ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, May 9, 2012

Uninsured Sue Major Indiana Hopsital System for Overcharging

As reported in the Indianapolis Star here, the Indiana Supreme Court is set to hear arguments on May 10th in a case invovling two uninsured patients who have sued Indiana's largest hospital group, IU Health, for overbilling.  This is a tip-of-the-iceberg case, since the amount in controversy is small on these particular claims but could become massive if plaintiffs succeed and other plaintiffs bring similar claims (which they undoubtedly would).

Medical FilesThe basis for the suit is that uninsured patients pay far higher prices for the same treatment, tests and services that insured patients get.  The case also provides a peek into the mindset of class action plaintiffs' attorneys, a subject related to a recent post.  Plaintiffs' attorney Scott Weathers is quoted in the Indianapolis Star as saying that he hopes to target other Indiana hospitals with similar lawsuits: "If we win, I'm afraid the other hospitals are going to hear from us. We have clients in the wings . . . ." and he expects the damages claims to get into the millions. 

The core of the case is the common law doctrine that when a contract does not specify a price, the price must be reasonable.  A good test of reasonableness is what other patients get charged for similar services.  Relying on that doctrine, Indiana's Court of Appeals reversed the trial court's dismissal of the case.  Twenty states introduced legislation requiring that uninsured be charged at the same rates as the insured, and now federal law requires that as well.  So the issue has been resolved legislatively, but that does not deprive plaintiffs of their right to sue over past overcharges. 

Given that this seems like low-hanging fruit, one might wonder why class-action plaintiffs' attorneys have not already filed class actions across the country.  As is clear from the Corut of Appeals opinion cited above, some states have sustained dismissals of similar suits based on (slightly) more specific contractual language related to the prices the hospitals would charge.  An additional sticking point seems to be the need to show commonality among the members of the purported plaintiff class.  Medical bills are individuated and hospitals claim that class litigation is impracticable.  That may be persuasive, but we understand that medical bills are now created by "coding experts," with each examination, test, procedure, etc. assigned a specific code and attendant pricing.  It seems likely that a court, provided with the coding system, could easily come up with a reasonable approximation of the extent to which the uninsured have been overcharged.  Since IU Health spokesperson affirms that the hospital system discounted charges to uninsured patients  by 40% in January 2011 in order to comply with federal law, 40% seems like a reasonable approximation of the extent of the overcharges. 


May 9, 2012 in In the News, Recent Cases | Permalink | Comments (1) | TrackBack (0)

iTunes in-app purchases: Parents' Relational Contract or Kids' Separate, Voidable Contracts?

2_itunes_10_iconBack in March (I am behind in my blogging), the U.S. District Court for the Northern District of California denied Apple’s motion to dismiss a class action brought by parents and guardians “who (a) downloaded or permitted their minor children to download a supposedly free app from Apple and (b) then incurred charges for game-related purchases made by their minor children, without the parents' and guardians' knowledge or permission.”  The court held that children who used their parents' iTunes accounts to rack up unauthorized charges for supplies for “free” games during a 15-minute window that the account automatically remained open after password authentication may have entered into separate contracts with Apple that are voidable by their parents.

There are games in Apple's iTunes store that are free to download but let companies charge users for products and services when the application is launched, so-called "in-app purchases."  The parents allege that each in-app purchase constitutes a separate and voidable contract between Apple and their minor children, which may be disaffirmed by a parent or guardian on behalf of the minors.  Apple argued for dismissal on the pleadings because the relevant contractual relationship governing the in-app purchases is between Apple and the parents and is based on the original Terms & Conditions signed by parents, making the purchases non-refundable.  Apple contends that the Terms & Conditions governs all subsequent purchases made using the iTunes account.

The court noted that, on a motion to dismiss, it is required to construe the complaint in the light most favorable to the plaintiffs/parents.  In light of that standard, the court held:

Apple argues that Plaintiffs' First Cause of Action should be dismissed as a matter of law, and yet offers no case law to support its contention that the Terms & Conditions constitute a relational contract and that each subsequent transaction between a minor child and Defendant is governed by the terms of the relational contract.

The parents seek reimbursement for the charges (which can run into the hundreds, even thousands).  If the parents are reimbursed, do the kids have to return the $25 buckets of smurfberries they purchased in Smurf Village?  What if the berries are already eaten?

Here's an idea for the parents: disable in-app purchases on the device:

In re Apple In-App Purchase Litigation, No. 5-11-cv-1758 (N.D. Cal. Mar. 31, 2012).

