Business Law

Pappas v. Chang (Mar. 3, 2022, A159792, A160293) __ Cal.App.5th __ [2022 WL 620997]

Medical malpractice settlement agreement may not prohibit reporting the incident to the Medical Board.

Dr. Chang performed cosmetic surgery on Helena Pappas’s eyes. Pappas was dissatisfied with the result and demanded arbitration of her medical malpractice claim against Dr. Chang. At a later mediation, the parties agreed to settle conditioned on a handful of key terms: (1) Dr. Chang would pay Pappas $100,000; (2) Pappas would release all claims; (3) there would be mutual confidentiality; (4) the settlement would be enforceable under Code of Civil Procedure section 664.6; and (5) the parties would execute a formal and more comprehensive settlement agreement. The parties were unable to agree on comprehensive settlement terms. Pappas objected that Dr. Chang’s proposed confidentiality provision would prevent her from filing a complaint with the Medical Board in violation of Business and Professions Code section 2220.7, and the proposed payments of $29,999.99 by Dr. Chang’s malpractice insurer and $70,000.01 by Dr. Chang personally (despite insurance coverage for the entire $100,000 settlement) was designed to avoid disclosing the settlement to the Medical Board under Business and Professions Code section 801.01.

Pappas sued Dr. Chang for breach of contract, seeking to enforce the initial settlement agreement under section 664.6. The court denied Pappas’s motion, ruling it had no jurisdiction to enforce the settlement agreement because there was no litigation pending at the time of the settlement. The court entered judgment for Dr. Chang following a bench trial, ruling that Pappas’s breach of contract claim failed because she had not complied with her own contractual obligation to sign a more comprehensive settlement agreement and release including a provision for mutual confidentiality. Pappas appealed. 

The Court of Appeal affirmed.  First, the court rejected Pappas’s argument that the final confidentiality provision proposed by Dr. Chang violated section 2220.7, because it did not expressly prohibit Pappas from communicating with the Medical Board. The court also rejected Pappas’s argument that the confidentiality provision was void because it sought to circumvent section 801.01: the release stated the $100,000 settlement amount, regardless of the fact Dr. Chang’s insurer paid $29,999.99 and Dr. Chang paid $70,000.01.

Justice Kline issued a stinging concurring opinion. He concluded that Dr. Chang’s proposed settlement payment scheme, and the initial proposed confidentiality clause, were designed to prevent Pappas from reporting Dr. Chang’s malpractice to the Medical Board in violation of sections 801.01 and 2220.7. In Justice Kline’s view, “[t]he unlawful purpose of the division of the two payments [Dr.] Chang insisted upon speaks for itself, res ipsa loquitor; it is sufficient in and of itself to support a finding of unlawful obstruction of the Medical Practice Act, because no innocent purpose for the subtraction of a cent from the statutory amount that would require reporting of the settlement to the Board can be found in the record or even imagined.”

The bulletin describing this appellate decision was originally prepared for the California Society for Healthcare Attorneys (CSHA) by H. Thomas Watson and Peder K. Batalden, who are partners at the appellate firm Horvitz & Levy LLP, and is republished with permission.

For more information regarding this bulletin, please contact H. Thomas Watson, Horvitz & Levy LLP, at 818-995-0800 or htwatson@horvitzlevy.com.

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