                        AT AMARILLO

                                           PANEL D

                                       MARCH 5, 2009

                           ______________________________


                                 GAILIA TATE, APPELLANT

                                               V.

                            MIGUEL HERNANDEZ, APPELLEE

                         _________________________________

              FROM THE 99 TH DISTRICT COURT OF LUBBOCK COUNTY;

                NO. 2006-533,790; HONORABLE BILL SOW DER, JUDGE

                           _______________________________

Before QUINN, C.J., and CAMPBELL and PIRTLE, JJ.


                                           OPINION

                           “To be, or not to be. That is the question.”

                                             W illiam Shakespeare, Hamlet, Act III, scene i



       W hile perhaps overstating the significance of issues presented by this case, the

ultimate question we must answer is the role of personal injury litigation in our society. Is it

to punish the wrongdoer or to compensate the injured party? That is the question.
        Appellant, Gailia Tate, appeals from a judgment entered after a jury verdict in a

personal injury auto accident case that creates a constructive trust and orders her to pay

sums to the trust for the benefit of certain creditors of Appellee, Miguel Hernandez. Raising

five issues, Tate contends the trial court erred (1) in awarding medical bills that had been

discharged in bankruptcy, (2) in not limiting Hernandez’s recovery of medical or health care

expenses to amounts actually paid or incurred in accordance with section 41.0105 of the

Texas Civil Practice & Remedies Code, (3) in exercising jurisdiction where no jurisdiction

existed by awarding judgment in favor of a non-party; (4) by creating a constructive trust, and

(5) by awarding attorney’s fees in a personal injury lawsuit.


                                “An Enigma Shrouded in a Puzzle” 1


        In 2003, the 78 th Legislature passed House Bill 4 which included an amendment to

the Texas Civil Practice and Remedies Code adding section 41.0105, which simply states:


        [i]n addition to any other limitation under law, recovery of medical or health
        care expenses incurred is limited to the amount actually paid or incurred by or
        on behalf of the claimant.


Tex. Civ. Prac. & Rem. Code Ann. § 41.0105 (Vernon 2005).


        This and similar statutes have been enacted nationwide as a part of the phenomena

generically referred to as “tort reform.” The genesis of this type of paid or incurred statute


        1
         See Judge Randy W ilson, “An Enigma Shrouded in a Puzzle”, 71 Tex. B. J. 812, November 2008, for
a discussion of some of the issues surrounding interpretation of section 41.0105 of the Texas Civil Practice and
Remedies Code.

                                                       2
has been a desire among reformers to limit the sums recoverable by plaintiffs in personal

injury causes of action to those amounts actually paid by the plaintiff or a collateral source

insurance company, thereby eliminating recovery for medical bills that are ultimately written-

off or written-down as a part of the underlying insurance settlement. Stated alternatively, the

purpose of similar statutes has been to limit the recovery in a personal injury cause of action

to those sums necessary to make the injured parties whole.


       Although there are few appellate decisions clarifying the meaning of the Texas statute

in the context of a write-off or write-down of medical bills in consideration of insurance

payments, there are no appellate decisions reviewing the paid or incurred provision in the

context of a debt discharged in bankruptcy. Accordingly, we are squarely faced with the

unique issue: Is a debt which has been discharged in bankruptcy “paid or incurred” for

purposes of section 41.0105 of the Texas Civil Practices and Remedies Code? Finding that

it is not, we reverse the judgment of the trial court below and render the judgment the trial

court should have rendered.2




       2
           Tex. R. App. P. 43.3.

                                              3
                                                 Background


        The facts underlying this appeal are not disputed.3 On April 1, 2005, Hernandez filed

a Chapter 13 bankruptcy petition in the United States Bankruptcy Court for the Northern

District of Texas, Lubbock Division. Six months later, on October 21, Hernandez was

involved in an automobile accident with Tate when Tate’s vehicle drifted into Hernandez’s

lane of traffic, collided with Hernandez’s vehicle, and caused it to roll multiple times.