[Meredith R. Miller]


May 9, 2012 in In the News, Recent Cases | Permalink | Comments (1) | TrackBack (0)

Tuesday, May 8, 2012

Weekly Top Tens from the Social Science Research Network

SSRNRECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal 

March 9, 2012 to May 8, 2012

RankDownloadsPaper Title
1 377 The Impact of the Broker-Dealer Fiduciary Standard on Financial Advice 
Michael S. FinkeThomas Patrick Langdon
Texas Tech University, Unaffiliated Authors - affiliation not provided to SSRN
2 196 The Effect of Bargaining Power on Contract Design 
Albert H. ChoiGeorge G. Triantis
University of Virginia School of Law, Stanford University - Law School
3 156 Zotero - A Manual for Electronic Legal Referencing 
John PrebbleJulia Caldwell
Victoria University of Wellington, Victoria University of Wellington
4 146 Does the Constitution Protect Economic Liberty? 
Randy E. Barnett
Georgetown University Law Center
5 131 The Perils of Social Reading 
Neil M. Richards
Washington University in Saint Louis - School of Law,
6 123 Controlling Financial Chaos: The Power and Limits of Law 
Steven L. Schwarcz
Duke University - School of Law
7 109 Transaction Simplicity 
Stephen J. Lubben
Seton Hall University - School of Law
8 96 'Offer to Sell' as a Policy Tool 
Lucas Osborn
Campbell University Law School
9 92 The Common European Sales Law (CESL) Beyond Party Choice 
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
10 89 Forcing Forgetfulness: Data Privacy, Free Speech, and the 'Right to Be Forgotten' 
Robert Kirk Walker
University of California - UC Hastings College of the Law

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

March 9, 2012 to May 8, 2012

RankDownloadsPaper Title
1 350 The Common European Sales Law and the CISG - Complicating or Simplifying the Legal Environment? 
Nicole KornetNicole Kornet
Maastricht University - European Private Law Institute (M-EPLI), Maastricht University - METRO Institute
2 196 The Effect of Bargaining Power on Contract Design 
Albert H. ChoiGeorge G. Triantis
University of Virginia School of Law, Stanford University - Law School
3 146 Does the Constitution Protect Economic Liberty? 
Randy E. Barnett
Georgetown University Law Center
4 131 The Perils of Social Reading 
Neil M. Richards
Washington University in Saint Louis - School of Law
5 127 Modern Chinese Real Estate Law: Property Development in an Evolving Legal System (Chapter 1) 
Gregory M. Stein
University of Tennessee College of Law
6 113 The Questionable Basis of the Common European Sales Law: The Role of an Optional Instrument in Jurisdictional Competition 
Eric A. Posner
University of Chicago - Law School
7 93 Errors of Fact and Law: Race, Space, and Hockey in Christie v. York 
Eric M. Adams
University of Alberta - Faculty of Law
8 92 The Common European Sales Law (CESL) Beyond Party Choice 
Jan M. Smits
Maastricht University Faculty of Law - Maastricht European Private Law Institute (M-EPLI)
9 71 Parallel Contract 
Aditi Bagchi
University of Pennsylvania - Law School - Faculty
10 58 Instructing Juries on Noneconomic Contract Damages 
David A. HoffmanAlexander Radus
Temple University - James E. Beasley School of Law, Temple University James E. Beasley School of Law



May 8, 2012 in Recent Scholarship | Permalink | TrackBack (0)

Boots on the Ground (or Perhaps on a Shelf in Uganda)

Combat bootsAccording to this report from the local pages of the Washington Post, a non-profit organization, Bancroft Global Development (BGD), ordered 18,000 pairs of combat boots (actual model not pictured) from Atlantic Diving Supply (ADS) as part of a $1.4 milion contract that included other items.  ADS claims that BGD paid for only half the order and has sued BGD seeking over $1 million,

BGD has counter-sued, seekign $1.1 million and claiming that the boots provided were not really combat boots but costume boots that did not satisfy military requirements.  Two years after delivery, the boots are said to be sitting in storage in Uganda.  BGD was working with a Ugandan partner organization, which had won a State Department contract to provide military supplies for the Somali Transitional Federal Government.

The case potentially raises interesting UCC questions, since the goods were allegedly "rejected" but not returned.  The case also raises potential issues of misunderstanding reminiscent of Frigaliment.  BGD apparently wanted the cheapest boots it could buy, but the boots that it got, although called "combat boots" are, according to one industry expert quoted in the Washington Post, suitable only for youth groups and marching bands.  One wonders what sort of youth groups require combat boots . . . .


