Montemayor v. State Farm Lloyds (Tex.App.- Austin, 2008)

Montemayor v. State Farm Lloyds--Appeal from 345th District Court of Travis County, May 22, 2008 , No. (Tex.App.- Austin, May 22, 2008) () (challenge to validity of rate order by Insurance Commissioner) (Before Chief Justice Law, Justices Waldrop and Henson) Jose Montemayor, Commissioner of Insurance, and Texas Department of Insurance v. State Farm Lloyds--Appeal from 345th District Court of Travis County

CONCLUSION Because we conclude that the portion of section 4 of article 5.26-1 setting out the insurer's proof requirement is unconstitutional on its face and as applied to State Farm Lloyds and that State Farm Lloyds was denied constitutionally adequate review of TDI's rate order, we affirm the judgment of the trial court as to the insurer's proof requirement and as to due process. We sever the unconstitutional provision requiring an insurer to prove that a rate reduction by TDI would produce inadequate rates, reverse the trial court's judgment as to the constitutionality of the remainder of the statute, and remand to the department for further proceedings consistent with this opinion.

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 345TH JUDICIAL DISTRICT
NO. GN303793, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING

O P I N I O N

This appeal concerns the validity of a rate order issued by the commissioner of insurance. The rate order was based on now-expired article 5.26-1 of the insurance code, which provided the procedure by which Texas homeowners insurance providers were to file their initial homeowners insurance rates with the Texas Department of Insurance ("TDI" or the "department") as required by Senate Bill 14 in 2003. (1) Tex. Ins. Code Ann. art. 5.26-1 (West Supp. 2004-2005).

The rate order required State Farm Lloyds to reduce its filed homeowners insurance rates by twelve percent. State Farm Lloyds sought review in district court. Finding that article 5.26-1 was unconstitutional and that State Farm Lloyds's due process rights had been violated, the district court vacated the rate order.

Appellants now seek reversal of the district court's judgment. We conclude that the portion of section 4 of article 5.26-1 setting out what insurers are required to prove on appeal to the commissioner ("the proof provision") is unconstitutional on its face and as applied to State Farm Lloyds. Therefore, we affirm the judgment of the trial court in part as to its findings that the provision of former Article 5.26-1, section 4, which requires an insurer to prove that a rate reduction would produce inadequate rates, is unconstitutional and that State Farm Lloyds's due process rights were violated. Because we further hold that the unconstitutional proof provision is severable, we sever that provision, reverse the trial court's judgment as to the constitutionality of the remainder of the statute, and remand to the department for further proceedings consistent with this opinion.

FACTUAL AND PROCEDURAL BACKGROUND

From 1991 through 2003, Texas insurance companies operated under a system of flexible rate setting, which allowed insurers to charge up to 30 percent more or less than a state-promulgated benchmark rate. House Research Organization, Bill Analysis, Tex. S.B. 14, 78th Leg., R.S. (2003). During that time period, in an effort to avoid regulation, insurance companies began shifting more and more of their business toward unregulated branches called Lloyd's companies. Id. Originally unregulated because they generally covered specialty risks at lower-than-standard rates, Lloyd's companies grew from about 20 percent of the market in 1991 to about 95 percent of the market in 2003. Id. Thus, by 2003, only five percent of the Texas homeowners insurance market was regulated. Id.; House Comm. Report, Tex. S.B. 14, 78th Leg., R.S. (2003). In this mostly unregulated market, Texas consumers were paying the highest premiums in the country, often for policies providing reduced coverage. Id.
To address these issues, the Texas Legislature passed Senate Bill 14, which amended the insurance code to establish a new system for regulating residential property insurance rates. Act of June 2, 2003, 78th Leg., R.S., ch. 206, 2003 Tex. Gen. Laws 907. Under the new system, insurers were required to file their rates with TDI, and TDI would then review and either approve or disapprove those rates.

The changes to the system of insurance regulation were implemented in three phases. Article 5.26-1, effective June 11, 2003, through September 1, 2004, established a one-time procedure for quickly bringing all Texas homeowners insurance providers under this new rate-regulation program. According to its terms, insurers were required to file their initial regulated rates with TDI within twenty days of the effective date of SB 14, June 11, 2003, and to implement the rates immediately. Tex. Ins. Code Ann. art. 5.26-1, § 2(a). Within forty days of the filing deadline, TDI was required to review and either approve or modify the initial rates. Id. art. 5.26-1, § 2(b).

After the initial filing, article 5.142, effective June 11, 2003, through December 1, 2004, provided temporary rate-regulation procedures. Id. art. 5.142 (West Supp. 2004-2005). Under the terms of article 5.142, insurers were required to file their rates with TDI and await the commissioner's approval before implementing these rates. Id. art. 5.142, § 5.

Finally, after December 1, 2004, article 5.13-2 allowed insurers to file rates and implement the rates immediately without prior approval. Id. art. 5.13-2, § 5 (West Supp. 2005). Under this permanent file-and-use system, insurers can use proposed rates immediately, but TDI can review and either disapprove the rates before they go into effect or disapprove further use of the filed rates after they go into effect. Id. art. 5.13-2, §§ 5, 7.

State Farm Lloyds filed with TDI on June 26, 2003, submitting its then-existing rates as its initial rates. On August 18, 2003, TDI notified State Farm Lloyds of its determination that the rates must be reduced by twelve percent, stating that the rates "are not reasonable for the risks to which they apply." State Farm Lloyds appealed.

Pursuant to the terms of article 5.26-1, a hearing on State Farm's appeal was to be conducted before the commissioner. TDI noticed the case for hearing fifteen days from the date that State Farms Lloyds filed its appeal. In preparation for the hearing, State Farm Lloyds served discovery requests on TDI, including deposition notices, requests for documents, and interrogatories, seeking to determine how TDI had set the rate reduction for State Farm Lloyds. Although State Farm Lloyds's discovery requests were served pursuant to the department's rules of practice and procedure for contested cases, TDI refused to produce for deposition any of its employees with knowledge of relevant facts about TDI's rate reduction, denied all of State Farm Lloyds's requests for documents and interrogatories, and withheld the workpapers and exhibits of its testifying expert until after State Farm Lloyds prefiled its direct case, arguing that the case was a rate case, not a contested case, and, therefore, the contested case discovery rules did not apply. See 28 Tex. Admin. Code §§ 1.82-.84 (2003). After a pretrial hearing on August 25, 2003, TDI agreed to present one of its two designated testifying experts for a limited, one-and-a-half-hour deposition.

The commissioner heard the merits of the case on September 2 and 3, 2003. To prevail in its appeal under the terms of article 5.26-1, State Farm Lloyds was required to show by clear and convincing evidence that the rate reduction specified by TDI would produce inadequate rates. An inadequate rate was defined as a rate that is "insufficient to sustain projected losses and expenses" and "endangers the solvency of an insurer using the rate." Tex. Ins. Code Ann. art. 5.142, § 2(b)(2); see also id. art. 5.26-1, § 1(b) ("The definitions adopted under article 5.142 of this code apply to this article."). Following the hearing, the commissioner issued a final order affirming the department's rate reduction, stating in a single conclusion of law that the rates recommended by TDI would produce adequate base rates for State Farm Lloyds.

State Farm Lloyds sought judicial review in district court. The district court granted summary judgment in favor of State Farm Lloyds, declaring appellants' actions void and unenforceable, vacating the commissioner's rate order, and denying appellants' request to remand the case for further administrative proceedings. According to the district court, article 5.26-1 was unconstitutional on its face and as applied, violating the due course of law provision of the Texas Constitution and the due process clause of the United States Constitution. Article 5.26-1 was also unconstitutional, the court found, because it violated the takings provisions of both the Texas Constitution and the United States Constitution. Further, the court found that appellants had denied State Farm Lloyds due process by failing to follow the applicable contested case provisions of the Administrative Procedure Act ("APA") and TDI's own contested case rules. See Tex. Gov't Code Ann. §§ 2001.051-.178 (West 2000); 28 Tex. Admin. Code §§ 1.1-.90 (2003). The commissioner and TDI appealed to this Court.

ANALYSIS

Standard of Review

The material facts are not in dispute, and the propriety of summary judgment is a question of law. Westcott Commc'ns, Inc. v. Strayhorn, 104 S.W.3d 141, 145 (Tex. App.--Austin 2003, pet. denied). We review the district court's summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). When the material facts are not in dispute, both parties move for summary judgment, and the district court grants one motion and denies the other, we review the summary judgment evidence presented by both sides, determine all questions presented, and render the judgment that the district court should have rendered. Texas Workers' Comp. Comm'n v. Patient Advocates of Tex., 136 S.W.3d 643, 648 (Tex. 2004); FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000).

Constitutionality of Article 5.26-1

When the constitutionality of a statute is challenged, we begin our review with a presumption of validity, Sax v. Votteler, 648 S.W.2d 661, 664 (Tex. 1983), and the burden is on the party attacking the statute to establish its unconstitutionality. Texas Pub. Bldg. Auth. v. Mattox, 686 S.W.2d 924, 927 (Tex. 1985); Robinson v. Hill, 507 S.W.2d 521, 524 (Tex. 1974).

In construing a statute, we presume that:
(1) compliance with the constitutions of this state and the United States is intended;
(2) the entire statute is intended to be effective;
(3) a just and reasonable result is intended;
(4) a result feasible of execution is intended; and
(5) public interest is favored over any private interest.

Tex. Gov't Code Ann. § 311.021 (West 2005).

When confronted with multiple constructions of a statute, if possible, we must interpret the statutory language in a manner that renders it constitutional. City of Houston v. Clark, 197 S.W.3d 314, 320 (Tex. 2006). In determining legislative intent, as we must, we presume that the legislature intended compliance with the constitution; therefore, statutes are given a construction consistent with constitutional requirements. Brady v. Fourteenth Court of Appeals, 795 S.W.2d 712, 715 (Tex. 1990). We look to the plain meaning of the words used in the statute, presuming every word to have been deliberately chosen and excluded words to have been purposely omitted. Fireman's Fund County Mut. Ins. Co. v. Hidi, 13 S.W.3d 767, 768-69 (Tex. 2000); Continental Cas. Ins. Co. v. Functional Restoration Assocs., 19 S.W.3d 393, 398 (Tex. 2000); USA Waste Servs. of Houston, Inc. v. Strayhorn, 150 S.W.3d 491, 494 (Tex. App.--Austin 2004, pet. denied). We should not adopt a construction of a statute that will render the statute meaningless or lead to absurd results. Fleming Foods of Tex., Inc. v. Rylander, 6 S.W.3d 278, 284 (Tex. 1999).

In challenging the constitutionality of a statute, a party may show that the statute is unconstitutional on its face or as applied to that party. Texas Workers' Comp. Comm'n v. Garcia, 893 S.W.2d 504, 518 n.16 (Tex. 1995); see also City of Corpus Christi v. Public Util. Comm'n of Tex., 51 S.W.3d 231, 240-41 (Tex. 2001) (Owen, J., concurring). To sustain a facial challenge, the party must show that the statute, by its terms, always operates unconstitutionally. Id. To sustain an as-applied challenge, the party must show that the statute is unconstitutional when applied to that particular person or set of facts. Id.

1. The provision of article 5.26-1 that sets out the proof requirement for rate reviews is unconstitutional on its face.

Appellants contend that, when considering the insurance code as a whole, article 5.26-1 can be construed to operate constitutionally and that the trial court therefore erred in finding that the provision is facially unconstitutional. State Farm Lloyds had challenged the constitutionality of the statute on the basis that it allowed the commissioner to impose confiscatory rates.
Regulated companies are constitutionally protected from confiscatory rate orders. A government-set rate must allow a regulated company to not only recover its operating expenses, but also to realize reasonable returns on its investments sufficient to assure confidence in the continued financial integrity of the enterprise. Duquesne Light Co. v. Barasch, 488 U.S. 299, 307 (1989); Railroad Comm'n v. Houston Natural Gas Corp., 289 S.W.2d 559, 572 (Tex. 1956). A rate that does not allow for a reasonable rate of return is confiscatory and unconstitutional. Jersey Cent. Power & Light Co. v. Federal Energy Regulatory Comm'n, 810 F.2d 1168, 1181 (D.C. Cir. 1987). Section 4 of article 5.26-1 provides that "the burden of proof is on the insurer to show, by clear and convincing evidence, that the rate reduction specified by the department would produce inadequate rates." Tex. Ins. Code Ann. art. 5.26-1, § 4. A rate is inadequate if it is "insufficient to sustain projected losses and expenses to which the rate applies, and continued use of the rate endangers the solvency of an insurer using the rate," or if the rate "has the effect of substantially lessening competition or creating a monopoly within any market." Id. art. 5.142, § 2(b)(2).

