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Current Decisions.


Medical Malpractice Judgment Dischargeable in Bankruptcy

A garden-variety medical malpractice judgment based on negligent or reckless conduct is dischargeable in bankruptcy, the U.S. Supreme Court held.

The question was whether Section 523(a)(6) of the Bankruptcy Code precluded the judgment from being discharged. That subsection provides that any debt "for willful or malicious injury by the debtor to another entity or the property of another entity" cannot be wiped out in bankruptcy. The bankruptcy court held the judgment debt nondischargeable, 172 B.R. 916 (E.D. Mo. 1994), but the Eighth Circuit reversed, 93 F.3d 443 (1996), 113 F.3d 848 (1997 en banc). Since this result was in conflict with cases in the Sixth and 10th Circuits, the Supreme Court granted certiorari.

In an opinion by Justice Ginsburg, the Court viewed the problem as whether the statutory language encompassed any acts done intentionally that cause injury or only acts done with the actual intent to cause injury. She parsed the provision as stating that nondischargeability "takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury." (Court's emphasis.) "Had Congress meant to exempt debts resulting from intentionally inflicted injuries," Justice Ginsburg continued, "it might have described instead `willful acts that cause injury.'"

A broader interpretation, the Court stated, could encompass a wide range of situations in which the act is intentional but the injury is unintended--that is, neither desired nor in fact anticipated.

Kawaauhau v. Geiger, 118 S.Ct. 974 (1998).


MDL Transferee Court Can't Entertain Self-assignment

Ending a practice that had gone on in federal courts, the U.S. Supreme Court held that U.S. federal district courts to whom multidistrict litigation has been assigned cannot invoke their assignment power to assign MDL cases to themselves after the completion of pretrial proceedings.

The interaction of two statutory provisions and one court rule was involved. 28 U.S.C. [sections] 1407(a) authorizes the Judicial Panel on Multidistrict Litigation to transfer actions with common issues of fact "to any district for coordinated and consolidated pretrial proceedings" but imposes a duty on the panel to remand the actions to the original district "at our before the conclusion of such pretrial proceedings." On the other hand, 28 U.S.C. [sections] 1404(a) states that civil actions involving one or more common questions of fact pending in different districts may be transferred to "any district" for coordinated and consolidated pretrial proceedings. Then, to add another complexity, the Multidistrict Panel's Rule 14(b) allows transferee judges to order transfers to "the transferee or other district."

Lexecon Inc., a law and economics consulting firm, was caught up in the MDL litigation in the District of Arizona that followed the failure of Lincoln Savings, in which it was named a defendant but was dismissed. Lexecon then commenced a diversity action in the Northern District of Illinois against two law firms representing the plaintiffs' in Lincoln Savings, claiming malicious prosecution, abuse of process, tortitous interference, commercial disparagement, and defamation. The Multidistrict Panel ordered the Illinois suit assigned to the judge handling the multidistrict litigation in Arizona. Acting under Section 1404(a), the transferree court assigned the Illinois case to itself. The Ninth Circuit affirmed. 102 F.3d 1524.

Reversing in an opinion by Justice Souter, the Supreme Court concluded that the command of Section 1407(a) for transfer back to the original district court trumped a district court's transfer powers under Section 1404(a) and the MDL Panel's rule. Justice Souter noted that the self-assignments had occurred in a number of MDL cases, but he rejected that circumstance as an argument for continuation in the face of the clear command of Section 1407(a), and he also turned down several attempts to read the MDL statute as approving assignment to the transferee court. "In sum," he wrote for the Court, "none of the arguments raised can unsettle the straightforward language imposing the panel's responsibility to remand, which bars recognizing any self-assignment power in a transferee court and consequently entails the invalidity of the panel's Rule 14(b)."

Lexecon Inc. v. Milberg Weiss Bershad Hynes & Lerach, 118 S.Ct. 956 (1998).


MICRA Applies to EMTALA in California

California's limit on the recovery of non-economic damages in medical malpractice cases applies to claims under the federal Emergency Medical Treatment and Active Labor Act (EMTALA), the California Court of Appeal, Second District, held.