Hernandez incurred medical bills as a result of the injuries he sustained in the accident. On

November 22, the bankruptcy court entered an order converting Hernandez’s Chapter 13

bankruptcy proceeding to a Chapter 7 bankruptcy proceeding. In that proceeding Hernandez

filed a Debtors Statement in Compliance with Rule 1019 wherein he listed his personal injury

chose in action as an asset acquired after the filing of his original Chapter 13 petition, but

        3
          In accordance with Rule 34.6(c) of the Texas Rules of Appellate Procedure, Tate requested a
reporter’s record limited to two post-trial hearings held April 9, 2007 and June 29, 2007. Therefore, as stated
herein, the background facts adopted by this Court are those facts that are undisputed in Tate’s and
Hernandez’s briefs. See Tex. R. App. P. 38.2(a)(1)(b).

          W hen an appellant requests a partial reporter’s record, the points or issues to be presented on appeal
are limited to those points or issues contained in the statement of points or issues included in the request. Here,
Tate’s request for a partial reporter’s record stated that the issues to be presented on appeal were as follows:

        (1) whether the trial court erred in awarding medical bills that had been discharged in
        bankruptcy and were not “actually paid or incurred” in accordance with section 41.0105 of the
        Texas Civil Practice and Remedies Code;
        (2) whether the trial court erred in awarding damages to Plaintiff’s medical providers, who were
        not parties to the lawsuit, had asserted no claims against Defendant, had filed [no] pleadings
        in the lawsuit, and over which the trial court had no jurisdiction;
        (3) whether the trial court erred in making a de facto award of attorney’s fees to Plaintiff’s
        attorneys when there were no pleadings, evidence, or legal [basis] to support such an award;
        and
        (4) whether Plaintiff is a “successful party” and entitled to recover his costs of court when no
        recovery was made by the Plaintiff.

        Although not identically worded, we find Tate’s issues, as presented, are subsumed within and therefore
properly raised by the statement of points or issues contained in Tate’s request for a partial reporter’s record.

                                                        4
before the Chapter 7 conversion. Hernandez’s statement further listed certain medical bills

owed to Lakeridge Primary Health Center, Covenant Medical Center, Physical Therapy of

Lubbock, and Lubbock Pharmacy as debts incurred after confirmation but before conversion.

Each of those debts were for medical bills arising out of the October 21 st accident.


        Although disclosed to the bankruptcy trustee, Hernandez’s personal injury chose in

action never became property of the bankruptcy estate.4 Therefore, on February 3, 2006,

Hernandez filed this suit seeking damages for personal injuries suffered as a result of the

automobile accident with Tate. Among other damages, Hernandez sought recovery of his

expenses for his past and future medical treatment, including those expenses that were

listed as dischargeable debts in his bankruptcy proceeding.


        On March 23, 2006, the bankruptcy court entered an order discharging Hernandez’s

debts, including his medical bills. An attachment to the Chapter 7 discharge order indicated

that the order eliminated Hernandez’s legal obligation to pay any discharged debt and

prohibited any attempt to collect from Hernandez a debt that was discharged.


        Hernandez’s personal injury action was subsequently tried to a jury, and on March 27,

2007, the jury returned a verdict in favor of Hernandez. The jury found both Tate and

Hernandez negligent, assigning 70% fault to Tate and 30% to Hernandez. In a non-global




        4
         Section 348 of the Bankruptcy Code provides that “property of the estate in the converted case shall
consist of property of the estate, as of the date of filing the petition, which remains in the possession of or is
under the control of the debtor on the date of conversion.” 11 U.S.C. § 348(f)(1)(A) (emphasis added).

                                                        5
itemized special issue, the jury awarded Hernandez recovery of specific past medical

expenses in the amount of $9,035.94 as follows:


        Lubbock Pharmacy                                         $ 120.48
        Physicians Network Services                              $ 463.00
        Covenant Health System                                   $5,028.46
        Physical Therapy Services of Lubbock                     $2,928.00
        Lubbock Diagnostic Radiology                             $ 496.00
                Total                                            $9,035.94


Each medical provider for which damages were awarded, other than Lubbock Diagnostic

Radiology ($496.00), was listed on Hernandez’s bankruptcy filing. The jury did not award

Hernandez recovery of any other damages.