Rather than allowing for a reasonable rate of return on investments, article 5.26-1 only safeguards an insurer from rates that could lead to insolvency. While other provisions of the insurance code comport with the constitutional prohibition on confiscatory rates, providing, for example, that rates must be "just," "fair," "reasonable," "adequate," "not confiscatory," and "not excessive," see id. arts. 1.02(b), 5.26-1, § 2 (West Supp. 2004-2005 & Supp. 2005), the commissioner is not required to apply constitutional standards when conducting an article 5.26-1 rate review. Article 5.26-1 instead requires the commissioner to approve potentially confiscatory rates, absent clear and convincing evidence that such rates would lead to insolvency. We note, however, that rates can be confiscatory without necessarily leading to insolvency. Thus, the proof provision set out in section 4 of article 5.26, by allowing for the imposition of confiscatory rates, fails to provide regulated companies with a constitutionally adequate review of government-set rates. We therefore hold that the proof provision is unconstitutional on its face. (2) See Guaranty Nat'l Ins. Co. v. Gates, 916 F.2d 508, 512 (9th Cir. 1990) (declaring a statute unconstitutional for its failure to provide a mechanism to guarantee a constitutionally required fair and reasonable return to a regulated insurer).

2. Article 5.26-1 was unconstitutional as applied to State Farm Lloyds.

Appellants next assert that even if section 4 of article 5.26-1 is unconstitutional on its face, the rate order is valid because the commissioner did not require State Farm Lloyds to meet the unconstitutional proof requirement at the hearing. Citing evidence to the contrary, State Farm Lloyds argues that the unconstitutional proof provision was applied throughout the rate-reduction appeal and that the commissioner's decision following the rate hearing was based on this unconstitutional proof provision.

The record establishes that, when TDI initially notified State Farm Lloyds of its rate reduction, it set out the following proof requirement: "The burden of proof is on the company to show, by clear and convincing evidence, that the rate reduction specified by the department would produce inadequate results." In its notice of hearing, TDI reiterated this proof requirement and also included the language of article 5.142: "A rate is inadequate if the rate is insufficient to sustain projected losses and expenses to which the rate applies, and continued use of the rate: (A) endangers the solvency of an insurer using the rate; or (B) has the effect of substantially lessening competition or creating a monopoly within the market." Likewise, TDI used the same language in its opening statement before the commissioner at the merits hearing. Further, in its final order, the commissioner referred to the "inadequate" proof provision, concluding in finding of fact 25 that "State Farm did not show by clear and convincing evidence that the rate reduction specified by the Department would produce inadequate results." Thus, the evidence establishes that this unconstitutional standard--rather than some other constitutional standard--was applied by the commissioner in upholding TDI's rate determination. We hold that article 5.26-1 was unconstitutional as applied to State Farm Lloyds.

3. Severability

The parties have challenged no other provision, and we have neither addressed nor found constitutional infirmities in the remainder of the statute. (3) Because we determine that the unconstitutional "inadequate" proof provision of article 5.26-1 is severable, we are compelled to strike only the proof provision and to uphold the remainder of the statute.
When a part of a statutory scheme is unconstitutional, a court should--where possible--sever out the unconstitutional aspects and save the balance of the scheme. Tex. Gov't Code Ann. § 311.032 (West 2005); Cash Am. Int'l, Inc. v. Bennett, 35 S.W.3d 12, 22-23 (Tex. 2000) (Owen, J., dissenting); Commission for Lawyer Discipline v. Benton, 980 S.W.2d 425, 441 (Tex. 1998).

According to Texas law on severability:

(a) If any statute contains a provision for severability, that provision prevails in interpreting that statute.
(b) If any statute contains a provision for nonseverability, that provision prevails in interpreting that statute.
(c) In a statute that does not contain a provision for severability or nonseverability, if any provision of the statute or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the statute that can be given effect without the invalid provision or application, and to this end the provisions of the statute are severable.
Tex. Gov't Code Ann. § 311.032.

In Rose v. Doctors Hospital, 801 S.W.2d 841, 844 (Tex. 1990), the Court restated the test for severability:

When, therefore, a part of a statute is unconstitutional, that fact does not authorize the courts to declare the remainder void also, unless all the provisions are connected in subject-matter, dependent on each other, operating together for the same purpose, or otherwise so connected in meaning that it cannot be presumed the legislature would have passed the one without the other. The constitutional and unconstitutional provisions may even be contained in the same section, and yet be perfectly distinct and separable, so that the first may stand though the last fall. The point is not whether they are contained in the same section, for the distribution into sections is purely artificial; but whether they are essentially and inseparably connected in substance. If, when the unconstitutional portion is stricken out, that which remains is complete in itself, and capable of being executed in accordance with the apparent legislative intent, wholly independent of that which was rejected, it must stand. (quoting Western Union Tel. Co. v. State, 62 Tex. 630, 634 (1884)).

The goal of severability is to retain the valid portions and applications of a statute whenever possible. Id. These severability directives also reflect our case law's reminder that "in the construction of statutes, if it can be lawfully done, it is the duty of the court to construe a statute so as to render it valid." Sharber v. Florence, 115 S.W.2d 604, 606 (Tex. 1938). (4)
Where severability is permissible, the unconstitutionality of one part of a statute should not invalidate the entire statute unless the unconstitutional provision is not separable from the remainder. Benton, 980 S.W.2d at 441-42; see also Harris County Water Control & Improvement Dist. No. 39 v. Albright, 263 S.W.2d 944, 947 (Tex. 1954); Black v. Dallas County Bail Bond Bd., 882 S.W.2d 434, 437 (Tex. App.--Dallas 1994, no writ) ("An invalid provision does not void any remaining provisions that we can give effect to after deleting the contaminated provision."). (5)

Here, in adopting SB 14, the legislature included a provision for severability:
If any provision of this Act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this Act that can be given effect without the invalid provision or application, and to this end the provisions of this act are declared to be severable. Tex. Ins. Code Ann. art. 22, § 22.03 (West Supp. 2004-2005).

As severability is an inquiry into legislative intent, Minnesota v. Mille Lacs Band of Chippewa Indians, 526 U.S. 172, 191 (1999), we are guided by the legislature's explicit inclusion of this severability provision. See Tex. Ins. Code Ann. art. 22, § 22.03. According to the legislature's directive, the severability provision will prevail and the invalid statutory provision shall not affect other provisions that can be given effect without the invalid provision. See id.; Tex. Gov't Code Ann. § 311.032(a); Benton, 980 S.W.2d at 441-42.

The provision we have held invalid is the proof provision for a rate-review hearing, which requires insurers to prove "that the rate reduction specified by the department would produce inadequate results." See Tex. Ins. Code Ann. art. 5.26-1, § 4. Despite our removal of the "inadequate" proof provision, several provisions remain that provide guidance to the parties in setting rates and to the commissioner in conducting a rate-review hearing.

Under the insurance code, insurers begin by setting their own rates and filing these rates with TDI. Id. art. 5.26-1, § 2(a); art. 5.142, § 4(a); art. 5.13-2, § 5(a). Depending on which provision applies, the insurer may be allowed to immediately begin using those rates, see id. art. 5.13-2, § 5(a), or may be required to await TDI's approval of those rates, see id. art. 5.142, § 4(a). In setting these rates, insurers are guided by statutory rating criteria. See id. art. 5.142, § 3. These statutory guidelines require the insurer to consider:

(1) past and prospective loss experience inside this state, and outside this state if the state data are not credible;
(2) the peculiar hazards and experiences of individual risks, past and prospective, inside and outside the state;
(3) the insurer's historical premium, exposure, loss, and expense experience;
(4) catastrophe hazards within this state;
(5) operating expenses, excluding disallowed expenses;
(6) investment income;
(7) a reasonable margin for profit; and
(8) any other relevant factors inside and outside this state.
Id.

These guidelines specifically direct the insurer to consider a reasonable margin for profit in setting its rates. Id. Furthermore, the insurer is directed to base its rates on its own historical premium and loss data, as well as its own data for expenses and for profit and contingency factors. Id. § 3(e).

The insurer is further instructed that rates must not be "excessive, inadequate, unreasonable, or unfairly discriminatory for the risks to which they apply." Id. § 3(d). Articles 5.142 and 1.02 provide the following definitions of "excessive," "inadequate," and "unfairly discriminatory":
[A] rate is:

(1) excessive if the rate is likely to produce a long-term profit that is unreasonably high in relation to the insurance coverage provided;
(2) inadequate if the rate is insufficient to sustain projected losses and expenses to which the rate applies, and continued use of the rate:
(A) endangers the solvency of an insurer using the rate; or
(B) has the effect of substantially lessening competition or creating a monopoly within any market; or
(3) unfairly discriminatory if the rate:
(A) is not based on sound actuarial principles;
(B) does not bear a reasonable relationship to the expected loss and expense experience among risks; or
(C) is based in whole or in part on the race, creed, color, ethnicity, or national origin of the policyholder or insured.
Tex. Ins. Code Ann. arts. 1.02(c), 5.142(b). (6)

These definitions not only define an inadequate rate as one that "endangers the solvency of an insurer using the rate," but they also set out additional rating criteria, including the parameters for a permissible level of long-term profit, which cannot be "unreasonably high in relation to the insurance coverage provided." (7) Id.

Reading the statute as a whole and considering article 5.26-1 in light of articles 5.142 and 1.02, the parties are provided with detailed guidance for setting a rate, and the commissioner is given detailed standards for approving or disapproving a filed rate. The unconstitutional "inadequate" proof provision can be severed without requiring "the court to write words into the statute, to leave gaping loopholes in the statute, or to foresee which of many different possible ways the legislature might respond to the constitutional objections." See Randall v. Sorrell, 548 U.S. 230, ___, 126 S. Ct. 2479, 2500 (2006). Having severed this unconstitutional "inadequate" provision, we conclude that the remainder of the statute comports with constitutional standards for setting insurance rates, which require that the insurer be permitted to earn a reasonable profit.
In so holding, we note the consistency between our decision in this case and the solution crafted by the California Supreme Court when faced with a similarly imperfect statutory provision aimed at reducing skyrocketing car insurance rates in California. See Calfarm Ins. Co. v. Deukmejian, 771 P.2d 1247 (Cal. 1989). The statute passed by the California legislature, Proposition 103, contained a rate-adjustment mechanism that the insurers argued would preclude relief from confiscatory rates. See id. at 1250. Like the statute at issue here, Proposition 103 provided that "rates and premiums reduced . . . may be only increased if the commissioner finds, after a hearing, that an insurer is substantially threatened with insolvency." Id. at 1253. According to the California Supreme Court, such wording violates the constitutional standard of a fair and reasonable return. Id. The provision was therefore held to be invalid under the due process clause of the California Constitution and the United States Constitution. Id. at 1256.

Having determined that the statute's "insolvency standard" was unconstitutional, the court then turned to the issue of severability. Id. Proposition 103 contained a severability clause much like the one in the Texas Insurance Code. As the court discussed in Calfarm, California case law provides three criteria for severability: the invalid provision must be grammatically, functionally, and volitionally separable. See Santa Barbara Sch. Dist. v. Superior Court, 530 P.2d 605, 617-18 (Cal. 1975). Applying these criteria to the provision in question, the court found the section containing the insolvency standard to be "clearly severable." Calfarm, 771 P.2d at 1256. The court determined that the provision was grammatically severable because it could be removed without affecting the wording of any other provision. Id. It was also functionally severable because its removal would merely eliminate an exception to the general rate-setting standard of the statute, which would otherwise operate unobjectionably. Id. Finally, the provision was volitionally severable because the remainder of the statute would likely have been adopted even if the invalidity of the insolvency standard had been foreseen; the voters "would presumably prefer rate setting and regulation under the balance of the initiative to the method of setting insurance rates which existed before the initiative was enacted." Id.

