Posted on October 11, 2013 in Contracts

Most insurance policies provide for “subrogation.” Subrogation is triggered whenever an insurance company pays out an amount to a policyholder for harm caused to the policyholder by a third party. If the insurer can prove that the third party was at fault, the insurance company can typically file a “subrogation” lawsuit against the third party to recover the money it paid out to the policyholder. To use a simple example, if a third party sets fire to a business’s office, and the business’s insurance company pays the business the amount of its fire loss, then the insurance company can typically sue the arsonist in a “subrogation” action to recover the amount that it paid to the business.
“Subrogation” is defined by everyone’s favorite legal dictionary as “the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim.” Black’s Law Dictionary 1467 (8th ed.2004).

Sometimes, however, an insurer doesn’t want to take the time and incur the expense of having to prove third-party fault, especially when the policyholder has received a relatively modest sum under the policy. What’s a reimbursement-seeking yet litigation-averse insurer to do? Well, the policyholder, despite having been paid by the insurance company, can still sue the third party for any additional losses not covered by the policy. An insurer might choose to write a subrogation provision into its policies that permits the insurer to recover all or part of its payout from whatever other money the policyholder might obtain by directly suing the third-party wrongdoer, or as compensation under some other policy that may be triggered by the incident.
From a customer relations view, however, a policyholder that has taken the time to haul a third party into court (or haggle out a settlement) is unlikely to be overly excited about sharing the fruits of their labor. The policyholder might feel that, equitably, his or her insurer doesn’t deserve to sit back, do nothing, and later take a cut of – or even all of – money it didn’t lift a finger to help secure. This is particularly true where, after the policyholder has paid attorneys’ fees, the insurer wants even more money that’s left over from the recovery. Well, too bad. At least in the context of ERISA (that’s the Employee Retirement Income Security Act, the federal law that covers pretty much every work-related benefits plan in the country), the U.S. Supreme Court said this summer that, if an ERISA plan has such a subrogation clause, that language controls and equitable principles just don’t enter into it.
In U.S. Airways, Inc. v. McCutchen, 133 S.Ct. 1537 (2013), the top court unanimously rejected the claims of a U.S. Airways employee that received $66,866 from his company’s health plan for medical expenses resulting from a car accident. That plan allowed U.S. Airways to reimburse itself from any related recovery from a third party. Not content with just having his medical bills paid for, McCutchen lawyered up (on a 40-percent contingency basis) and sought more than a million bucks from the driver at fault.
As is often the case, however, terrible drivers have terrible insurance, and McCutchen only squeezed a measly $10,000 out of her. After his own insurance company paid out under his policy, McCutchen received a total of $110,000, $44,000 of which went to his attorneys. But before he could pocket the remaining $66,000, U.S. Airways stepped in, contending that, under the plan’s subrogation clause, U.S. Airways was owed full reimbursement of its $66,866 payout from the $110,000 recovery, regardless of his payment of attorneys’ fees. In other words, by independently going after the driver at fault, McCutchen would end up $866 in the hole.
Not surprisingly, McCutchen balked at this potential outcome, so U.S. Airways drove straight into the U.S. District Court for the Western District of Pennsylvania under § 502(a)(3) of ERISA, which allows a health-plan administrator (in a self-funded plan, that’s usually the employer) to obtain “equitable relief” to enforce the terms of the plan. McCutchen protested that U.S. Airways’ request for “equitable relief” under § 502 must incorporate equitable doctrines and principles – particularly those doctrines and principles, such as the so-called “double recovery rule,” that would prevent U.S. Airways from taking money that wasn’t recovered for medical expenses. Even if U.S. Airways did get to dip into his recovery, McCuthchen complained, the equitable “common fund” rule should require U.S. Airways to at least chip in for the attorneys’ fees.
But the District Court wasn’t buying it, and granted summary judgment on the “clear and unambiguous” language of the plan that provided for reimbursement, regardless of what damages the money was ostensibly recovered for or whether the policyholder incurred legal fees in obtaining it. On appeal, the Third Circuit reversed, finding it a bit unfair that U.S. Airways could claim the fruits of McCutchen’s legal efforts, and actually force him to take a loss on the whole deal. It therefore instructed the District Court to calculate some lesser amount of “equitable relief” that would be appropriate given the size of McCutchen’s recovery and the company’s lack of participation in the action against the third party. This time U.S. Airways disagreed, relying on the plain language of its plan contract, and the U.S. Supreme Court agreed to consider the issue.
Justice Kagan agreed that the equity wasn’t a good reason to ignore the express terms of an ERISA plan. Because McCutchen’s plan plainly stated that the employer could reimburse itself from the entire amount obtained from third parties, the “double recovery” rule wasn’t relevant in determining what U.S. Airways was entitled to – it could seek reimbursement from any recovered sums, whether for medical expenses or otherwise. However, Kagan didn’t totally dish McCutchen a bad break.
Where the plan is silent on certain issues, the majority held (or, more specifically, Justice Kennedy’s moderate swing-vote held), well-established contract defaults, such as the common-fund rule, were incorporated into its terms. McCutchen’s plan didn’t say anything about attorneys’ fees, so the Court assumed the plan operated under the common-fund rule. In other words, McCutchen wasn’t forced to “pay for the privilege of serving as U.S. Airways’ collection agent” and he could reduce the company’s reimbursement by its fair share of his fees. (The Court’s conservative bloc dissented here, holding that this question wasn’t fairly presented in the case.)
The take-away lesson: The precise language of subrogation provisions matter. Plan sponsors, particularly those of self-funded health plans, should review plan documents carefully, making sure they specifically address any issue that might otherwise be controlled by an equitable default rule. Not quite sure that you’re sufficiently protected? Please feel free to contact Bill Sinclair, head of STSW’s commercial litigation group, at 410-385-9116 or bsinclair@silvermanthompson.com, and Chris Mincher, an associate in STSW’s business litigation group.