        Following two hearings on damages issues, the trial court entered judgment5 against

Tate in the amount of $7,017.92. The judgment represented the $9,035.94 awarded by the

jury, less 30% for Hernandez’s negligence, plus $692.76 in prejudgment interest. In addition,

the trial court ordered the funds to be placed in a “constructive trust” for the benefit of two

health care providers (Covenant Heath System–$2,111.95 and Physical Therapy Services




        5
       Judgment was entered by J. Blair Cherry, Jr., Senior District Judge acting by assignment. Tex. Gov’t
Code Ann. § 75.002(a)(3) (Vernon 2005).

                                                    6
of   Lubbock–$1,024.80) 6            and     Hernandez’s         attorneys      (Glasheen,        Valles      &

DeHoyos–$3,881.17). No award was made to Hernandez himself.


                                                Discussion


I.      Recoverability of Damages “Discharged” in Bankruptcy


        Before determining the limitation imposed by Section 41.0105, the first issue we must

address is whether medical expenses discharged in bankruptcy are generally recoverable

in a personal injury lawsuit. Stated conversely, should a wrongdoer receive the benefit of

a discharge of medical expenses in bankruptcy, when computing an injured party’s

damages? This is the bankruptcy equivalent of the collateral source rule.


        The “collateral source rule” is a common law rule that, in part, prevents a wrongdoer

from benefitting from a collateral source of discharge of liability for medical expenses

independently procured by a party, including the injured party, not in privity with the

wrongdoer. Mid-Century Ins. Co. v. Kidd, S.W .2d 264, 274 & n.48 (Tex. 1999) (citing Brown

American Transfer & Storage Co., 601 S.W .2d 931, 934-36 (Tex.1980), cert. denied, 449

U.S. 1015 (1980) (holding that a wrongdoer cannot receive credit for insurance

independently procured by the injured party.)); Black v. American Bankers Ins. Co., 478

S.W .2d 434, 438 (Tex. 1972) (holding hospital expenses eventually paid by Medicare on

        6
           Covenant Health System and Physical Therapy Services of Lubbock were not parties to the
proceedings below. Furthermore, they did not take any action to collect their bills other than to agree with
Hernandez’s counsel to accept the sums awarded. In light of the discharge in bankruptcy, the other medical
providers (including the creditor not named in the bankruptcy petition) would not agree to accept any portion of
the jury’s award.

                                                       7
behalf of plaintiff were recoverable); Taylor v. American Fabritech, Inc., 132 S.W .3d 613

(Tex.App.–Houston [14 th Dist.] 2004, pet. denied) (holding that payments made under an

employee benefit plan constitute a collateral source as against the employer). W e find that

the discharge of medical expenses through bankruptcy is akin to the discharge of an

obligation by a collateral source. See Dodd v. Lang, 71 Va. Cir. 235, 242-43, 2006 W L

2257160 (Va. Cir. Ct. 2006) (holding as a matter of substantive tort law, the collateral source

rule includes debts discharged in bankruptcy).


       Furthermore, we distinguish the concept of recovery of damages from the concept

of discharge of debts. From a bankruptcy perspective, the term “debt” simply means liability

on a claim, 11 U.S.C.A. § 101(12), where a “claim” is the right to either payment or an

equitable remedy, whether or not such right is reduced to judgment, fixed, contingent,

matured, unmatured, disputed, undisputed, secured, or unsecured. 11 U.S.C.A. § 101(5).

A debt is merely a sum of money owing to one person from another, including not only the

obligation of the debtor to pay but the right of the creditor to receive and enforce payment.

Black’s Law Dictionary 482 (8 th ed. 2004).            Although sometimes loosely used

interchangeably, debts (owed by the injured party to a medical provider) and damages (owed

by the wrongdoer to the injured party) are distinctly different concepts. In the context of the

injured party as the bankrupt party, debts are dischargeable in bankruptcy; damages are not.