May 8, 2012 in Commentary, Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Monday, May 7, 2012

New York Times "The Haggler" Column Muses on Class Actions

SouqDavid Segal has provided blog fodder for us before, both in his role as the bête noire of the legal profession, and in his more mild-mannered guise as author of the New York Times' column "The Haggler" (lacking a public domain image depicing haggling, we have settled from an image from an open-air market, a prime locus for haggling).  Nancy Kim posted most recently on the "The Haggler" column.  We have posted on Mr. Segal's smack-downs on law schools here and here.  Sunday's column is, once again, right up our alley.

Its topic is the fall-out from the Supreme Court's recent trilogy of arbitration decisions about which we have blogged incessantly.  Mr. Segal's column will add little to our readers' knowledge base on the subject, but it's nice to have a popular column that provides a useful recap of the state of play.  The main ground covered in Sunday's "The Haggler" can be summarized as follows:

  • Post Concepcion, most consumer class actions are being dismissed in favor of arbitration at which class action resolution is not available;
  • Businesses oppose class actions on the ground that they result in "settlements in which lawyers take home millions in fees and consumers wind up with piddling sums, often in the form of coupons";
  • According to the Camber of Commerce, "the class-action system is flawed because it is designed by and for lawyers," but arbitration "can work";
  • However, as Judge Posner pointed out, “The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30.”

At this point, "The Haggler," having satisfied journalistic conventions by citing arguments from both sides, throws up his hands and suggests that there must be some better option. A fair arbitration system might work, but many people do not even know that they are entitled to make a claim, and the class action option enlightens them.

"The Haggler" misses the point.  The problem with $30 claims is not that people do not know that they have them but that they have no incentive to bring them even if they know.  Even if the arbitrataion is paid for by the defendant, it's just not worth the time.  Moreover, class actions are a public good in that they hold corporate defendants accountable in ways that matter and can have prospective effects that help plaintiffs and others similarly situated even if the plaintiffs in the class actions end up only with coupons.  Plaintiffs are not the ones complaining, litigating and lobbying to get rid of class actions.  

The argument that the class action system is flawed because it is designed by and for lawyers is specious.  Arbitration clauses are also designed by lawyers, and where exactly is the evidence that the class action system was desigend for lawyers?  Was the criminal justice system designed for lawyers because they get paid to litigate criminal proceedings, while neither crime victims nor criminal defendants stand to gain?


May 7, 2012 in Commentary, In the News | Permalink | Comments (4) | TrackBack (0)

Wisconsin Supreme Court Addresses Two-Party Checks from Insurers

Wisconsin_welcome_signOn May 3, 2012, Wisconin's Supreme Court affirmed a jury verdict in favor of the insurer in Best Price Plumbing Inc. v. Erie Insurance Exchange.  Unfortunately, the judgment turned on a procedural matter -- Best Price apparently did not raise its winning argument until after trial, when it sought a judgment notwithstanding the verdict and thus in the eyes of the majority forfeited the argument.  A full run-down of the case is available from the wonderful State of Wisconsin Bar site. We provide a shorter synopsis.

Best Price did some plumbing work and was entitled to $9000 for its efforts.  Erie Insurance (Erie) issue a two-party check, which was endorsed over to the insured and deposited in the insured's account.  How it got there remains unclear, but in any case Best Price was never paid.  According to the only testimony available, the check was delivered to a mysterious "handyman" who was directed to give it to Best Price for endorsement, but Best Price claims that the endorsement never occurred and was never authorized.

A jury found that the two-party check satisfied Erie's obligations under the contract.  In its post-verdict motion, Best Price relied on Kenosha Home Telephone Co., 158 Wis. 371, 148 N.W. 877 (1914),  in which the Court held that when a contract is silent as to the place of payment, the law implies that payment shall be made at the residence, office, or place of business of the creditor.  As that did not occur here, Erie had breached.  The trial court bought the argument, but the intermediate appellate court reinstated the jury's verdict.

The Supreme Court affirmed.  Refusing to speculate about how the jury would have ruled had it been instructed about the rule from Kenosha Home Telephone, the court ruled that any objection to the jury instructions had been forfeited.

Two Justices dissented pointing out that the motion at issue was for a judgment notwithstanding the verdict and that such motions do not challenge the sufficiency of the evidence but contends that judment should be awarded to the moving party on grounds other than those decided by the jury.

The dissenters also noted the real-world consequences of the decision: 

After today, similar small businesses all over the state should be wary of a client's mere word or handshake, lest their services will go unpaid for. In the future, they ought to get a signed contract requiring payment up-front.


May 7, 2012 in Recent Cases | Permalink | Comments (0) | TrackBack (0)