Fadely v. Encompass

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

TERRELL P. FADELY,
Plaintiff/Appellee,

v.

ENCOMPASS HEALTH VALLEY OF THE SUN
REHABILITATION HOSPITAL,
Defendant/Appellant.

No. 1 CA-CV 21-0478
FILED 6-28-2022

Appeal from the Superior Court in Maricopa County
No. CV2017-007473
The Honorable Joseph P. Mikitish, Judge

AFFIRMED IN PART, REVERSED IN PART AND REMANDED

COUNSEL

Beus Gilbert McGroder, PLLC, Phoenix
By Timothy J. Casey
Co-Counsel for Plaintiff/Appellee

Law Office of Thomas M. Ryan, Chandler
By Thomas M. Ryan, Sara K. Ryan
Co-Counsel for Plaintiff/Appellee

Ahwatukee Legal Office, PC, Phoenix
By David L. Abney
Co-Counsel for Plaintiff/Appellee

Gust Rosenfeld, PLC, Phoenix
By James W. Kaucher, Charles W. Wirken, Melissa S. San Angelo
Counsel for Defendant/Appellant
The Checkett Law Firm, PLLC, Phoenix
By John J. Checkett
Co-Counsel for Amicus Curiae Arizona Hospital and Healthcare Association

Coppersmith Brockelman, PLC, Phoenix
By Roopali H. Desai, Kristen M. Yost
Co-Counsel for Amicus Curiae Arizona Hospital and Healthcare Association

Mick Levin, PLC, Phoenix
By Mick Levin
Counsel for Amicus Curiae Arizona Association for Justice

OPINION

Presiding Judge David D. Weinzweig delivered the opinion of the Court, in
which Judge Brian Y. Furuya and Judge Jennifer M. Perkins joined.

W E I N Z W E I G, Judge:

¶1 At issue here is the Adult Protective Services Act (“APSA”),
adopted by our legislature to protect vulnerable adults from the growing
evil of abuse, neglect and exploitation. APSA recognizes a private right of
action for vulnerable adults to pursue civil damages for abuse, neglect and
exploitation against an “enterprise that has been employed to provide
[them] care.” After a bench trial, the superior court determined that a
hospital defendant and two non-employee physicians formed an
“enterprise” to care for a vulnerable adult. The hospital defendant argues
this was legal error, insisting it could not form an enterprise with the
doctors because APSA exempts the doctors from “civil liability for
damages.” We are not persuaded. APSA’s plain language includes this
enterprise. We affirm the court’s finding of a three-member enterprise, but
reverse its apparent agency finding and remand for it to recalculate
damages.

FACTS AND PROCEDURAL BACKGROUND

¶2 On appeal from a judgment issued after a bench trial, we
recount the evidence in the light most favorable to upholding that
judgment. See Town of Florence v. Florence Copper Inc., 251 Ariz. 464, 468, ¶
20 (App. 2021).

2
 FADELY v. ENCOMPASS
Opinion of the Court

¶3 Plaintiff Terrell Fadely had her sixth back surgery in March
2016. She was 73 years old. Dr. Michael Chang performed a spinal fusion
at HonorHealth Scottsdale Hospital, inserting a titanium rod to
permanently connect two of her vertebrae and stabilize her spine. Plaintiff
spent a week at HonorHealth to recover and was discharged with “full
strength” in her legs, even able to walk with a walker.

¶4 Plaintiff was transported from HonorHealth to defendant
Encompass, then called HealthSouth, an in-patient recovery and
rehabilitation hospital, down the road from HonorHealth. She picked
Encompass because of its location and she had recovered there from an
earlier spinal surgery.

¶5 Because Plaintiff did not identify a particular doctor to care
for her, Encompass designated Dr. Christopher Barnes to be her primary
attending physician. Dr. Barnes had medical staff privileges and leased
space at Encompass. As the primary attending physician, Dr. Barnes
testified, “he was required to personally monitor [the patient’s]
rehabilitation progress and prevent hospital complications.”

¶6 Dr. Barnes examined Plaintiff the day after her admission and
found her stable. A few days later, Plaintiff complained of “sharp” and
“throbbing” back pain. She also displayed “significant” neurological
decline. But Dr. Barnes was unavailable, so a nurse alerted Dr. Atul Patel,
his on-call replacement. Dr. Patel responded to Plaintiff’s hospital room,
where he found a “mostly non-verbal” patient “unable to answer questions
unless prodded.” He performed a minimal physical exam of the patient,
which revealed symptoms “consistent with a spinal cord injury,” including
leg numbness and weakness and precipitous neurological decline. Dr. Patel
noted that “close monitoring of neurological status will be needed.” He did
not, however, perform a neurological exam or order a spine x-ray.