       Therefore, whenever an injured party incurs medical expenses proximately caused

by the tortious conduct of another, our system of jurisprudence does not transfer liability for

those debts to the wrongdoer. Instead, our jurisprudence allows the injured party to recover

                                              8
a judgment against the wrongdoer for the amount of actual damages proximately caused by

the wrongful conduct. In a negligence case such as this, a plaintiff is permitted to recover

damages for past and future medical expenses as compensation for the debt incurred. How

that debt is ultimately settled, either through payment, gratuity, insurance, write-down, write-

off, or bankruptcy is of no consequence to the issue of whether the plaintiff has been

damaged by the wrongdoer. The debt is merely an evidentiary element of the plaintiff’s

damages.


       Because a debt for medical expenses is merely evidence of plaintiff’s damages, once

incurred, the subsequent discharge of the debt in bankruptcy does not prohibit a plaintiff from

offering proof of those past medical expenses as evidence of a component element of his

damages. Therefore, subject to further limitations provided by law, we find a plaintiff may

recover, as compensatory damages, the reasonable and necessary cost of medical

expenses proximately caused by the tortious conduct of a wrongdoer, even if those

expenses were subsequently discharged in bankruptcy.                Having determined that

Hernandez’s reasonable and necessary medical expenses were recoverable, we overrule

Tate’s first issue and proceed to address her second issue, the limitation imposed by section

41.0105 of the Texas Civil Practice and Remedies Code.


II.    Limitation of Recovery of Medical or Health Care Expenses


       If we begin with the premise that the Legislature intended to accomplish something

by the enactment of section 41.0105, then we must apply that provision in such a fashion as


                                               9
to accomplish that purpose. Few cases have shed light on that purpose. To date, the

leading case is Mills v. Fletcher, 229 S.W .3d 765 (Tex.App.–San Antonio 2007, no pet.). In

a plurality decision, the court held that section 41.0105 limited a plaintiff’s recovery for past

medical expenses to the amounts “actually paid or incurred,” thereby prohibiting recovery of

medical or health care expenses that had been discounted, adjusted, or written off. In Mills,

the defendant argued that the plaintiff’s recovery of past medical bills should have been

reduced because the medical providers accepted lesser amounts from the plaintiff’s

insurance carrier, thereby “writing off” the difference. Id. at 767. The court found that the

language of section 41.0105 manifested an intent by the Legislature to differentiate amounts

“actually incurred” from amounts merely “incurred,” with the amount actually incurred being

that sum of money necessary to compensate the plaintiff for sums actually expended by the

plaintiff or his insurance carrier. Id. at 768. In her dissenting opinion, Justice Stone took

issue with the majority’s treatment of the term “incurred” and she called into question the

court’s finding that the plain language of section 41.0105 showed the Legislature’s intent to

abrogate the collateral source rule. Id. at 771. According to Justice Stone, the majority

opinion actually rewarded the wrongdoer for the injured party’s foresight in obtaining medical

insurance. Id. at 772.


       W hile departing somewhat from the rationale of the Mills decision as it dealt with the

collateral source rule, the Eastland Court of Appeals has likewise held that sums written off

by a health care provider do not constitute amounts “actually incurred” for purposes of

applying the limitation set forth in section 41.0105. Matbon, Inc. v. Gries, No. 11-06-00258-


                                               10
CV, 2009 W L 94310 at *5-6 (Tex.App.–Eastland Jan. 15, 2009, no pet. h.)(holding that the

collateral source rule was not eviscerated by the adoption of section 41.0105).


        In another case dealing with section 41.0105, this Court held that the trial court did

not abuse its discretion in formulating a procedure for implementation of that section through

the introduction of post-judgment testimony regarding medical expenses that were

discounted, written-down, or written-off. Gore v. Faye, 253 S.W .3d 785 (Tex.App.–Amarillo

2008, no pet.). In Gore, the procedure for implementation of section 41.0105 was at issue,

not the interpretation of the statute itself.7


        W hile the Texas Supreme Court has yet to weigh in directly on the matter, in

Daughters of Charity Health Services of Waco v. Linnstaedter, 226 S.W .3d 409 (Tex. 2007),

the Court indicated that it did favor a theory of jurisprudence that avoided a “windfall” to the

injured party created by the discounted difference between a hospital’s “full charges” and the

amounts actually paid by the injured party’s workers’ compensation carrier. In discussing

the extent to which a hospital could file a lien against its patient’s tort chose in action, the