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 Posted on October 11, 2013 in Discovery

According to Silverman, Thompson, Slutkin & White, LLC lawyer Geoff Hengerer, attorneys preparing for litigation against business entities frequently discover former employees who possess potentially relevant information. Before reaching out to these individuals without first informing opposing counsel, however, one must turn to the Maryland Rules of Professional Conduct.

Pursuant to Rule 4.4(b), there is no blanket prohibition against ex parte communications with “third persons,” which specifically includes former employees as noted in Comment 6 of Rule 4.2 and Comment 2 of Rule 4.4; see also, e.g., Chang-Williams v. United States, No. DKC 10-783, 2012 WL 253440, at *4 (D. Md. Jan. 25, 2012) (rejecting the government’s request to block all ex parte communications with former employees “merely because their acts or omissions may be imputed to the government”). Attorneys, however, do not have carte blanche when contacting these individuals. In particular, attorneys cannot seek information from a former employee “relating to the matter that the lawyer knows or reasonably should know is protected from disclosure by statute or by an established evidentiary privilege.” Md. R. Prof’l Conduct 4.4(b). As discussed further below, this prohibition typically governs situations where the individual has information protected by the attorney-work-product doctrine or attorney-client privilege, but it also extends to individuals with “specific confidentiality protection[s], such as trademark, copyright, or patent law.” Md. R. Prof’l Conduct 4.4, cmt. 2.

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 Posted on October 09, 2013 in Hospital Malpractice

Recently, in a medical malpractice wrongful death case in Harford County, Maryland, a jury awarded more than $958,000 to the family of a woman who died after receiving “excessive amounts” of pain medication during a hospital stay. According to the lawsuit, the woman’s death resulted from the hospital providing hospice care rather than standard treatment for her infected ulcers.

In February 2010, the decedent, Beverly Ann Gargiulo, was admitted to Upper Chesapeake Health Center seeking treatment for ulcers that reportedly had become infected. The hospital allegedly told Mrs. Gargiulo she would need hospice care but never communicated that information to her family. During her treatment, Mrs. Gargiulo reportedly received large amounts of narcotics, including morphine and oxycodone, in increasing amounts and with increasing frequency. The family claimed in their medical malpractice and wrongful lawsuit that this pain relief medication was more appropriate for a patient about to die than for a person who was expected to be discharged from the hospital. Gargiulo’s family filed suit against the hospital asserting multiple causes of action for medical malpractice. In August, a jury awarded the family $958,258 after it found that the hospital committed medical negligence in its treatment of Gargiulo, and that this negligence resulted in a wrongful death.