As the Calfarm court explained, the invalidation and severance of the provision at issue "leaves untouched the general standard for rate adjustment," which states that no "rate shall be approved or remain in effect which is excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter." Id. Similarly, in the present case, the invalidation and severance of the provision requiring insurers to prove that the rate reduction specified by TDI would produce inadequate results has no effect on the general standard for rate review. As discussed above, the statute provides that "[a]n approved or modified rate . . . must be just, reasonable, adequate, not excessive, and not unfairly discriminatory for the risks to which it applies." Tex. Ins. Code Ann. art. 5.26-1, § 2(b). Further, given the crisis in the insurance market, the legislature would likely have adopted provisions for rate regulation with or without the sentence in question that sets out the proof requirement. See Calfarm, 771 P.2d at 1256.

Because we have held that the proof provision is unconstitutional and must be severed, we conclude that, under the remaining, valid provisions of article 5.26-1, an insurer must show by clear and convincing evidence that a rate filed under article 5.26-1 is "just, reasonable, adequate, not excessive, and not unfairly discriminatory for the risks to which it applies," which means that the rate must allow for a "reasonable profit," but not one that is "unreasonably high in relationship to the insurance coverage provided." See Tex. Ins. Code Ann. art. 5.26-1, § 2(b), art. 5.142, §§ 2(b)(1-3), 3(d), art. 1.02(c)(1-3).

Due Process

In their next argument, appellants contend that, despite the expedited proceedings required by article 5.26-1, the proceedings under article 5.26-1 met all procedural due process requirements. In response, State Farm Lloyds argues that, because appellants refused to comply with the APA and TDI's own rules, State Farm Lloyds's due process rights were violated.
In administrative proceedings, due process requires that parties be afforded a full and fair hearing on disputed fact issues. City of Corpus Christi, 51 S.W.3d at 262 (Tex. 2001); Office of Pub. Util. Counsel v. Public Util. Comm'n, 185 S.W.3d 555, 576 (Tex. App.--Austin 2006, pet. denied). The ultimate test of due process of law in an administrative hearing is the presence or absence of rudiments of fair play. State v. Crank, 666 S.W.2d 91, 94 (Tex. 1984). Although administrative hearings need not "measure up to judicial standards," agencies cannot be arbitrary or inherently unfair. Office of Pub. Util. Counsel, 185 S.W.3d at 576.
We hold that State Farm Lloyds's due process rights were violated by (1) the unconstitutional proof requirement, (2) appellants' failure to apply the APA, and (3) appellants' failure to fulfill certain requirements of due process.

1. Unconstitutional proof requirement

Because we have determined that the commissioner applied an unconstitutional proof requirement at the rate-review hearing, we hold that State Farm Lloyds was denied due process in this proceeding.

2. Application of the APA

The parties dispute the applicability of the APA to an article 5.26-1 rate-review hearing. According to appellants, because article 5.26-1 does not specifically provide that the APA applies and because article 5.26-1 hearings are to be conducted by the commissioner rather than by the State Office of Administrative Hearings ("SOAH"), the APA cannot apply to an article 5.26-1 rate-review hearing. State Farm Lloyds contends that the APA applies to each provision of the insurance code unless specifically exempted. Because no specific exemption exists in article 5.26-1, it argues, the APA must apply to an article 5.26-1 rate-review hearing.

In determining legislative intent, courts are required to read statutes as a whole and interpret
them to give effect to every part. City of San Antonio v. City of Boerne, 111 S.W.3d 22, 25 (Tex. 2003). The 2003 changes to the system of insurance regulation were implemented in three phases by articles 5.26-1, 5.142, and 5.13-2. For each of the three phases, the legislature set out certain procedures. For initial rate filings, the legislature provided that hearings would be conducted by the commissioner, not by SOAH. Tex. Ins. Code. Ann. art. 5.26-1, § 4. No specific provision was made for the application of the APA to an article 5.26-1 rate-review hearing. For the second phase of implementation, rates were to be filed and pre-approved by the commissioner under article 5.142. Article 5.142 specifically provided that chapter 2001 of the government code was to apply to all article 5.142 rate-review hearings. Id. art. 5.142, § 11. Although, as under article 5.26-1, the commissioner was to conduct the hearing, the commissioner was specifically instructed to do so under the APA. Id. art. 5.142, § 9. Finally, article 5.13-2, which established the permanent file-and-use system, specifically provided that the APA was to apply to all article 5.13-2 rate-review hearings.

In determining legislative intent as to the APA's applicability, we acknowledge the time constraints that the legislature imposed for conducting an article 5.26-1 initial rate filing and rate-review hearing. (8) We further consider that, while the legislature made no specific provision for the APA's application to an article 5.26-1 rate-review hearing, the legislature specifically provided that the APA would apply to rate-review hearings under articles 5.142 and 5.13-2. If the general provisions of the insurance code regarding the general applicability of the APA applied to articles 5.26-1, 5.142, and 5.13-2, then the specific provision for application of the APA in articles 5.142 and 5.13-2 would have been unnecessary and redundant. Thus, we conclude that the legislature did not intend that the APA apply to a 5.26-1 rate-review hearing.
In the present case, however, even though not required by statute, TDI opted to apply the APA by noticing the hearing under both the APA and its own rules for contested case hearings. By giving notice to State Farm Lloyds that the hearing was to be conducted under the APA, the department was required to conduct the hearing as noticed. Although bound to apply the APA by its own notice of hearing, the department failed to do so. By noticing the hearing under the APA and then failing to apply it, appellants denied State Farm Lloyds the due process to which it was entitled.

3. Due process requirements

Even if TDI had not noticed the hearing under the APA and was, therefore, not required to comply with it, appellants were required to conduct the hearing so that State Farm Lloyds was afforded due process. In an administrative hearing, due process means that parties be afforded a full and fair hearing on disputed fact issues. City of Corpus Christi, 51 S.W.3d at 262; Office of Pub. Util. Counsel, 185 S.W.3d at 576. The basic elements of due process at the agency level are notice, hearing, and an impartial trier of facts. Texas Dep't of Pub. Safety v. Monroe, 983 S.W.2d 52, 56 (Tex. App.--Houston [14th Dist.] 1998, no pet.). A full and fair hearing includes the right to cross-examine adverse witnesses and to present and rebut evidence. City of Corpus Christi, 51 S.W.3d at 262.

a. Impartial decision maker

State Farm Lloyds argues that its due process rights were violated because the decision maker was biased, citing evidence that the commissioner made a public statement concerning the disposition of State Farm Lloyds's rate determination prior to the hearing. Appellants maintain that due process permits the commissioner to take a public view on the matter, even before hearing, as long as he is "capable of judging a particular controversy fairly on the basis of its own circumstances." See Hortonville Joint Sch. Dist. v. Hortonville Educ. Ass'n, 426 U.S. 482, 493 (1976).

We begin with the presumption that decision makers are unbiased. Hammack v. Public Util. Comm'n, 131 S.W.3d 713, 731 (Tex. App.--Austin 2004, pet. denied). To overcome that presumption, State Farm Lloyds must show that the commissioner's mind was "irrevocably closed" to the matter before him so that he was incapable of impartially judging the evidence and testimony to be presented at the hearing. Id.

State Farm Lloyds has failed to meet this burden. In support of its claim, it cites to one conversation between the commissioner and a reporter. The reporter asked the commissioner if he believed that TDI had incorrectly determined that the rates filed by State Farm Lloyds were unreasonable; the commissioner responded, "No." Based on this evidence, State Farm Lloyds concludes that the commissioner prejudged the outcome of the case because he admitted before the hearing that he believed his staff's determination was correct, although he had not yet seen the evidence or heard the testimony of State Farm Lloyds. We presume that, despite communicating what he believed to be the correct disposition before the hearing, the commissioner was still able to hear all the testimony and evidence and make an impartial decision. "It is well established that absent a showing of incapability to decide a particular controversy fairly, an administrative officer is not disqualified simply because he or she has previously taken a position, even in public, on a policy issue related to a particular dispute." Texas Utils. Elec. Co. v. Public Util. Comm'n, 881 S.W.2d 387, 392 (Tex. App.--Austin 1994), rev'd in part on other grounds, 935 S.W.2d 109 (Tex. 1996) (citing United States v. Morgan, 313 U.S. 409, 421 (1941)). We recognize that, having prepared in advance for hearings, and based on information learned in their preparations, most decision makers have some notion of how they will decide a case. This is no evidence that those decision makers do not carefully review and weigh the evidence and testimony as presented; it simply means they were prepared. State Farm Lloyds has presented no evidence to show that the commissioner did not properly listen to, consider, and weigh the evidence presented before making his final decision.

b. Full and fair hearing

State Farm Lloyds argues that it was denied a full and fair hearing because appellants denied it the discovery to which it was entitled under the APA and under TDI's discovery rules. We have concluded that, because TDI noticed the hearing under both the APA and its own discovery rules, the department was bound to abide by them.

Because we have found that the APA and TDI's rules for contested cases applied to the rate-
review hearing, we agree with State Farm Lloyds that appellants violated both sets of rules in denying State Farm Lloyds the discovery to which it was entitled. Both the APA and TDI's own rules provide for broad discovery consistent with the directives of the Texas Rules of Civil Procedure. See Tex. Gov't Code Ann. § 2001.091; 28 Tex. Admin. Code § 1.82. State Farm Lloyds requested discovery pursuant to TDI's rules of practice and procedure. See 28 Tex. Admin. Code § 1.82. Although appellants argue that they substantially complied with the APA and with TDI's own rules, they concede that State Farm Lloyds was permitted only one brief, one-and-a-half-hour deposition of only one of TDI's two experts. TDI refused to produce for deposition any of its employees with knowledge of relevant facts about TDI's rate-adjustment determination, denied all of State Farm Lloyds's requests for documents and interrogatories, and withheld the workpapers and exhibits of its testifying expert until after State Farm Lloyds prefiled its direct case. By refusing all discovery except for one strictly limited deposition of one of its experts, appellants violated the discovery provisions of both the APA and TDI's own rules, which allow for broad, party-initiated discovery. See id.; Tex. Gov't Code Ann. § 2001.091.
Even if TDI had not noticed the hearing under the APA, appellants would still have been required to comply with TDI's own rules for contested case hearings. TDI's procedural rules apply to "any matter within the jurisdiction of the board, the commissioner or the fire marshal." 28 Tex. Admin. Code § 1.1. Except as otherwise specifically provided, TDI's procedural rules "govern the procedure for the institution, conduct, and determination of proceedings before the board, the commissioner, or the fire marshal." Id. As already explained, TDI's rules provide for broad, party-initiated discovery consistent with the Texas Rules of Civil Procedure. Id. § 1.82. Thus, even if the APA did not apply, TDI's rules of procedure would have required that it allow State Farm Lloyds to conduct its requested discovery. The requested discovery would have been possible even under the time constraints of an article 5.26-1 rate-review hearing, as TDI's rules permit the hearings officer to shorten or lengthen the discovery response times as the interest of justice requires. Id. § 1.84.