A child's parents' suit against the County of Los Angeles alleged causes of action for wrongful death for violations of EMTALA. Under the federal statute, enacted to prevent patient "dumping," hospital emergency rooms must conduct an "appropriate medical screening" and must stabilize a patient's condition before they transfer the patient. The jury found two physicians at the county's medical facility guilty of negligence and that the negligence was the cause of the child's death. It also found that the county violated EMTALA by failing to stabilize the child's medical condition before her transfer to another medical facility. The jury assessed economic damages of $3,000 and non-economic damages of $1.350 million, which were reduced by the trial court to $250,000 under the California Medical Injury Compensation Reform Act, known as MICRA, which limits non-economic damages to that amount if the underlying conduct is "based on professional negligence."

The parents appealed on the ground that MICRA's limit should not apply to claims under EMTALA, but the court of appeal affirmed. Relying on California Supreme Court decisions, the court noted that "professional negligence," as used in MICRA, has been given a broad reading and is not limited to breach of a standard of care. It noted that in the case before it the challenged conduct was the hospital's failure to stabilize the. child's emergency medical condition prior to transfer and that the failure to stabilize resulted from a failure to diagnose the child's condition properly. Under the circumstances, the court declared, the failure to stabilize claim was "based on professional negligence."

The court noted but specifically refused to follow two cases from the federal court for the Northern District of California reaching a different conclusion--Jackson v. East Bay Hospital, 980 F.Supp. 1341 (1997), and Burrows v. Redbud Community Hospital District, No. C-96-4345 SI.

Barris v. County of Los Angeles, 1998 WL 10262, review granted, 70 Cal.Rptr.2d 281 (Cal. 1998).


Some Get Them on Future Payments, and Some Don't

The Sixth Circuit criticized and overturned a district court judge's award of fees to class action counsel on payments not yet received and services not performed, but a district court judge in Texas approved future contingent fee payments to private lawyers who represented the state in a suit against the tobacco industry.

The Sixth Circuit case involved a class action settlement with Pfizer Inc. and Shiley Inc. based on allegedly defective heart valve implants. The settlement, reached in 1992 and ultimately approved by the U.S. Supreme Court in 1994 (513 U.S. 916), called for payments into several funds, to one of which Pfizer is obliged to make annual payments of $6.25 million until 2005. District Judge Nangle of the Southern District of Ohio awarded class counsel fees of up to 10 percent of the prospective annual payments, with a provision that the counsel should apply for fees claimed annually, after which the trustees of the settlement fund would make a fee recommendation to the court. He assigned the adjudication of future fee applications to Judge Spiegel of the same court. 927 F.Supp. 1036 (1996); 102 F.3d 777 (6th Cir. 1996).

When Pfizer made its $6.25 million payment in 1996, class counsel requested fees of $722,988, but the trustees recommended an award of 10 percent--$625,000, plus expenses. Judge Spiegel approved that recommendation but went on to award 10 percent for each of the future years until 2005, "regardless c,f the lodestar," although he recognized that the lodestar for 1996 exceeded the 10 percent cap. His award of the future fee payments was made in order to resolve the fees issue and on the ground that the awards would "balance out" over the remaining years of the settlement.

The Sixth Circuit reversed Judge Spiegel's order both as to the first year's fees and as to future years. "A flat award is not sufficient," the court stated, adding that the original Nangle order anticipated individualized inspection of future fees. While billing records need not be examined in "excruciating detail," the court continued, the district court must "establish some reasonable relationship between hours worked for the class and fees paid by the class."

As to the future payments, the Sixth Circuit said that the Spiegel award was so "indefensible" that even the class counsel did not defend it, noting that class counsel would receive flat fees in the future years even if they performed services that could be "incredibly minimal."

Bowling v. Pfizer Inc., 132 F.3d 1147 (6th Cir. 1997).

In the Texas case, Judge Folsom of the U.S. District Court for the Eastern Division of Texas approved the fee arrangement between Texas and outside counsel who represented the state in litigation against the tobacco industry that resulted in a $15.5 billion settlement to be paid over 25 years. The arrangement calls for a 15 percent contingent fee. Praising outside counsel for the result they achieved, Judge Folsom found the contingent fee reasonable and said the outside counsel "are entitled to 15 percent of any and all payments to the state arising out of this litigation payable over the 25-year term of the settlement agreement."