¶7 From there, nothing. Plaintiff had to wait two days before Dr.
Barnes examined her. Her mind had continued to decline, and she had
developed a pressure ulcer and urinary tract infection. Like his colleague,
Dr. Barnes did not perform a neurological exam or order a spine x-ray. Nor
did he call the surgeon, Dr. Chang, who Plaintiff would see for an
appointment the next day.

¶8 Dr. Chang’s physician’s assistant (“PA”) examined Plaintiff
and feared a spinal cord compression. Time was of the essence. After a
spinal cord compression, a rapid response is needed to prevent paralysis.
The PA had an ambulance rush Plaintiff to HonorHealth, where she was

3
 FADELY v. ENCOMPASS
Opinion of the Court

diagnosed with a spinal compression. Dr. Chang operated, but it was too
late. Plaintiff has never walked again. She needed a tracheotomy tube for
months and spent nearly two years in long-term care facilities.

¶9 Plaintiff sued Encompass in 2017, alleging abuse and neglect
under the Adult Protective Services Act. She also alleged, but later
dropped, a negligence claim. She never sued Dr. Barnes or Dr. Patel,
individually.

¶10 After a 12-day bench trial, the superior court ruled for
Plaintiff. The court found that Drs. Barnes and Patel had abused or
neglected Plaintiff under APSA, awarding her $1.7 million in compensatory
damages. The court did not find “Encompass directly caused Plaintiff’s
spinal cord injuries,” but it found Encompass liable for the “actions and
inactions” of Drs. Barnes and Patel because either (1) the doctors were the
“apparent agents of Encompass,” making Encompass “vicariously liable for
[their] acts and omissions,” or (2) Drs. Barnes and Patel were “part of
Encompass’[s] ‘enterprise’ for providing [Plaintiff]’s care.” After several
unsuccessful post-trial motions, Encompass timely appealed. We have
jurisdiction. See A.R.S. § 12-2101(A)(1).

DISCUSSION

¶11 Encompass argues the superior court erred on multiple
grounds, including its finding of secondary liability, inclusion and
exclusion of evidence, and award of post-judgment interest.

I. Secondary Liability

¶12 The superior court recognized two grounds to hold
Encompass liable for the “actions and inactions” of Drs. Barnes and Patel.
We address each ground in turn.

A. Apparent Agency

¶13 The superior court found that Encompass was liable under
the doctrine of apparent agency. The court found an apparent agency “in a
hospital setting” because Plaintiff looked to Encompass for treatment, not a
specific physician, and Plaintiff had no choice of treating physicians. That
was legal error because the superior court applied an incorrect legal
standard, and Plaintiff had no evidence to meet the correct legal standard.

4
 FADELY v. ENCOMPASS
Opinion of the Court

1. Incorrect legal standard

¶14 The superior court confused two distinct forms of derivative
liability: apparent agency and respondeat superior. See Martin C.
McWilliams, Jr. & Hamilton E. Russell, III, Hospital Liability for Torts of
Independent Contractor Physicians, 47 S.C. L. Rev. 431, 452 (1996) (recognizing
that the doctrines of apparent agency and respondeat superior have similar
appearance and effect, but their “doctrinal underpinning” is
“fundamentally different”). That is, the court found an apparent agency
under the law of respondeat superior. Compare Reed v. Gershweir, 160 Ariz.
203, 205 (App. 1989) (apparent agency), with Beeck v. Tucson Gen. Hosp., 18
Ariz. App. 165, 170 (1972) (“[W]e hold that an employee-employer
relationship existed between [the physician] and the hospital.”), and Barrett
v. Samaritan Health Servs. Inc., 153 Ariz. 138, 146 (1987) (applying “well-
entrenched principles of respondeat superior”). But Encompass did not
employ Dr. Barnes or Dr. Patel, and Plaintiff never argued for respondeat
superior liability.

2. Correct legal standard and failure of proof

¶15 Applying the correct legal standard, Plaintiff did not and
cannot prove an apparent agency, which hinges on principles of estoppel.
An apparent agency is created only when (1) a principal “intentionally or
inadvertently” leads one party “to believe an agency exists,” and (2) the
party justifiably relies on the principal’s representations. See Brown v. Ariz.
Dep’t of Real Estate, 181 Ariz. 320, 326, (App. 1995) (citing Gershweir, 160 Ariz.
at 205); see also Restatement (Second) of Agency § 267 (1958) (justifiable
reliance).