We hold that State Farm Lloyds was denied a full and fair hearing because it was denied the discovery it requested, discovery that should have been permitted under both the APA and TDI's own rules of procedure. Even if the hearing had not been noticed under the APA and the APA had not applied, TDI would have been required to comply with its own rules of procedure, which apply to all matters within its jurisdiction and, like the APA, allow for broad, party-initiated discovery.

c. APA's requirements for evidentiary findings

State Farm Lloyds contends that the commissioner's final order violates the APA's requirement that "findings of fact, if set forth in statutory language, must be accompanied by a concise and explicit statement of the underlying facts supporting the findings." See Tex. Gov't Code Ann. § 2001.141(d) (West 2000). As we have concluded, because the hearing was noticed under the APA, the APA is applicable. Although the commissioner's order denying State Farm Lloyds's appeal set out only a single conclusion of law, (9) his order included 25 findings of fact. These 25 findings of fact provided a detailed account of the underlying facts, as required by statute. We conclude that the commissioner's order was consistent with the APA's requirement that the final order "be accompanied by a concise and explicit statement of the underlying facts supporting the findings." See id. (10)

Remand

State Farm Lloyds argues that remand is not appropriate, warranted, or legally authorized because doing so would essentially re-enact the Senate Bill 14 implementation process retrospectively. Because article 5.26-1 prescribed strict deadlines for insurers to make their initial rate filings and for the corresponding rate-review hearings, State Farm Lloyds urges that any further review now that those deadlines have passed must be conducted under the continuing, permanent review process currently in place, "regardless of the outcome of this case." Because State Farm Lloyds's interpretation would lead to an absurd result that the legislature could not have intended, we reject this contention.

The legislature, when it enacted article 5.26-1, made express provision for the expiration of the first phase of the transitional regulatory system. Section 7 of article 5.26-1 states:

(a) This article expires September 1, 2004.
(b) The expiration of this article does not affect an action or proceeding against an insurer subject to that law for a failure to comply with that law before its expiration, regardless of when the action or proceeding was commenced, and that law is continued in effect for that purpose.
Tex. Ins. Code Ann. art. 5.26-1, § 7. In its enactment of this temporary provision, the legislature contemplated that circumstances might arise--as in this case--in which a proceeding would continue past the September 1, 2004 deadline. Because the legislature provided for the continuation of proceedings that were not completed before article 5.26-1's expiration, remand is permissible. Here, because of errors in the original proceeding, including the application of an unconstitutional proof provision and violations of due process, remand is both appropriate and required. See Tex. Gov't Code Ann. § 2001.174 (court reviewing a contested case "shall reverse or remand the case for further proceedings"); First Sav. & Loan Ass'n of Del Rio v. Lewis, 512 S.W.2d 62, 64 (Tex. Civ. App.--Austin 1974, writ ref'd n.r.e.) ("In general, it may be said that if the reviewing court finds error in the agency order, it may remand the case to the agency for further consideration.").

State Farm Lloyds argues that section 7 is inapplicable here because this is not "an action or proceeding against an insurer subject to that law for a failure to comply with that law before its expiration." Although State Farm Lloyds initiated the appeal, the appeal arose because of TDI's determination that State Farm Lloyds had failed to comply with the statute by filing a rate that did not qualify as "just, reasonable, adequate, not excessive, and not unfairly discriminatory for the risk to which it applie[d]." See Tex. Ins. Code Ann. art. 5.26-1, § 2(b). Further, article 5.26-1 makes no other provision for TDI to initiate "an action or proceeding against an insurer . . . for a failure to comply with the law" other than the appeal and hearing provisions, which, although initiated by the insurer, arise because of TDI's disapproval of the insurer's filed rate. See id. Section 7(b) would have no application under article 5.26-1 if it did not apply to an insurer-initiated rate-review hearing. We also recognize that the legislature contemplated continued proceedings of an article 5.26-1 rate-review hearing beyond final disposition of the appeal.

Section 6 provides:

If on final appeal the court upholds the commissioner's determination that the insurer's rates are excessive, the insurer shall refund the difference in overcharged premium to each policy holder, plus interest. Tex. Ins. Code Ann. art. 5.26-1, § 6.

If article 5.26-1 became inoperable after the September 1, 2004 expiration date, then no refund could be had and section 6 of article 5.26-1 would be meaningless. Indeed, if a pending proceeding under article 5.26-1 could not proceed past the September 1, 2004 expiration date, the appeal itself would be essentially moot after September 1, 2004, because the insurer, who is authorized to charge its filed rates during the appeal, would face no consequences if it lost the appeal. If article 5.26-1 were inoperable in the manner suggested by State Farm Lloyds, the insurer could not issue refunds even if--on final disposition--the court found its rates to be excessive. Such a result would render the appeal provisions of the statute meaningless, a result that we conclude the legislature did not intend. See Lowe v. Rivera, 60 S.W.3d 366, 369 (Tex. App.--Dallas 2001, no pet.) (stating that statutes should not be construed in a manner that leads to absurd results).

Because we conclude that the legislature intended article 5.26-1 to continue in effect to the final conclusion of all pending cases, including appeal and remand, and that, to effectuate such intent the legislature intended section 7(b) apply to an article 5.26-1 rate-review hearing, we hold that remand is permissible and authorized where there was an error in the proceedings. (11) See First Sav. & Loan Ass'n of Del Rio, 512 S.W.2d at 64.

CONCLUSION

Because we conclude that the portion of section 4 of article 5.26-1 setting out the insurer's proof requirement is unconstitutional on its face and as applied to State Farm Lloyds and that State Farm Lloyds was denied constitutionally adequate review of TDI's rate order, we affirm the judgment of the trial court as to the insurer's proof requirement and as to due process. We sever the unconstitutional provision requiring an insurer to prove that a rate reduction by TDI would produce inadequate rates, reverse the trial court's judgment as to the constitutionality of the remainder of the statute, and remand to the department for further proceedings consistent with this opinion.
__________________________________________
Diane Henson, Justice
Before Chief Justice Law, Justices Waldrop and Henson
Affirmed in part; Reversed and Remanded in part
Filed: May 22, 2008

1. We substitute Mike Geeslin, in his official capacity, as successor to Jose Montemayor, Commissioner of Insurance. See Tex. R. App. P. 7. Because their interests do not diverge, we refer to appellants collectively, but, when necessary in recounting historical facts, we distinguish between the actions of the commissioner and TDI.
2. Appellants argue that the final order was non-confiscatory and, therefore, even if the proof provision was unconstitutional, the order should be upheld. We disagree. Even if the record evidence shows that the rate order allows State Farm Lloyds the opportunity for a reasonable rate of return, the order is void. An unconstitutional statute is void and cannot provide a basis for any right or relief. City of San Antonio v. Summerglen Prop. Owners Ass'n, 185 S.W.3d 74, 88 (Tex. App.--San Antonio 2005, pet. denied). Any order that is based on a void statute is likewise void. See id. No additional examination of the end result is necessary.
3. We emphasize that our holding today declares only one aspect of the proof provision to be unconstitutional and leaves intact the "clear and convincing" burden-of-proof provision in former article 5.26-1. The legislature's intent in this regard was twofold, as it clearly sought to (1) place the burden of proof on the insurer, and (2) implement the higher evidentiary standard of "clear and convincing" evidence, rather than a mere preponderance. In the first respect, the legislature's actions are consistent with the regulatory scheme adopted for utilities rate cases, which places the burden of proof on the utility to show that, depending on the circumstances, the proposed rate change is just and reasonable or the existing rate is just and reasonable. See Tex. Util. Code Ann. §§ 36.006 (West 2007) (electric utilities), 53.006 (West 2007) (public utilities), 104.008 (gas utilities) (West 2007).
Furthermore, the legislature sought to place a high burden on the insurer to show why its rate--rather than TDI's reduced rate--should be approved. Ordinarily, the clear-and-convincing standard is applied in civil matters only in extraordinary circumstances, such as civil commitment hearings or the involuntary termination of parental rights. See, e.g., Tex. Health & Safety Code Ann. § 574.034(a) (West 2003) (civil commitment); Tex. Fam. Code Ann. § 161.001 (West Supp. 2007) (termination of parental rights); see also Ellis County State Bank v. Keever, 888 S.W.2d 790, 792 (Tex. 1994). Where the burden of proof for a contested case is undefined or unclear, we have applied the general civil standard of a preponderance of the evidence because contested cases are civil in nature. See Southwestern Pub. Serv. Co. v. Public Util. Comm'n, 962 S.W.2d 207, 213 (Tex. App.--Austin 1998, pet. denied); Professional Mobile Home Transp. v. R.R. Comm'n, 733 S.W.2d 892, 899 (Tex. App.--Austin 1987, writ ref'd n.r.e.); Beaver Express Serv., Inc. v. R.R. Comm'n, 727 S.W.2d 768, 775 n.3 (Tex. App.--Austin 1987, writ denied).
Here, however, the legislature has expressly required that initial rate hearings be conducted under the clear-and-convincing standard, most likely motivated by its desire to effectively and expeditiously address the insurance-rate crisis and require that initial rates be established and approved within a short time frame. Moreover, under the statute, rates are to be determined by company-specific historical data, see Tex. Ins. Code Ann. art. 5.142, § 3(e), which are in the possession and control of the insurers.
4. As noted above, in the absence of a nonseverability provision, the legislature has demonstrated a preference for severability, instructing courts to preserve valid provisions of a statute wherever possible. Tex. Gov't Code Ann. § 311.032 (West 2005).
5. On the other hand, we must avoid severing a provision if it would require the court to write words into the statute, to leave gaping loopholes in the statute, or to foresee which of many different possible ways the legislature might respond to the constitutional objections we have found. Randall v. Sorrell, 548 U.S. 230, ___, 126 S. Ct. 2479, 2500 (2006).
6. Definitions adopted under article 5.142 apply to article 5.26-1. Tex. Ins. Code Ann. art. 5.26-1, § 1(b) (West Supp. 2004-2005). Article 1.02 was also added by SB 14, which created the three-stage process for regulating the rates of homeowners insurance companies.
7. Although the insurance code further instructs that rates must not be "unreasonable," neither an "unreasonable" nor a "reasonable" rate is explicitly defined. In setting out its rating criteria in article 5.142, the legislature twice referenced the term reasonable: rates must allow for a "reasonable" margin for profit, Tex. Ins. Code Ann. art. 5.142, § 3(b)(7) (West Supp. 2004-2005), and a rate must bear a "reasonable" relationship to the expected loss and expense experience among risks, id. § 2(3)(B). Words not defined in a statute are given their plain meaning, read in context, and construed according to the rules of grammar and common usage. Tex. Gov't Code Ann. § 311.011(a) (West 2005); Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865 (Tex. 1999). "Reasonable" is defined as "fair, proper, or moderate under the circumstances." Black's Law Dictionary 1272 (7th ed. 1999).
8. Insurers were required to file their initial regulated rates with TDI within twenty days of the effective date of SB 14, June 11, 2003, and to implement the rates immediately. Tex. Ins. Code Ann. art. 5.26-1, § 2(a). Within forty days of the filing deadline, TDI was required to review and either approve or modify the initial rates. Id. art. 5.26-1, § 2(b).
9. The commissioner's single conclusion of law stated: "Based upon the evidence admitted and reviewed by the Commissioner, it is the Commissioner's opinion that the rate reduction recommended by the Department will produce adequate base rates for State Farm."
10. Although we address this issue as part of the parties' due process argument, we note that, on remand, the wording of this original order will have no bearing on the case. Further, whether the APA even applies will depend on how the hearing is noticed by TDI.
11. We recognize that, after the case was initially heard, the commissioner made several findings of fact as to the reasonableness, adequacy, and excessiveness of the rates:
17. The modified rate determined by the Department is reasonable.
18. The modified rate determined by the Department is adequate.
20. The modified rate determined by the Department is not excessive.
22. The modified rate determined by the Department is not inadequate, as defined by art. 5.142(b)(2).
Because of the confusion as to the proof provision, which we have declared unconstitutional, and because we have concluded that State Farm Lloyds was not afforded due process, the commissioner's findings of fact no longer have any meaning. Only after the proper proof requirement is applied and after State Farm Lloyds is given due process as set out in this opinion will the commissioner be able to provide a meaningful assessment of the reasonableness, adequacy, and excessiveness of the rates at issue.