Judge Folsom grounded his appraisal of the fee arrangement on the factors recommended by the Fifth Circuit in Johnson v. Georgia Highway Express, 488 F.2d 714 (1974), as made applicable by the Fifth Circuit to contingent fees in Hoffert v. General Motors Corp., 656 F.2d 161 (1981). Those factors are: (1) the time and labor required; (2) the novelty and difficulty of the questions involved; (3) the skill required to perform the legal services properly; (4) the preclusion of other employment by the attorney because of the acceptance of the case; (5) the customary fee; (6) whether the fee is fixed or contingent; (7) the time limitation imposed by the client or the circumstances; (8) the amount involved and the results obtained; (9) the experience, reputation and ability of the attorneys involved; (10) the "undesirability" of the case; (11) the nature and length of the professional relationship with the client; and (12) awards in similar cases.

Texas v. American Tobacco Co., No. 5:96EV91, January 22, 1998.


Uninsured Drivers, Drunks Lose Right to Non-economic Damages

In November 1996, 76.83 percent of California voters approved a legislative initiative, known as Proposition 213, and adopted California Civil Code Section 3333.4, which prohibits uninsured motorists and drunk drivers from collecting noneconomic damages in any action arising from the operation or use of a motor vehicle. Prop. 213 provided that it should "be effective immediately upon its adoption by the voters" and that its "provisions shall apply to all actions in which the initial trial has not commenced prior to January 1, 1997."

David Yoshioka was rear-ended in July 1994 and filed his suit in June 1995. He was uninsured at the time of the accident, although California has a financial responsibility act. By November 1996, the action had gone to arbitration, at which an award was made. But both parties requested a trial de novo, which was set for March 1997. The trial judge granted the defendants' motion in limine to preclude Yoshioka from offering evidence on general damages--that is, non-economic damages of pain and suffering.

In October 1997, the California Court of Appeal, Second District, affirmed, holding that Prop. 213 was constitutional and that it could be applied to Yoshioka's suit. In November 1997, the court certified its decision for publication, but this was opposed by "consumer" groups and the plaintiffs' bar. Finally, on February 18, 1998, the California Supreme Court, over the dissent of one justice, refused to depublish the decision, meaning that the case can be cited and is binding on trial courts in California. The supreme court did not rule, however, on Prop. 213's constitutionality, which still is an open question at that level.

The intermediate appellate court's decision dealt with both due process and equal protection arguments on two levels--retroactivity and constitutionality. Prop. 213 was held to apply to the Yoshioka suit, even though the accident occurred and the suit was filed prior to its adoption, on the ground that "initial trial" had not commenced by January 1, 1997, Prop. 213's effective date. The state's interest in restoring balance to the justice system and in reducing costs of mandatory automobile insurance were strong factors in the decision. They also figured in the court's finding that Prop. 213 did not violate constitutional concepts of Clue process and equal protection.

"The electorate rationally concluded that eliminating non-economic damages to uninsured drivers is related to the goal of reducing insurance costs," the court declared, pointing out that the California Department of Insurance has ordered automobile insurers to reduce liability rates in response to Prop. 213. "In considering these results," the court continued, "it can hardly be irrational for voters to have assumed that by classifying the uninsured would help to reduce premium prices."

One justice dissented on the ground that Prop. 213 should not be applied retroactively to this case and did not reach the issue of constitutionality.

Yoshioka v. Superior Court (Todd), 68 Cal.Rptr.2d 553 (Cal.App. 1997).


Apparent Authority Trumps Plain Statements

An agency relationship can be inferred despite a physician's legal relationship with a health maintenance organization and despite notification to the HMO's subscribers that the physicians are not agents, an Illinois intermediate appellate court held.

The case involved an independent practice model HMO, which arranged for health care by contracting with independent medical groups on a capitation basis. The HMO offered an insurance plan to which the plaintiff's employer subscribed. The plan's member handbook and subscriber certificate both stated that physicians were independent contractors and not agents or employees of the HMO.

Claiming negligent failure to diagnose cancer on the part of her primary care physician and an independent specialist, the plaintiff sued the HMO on the theory of apparent agency. She stated that she read portions of the handbook but could not recall receiving the certificate. The trial court refused to swallow the theory and granted summary judgment to the HMO, stating: "This information was not hidden anyway. It is set out as to what the relationship of the parties is."