¶16 Here, Encompass never led or misled Plaintiff to think that
Drs. Barnes and Patel were Encompass agents or employees. On admission,
she was provided a two-page form, titled “Consent to Treat and Conditions
of Admission” (“Consent”), which was “designed to make sure [that
Plaintiff had] the information [she] need[ed] to make an informed decision
about being admitted to [Encompass].” And she signed the Consent, which
advised her that Encompass did not control the “medical services” of
independent practitioners who “practice independently under their state
license and privileges granted by the hospital,” “maintain sole
responsibility for their medical judgment and professionalism,” and “bill
and collect for their services independently from the hospital.”

5
 FADELY v. ENCOMPASS
Opinion of the Court

¶17 As shown by this screenshot, the Consent also drew a
proverbial line between the employees and independent practitioners who
treated patients at Encompass:

¶18 Because Encompass did not represent Drs. Barnes and Patel
as its employees or agents to Plaintiff, instead informing her of the
independent relationship between them, Plaintiff cannot show either the
representation or justifiable reliance needed for an apparent agency.

3. Not ambiguous

¶19 Even so, Plaintiff argues the Consent is ambiguous and thus
unenforceable because the document never includes the words “agent,
agency or anything directly dealing with that unique relationship,” and
never names the individual physicians who would care for her. This
presents a question of law. See Hartford v. Indus. Comm’n of Ariz., 178 Ariz.
106, 111 (App. 1994).

¶20 We are not persuaded. The Consent describes the unique
relationship between Encompass and the independent medical staff,
drawing a plain line between “independent practitioners” and hospital
employees. In all, the words “independent” and “independently” are used
in nine places. Plaintiff offers no authority that requires more. We reverse
the superior court’s finding that Drs. Barnes and Patel were apparent agents
of Encompass.

B. Adult Protective Services Act

¶21 Encompass also argues the superior court erroneously
interpreted APSA. We review de novo the court’s interpretation and
application of the statute. See In re Cortez, 247 Ariz. 534, 536, ¶ 5 (App. 2019).

¶22 As background, APSA is strong medicine for a serious
malady—a statutory elixir of criminal penalties and civil remedies,
legislatively prescribed to “protect[] vulnerable adults” from neglect, abuse
or exploitation. See Est. of Braden ex rel. Gabaldon v. State, 228 Ariz. 323, 325,
¶ 6 (2011); A.R.S. § 46-455. We broadly construe APSA’s terms to achieve

6
 FADELY v. ENCOMPASS
Opinion of the Court

the legislature’s goal of protecting vulnerable adults from abuse, neglect or
exploitation. See In re Est. of Wyatt, 235 Ariz. 138, 140, ¶ 6 (2014). APSA
articulated a “central role” for state government to pursue “both civil and
criminal enforcement.” See Gabaldon, 228 Ariz. at 325, ¶ 7.

¶23 At issue here is APSA’s “broad remedial cause of action
against caregivers who, by means of abuse, neglect, or exploitation,
endanger the life or health of a vulnerable adult.” See Delgado v. Manor Care
of Tucson AZ, LLC, 242 Ariz. 309, 313, ¶ 22 (2017). Section 46-455(B)
authorizes a “vulnerable adult whose life or health is being or has been
endangered or injured by neglect, abuse or exploitation [to] file an action in
superior court against any person or enterprise that has been employed to
provide [his or her] care.” A.R.S. § 46-455(B). APSA was amended in 2003
to exempt most physicians, podiatrists, nurse practitioners and physician
assistants from “civil liability for damages.” Id.; Wyatt, 235 Ariz. at 140, ¶
10.

¶24 After a bench trial, the superior court found Encompass was
liable under APSA for the “actions and inactions” of Drs. Barnes and Patel
because they were “part of Encompass’[s] ‘enterprise’ for providing
[Plaintiff]’s care.” Encompass contends this was legal error, insisting it
would be “internally inconsistent” and “absurd” to hold Encompass liable
for civil damages as part of an “enterprise that has been employed to
provide care” when two members of the same enterprise, Drs. Barnes and
Patel, are exempt from “civil liability for damages” under APSA. See A.R.S.
§ 46-455(B).

¶25 This argument cannot withstand APSA’s plain language. See
Gabaldon, 228 Ariz. at 325-326, ¶¶ 8, 10 (“When the plain text of a statute is
clear and unambiguous there is no need to resort to other methods of
statutory interpretation to determine the legislature’s intent because its
intent is readily discernable from the face of the statute.”).