HCLC: Untimely filing of expert report results in dismissal, court of appeals affirms

Ruth Prestwood, Kate Wilson, both Individually and on behalf of The Estate of Clyde L. Prestwood v. Stephen Settle, M.D., No. (Tex.App.- Austin, Feb, 28, 2008)(Opinion by Justice Henson) (medical malpractice suit dismissed, untimely expert report, 120-day period starts running at filing, attorney's fees to defendant) (Before Justices Patterson, Puryear and Henson)
Appeal from 201st District Court of Travis County

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT
NO. D-1-GN-06-002800, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING

M E M O R A N D U M O P I N I O N

Appellants Ruth Prestwood and Kate Wilson, individually and on behalf of the estate of Clyde L. Prestwood (collectively, "Prestwoods"), appeal the trial court's order dismissing their health care liability suit against Dr. Stephen Settle, M.D., and awarding Dr. Settle attorney's fees. The trial court found that the Prestwoods failed to serve an expert report and curriculum vitae within the prescribed 120-day period under chapter 74 of the civil practice and remedies code, mandating dismissal of their suit and the award of reasonable attorney's fees to the affected health care provider. See Tex. Civ. Prac. & Rem. Code Ann. § 74.351(a), (b) (West Supp. 2007). Because we conclude that dismissal was required and that the attorney's fee award was reasonable, we affirm the judgment of the trial court.

BACKGROUND

The relevant facts of this case are not in dispute. The Prestwoods filed a medical-malpractice suit against Dr. Settle on August 3, 2006, alleging that he negligently performed an aortic-aneurysm repair on Clyde Prestwood, resulting in complications that proximately caused Mr. Prestwood's death. (1) Their suit was a health care liability suit governed by chapter 74 of the civil practice and remedies code. See id. §§ 74.001-.507 (West 2005 & Supp. 2007). Under chapter 74, the Prestwoods were required to serve Dr. Settle with copies of an expert report and their expert's curriculum vitae within 120 days of filing suit. See id. § 74.351(a) (West Supp. 2007). (2) The statute further provides that if the claimant fails to serve an expert report and curriculum vitae within the 120-day period, then the trial court, on the motion of the affected physician or health care provider, shall award to the affected physician or health care provider reasonable attorney's fees and dismiss the claim with prejudice. Id. at § 74.351(b).

The parties agree that the 120-day deadline was December 1, 2006, and that this date, a Friday, was neither a weekend nor a legal holiday. (3) The Prestwoods first served Dr. Settle with their expert reports and curricula vitae on December 4, 2006, which was 123 days after they filed their original petition.

On January 3, 2007, Dr. Settle filed a motion to dismiss the Prestwoods' suit with prejudice and sought reimbursement for his attorney's fees and costs. In response, the Prestwoods asserted that rules 4, 8, and 21a of the Texas Rules of Civil Procedure required the addition of three days to the 120-day service period, making the service of their expert reports and curricula vitae on the defendant timely. (4) See Tex. R. Civ. P. 4, 8, 21a.

Alternatively, the Prestwoods argued that section 74.351 is unconstitutional for its "overbreadth" and vagueness, that the mandatory-dismissal provision violated their due process rights under the federal and Texas constitutions, and that enforcing the 120-day period, rather than the 123-day period purportedly allowed by the rules of civil procedure, would result in a denial "of open access to this Court's processes."

A hearing on Dr. Settle's motion took place January 29, 2007. After the trial court orally granted the motion to dismiss for failure to timely serve the expert reports, counsel for Dr. Settle offered sworn testimony on the issue of reasonable attorney's fees; he testified regarding his qualifications, the rates charged by attorneys who specialize in defending physicians and health care providers, and the amount of time he had spent on matters related to the motion. He stated that the typical hourly rate charged by attorneys who specialize in health-liability defense claims is between $180 and $250 per hour and that $1,000 was a reasonable fee in this case, based on the four hours he had spent in preparing for the hearing and "returning," apparently referring to the time he had spent commuting from San Antonio for the hearing. On cross-examination, he testified that the hourly rate he was actually billing his client in this case was only $175 per hour and clarified that he was in fact charging for the travel time between his office in San Antonio and the Travis County courthouse.

After the hearing, the trial court entered an order granting Dr. Settle's motion to dismiss with prejudice and awarding him $800 in attorney's fees. Among its findings of fact and conclusions of law, the trial court determined that (1) appropriate application of the law required the court to dismiss the Prestwoods' claims with prejudice and to award reasonable attorney's fees to the defendant; (2) Rule 21a of the Texas Rules of Civil Procedure is not applicable to the specific facts of this case; (3) counsel for Dr. Settle had presented competent evidence of his attorney's fees; and (4) the amount of $800 in attorney's fees was reasonable and justified.

In their first issue on appeal, the Prestwoods argue that the trial court abused its discretion in awarding attorney's fees to Dr. Settle because the evidence was factually and legally insufficient to support the award. In their second issue, they assert that the trial court abused its discretion in dismissing their suit because it failed to properly calculate the period in which they were required to serve Dr. Settle with their expert reports in light of and in accordance with the Texas Rules of Civil Procedure. Within their second issue, they offer several challenges to the constitutionality of section 74.351, asserting violations of due process, the Open Courts provision of the Texas Constitution, and the doctrine of separation of powers.

ANALYSIS

A logical discussion of the issues raised in this appeal requires us to first address the Prestwoods' second point of error regarding the trial court's dismissal of their suit. Chapter 74 of the civil practice and remedies code provides that, in order to pursue a health care liability claim, a party must serve an expert report and the curriculum vitae of each expert listed in the report "not later than the 120th day after the date the original petition was filed." Tex. Civ. Prac. & Rem. Code Ann. § 74.351(a) (West Supp. 2007). Furthermore, if an expert report is not filed within the 120-day period, the court, on the motion of the affected physician or health care provider, shall enter an order that:

(1) awards to the affected physician or health care provider reasonable attorney's fees and costs of court incurred by the physician or health care provider; and
(2) dismisses the claim with respect to the physician or health care provider, with prejudice to the refiling of the claim. Id. § 74.351(b).

"If a claimant fails to serve the report with the curriculum vitae on or before the statutory deadline, and the affected physician or health care provider files a motion to dismiss the claim under section 74.351(b), the court has no alternative but to dismiss the claim with prejudice." Herrera v. Seton Nw. Hosp., 212 S.W.3d 452, 457 (Tex. App.--Austin 2006, no pet.).

Dismissal

The Prestwoods argue that the trial court erred in finding that section 74.351(b) of the civil practice and remedies code required dismissal of their suit for failure to serve an expert report and curriculum vitae within 120 days of the filing the original petition.

We review a trial court's ruling on a motion to dismiss under section 74.351(b) for an abuse of discretion. American Transitional Care Ctrs. of Tex., Inc. v. Palacios, 46 S.W.3d 873, 877-78 (Tex. 2001); Apodaca v. Russo, 228 S.W.3d 252, 254 (Tex. App.--Austin 2007, no pet.). A trial court abuses its discretion if it acts in an arbitrary or unreasonable manner or without reference to any guiding rules or principles. Walker v. Gutierrez, 111 S.W.3d 56, 63 (Tex. 2003). When reviewing matters committed to the trial court's discretion, we may not substitute our own judgment for that of the trial court. Id.

It is undisputed that the Prestwoods' expert reports and curricula vitae were not filed within 120 days after their original petition was filed. The Prestwoods argue, however, that the rules of civil procedure require the addition of three days "to any period of time requiring a person to do some act, i.e., Appellants serving Appellee Defendant's counsel with the Expert Reports," thereby making their service of the reports on Dr. Settle timely. Whether the rules of civil procedure operate to extend the 120-day service period prescribed by the civil practice and remedies code is a matter of statutory construction, which we review de novo. See State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006).

The Prestwoods assert that rule 21a, read in conjunction with rules 4, 8, and 21, requires the addition of three days to the computation of time under the 120-day service period of section 74.351. They argue that, once they were served by certified mail with Dr. Settle's answer, special exceptions, and responses to their requests for disclosure, "Defendant's counsel of record essentially gave notice to Plaintiffs . . . that any required service of any pleading or other instrument would necessitate service on Defendant's lead attorney of record." (5) This notice, the Prestwoods argue, "triggered the operation of Texas Rules of Civil Procedure 4, 8, 21 and particularly 21a, clearly mandating the addition of the additional three (3) day period of time within which Plaintiffs could do the act of serving the Expert Reports and corresponding curricula vitae on the Defendant."

Rule 21a of the rules of civil procedure governs methods of service. Tex. R. Civ. P. 21a. It states, in pertinent part:

Whenever a party has the right or is required to do some act within a prescribed period after the service of a notice or other paper upon him and the notice or paper is served upon by mail or by telephonic document transfer, three days shall be added to the prescribed period.
Id. (6)

In this case, the Prestwoods maintain that they were a party "required to do some act within a prescribed period" because they were required to serve Dr. Settle with copies of their expert reports and curricula vitae within 120 days. Additionally, they argue that Dr. Settle's answer, special exceptions, and responses to requests for disclosure, served on them by certified mail, constituted a "notice or paper" that was served "by mail or by telephonic document transfer." Therefore, they contend, three days were required to have been added to the 120-day period.

In calculating what they argue is the correct deadline for serving the expert reports, the Prestwoods note that under rule 4, "Saturdays, Sundays and legal holidays shall be counted for purpose of the three-day periods in Rules 21 and 21a." See Tex. R. Civ. P. 4. Thus, the appropriate deadline under their formulation would have been Monday, December 4, 2006 (the date on which the Prestwoods actually served Dr. Settle with their expert reports and curricula vitae). (7)

In addressing the Prestwood's construction of rule 21a, we note that this Court has previously held that the rules of civil procedure are applicable to health care liability claims and that "the legislature intended for claimants to comply with Texas Rule of Civil Procedure 21a to fulfill the requirements of section 74.351(a)." See Herrera, 212 S.W.3d at 459. (8)

We are not persuaded, however, that when Dr. Settle served his answer, special exceptions, and responses to requests for disclosure on the Prestwoods, the additional-three-day provision in rule 21a was "triggered" in order to extend the Prestwoods' deadline for serving their expert reports. Under section 74.351, the reports became due 120 days after the Prestwoods filed their original petition, not 120 days after anything was served on them by the defendant. See Tex. Civ. Prac. & Rem. Code Ann. § 74.351(a). The service of the defendant's answer, special exceptions, and discovery responses therefore had no bearing on the statutorily determined time period for serving the expert reports. As the trial court explained during the hearing, "if you are going to extend the time period because you received . . . a document, then it must be a document, the receipt of which begins a time period."

We agree with the trial court's interpretation of rule 21a because even if the defendant's answer or discovery responses could be construed as a "notice or other paper" within the meaning of rule 21a, the service of these documents did not begin the 120-day time period mandated by section 74.351. Cf. Lee v. Palo Pinto County, 966 S.W.2d 83, 85-86 (Tex. App.--Eastland 1998, pet. denied) (summary-judgment movant was not "required to do some act within a prescribed period after the service of a notice" and therefore rule 21a did not require that three days be added to the prescribed period).

By its own terms, rule 21a applies when a party "is required to do some act within a prescribed period after the service of a notice or other paper upon him." Tex. R. Civ. P. 21a. It does not mandate the addition of three days whenever a party is required to act "within a prescribed period," but is in fact limited to only those situations where the party's action follows "after," or as a consequence of, "the service of a notice or other paper upon him." See, e.g., Lewis v. Blake, 876 S.W.2d 314, 315 (Tex. 1994) (rule 21a extends rule 166a's minimum-notice requirement for summary-judgment hearing by three days when motion is served by mail); Benger Builders, Inc. v. Business Credit Leasing, Inc., 764 S.W.2d 336, 337-38 (Tex. App.--Houston [1st Dist.] 1988, writ denied) (rule 21a adds three days to timetable for responding to requests for admissions when party is served with requests by mail). Here, no time period was prescribed by the service of a notice upon the Prestwoods; rather, the 120-day period in question was triggered when the Prestwoods filed their original petition. See Tex. Civ. Prac. & Rem. Code Ann. § 74.351(a) ("claimant shall, not later than the 120th day after the date the original petition was filed, serve on each party or the party's attorney one or more expert reports"). (9)

If section 74.351 had been drafted such that a claimant's 120-day period would begin to run once he is served with the defendant physician's answer, for example, then the Prestwoods might have a cognizable claim that rule 21a extends the deadline for serving the expert reports. But section 74.351 contains no such provision, and we decline to adopt an interpretation of rule 21a that would frustrate the legislature's clear mandate to make a claimant's expert reports due 120 days from the date he files his original petition. See Mokkala v. Mead, 178 S.W.3d 66, 74-76 (Tex. App.--Houston [14th Dist.] 2005, no pet.) (discussing legislative history of section 74.351 and noting one purpose was to create "hard and fast deadline" for filing expert reports).