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 Posted on October 08, 2013 in Breathalyzer

Maryland DUI/DWI Attorneys with decades of experience often find and successfully pursue defenses that less experienced attorneys find or even bother looking for. Unfortunately, many inexperienced DUI attorneys or attorneys who really specialize in areas of the law other than criminal defense, never look beyond the breathalyzer result, particularly in first offense cases that don’t involve an accident or any injuries. The thinking is that the first offender will in most cases receive probation before judgment (PBJ) anyway so why bother? The person won’t go to jail and will not get points on his or her license so a PBJ is really as good as a not guilty or a dismissal. I beg to differ.

Aggressive and Experienced DUI Attorneys know that there is a world of difference between a PBJ and a not guilty verdict. First of all, even if the client does receive PBJ, he or she will almost certainly be required to pay fines, attend alcohol counseling and serve a period of supervised probation. There may be other time consuming and costly requirements placed upon the client as well such as community work service, AA meetings and shock trauma visits to name just a few. Moreover, the PBJ can NEVER be expunged from the person’s record so even though the defendant will not have points assessed by the MVA, a record of the PBJ will always be kept which means that if the person ever gets charged with DUI again – even many years later- the stakes will be much higher as he will be a repeat offender.

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 Posted on October 07, 2013 in Hospital Malpractice

In 1999, the Institute of Medicine estimated that each year 98,000 Americans die as a result of medical malpractice. A recent study published in the Journal of Patient Safety says that number now is estimated to be between 210,000 and 440,000 patients. The new estimates, developed by John T. James, a toxicologist at NASA’s space center in Houston and leader of an advocacy organization called Patient Safety America, were based on the findings of four recent studies which examined records of more than 4,200 patients hospitalized between 2002 and 2008. A copy of the article can be found here.

What makes those numbers particularly appalling is that the causes of wrongful death were preventable medical mistakes, such as errors of commission and omission, errors of communication and context, and diagnostic errors. And, even more disheartening, this number would make medical malpractice errors the third-leading cause of death in America, behind heart disease and cancer, respectively.

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 Posted on October 01, 2013 in Real Estate

STSW lawyer Bill Sinclair recently convinced a Maryland state judge that he should strike an amended complaint that contained a RESPA claim against STSW’s client, Lakeview Title. The plaintiffs were home purchasers who originally brought suit in 2010 against Long & Foster, Creig Northrop, and various related entities and individuals for alleged fraud in the sale and purchase of their homes.

In February 2012, plaintiffs subpoenaed certain information from Lakeview Title, which provided settlement services to the purchasers. However, plaintiffs waited until March 2013, after the Court had already dismissed the other claims, to amend their complaint and add a RESPA claim against Lakeview and others. On behalf of Lakeview, STSW argued that the Court should strike the amended complaint because it violated the scheduling order in place and because plaintiffs were on notice of the RESPA claims in February 2012 but waited until March 2013 to file suit in violation of RESPA’s one year statute of limitations.

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 Posted on September 29, 2013 in Contracts

There is a critical federal statute that all insurance litigators should be aware of when their case is “removed” from a State trial court to a federal court. Insurance companies often remove State court cases to the federal system to take advantage of what they apparently believe is a strategic advantage. Although this perceived advantage may or may not exist, all aggressive insurance attorneys should know how to fight back.

First, you should know that there is a presumption against federal court jurisdiction. By statute, a federal district court must send any case that lacks subject-matter jurisdiction back to State court. 28 U.S.C. §1447(c). And although a plaintiff usually has only thirty days to object to a defendant’s “removal” of a State case to federal court, an objection based on the federal Court’s lack of subject matter jurisdiction can be raised at any time before final judgment, even in the middle of a trial. 28 U.S.C. §1447(c). Federal courts routinely make thorough examinations of subject matter jurisdiction early in a case in order to avoid wasting resources on a case that ultimately needs to be sent back to State court.