¶26 First, APSA defines an “enterprise” as “any group of persons
associated in fact although not a legal entity” involved in caring for “a
vulnerable adult.” A.R.S. § 46-455(Q). APSA never defines “person,” but
the legislature generally defines “person” as “a corporation, company,
partnership, firm, association, or society, as well as a natural person.”
A.R.S. §§ 1-215(29); -211(A) (“The rules and the definitions set forth in this
chapter shall be observed in the construction of the laws of the state unless
such construction would be inconsistent with the manifest intent of the
legislature.”).

7
 FADELY v. ENCOMPASS
Opinion of the Court

¶27 So defined, Encompass, Dr. Barnes and Dr. Patel formed an
“enterprise” as a “group of persons [who] associated in fact” to “provid[e]
care to a vulnerable adult.” See A.R.S. § 46-455(Q). They worked as a
“continuing unit” toward the common purpose of treating Plaintiff. See
United States v. Turkette, 452 U.S. 576, 583 (1981) (finding an associated-in-
fact enterprise under RICO’s substantially similar definition where “the
various associates function as a continuing unit”). Encompass cannot “care
for patients without human beings,” and it assigned Dr. Barnes primary
responsibility to care for Plaintiff. And a formal or informal framework
existed between Encompass and the doctors to discharge their common
purpose. See Boyle v. United States, 556 U.S. 938, 942 (2009) (an enterprise
must have “some sort of framework, formal or informal, for carrying out its
objectives,” and members who worked as a “continuing unit to achieve a
common purpose”) (cleaned up). Dr. Barnes and Patel could not treat
Encompass’s patients unless they complied with Encompass’s policies,
procedures and medical staff bylaws. Dr. Patel jumped in when Dr. Barnes
was unavailable.

¶28 Second, APSA does not exempt Encompass from civil
damages. See Delgado, 242 Ariz. at 313, ¶ 18 (“APSA defines a caregiver as
a person or ‘enterprise’ employed to provide care to a vulnerable adult, and
includes care provided at a nursing home or an acute care hospital.”). The
legislature amended APSA in 2003 to exempt most physicians, podiatrists,
nurse practitioners and physician assistants from civil damages, but
Encompass is none of these. See A.R.S. § 46-455(B); Wyatt, 235 Ariz. at 140,
¶ 10. Nor does APSA exempt an enterprise from civil damages when one
member is exempt. Cf. Wyatt, 235 Ariz. at 141, ¶ 14 (rejecting argument that
acute care hospitals are not liable when APSA provides no exception). The
legislature could have exempted all hospitals from civil damages, but did
not. See Delgado, 242 Ariz. at 313, ¶ 22. We will not rewrite the statute. See
id. We affirm the court’s finding that Encompass formed an enterprise with
Drs. Barnes and Patel to care for Plaintiff.

II. Expert Witness

¶29 Encompass next challenges the exclusion of its nonparty-at-
fault expert witness. The superior court “has broad discretion when
determining whether a witness is competent to testify as an expert.”
Gemstar Ltd. v. Ernst & Young, 185 Ariz. 493, 505 (1996). We review the
decision to exclude an expert’s testimony for abuse of discretion. State v.
Bernstein, 237 Ariz. 226, 228, ¶ 9 (2015).

8
 FADELY v. ENCOMPASS
Opinion of the Court

¶30 To prove the standard of care in medical negligence actions
with expert testimony, including civil APSA actions, Arizona law requires
a “preliminary expert opinion affidavit,” A.R.S. § 12-2603(B), which
“determines the admissibility of medical standard-of-care evidence,”
Cornerstone Hosp. of Se. Ariz. v. Marner ex rel. County of Pima, 231 Ariz. 67, 73,
¶¶ 17-18 (App. 2012).

¶31 The proposed expert witness must have specialized “in the
same specialty or claimed specialty” as the treating physician “at the time
of the occurrence that is the basis for the action.” A.R.S. § 12-2604(A)(1).
Moreover, if the treating physician “is or claims to be a specialist who is
board certified,” the expert “shall be a specialist who is board certified in
that specialty or claimed specialty.” Id.; see also Rasor v. Nw. Hosp., 243 Ariz.
160, 165-66, ¶ 27 (2017).

¶32 Encompass filed a notice of nonparty at fault, naming Dr.
Hernan Medina, who authored the discharge summary upon Plaintiff’s
transfer from HonorHealth to Encompass. Encompass claimed that Dr.
Medina did not disclose that Plaintiff had a spinal compression fracture.
Encompass offered Dr. Scott Bolhack to provide expert testimony on the
standard of care to transfer patients from acute-care hospitals to
rehabilitation facilities. The superior court precluded Dr. Bolhack’s
testimony because he was not a hospitalist, like Dr. Medina, so “there’s no
foundation for [Dr. Bolhack] to testify as to Dr. Medina’s care in this case
under A.R.S. § 12-2604.”