Court said, “[w]e agree that a recovery of medical expenses in [the full undiscounted amount]

would be a windfall; as the hospital had no claim for these amounts against the patients, they

in turn had no claim for them against [the wrongdoer].” Id. at 412. W hile Linnstaedter did



        7
          W e remain convinced that applying section 41.0105 post-verdict, as a cap to recoverable damages,
remains a sound judicial procedure. Matbon, Inc. v. Gries, No. 11-06-00258-CV, 2009 W L 94310 at *5-6
(Tex.App.–Eastland Jan. 15, 2009, no pet. h.) See also Judge Gisela D. Triana-Doyal, Another Take on
“Actually Paid or Incurred”, 72 Tex.B.J. 16, January 2009, for arguments in favor of a post-verdict application
of the “paid or incurred” limitation.



                                                      11
not deal with interpretation of section 41.0105, it does support the position that compensation

is the ultimate purpose of our system of jurisprudence.


        A long line of cases have held that the purpose for allowing the recovery of actual

damages, also called “compensatory damages,” is to repair a wrong or to compensate the

injured plaintiff for an injury. Cavnar v. Quality Control Parking, Inc., 696 S.W .2d 549, 552

(Tex. 1985), modified on other grounds, Johnson & Higgins, Inc. v. Kenneco Energy, 962

S.W .2d 507 (Tex. 1998); W . Keeton, et al., Prosser and Keeton on the Law of Torts § 2 (5 th

ed. 1984). Therefore, we find that an interpretation of section 41.0105 that limits an injured

party’s recovery of medical or health care expenses to those amounts necessary to

compensate the injured party for sums “actually paid or incurred” is consistent not only with

the Legislature’s intent, but also with our jurisprudential philosophy and history.


        Because Hernandez’s medical bills were discharged in bankruptcy, recovery of said

sums by Hernandez is not necessary to compensate him for his injuries.8 For purposes of

section 41.0105, those expenses were neither paid nor “actually incurred.” Accordingly, we

sustain Tate’s second issue. Because the jury’s award was limited exclusively to sums either

discharged in bankruptcy or written-off by the medical provider, the trial court should have

rendered a take-nothing judgment.


        8
           The question of whether a bankrupt party is entitled to recover compensation for medical expenses
“actually incurred” is separate and distinct from the question of whether a bankrupt estate is entitled to recover
those same damages. W here the bankrupt party would no longer have a legal duty to pay the medical
providers, the bankrupt estate would continue to owe a duty to all creditors of the bankrupt estate. Accordingly,
we express no opinion as to whether or not a trustee in bankruptcy, pursuing a bankrupt party’s chose in action
against a tortfeasor on behalf of the bankrupt estate, would be entitled to recover damages for past medical
expenses.

                                                       12
       Our disposition of Tate’s second issue pretermits consideration of her remaining

issues pertaining to the exercise of jurisdiction over non-parties, the imposition of a

constructive trust, and the de facto award of attorney’s fees in a personal injury case. Tex.

R. App. P. 47.1.


                                         Conclusion


       W hile, in the beginning, we postulated that the role of personal injury litigation in our

society might be the ultimate question presented by this appeal, we must be satisfied to

accept that the answer to that question is an unanswerable enigma, not within the exclusive

province of either realm, compensation, or punishment. In some instances damages are

designed solely to compensate the injured party; while in others, solely to punish the

wrongdoer. W ithout clear legislative direction, the paid or incurred statute, the collateral

source rule, and the courts of this state are, like Hamlet, destined to perpetually ponder their

role in social fabric of our jurisprudence. W e reverse the trial court’s judgment and render

judgment that Hernandez take nothing.



                                                           Patrick A. Pirtle
                                                               Justice

Quinn, C.J., concurring in result.

Campbell, J., concurring.


Publish.



                                               13