While parties are required to comply with the rules of civil procedure in health care liability suits, including rule 21a, see Herrera, 212 S.W.3d at 460, proper compliance is not achieved by judicially modifying chapter 74's mandatory service periods, as the Prestwoods would have us do under their interpretation of rule 21a. However, even if the Prestwoods were correct concerning the applicability of rule 21a's three-day provision, it is clear that, to the extent rule 21a conflicts with any of the requirements of chapter 74, the latter is controlling. See Tex. Civ. Prac. & Rem. Code Ann. § 74.002 ("In the event of a conflict between this chapter and another law, including a rule of procedure or evidence or court rule, this chapter controls to the extent of the conflict.") (emphasis added). (10) By giving effect to the legislature's efforts to provide specific procedural rules applicable to health care liability suits in order to reduce the "excessive frequency and severity of health care liability claims," see Mokkola, 178 S.W.3d at 74, we do not "render meaningless" the rules of civil procedure.

In the alternative, the Prestwoods argue that section 74.351 is unconstitutionally overbroad and vague; they further allege that section 74.351 violates federal and state due process, the Open Courts provision of the Texas Constitution, and the doctrine of separation of powers. Parties asserting error on appeal must put forth some specific argument and analysis showing that the record and the law support their contentions. Because their brief merely states or quotes from the relevant constitutional provisions without providing any relevant authority or analysis, (11) the Prestwoods have failed to adequately brief their constitutional arguments, and we need not address them. See Tex. R. App. P. 38.1(h). (12)

We therefore hold that the trial court did not err in dismissing the Prestwoods' suit for failure to timely serve their expert reports and curricula vitae on Dr. Settle.

Attorney's fees

The Prestwoods complain that there was no evidence to support the attorney's fee award or, in the alternative, that the evidence was factually and legally insufficient to support the award. Citing Arthur Anderson & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 818-19 (Tex. 1997), the Prestwoods contend that there is no evidence or insufficient evidence to support a showing of the experience, reputation, and ability of counsel; the likelihood that the acceptance of the particular employment would preclude other employment by the lawyer; the fee customarily charged in the locality for similar service; the amount involved and the results obtained; the nature and extent of the relationship with the client; the nature and extent of the legal services provided; the novelty and difficulty of the questions presented; and the time limitations involved.

When a health care liability suit is dismissed for failure to timely serve the defendant with an expert report and curriculum vitae, the trial court "shall enter an order that awards to the affected physician or health care provider reasonable attorney's fees." Tex. Civ. Prac. & Rem. Code Ann. § 74.351(a)(1) (West Supp. 2007). We review the trial court's award of attorney's fees after dismissal under section 74.351 for an abuse of discretion. See Strom v. Mem'l Hermann Hosp. Sys., 110 S.W.3d 216, 220 (Tex. App.--Houston [1st Dist.] 2003, pet. denied). In determining if the trial court abused its discretion, the appropriate test is whether the evidence in support of attorney's fees contained the attorney's qualifications, his opinion regarding reasonable attorney's fees, and the basis for his opinion. Basin Credit Consultants, Inc. v. Obregon, 2 S.W.3d 372, 373 (Tex. App.--San Antonio 1999, pet. denied). When an attorney's testimony contains this necessary information, it constitutes "expert opinion testimony" and can sufficiently establish reasonable attorney's fees. See Enell Corp. v. Longoria, 834 S.W.2d 132, 135 (Tex. App.--San Antonio 1992, no writ); Owen Elec. Supply, Inc. v. Brite Day Constr., Inc., 821 S.W.2d 283, 288 (Tex. App.--Houston [1st Dist.] 1992, no writ).

The Prestwoods, while listing a number of the factors the supreme court set forth in Arthur Anderson, specifically complain that Dr. Settle's counsel presented no time sheets during the hearing; that he "only estimated" the amount of time he spent preparing the motion, including the driving time between his San Antonio office and the Travis County courthouse; and that he gave conflicting testimony regarding the hourly rate he was charging, first insisting that a reasonable rate was between $180 and $250 per hour, and then admitting that he was only charging his client $175 per hour in this case. In arguing that the evidence was insufficient to support the mandatory attorney's fee award in this case, the Prestwoods intimate that Dr. Settle's attorney's testimony was "incredible" because it consisted of "incongruous sworn statements," amounting to only weak evidence or no evidence at all. We disagree.

Dr. Settle's attorney testified that he has been practicing law since 1980 and that he specializes in defending physicians and healthcare providers. He testified as to his familiarity with reasonable and necessary attorney's fees pertaining to health care liability suits and stated that "reasonable charges fall within about $180 an hour to $250 an hour." He further testified that attorney's fees of $1,000 were reasonable and necessary in this case, based upon the work he had actually performed, including the time he had spent commuting to Travis County, which he had used to practice his argument. He was questioned on cross-examination as to what rate he was charging his client in this matter, answering that his client was being charged $175 per hour.
Contrary to the Prestwoods' assertion, these statements are not undermined by contradiction, nor must they be "viewed as suspect and incredible." It is not within the province of this Court to interfere with the trial court's resolution of any conflicts in the evidence or to pass on the weight or credibility of the witnesses' testimony. See Benoit v. Wilson, 239 S.W.2d 792, 796 (Tex. 1951). Even when there is conflicting evidence, the fact-finder's verdict on such matters is generally conclusive. See Schneider v. Schneider, 5 S.W.3d 925, 930 (Tex. App.--Austin 1999, no pet.). In this case, the trial court found that an attorney's fee award of $800 was reasonable and justified based on the evidence that counsel for Dr. Settle had spent four hours on work related to the motion to dismiss; in light of the uncontroverted testimony that reasonable charges for physician-defense work fall between $175 and $250 per hour, the amount awarded in this case ($200 per hour) was supported by the evidence.

We therefore hold that the evidence Dr. Settle presented on attorney's fees would enable reasonable and fair-minded people to find that attorney's fees of $800 were reasonable and necessary. See City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005) (legal-sufficiency standard). We further hold that the evidence supporting the trial court's award of attorney's fees was not so weak as to make the court's finding clearly wrong and manifestly unjust. See Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986) (factual-sufficiency standard).

CONCLUSION

Because the trial court did not err in dismissing the Prestwoods' suit and awarding attorney's fees in favor of Dr. Settle, as mandated by section 74.341 of the civil practice and remedies code, we affirm the trial court's judgment.
__________________________________________
Diane Henson, Justice
Before Justices Patterson, Puryear and Henson
Affirmed

Filed: February 28, 2008

1. At the time the original petition was filed, the Prestwoods were acting pro se; they were represented by counsel as of the date of their first amended petition, which was filed December 4, 2006.
2. The expert report provides a summary of the expert's opinions regarding the applicable standards of care, the manner in which the care rendered by the physician or health care provider failed to meet the standards, and the causal relationship between that failure and the injury, harm, or damages claimed. Tex. Civ. Prac. & Rem. Code Ann. § 74.351(r)(6) (West Supp. 2007).
3. The parties further acknowledge that the statutory date for service of the expert reports and curricula vitae was not extended pursuant to a written agreement. See id. § 74.351(a) ("The date for serving the report may be extended by written agreement of the affected parties.").
4. The Prestwoods' argument will be explained more fully in the discussion below.
5. There is no dispute that all of the Prestwoods' communications concerning the suit were required to be sent to Dr. Settle's counsel of record, pursuant to rule 8 of the rules of civil procedure. See Tex. R. Civ. P. 8 ("All communications from the court or other counsel with respect to a suit shall be sent to the attorney in charge.").
6. Rule 21a further prescribes four authorized methods of service upon a party: (1) delivery in person, by agent, or by courier-receipted delivery; (2) certified or registered mail; (3) telephonic document transfer; and (4) such other manner as the court in its discretion may direct. Tex. R. Civ. P. 21a.
7. Rule 21, which the Prestwoods also mention in their argument, provides that all pleadings, pleas, and motions must be served on all other parties and that an "application to the court for an order or notice of any hearing thereon . . . shall be served upon all other parties not less than three days before the time specified for the hearing." See Tex. R. Civ. P. 21. The Prestwoods do not explain the rule's relevance to this case, however, and we cannot discern how rule 21 has any impact on the requisite period for serving the expert reports.
8. In Herrera, the claimant had served the expert reports by regular mail, which is not one of the four methods of service authorized by rule 21a. See Herrera v. Seton Nw. Hosp., 212 S.W.3d 452, 458 (Tex. App.--Austin 2006, no pet.). We held that a party "who sends documents to another by regular mail--which is not authorized by rule 21a--does not comply with the 120-day service requirement in section 74.351." Id. at 459.
9. See also Mokkala v. Mead, 178 S.W.3d 66, 73 (Tex. App.--Houston [14th Dist.] 2005, no pet.) ("The plaintiff controls when she files a petition alleging a health care liability claim, thereby triggering the commencement of the 120-[day] period within which she must serve the expert report.").
10. See, e.g., Packard v. Miller, No. 07-06-0454-CV, 2007 Tex. App. LEXIS 4513, at *7 (Tex. App.--Amarillo May 31, 2007, pet. denied) (rule 21a's equitable extension-of-time provision did not apply to give trial court authority to enter order extending time to file expert report, because chapter 74 sets forth "exclusive means by which a trial court may grant an extension of time to file an expert report").
11. The Prestwoods' brief contains one string citation in a footnote quoting the standards by which courts review a vagueness challenge to a statute but offers no argument or authority suggesting that section 74.351 itself is unconstitutionally vague. Similarly, the Prestwoods cite two federal circuit cases and one treatise discussing the three-day rule contained in Federal Rule of Procedure 6(e) as authority for their due process argument, none of which addresses section 74.351. Finally, in arguing that the legislature "invaded the prerogatives of the judiciary, usurping unconstitutionally the power of the judiciary to apply the Texas Rules of Procedure," the Prestwoods cite generally a student note in a law review discussing statutory caps on medical-malpractice awards.
12. Even if we were to reach the Prestwoods' constitutional claims, it is clear that they have failed to raise a facial challenge to the constitutionality of section 74.351. See Herrera, 212 S.W.3d at 461 (to sustain facial challenge, party must show that statute, by its terms, always operates unconstitutionally, not merely assert that restrictions are arbitrary and unreasonable). With regard to the Prestwoods' due process challenge, the supreme court has held that dismissal of a suit due to the claimant's failure to file an expert report does not violate due process guarantees. See Walker v. Gutierrez, 111 S.W.3d 56, 66 (Tex. 2003) (applying former article 4590i). Likewise, with respect to their open-courts challenge, the Prestwoods have not produced any evidence that the requirements of section 74.351 have prevented them from pursuing their claim. See McGlothlin v. Cullington, 989 S.W.2d 449, 453 (Tex. App.--Austin 1999, pet. denied) (burden on claimant asserting open-courts violation is to provide sufficient evidence that expert-report requirement actually acted to keep her from pursuing claim). The Prestwoods have offered no reason why they failed to serve their reports within the 120-day period required by section 74.351, which this Court has described as a "minimal requirement." See id. at 453. Instead, the record indicates that the Prestwoods made no attempt to comply with the statute, and a claimant's failure to comply with the statute will not be interpreted by the reviewing court as evidence that it would have been impossible for him to do so. See id.

