Smith v. Kinningham

Citations: 328 P.3d 258; 2013 COA 103; 2013 Colo. App. LEXIS 1089; 2013 WL 3427266Docket: Court of Appeals Nos. 12CA0156 & 12CA0157

Court: Colorado Court of Appeals; July 3, 2013; Colorado; State Appellate Court

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Defendants Alan W. Kinningham and Accelerated Network Solutions, Inc. (ANS) appeal a trial court judgment favoring plaintiffs James C. Smith and Dona Laurita, along with several related court orders. The appellate court affirms in part, reverses in part, and remands with instructions. A significant issue addressed is the application of section 10-1-135(10)(a), C.R.S. 2012, regarding the inadmissibility of Medicaid benefits evidence in trial, concluding that this statute has eliminated the 'gratuitous government benefits' exception to the collateral source rule.

The case originated from a car accident where Kinningham, who was driving a vehicle insured by ANS, rear-ended Smith's car after both had stopped for a red light. Smith and Laurita initiated legal action against Kinningham and ANS, leading to a jury verdict in favor of the plaintiffs against Kinningham. The trial court denied Kinningham's requests for a mistrial and new trial, and granted ANS's motion for a directed verdict against all claims.

On appeal, defendants raise multiple issues, including the exclusion of Medicaid evidence, jury instruction on sudden emergency, requests for hearings on plaintiffs' costs, and the denial of ANS's motion for prevailing party status. While most contentions are rejected, the appellate court agrees that Kinningham should have received a hearing regarding costs and that ANS was entitled to costs as a prevailing party. The court confirms the trial court's decision to exclude Medicaid evidence as proper.

Defendants in a legal case argued that evidence regarding Medicaid benefits received by Smith and payments made to his medical providers is relevant and admissible as evidence of gratuitous government benefits. They preserved this argument for appeal by addressing it in their response to a pretrial motion in limine, as established in Vu v. Fouts. To preserve an objection to evidence exclusion, parties must demonstrate the evidence's relevance and admissibility, and a definitive ruling on such evidence does not require a renewed objection for appeal preservation, according to Silva v. Wilcox. The trial court's evidentiary rulings are reviewed for abuse of discretion, which occurs when the court misapplies the law or acts unreasonably or unfairly.

Statutory interpretation is reviewed de novo, focusing first on the plain language of the statute. If clear, the statute is applied as written, per Smith v. Exec. Custom Homes, Inc. 

The common law collateral source rule in Colorado has two components: the pre-verdict component excludes evidence of benefits from a collateral source during trial, while the post-verdict component prevents reducing a plaintiff’s award based on such benefits. The appeal concerns only the pre-verdict component related to the exclusion of Smith's Medicaid benefits, not post-verdict adjustments.

Medicaid benefits are classified as coming from a "collateral source," defined as an independent entity compensating an injured party, meaning such benefits should not be considered in damage assessments.

Social Security disability benefits are recognized as collateral sources, but Colorado appellate courts have not yet clarified the exclusion of Medicaid benefits as collateral sources. Previous cases have treated public treasury payments, funded by taxes to which the injured party contributed, as collateral sources, including Medicare benefits which should not reduce a plaintiff's award. The court ruled that the Medicaid benefits paid on behalf of the plaintiff qualify as collateral sources, thus dismissing the defendants' claim that the trial court erred in excluding evidence of these payments.

The collateral source rule's pre-verdict evidentiary component is codified in section 10-1-135(10)(a), which prohibits the admission of collateral source payment amounts in actions against third-party tortfeasors. As the judgment in this case occurred after the statute's effective date, section 10-1-135(10)(a) is applicable. The Colorado Supreme Court established that this component takes precedence over the older "reasonable value rule," which allowed the admission of actual healthcare payment evidence. Consequently, evidence of medical service amounts is barred. The defendants' argument for the admissibility of Medicaid benefits as "gratuitous government benefits" was rejected, as section 10-1-135(10)(a) has eliminated the exception for gratuitous government benefits established in prior cases.