Reversing, the First District Illinois Appellate Court concluded that summary judgment was improper because the plaintiff had the possibility of proving implied or apparent authority. There are three facets to apparent agency, the court said--first, exertion of sufficient control over the party claimed to be an agent; second, a "holding out" of the party as an agent; and third, reasonable reliance by the third party on the principal's conduct. These were possible of proof in this case, the court continued--control was exercised through the HMO's quality assurance program; the handbook said the HMO was "your health care manager" and provided "all your health care needs"; and the plaintiff's admission that she didn't read the documents made little difference because the agency relationship could be inferred without regard to the legal relationship.

Petrovich v. Share Health Plan of Illinois Inc., Inc., 98 WL 122990, March 20, 1998.


A State Is a State in Massachusetts

When a statute uses the word "state," it means a state of the United States, the Supreme Judicial Court of Massachusetts held in denying the Massachusetts insurance commissioner's power to authorize a domestic insurance company to transfer its domicile to Bermuda.

The Massachusetts statute at issue authorizes a domestic insurer to "transfer its domicile to arty other state." Acting under this statute, the Massachusetts commissioner of insurance in 1995 issued an order authorizing Electric Mutual Liability Insurance Co. to redomesticate to Bermuda. The company, known as EMILCO, later declared itself insolvent, and the commissioner filed a petition to be appointed receiver in the United States. Several of EMILCO's reinsurers opposed the petition on the ground that the commissioner had no authority to approve a redomestication to a foreign country.

The Massachusetts court agreed. "State," as used in the statute, means a state of the United States, the court said. While the dictionary definitions of "state" might support the commissioner's position, the court pointed out that in other Massachusetts statutes, the: words "other country" were added if the legislature intended to include foreign states or nations. The court also relied on the fact that the Massachusetts statute was patterned on a model act of the National Association of Insurance Commissioners, whose history indicated that it was concerned with protecting resident policyholders' interests and that it contemplated transfers between "states" regulated by NAIC members.

In a footnote, the court stated that it was not concerned about the consequences of its decision in Bermuda. "We simply hold," Justice Abrams wrote, "that EMILCO remains a Massachusetts insurer."

In re Electric Mutual Liability Insurance Co. (No. 1), 688 N.E.2d 947 (Mass. 1998).


Title VII Encompasses Same-sex Harassment

The prohibition of Title VII of the Civil Rights Act of 1964 against an employer's discrimination because of "sex" applies to workplace harassment that occurs when the harasser and the harassed employee are of the same sex, the U.S. Supreme Court ruled.

A male worker's complaint alleged that he was forcibly subjected to sex-related, humiliating actions by fellow male workers and threatened with rape. Despite protests, the employer took no action. Ultimately, he quit, asking that his pink slip reflect that he "voluntarily left due to sexual harassment and verbal abuse." The district court granted summary judgment to the employer on the ground that Title VII does not support a same-sex complaint. The Fifth Circuit affirmed. 83 F.3d 118 (1996).

The Supreme Court, in an opinion by Justice Scalia, first noted that it had established in Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57 (1986), and Harris v. Forklift Systems Inc., 510 U.S. 17 (1993), that Title VII is violated when, to quote Harris, "the workplace is permeated with discriminatory intimidation, ridicule, and insult that is sufficiently severe or pervasive to alter the conditions of the victim's employment and create an abusive working environment."

"We see no justification," Justice Scalia declared, "in the statutory language or our precedents for a categorical rule excluding same-sex harassment claims from the coverage of Title VI." He conceded that male-on-male sexual harassment was not the principal evil with which Congress was concerned in enacting Title VII. "But statutory prohibitions often go beyond the principal evil to cover reasonably comparable evils," he added, "and it is ultimately the provisions of our laws rather than the principal concerns of our legislators by which we are governed."

The Court denied the criticism that its holding would transform Title VII into a "general civility code for the American workplace." It pointed out that the act requires "discrimination" and that workplace harassment, even between men and women, is not automatically discrimination. "Common sense, and an appropriate sensitivity to social context, will enable courts and juries to distinguish between simple teasing or roughhousing among members of the same sex, and conduct which a reasonable person in the plaintiff's position would find severely hostile or abusive."

Oncale v. Sundowner Offshore Services Inc., 118 S.Ct. 998 (1998).
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Publication:Defense Counsel Journal
Date:Apr 1, 1998
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