Third Court of Appeals rejects constitutional challenge to expert report filing requirement of statute governing medical malpractice claims in Texas

Cecelia Ledesma v. George L. Shashoua, M.D.; Oakwood Women's Cenre, P.A. at Round Rock; Joseph Eddings; B. Johns, CRNA; and Round Rock Medical Center, No.
(Tex.App. - Austin, Aug. 3, 2007)(Opinion by Justice Pemberton)(HCLC, expert report)(Before Chief Justice Law, Justices Patterson and Pemberton)
Appeal from 277th District Court of Williamson County

THE DISTRICT COURT OF WILLIAMSON COUNTY, 277TH JUDICIAL DISTRICT
NO. 05-489-C277, HONORABLE KEN ANDERSON, JUDGE PRESIDING

MEMORANDUM OPINION BY JUSTICE PEMBERTON

Cecelia Ledesma appeals the district court's dismissal of her health care liability claim against Certified Registered Nurse Anesthetist, Bruce Johns, for failure to make an objective, good faith effort to timely serve an expert report that complies with the requirements in section 74.351 of the civil practices and remedies code. See Tex. Civ. Prac. & Rem. Code Ann. § 74.351 (West Supp. 2006). Ledesma argues that the district court erred in holding that the expert reports that she had served failed to comply with section 74.351 and by not allowing her a 30-day time extension to cure any deficiencies. Ledesma also asserts that chapter 74 of the civil practice and remedies code is unconstitutional. We affirm the district court's judgment.

BACKGROUND

In November 2001, Ledesma underwent surgery at Round Rock Medical Center to remove her right ovary and her appendix. She filed this lawsuit on January 14, 2004, against the hospital, her surgeon, his professional association, the anesthesiologist, and Johns, the certified registered nurse anesthetist, alleging in part that she suffered permanent injury to her left arm, hand, and wrist as a result of incorrect placement of the IV in her left forearm and improper placement and monitoring of her arm during the surgery. (1)

On May 14, 2004, Ledesma served Johns's counsel with four expert reports that purported to comply with the requirements of section 74.351(a). See id. § 74.351(a) ("In a health care liability claim, a claimant shall, not later than the 120th day after the date the original petition was filed, serve on each party or the party's attorney one or more expert reports . . . for each physician or health care provider against whom a liability claim is asserted."). The reports were prepared by the following experts: (1) Dr. Dinner, a board certified anesthesiologist; (2) Dr. Hamilton, a board certified obstetrician/gynecologist; (3) Stephanie Tate, a certified operating room nurse and certified legal nurse consultant; and (4) Thomas Sharon, a registered nurse certified in intravenous therapy.

On June 4, 2004, after Ledesma's 120-day deadline for serving her expert reports expired, Johns filed a motion to dismiss and sever the claims against him on the grounds that the expert reports did not satisfy the requirements of section 74.351. See id. § 74.351 (a)-(b), (l), (r)(6). In her response to the motion to dismiss, Ledesma asserted that the reports were adequate and alternatively, she asked the court to grant her a 30-day extension to cure any deficiencies. See id. § 74.351(c) ("If an expert report has not been served within the period specified by Subsection (a) because elements of the report are found deficient, the court may grant one 30-day extension to the claimant in order to cure the deficiency."). The district court granted Johns's motion to dismiss (but not his motion to sever) and dismissed all of Ledesma's claims against Johns. Johns subsequently filed a second motion to sever, which the district court granted, making the dismissal order regarding Johns final. Ledesma appeals from the orders dismissing and severing her claims against Johns.

DISCUSSION

Adequacy of the expert reports

In her first issue, Ledesma asserts that the district court erred in holding that the expert reports that she served failed to comply with section 74.351's requirements. The expert report or reports required under section 74.351(a) must provide "a fair summary of the expert's opinions as of the date of the report regarding applicable standards of care, the manner in which the care rendered by the physician or health care provider failed to meet the standards, and the causal relationship between that failure and the injury, harm, or damages claimed." Id. § 74.351(r)(6). A trial court must "grant a motion challenging the adequacy of an expert report only if it appears to the court, after hearing, that the report does not represent an objective good faith effort to comply" with this definition of an expert report. Id. § 74.351(l).

To constitute a "good faith effort" the report must provide enough information to fulfill two purposes: (1) it must inform the defendant of the specific conduct the plaintiff has called into question; and (2) it must provide a basis for the trial court to conclude that the claims have merit. Bowie Mem'l Hosp. v. Wright, 79 S.W.3d 49, 52 (Tex. 2002); American Transitional Care Ctrs. of Tex., Inc. v. Palacios, 46 S.W.3d 873, 875 (Tex. 2001). Although an expert report "need not marshal all the plaintiff's proof," it must include the expert's opinion on each of the elements identified in section 74.351. Palacios, 46 S.W.3d at 878. It is not enough for the report merely to state the expert's conclusions about the statutory elements. Id. at 869. "Rather, the expert must explain the basis of his statements to link his conclusions to the facts." Bowie Mem'l Hosp., 79 S.W.3d at 52 (quoting Earle v. Ratliff, 998 S.W.2d 882, 890 (Tex. 1999)).

Because the statute dictates what is required in the report, the only information relevant to determining whether a report complies with the statute is that within "the four corners" of the report. Palacios, 46 S.W.3d at 878. This requirement precludes a court from filling gaps in a report by drawing inferences or guessing as to what the expert likely meant or intended. Bowie Mem'l Hosp., 79 S.W.3d at 53.

We review a trial court's decision to dismiss a health care liability claim under section 74.351 for an abuse of discretion. Palacios, 46 S.W.3d at 875. A trial court abuses its discretion when it acts in an arbitrary or unreasonable manner or acts without reference to any guiding rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241 (Tex. 1985). A clear failure by the trial court to analyze or apply the law correctly also constitutes an abuse of discretion. Walker v. Packer, 827 S.W.2d 833, 840 (Tex. 1992).

With these principles in mind, we review the four expert reports that Ledesma furnished in connection with her suit.

Dr. Dinner's report

Dr. Dinner, a board certified anesthesiologist, begins his report by recounting his qualifications and professional experience and states "By virtue of my training in anesthesiology, . . . as well as 20 years of experience in the operating room, I am very familiar with the circumstances and standards of care relevant to the proceedings in this case." He then summarizes Ledesma's medical history and describes the injuries that appeared after her November 2001 surgery. He notes that, while in the post anesthesia care unit, Ledesma "complained of numbness and discomfort in her left wrist" that was later diagnosed as "a radial nerve palsy."

Dr. Dinner then concludes:

By virtue of the fact that Ms. Ledesma had no previous complaints of left arm pain or paresthesia on 11/01/01 yet left the hospital with a significant injury to that extremity, it is without question that this damage was sustained during the course of her perioperative period. It is my position that the injury could only have occurred as a consequence of improper and traumatic placement and inappropriate positioning and/or restraining of the extremity.
Dr. Dinner observes that Ledesma complained about "significant pain at the intravenous site" upon initiation of the intravenous line. He notes:

The individual who placed the line has the responsibility to do so in a manner which will not cause trauma to the surrounding tissues. A portion of the superficial branch of the radial nerve runs through the location where the intravenous line was placed and as such, was "speared" by the sharp stylet that serves as an introducer for the angiocath. This mechanism of injury is fully consistent with the post operative diagnosis of tenosynovitis and myositis and the MRI findings point to injury in the area of the corresponding muscle. Customarily, the individual who places the intravenous line is identified in the medical record and places a note at the time positioned. No such note is in the chart. . . . It was essential that the clinician performing this procedure possess the necessary skill to carry this out properly. This was not the case in this situation and the individual who established the iv access was negligent in the performance of their duties by causing severe trauma to the branch of the radial nerve in that location. Had the individual who started the intravenous line acted in a more cautious, skillful and appropriate manner in keeping with the standard of care, it is more likely than not that the injury that Ms. Ledesma sustained would not have occurred.

Dr. Dinner next addresses the actions of the anesthesia team:

I have also carefully reviewed the actions of the anesthesia team in this case from the preoperative assessment all the way through to the post operative recovery course[.] The patient was in the lithotomy position with her legs restrained in stirrups and both arms placed on arm boards at acute angles to the body axis. The anesthesia team consisting of Dr. Joseph Eddings and Bruce Johns CRNA together with the nurses including but not limited to the circulating nurse and scrub nurse as well as the surgeon, Dr. Shashoua, had a duty to ensure the safety of the padding, restraint, placement, and positioning of the patients arms armboard, and restraints prior to and during the procedure. Every health care provider in the surgical suite owed a duty of care to Ms. Ledesma to ensure her safety during the procedure due to the administration of the anesthesia, which would prevent the patient from protecting herself with protective reflexes. The healthcare provider placing the restraints failed to document the manner in which the patients extremities were restrained or placed on the board. The standard of care requires such documentation in the patient's records. Therefore there was a violation in the standard of care with respect to documentation. The injury is consistent with improper placement, bad positioning, inattentive application of pressure on the patient's arm during the procedure, or restraints being placed too tightly and restricting the blood flow in this area. It would violate the standard of care for any healthcare provider in the surgical suite to fail to notice, address, and document any such occurrence.

Dr. Dinner concludes:

Based upon reasonable medical probability, this injury occurred due to improper IV placement, poor technique in IV placement, or improper placement, bad positioning, inattentive application of pressure on the arm, or restraints being improperly placed so that they we[r]e too constrictive. The occurrence of any one or more of these events would violate the standard of care for patient safety during anesthesia. Dr. Joseph Eddings as the anesthesiologist, Bruce Johns, CRNA, the surgeon, Dr. Shashoua, and the nurses and employees of Round Rock Medical Center owed a duty of care to Ms. Ledesma for patient safety in the above regard during anesthesia. The radial nerve palsy would not have occurred but for the negligence and violations of the standard of care applicable to each of these healthcare providers.

Dr. Hamilton's report

Ledesma's second expert report was prepared by Dr. Hamilton, a board certified obstetrician and gynecologist. Most of Dr. Hamilton's report focuses on Ledesma's allegations that her obstetrician, Dr. Shashoua, misdiagnosed the cause of her abdominal pain and performed unnecessary surgeries. Dr. Hamilton opines that:

[Dr. Shashoua] and Dr. Wexler, the surgeon who performed the appendectomy, were negligent in not insuring proper positioning of the patient on the operating table. It was their negligence along with that of Dr. Joseph Eddings MD, the anesthesiologist, and Bruce Johns, Certified Registered Nurse Anesthetist, that produced a severe inexcusable injury to the radial nerve in Mrs. Ledesma's left arm.

Nurse Sharon's report

Ledesma's third expert report was prepared by Thomas Sharon, a registered nurse licensed to practice in Florida. Nurse Sharon describes his qualifications as follows:
During the past twenty-five years, I have worked as a staff nurse, nursing supervisor, nursing educator in various hospitals and as a chief executive officer of a corporate provider of nursing services. . . .

I am experienced and familiar with the standard of care ordinarily exercised by nurses in hospitals. I am specifically experienced and familiar with the degree and skill of care exercised by nurses in hospital operating suites or free standing surgical centers with regard to the duties and responsibilities of the circulating nurse during the intraoperative phase of surgery.
Nurse Sharon then lists the medical records and reports he reviewed and states:
[I]t is my opinion with a reasonable degree of professional certainty that the circulating nurse on duty in the operating room departed from good and accepted standards of nursing practice in failing to prevent prolonged pressure against the left radial nerve plexus during surgery.
The circulating nurse owed a duty to the patient to check the patient's body position, body alignment and application of positioning devices such as arm boards to assure that bony
prominences and nerve bundles are not pressurized during surgery.

* * *
It should be noted that use of the arm board was part of the plan to prevent injury related to surgical intervention. When using the arm boards the circulating nurse or anesthetist usually wraps adhesive tape around the upper and lower arm and under the arm board in order to keep it in place. During the surgery, the circulating nurse must frequently check the t[a]pe to make certain that it is not too tight. The tape must never be applied around the wrist or elbow joints and these are the two places most susceptible to nerve damage if the tape is applied too tightly or becomes tighter later on due to peripheral edema (swelling). Therefore it is my opinion with a reasonable degree of professional certainty that the improper application of the arm board and failure to check the left upper extremity were the proximate cause of the radial palsy of the left wrist and hand.