Evidence of amounts paid for a plaintiff's medical costs is inadmissible in court, as established by the Supreme Court in Wal-Mart Stores. The court reasoned that admitting such evidence risks leading the jury to infer the existence of a collateral source (like insurance), which could unjustly reduce the plaintiff's damages. Modern healthcare billing practices, where providers often accept significantly less than the billed amount due to insurance agreements and government-set rates for programs like Medicare and Medicaid, support this reasoning. Consequently, the court determined that Medicaid payment evidence was rightly excluded during the trial, aligning with similar decisions in various jurisdictions. Additionally, under section 10-1-135(10)(a), Medicaid benefits are inadmissible for any purpose, confirming the trial court's decision. The excerpt also references a rejection of the sudden emergency doctrine based on the case Bedor v. Johnson, upholding the trial court's choice not to instruct the jury on that doctrine.

The trial court's decision to award plaintiffs their costs, including expert witness fees, was found to be erroneous for not conducting an evidentiary hearing on the reasonableness of those costs, despite defendants' request for such a hearing. The court's failure to hold a hearing contravened established case law, necessitating a vacating of the cost award and a remand for the required evidentiary hearing. 

Regarding ANS's motion to be declared a prevailing party, the court erred in denying ANS's request for costs after it successfully obtained a directed verdict on all claims against it. The court's determination of prevailing parties and related cost awards is typically within its discretion, but it was determined that ANS qualified as a prevailing party and should recover its costs. However, ANS's request for attorney fees, based on allegations that plaintiffs pursued frivolous claims, was denied, and the court's decision on this matter was upheld.

Plaintiffs' claims against ANS are deemed non-frivolous and made in good faith, supported by potential theories of liability such as negligent entrustment, negligent supervision, or vicarious liability, given ANS's ownership structure and its insurance policy on the vehicle involved. A claim is considered frivolous only if it lacks any rational support from evidence or law; simply being unsuccessful does not render it frivolous.

Defendants' additional arguments were reviewed for abuse of discretion, with no errors found in the trial court's decisions on several matters: 

1. The denial of defendants' late motion to designate a non-party at fault was justified as the information was already available.
2. The motion for sanctions related to tax returns and alleged false statements was also denied appropriately.
3. The trial court properly handled the admission of liability insurance evidence, mitigating potential prejudice through jury instructions.
4. Kinningham's testimony regarding his blood alcohol content was admissible as a party admission and did not require expert testimony.
5. Defendants' motions for mistrial and a new trial were denied, as any potential misconduct was adequately addressed through sustaining objections and providing jury instructions, which mitigated substantial prejudice.

The court emphasized that a mistrial is an extreme remedy, only appropriate when prejudice cannot be remedied by other actions. The court's management of objections and jury instructions supported the denial of a new trial.

Plaintiffs seek attorney fees and costs incurred during the appeal under C.A.R. 38(d), which allows for damages and costs if an appeal is deemed frivolous. The court finds the defendants' argument—claiming the trial court was required to grant their motion for a new trial due to plaintiffs' lack of an opposing affidavit—to be frivolous, as no such requirement exists under C.R.C.P. 59(d). The court interprets Rule 59 as necessitating an affidavit to ensure that claims of irregularities are based on knowledge rather than mere speculation. An appeal is considered frivolous when the district court's judgment is unequivocally correct and the appellant's legal arguments lack merit. The court decides to remand the case for the trial court to assess and award plaintiffs the costs incurred in countering the frivolous argument. However, the court finds that the remaining arguments from the defendants do have substantial justification and do not warrant additional fees. The court vacates the trial court's order awarding costs to plaintiffs against Kinningham, reverses the denial of ANS's motion to be recognized as a prevailing party, and affirms the trial court's other judgments. On remand, the trial court is instructed to conduct a hearing to determine the costs owed to plaintiffs and ANS, and to award plaintiffs their fees related to the frivolous argument. Judges Carparelli and Roman concur with this decision.