Insurance companies “remove” many insurance cases from the State system to the federal system by alleging that federal “diversity jurisdiction” supports the removal. “Diversity jurisdiction” generally means that the opposing parties are from different States (and that a minimum amount in dispute has been met). A federal district court lacks diversity subject matter jurisdiction when only partial, but not complete, diversity exists. See, e.g., Fekyibelu v. Tolen, 2012 WL 6679452 (D.Md., Dec. 20, 2012).

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 Posted on September 28, 2013 in Employment Law

Silverman Thompson lawyers Bill Sinclair and Anna Skelton recently convinced a New Jersey federal judge that he should compel arbitration of their suit, effectively dismissing a federal complaint. The plaintiff, Precision Funding Group, sued its competitor, National Fidelity Mortgage, for alleged interference with contracts and business opportunities (among other business torts). PFG based its complaint in large part on the actions of two former employees who left PFG to work for NFM. In addition to its suit against NFM, PFG initiated arbitrations against its former employees pursuant to a clause in their employment agreement, drafted by PFG, that required mandatory arbitration.

On behalf of NFM, Sinclair and Skelton argued that the federal suit against NFM was essentially the same suit that PFG brought in arbitration against its former employees and the Court should therefore “equitably estop” PFG from proceeding with its Federal claims. After extensive briefing and a lengthy hearing, the Court agreed, finding that even though NFM wasn’t a party to the employment agreements that provided for the mandatory arbitration, it had standing to compel arbitration because its claims were “inextricably intertwined” with those in arbitration.

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 Posted on September 27, 2013 in Corporations

For users of the popular Pandora Internet Radio website, the day the music dies has been delayed for at least a few more years. That’s thanks to U.S. District Court Judge Denise Cote of the Southern District of New York, who earlier this month saved the music service from being stripped of its rights to play songs owned by major record companies Sony/EMI, Warner, Universal, and BMG. It’s a case showing that the ever-shifting legal landscape regarding online music consumption is still in many ways tied to the Golden Age of Radio.

For those who aren’t familiar (and if you’re a music fan, definitely check it out), Pandora works by playing songs that correspond to a general type of music or artist that the user selects. The listener can give positive or negative feedback for each song that plays, allowing the site to narrow its selections to songs that the listener is more likely to enjoy. Along the way, links are provided so that users can easily buy the songs or albums from online retailers. Combined with its popular streaming service and mobile app, this nifty little audio experiment has turned into big business: Pandora reportedly has more than 150 million registered users and is valued at $2.6 billion, having pulled in $427.1 million in revenue is Fiscal Year 2013.

Not surprisingly, the music-publisher bigwigs want to grab that cash with both hands and make a stash. Pandora gets a bunch of their tunes through a five-year blanket license, attained in 2011, with the American Society of Composers, Authors, and Publishers (ASCAP), a performing rights organization. So later that year, Sony/EMI took away ASCAP’s right to license its music to “new media,” i.e., money-making Internet innovators such as Pandora. That brought Pandora crawling into the negotiation room, and last year an separate licensing agreement was reached with Sony/EMI. Smelling the blood in the water, Warner, Universal, and BMG then announced that they, too, were yanking ASCAP’s new-media licensing rights. Same old song and dance.

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 Posted on September 23, 2013 in Assault

Assault Cases are among the most common cases Aggressive Maryland Criminal Defense Attorneys handle. These are among the most serious cases that we see, particularly when the case involves significant injury or a vulnerable victim. The maximum penalty for just misdemeanor Assault, known as Second Degree Assault is a whopping 10 years! Of course people do not often the maximum penalty for this crime, but people are regularly incarcerated for assault cases in Maryland.

I had a case in Baltimore County last week involving a fight between two women. Prison was a distinct possibility for my client in the event of a conviction as the so called victim in the case was both seriously injured and at least claimed to be a vulnerable victim. Here are the facts of the case.

My client is a 35 year old mother of six. She went to a Subway shop last summer to purchase food for her children and herself. According to her version of the events, as she was getting back into her car, an empty soda can fell out onto the pavement. As she got back out of her car to pick it up and throw it away the alleged victim pulled into the parking lot with her 14 year old son in the car. According to my client, the alleged victim called her a white trash littering piece of sh*# and other choice names before she even had as chance to pick the can up to throw it in the trash. The women then got out of the car and a fight commenced.

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