¶33 Encompass contends this was error because Dr. Bolhack and
Dr. Medina were board certified in internal medicine, and “hospitalist” is
not a recognized subspecialty. We disagree. Encompass ignores the “clear”
intent of Section 12-2604, which is that an expert witness share “comparable
training and experience” with the physician accused of negligence. See
Baker v. Univ. Physicians Healthcare, 231 Ariz. 379, 383, ¶ 9 (2013).

¶34 Dr. Bolhack testified he does not work in a hospital, does not
assess acute care patients for transfer to rehabilitation facilities, does not
transition patients from acute care hospitals to rehabilitation hospitals, and
rarely drafts discharge summaries. We discern no abuse of discretion. See
id.; see also Awsienko v. Cohen, 227 Ariz. 256, 259, ¶ 13 (App. 2011) (“[T]he
legislature sought to ensure that physicians testifying as experts have
sufficient expertise to truly assist the fact-finder on issues of standard of
care and proximate causation.”).

9
 FADELY v. ENCOMPASS
Opinion of the Court

III. Medical Bills

¶35 Encompass challenges the superior court’s admission of
medical bills from Select Specialty Hospital (“Select”), the long-term acute-
care facility where Plaintiff was transferred after Dr. Chang repaired her
spinal cord compression. Plaintiff recovered at Select for a month.
Encompass argues that Select’s medical bills should not have been admitted
into evidence because Plaintiff never connected Select’s treatment to the
injury she suffered at Encompass, never proved that Select’s treatment was
medically necessary and never proved that Select’s charges were
reasonable.

¶36 We review the court’s decision for an abuse of discretion
resulting in prejudice. Cervantes v. Rijlaarsdam, 190 Ariz. 396, 398 (App.
1997). To admit Select’s medical bills, Plaintiff needed to establish (1) a
causal connection between the medical bills and Encompass’s negligent
conduct, (2) the treatment was necessary, and (3) the expenses were
reasonable. See Larsen v. Decker, 196 Ariz. 239, 243-44, ¶¶ 19-21, 24, 26 (App.
2000).

¶37 Select’s office manager testified to lay the foundation for
admission of Select’s medical bills to Plaintiff. She had not reviewed any
itemized bills, but relied on a Medicare claim form. Asked whether Select’s
treatment was medically necessary and reasonable, the office manager
generally answered that Select would only bill Medicare for medically
necessary treatment at reasonable expenses. The office manager could not,
however, link Select’s treatments and Encompass’s abuse or neglect,
admitting “I wouldn’t have access to that information.” She could not
pinpoint which treatments addressed Plaintiff’s spinal cord compression
versus her preexisting comorbidities. Thus, even if we assume the office
manager satisfied the reasonable and necessary prongs for foundation, she
did not satisfy the causation prong. And because the court held Encompass
liable for these bills, Encompass suffered prejudice from their admission.
We reverse and remand for the court to recalculate damages after
subtracting Select’s medical bills.

IV. Post-Judgment Interest

¶38 Last, Encompass argues the superior court erroneously
awarded post-judgment interest on its Rule 68 sanction of prejudgment
interest for Encompass’s failure to accept an offer of judgment. See Ariz. R.
Civ. P. 68(g)(1). An award of prejudgment interest is reviewed de novo.
Alta Vista Plaza, Ltd. v. Insulation Specialists Co., 186 Ariz. 81, 82 (App. 1995).

10
 FADELY v. ENCOMPASS
Opinion of the Court

¶39 A judgment creditor is entitled to an award of prejudgment
interest on a liquidated claim. Aqua Mgmt., Inc. v. Abdeen, 224 Ariz. 91, 95,
¶ 15 (App. 2010). “Prejudgment interest is an integral part of an applicable
liquidated claim and represents past economic loss.” Id. (cleaned up). A
liquidated claim exists when “the plaintiff provides a basis for precisely
calculating the amounts owed.” Scottsdale Ins. Co. v. Cendejas, 220 Ariz. 281,
288, ¶ 33 (App. 2009) (cleaned up).

¶40 The court did not err. Its final judgment awarded post-
judgment interest of 4.25% a year on a sanction of prejudgment interest
under Rule 68. See A.R.S. § 44-1201(B). This amount, in turn, could be
precisely calculated upon entry of judgment.

CONCLUSION

¶41 We reverse the superior court’s finding of apparent agency
and remand for the court to recalculate damages without Select’s medical
bills, but otherwise affirm the judgment.

AMY M. WOOD • Clerk of the Court
FILED: JT

11