* * *
It is my opinion with a reasonable degree of professional certainty that the radial nerve compression injury was caused by taping the left wrist to the arm board so as to cause compression entrapment of the radial nerve plexus. The circumferential taping of the wrist to an arm board is contraindicated because of the proximity of the radial nerve near the skin surface. Even if another staff member taped the wrist, it was incumbent upon the circulating nurse to insist that the tape be removed from the wrist and that the arm board be secured by taping over the mid forearm or the hand (if the wrist needed to be immobilized). Furthermore, the circulating nurse also owed a duty to the patient to check the hand and wrist at frequent intervals to make certain that the circumferential tape was not causing pressure and was not interfering with peripheral blood flow.

Nurse Tate's report

Ledesma's fourth expert report was prepared by Stephanie Tate, an operating room nurse clinician and legal nurse consultant. Nurse Tate explains her qualifications as follows:
I am currently licensed to practice Registered Nursing in the state of California. . . . I have been practicing operating room nursing since 1981, and I scrub and circulate all specialties including trauma. I am familiar with the standards of care relevant to the facts of this case.
Nurse Tate then discusses the standard of care that the circulating nurses owed to Ledesma with respect to the placement of the IV:

Each circulating RN had a responsibility to actively advocate for Ms. Ledesma. Whichever one brought her to the room had the responsibility to conduct a pre-op assessment and interview, document and address any concerns Ms. Ledesma verbalized about pain at her IV site, document her assessment of the IV site and what interventions were undertaken to troubleshoot the problem as well as provide pain relief and document to whose attention the matter was directed. None of this was done, in spite of the fact the fact that Ms. Ledesma is adamant that she complained about pain at her IV site as soon as it was started. This is in violation of basic nursing fundamentals, AORN [Association of Perioperative Registered Nurses] Recommended Principals and Practices, and ANA [American Nurses Association] Standards. . . .
Nurse Tate next discusses the standard of care that circulating nurses owe with respect to the positioning of the patient during surgery:

The circulating nurses also had professional responsibilities involving patient positioning and patient safety, according to AORN. I have attached the 2001 AORN Standards of Care addressing the perioperative nurse's responsibility in patient positioning. I will quote an excerpt from the standard here:

Standard of Care (per AORN:)

The circulating RN (perioperative nurse) is the surgical patient's advocate, and is responsible for ensuring patient safety while under his or her care. The perioperative nurse should actively participate in safety and appropriately positioning the patient, continuously monitoring body alignment and tissue integrity based on sound physiologic principals, and communicating specific patient needs to the rest of the surgical team.

* * *
Once the surgical team is scrubbed in, it is an ongoing responsibility of both the circulating RN (or RNs) and anesthesia to continually check--and document--the patient's extremities and potential pressure points after changes in positioning.
Although anesthesia documented "all pressure points checked and padded" at the beginning of the procedure, it is likely that her position was changed after intubation, perhaps more than once. The documentation concerning positioning on the part of the circulating RNs is minimal; in fact it is limited to the anatomical diagram of the patient, and is unclear. The perioperative (circulating) RN's responsibilities include documenting both the positioning and type of padding used intraoperatively, as well.

The fact that the anesthesia provider documented "all pressure points checked and padded" does not exempt the circulating RN from his or her own responsibility for accurate and thorough documentation. The type of padding use, and the specific sites where it was placed, should have been documented in the intraoperative nursing notes. The fact that it is not documented is in violation of 2001 AORN standards of care addressing the perioperative (circulating) RN's responsibility in documenting perioperative nursing care, as well as the ANA Code for Nurses with Interpretive Statements, with Explications for Perioperative Nursing. This states, in part, that the perioperative (circulating) RN is required to "Complete operative records accurately and in an objective and non-judgmental manner" and "Maintain records in an orderly manner."

* * *
This continuous lack of nursing documentation in the medical record violates the standard of care and resulted in harm to the patient. The complaint of pain should have been addressed and reported to the surgeon and the anesthesiologist before the start of the surgery to rule out IV access as the cause of this injury. Also, in 2001, nurses were required by JCAHO (and still are) to assess and document patients' complaints of pain on a scale of 1 to 10--10 being the most severe. This was not done and violates the standard of care for pain assessment.

Analysis

We conclude that the district court did not abuse its discretion in holding that these four expert reports did not satisfy the requirements of section 74.351 with respect to Johns. The expert reports prepared by Nurse Tate and Nurse Sharon are inadequate because they fail to identify Johns at all. Both nurse reports address generally the standard of care applicable to registered nurses or circulating nurses, of which Johns is neither. "We have held that where the identity of a defendant is not explicitly mentioned within the 'four corners' of the report, the report is, for that reason alone, deficient as to that defendant because it would require the reader to infer or make an educated guess as to whose actions the expert is complaining." Bogar v. Esparza, ___ S.W.3d ___, ___ No. 03-07-00037-CV, 2007 Tex. App. LEXIS 5088, at *19 (Tex. App.--Austin June 28, 2007, no pet. h.) (citing Austin Heart, P.A. v. Webb, ___ S.W.3d ___, ___; No. 03-06-00607-CV, 2007 Tex. App. LEXIS 3600, at *15 (Tex. App.--Austin May 9, 2007, no pet. h.); Apodaca v. Russo, ___ S.W.3d ___, ___ No. 03-06-00258-CV, 2007 Tex. App. LEXIS 3467, at *13 (Tex. App.--Austin May 2, 2007, no pet. h.)). Furthermore, the nurse reports are inadequate to satisfy the causation element of section 74.351(r)(6) because only a qualified physician can render expert opinion testimony regarding the causal relationship between the injury, harm, or damages claimed and the alleged departure from the applicable standard of care in a health care liability claim. See Tex. Civ. Prac. & Rem. Code. Ann. § 74.351(r)(5)(C).

The two expert reports that do mention Johns--Dr. Dinner's report and Dr. Hamilton's report--do not sufficiently identify the standard of care applicable to Johns or explain how Johns breached that standard. Dr. Dinner's report broadly states that the entire surgical team including Johns "had a duty to ensure the safety of the padding, restraint, placement, and positioning of the patients arms armboard, and restraints prior to and during the procedure" and that "[e]very health care provider in the surgical suite owed a duty of care to Ms. Ledesma to ensure her safety during the procedure," but Dr. Dinner does not explain what Johns, as the CRNA, should have done differently to provide for Ledesma's safety. See Palacios, 46 S.W.3d at 879-80 (conclusory statement that "precautions to prevent [patient's] fall were not properly utilized" did not sufficiently apprise physician whether expert believed that the standard of care required him "to have monitored [the patient] more closely, restrained him more securely, or done something else entirely"). Likewise, the statements in Dr. Hamilton's report that Dr. Shashoua and Dr. Wexler "were negligent in not insuring proper positioning of the patient on the operating table" and that "[i]t was their negligence along with that of Dr. Joseph Eddings MD, the anesthesiologist, and Bruce Johns, Certified Registered Nurse Anesthetist, that produced a severe inexcusable injury to the radial nerve in Mrs. Ledesma's left arm" do not identify the standard of care applicable to Johns. See id. at 880 (statement that restraints to prevent fall were not properly used is not a statement of the standard of care).

Having reviewed the four expert reports, we conclude that the district court could have reasonably concluded that the reports do not represent an objective good faith effort to comply with the definition of an expert report in section 74.351(r)(6).

Extension of time under 74.351(c)

Ledesma also argues that the trial court erred by not granting her request for a 30-day extension of time to cure any deficiencies in her expert reports. Section 74.351(c) states that if elements of an expert report are found to be deficient, "the court may grant one 30-day extension to the claimant in order to cure the deficiency." Tex. Civ. Prac. & Rem. Code Ann. § 74.351(c). The extension allowed under 74.351(c) is discretionary, not mandatory. See Bogar, ___ S.W.3d at ___, 2007 Tex. App. LEXIS 5088, at *9; Austin Heart, ___ S.W.3d at ___, 2007 Tex. App. LEXIS 3600, at *19-20. Nothing in the record indicates that the district court acted arbitrarily or unreasonably in exercising its discretion not to allow Ledesma a 30-day extension to cure the deficiencies in her report. We overrule Ledesma's second issue.

Constitutional challenges to chapter 74

Ledesma argues that chapter 74 is unconstitutional, citing summarily to the due process and equal protection guarantees of the federal and state constitutions, as well as the open courts provisions of the Texas Constitution. See U.S. Const. amend. XIV; Tex. Const. art. I, § 13. She contends that the requirements of chapter 74, particularly the expert report requirement in section 75.351 and the restriction on the application of the doctrine of res ipsa loquitur in section 74.201 constitute arbitrary and unreasonable restrictions on her claim.

When reviewing the constitutionality of a statute, we begin with a presumption that it is constitutional. Walker v. Gutierrez, 111 S.W.3d 56, 66, (Tex. 2003); see also Tex. Gov't Code Ann. § 311.021(1) (West 2005). The wisdom or expediency of the law is the legislature's prerogative, not ours. Texas Workers Comp. Comm'n v. Garcia, 893 S.W.2d 504, 520 (Tex. 1995). The party challenging a statute's constitutionality has the burden of proving that the statute fails to meet constitutional requirements. Walker, 111 S.W.3d at 66.

In challenging the constitutionality of a statute, a party may show that the statute is unconstitutional on its face or as applied to that party. Garcia, 893 S.W.2d at 518 n.16; see also City of Corpus Christi v. Public Util. Comm'n of Tex., 51 S.W.3d 231, 240-41, (Tex. 2001) (Owen, J., concurring). To sustain a facial challenge, the party must show that the statute, by its terms, always operates unconstitutionally. Id. To sustain an "as applied" challenge, the party must show that the statute is unconstitutional when applied to that particular person or set of facts. Id.

Here, Ledesma did not cite any authority or make any argument that would support a facial challenge to the constitutionality of chapter 74. She merely asserts that the restrictions section 74.351 imposes on claimants are "unreasonable and/or arbitrary." Because Ledesma failed to demonstrate that chapter 74 always operates unconstitutionally, her challenge to the statute as facially unconstitutional is not persuasive.

Ledesma did challenge the constitutionality of section 74.351, as applied to her, asserting that the requirements of section 74.351 constitute an arbitrary and unreasonable restriction on her claim in violation of her constitutional rights to equal protection, due process, and open courts. With regard to Ledesma's due process challenge, the supreme court has held that the dismissal of a suit due to a claimant's failure to file a compliant expert report does not violate due process guarantees, even in the absence of notice of the report's noncompliance before the motion to dismiss. Walker, 111 S.W.3d at 66 (applying former article 4590i). The court reasoned that due process does not require "prior notice that the law is serious about a clearly stated consequence." Id.

Ledesma's open courts argument is equally misguided. A claimant who brings an open courts challenge has the burden of showing that the expert-report requirements actually prevented her from pursuing her claims. McGlothlin v. Cullington, 989 S.W.2d 449, 453 (Tex. App.--Austin 1999, pet. denied). The open courts provision is premised upon the rationale that the legislature has no power to make a remedy by due course of law contingent upon an "impossible condition." Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 355 (Tex. 1990). Ledesma has not proven how the provisions of the section 74.351 itself, as opposed to her own failure to provide an adequate report, prevented her from pursing her claim against Johns. See Marquez v. Providence Mem'l Hosp., 57 S.W.3d 585, 595 (Tex. App.--El Paso 2001, pet. denied).

CONCLUSION

We affirm the judgment of the district court.
__________________________________________
Bob Pemberton, Justice
Before Chief Justice Law, Justices Patterson and Pemberton
Affirmed
Filed: August 3, 2007

1. Ledesma also alleged that the surgery was unnecessary and the result of a misdiagnosis of her abdominal pain. These claims do not pertain to Johns.