Segal McCambridge Legal Blog

In a recent ruling in New Jersey by The Hon. Carol Higbee, a Segal McCambridge client was dismissed from over 900 cases.  In her May 4, 2012 decision, Judge Higbee granted the motion to dismiss filed by the firm, agreeing that a generic drug manufacturer whose product is unilaterally designated by FDA as the Reference Listed Drug (RLD) does not have regulatory responsibilities beyond those of any other generic drug manufacturer.  The client in these matters is represented by Bob O’Malley, a partner in the Chicago office.

An article about this decision was published in Bloomberg BNA’s Product Safety & Liability Reporter on May 14, 2012. To read the article, click here.

Today, the article I wrote with my colleague John Lee, “Climate Change Claims: The Next Y2K Insurance Litigation Scare?� appears in the current issue of Business Insurance. Just before publication, I was able to modify the article to include mention of recent developments in one of the cases, AES Corp. v. Steadfast Ins. Co. On April 20, 2012, the Virginia Supreme Court affirmed its prior ruling that Steadfast Ins. Co. has no obligation to defend or indemnify AES Corp. in a climate change liability case arising out of an underlying suit brought by the Village of Kivalina, Alaska. The court found no coverage because the underlying complaint alleged damages that were the “natural and probably consequence� of AES’s intentional actions.  Consequently, the court noted that the complaint did not allege a fortuitous accident or event. As we explain in the article, Kivalina is an Inupiat island community in the Arctic waters just off the Alaskan coast. Residents sued ExxonMobil and others energy firms, claiming the companies’ activities were contributing to global warming which damaged the sea ice that protects the island’s coast from storms. Shoreline erosion, the suit claimed, would ultimately force the population to relocate.

As has happened in similar cases, the judge dismissed the case as centering on “non-justiciable� issues, or issues better addressed through political, rather than judicial, means. The underying case is on appeal.

To read the entire Business Insurance article, click here.  (Free registration required to read the complete article.)

In a very disappointing decision, the Indiana Supreme Court’s opinion in the Flexdar matter, handed down yesterday, is not favorable to insurers.  In a 3-2 decision, the court concluded that the standard absolute pollution exclusion in CGL policies is ambiguous and that the standard ISO modification endorsement did not resolve the ambiguity in the exclusion.  In one bright note, the court did hold that a 2005 “Indiana Changes – Pollution Exclusion� endorsement drafted by State Auto, which was not included in the policies at issue, did “resolve any question of ambiguity,� so policies with similar pollution exclusion endorsements should be applicable under Indiana law.

To read the decision, click here.

Since December 5, 1980, Medicare has been a secondary payer, meaning that if a Medicare recipient has another source of funds for medical care, that source must pay first. Thus, in personal injury actions where an injured plaintiff whose related treatment was paid for by Medicare, Medicare must be reimbursed out of funds from a settlement, judgment or other award.  Medicare has just implemented a $300 settlement threshold for certain Liability Insurance cases.  For cases meeting the below criteria, where the lump sum settlement payment was $300 or less, Medicare will not seek to recover from the settlement, judgment or award.  This limit to recovery does not apply to exposure cases, such as asbestos-related disease cases, nor does it apply to cases where an insurer is paying on-going medical bills. The criteria established by MSPRC is (quoting from  http://www.msprc.info/index.cfm?content=toolkitsalert):

• The beneficiary’s settlement, judgment, award or other payment claims/releases a physical trauma-based incident/injury/accident/illness. (This does not include alleged ingestion, implantation or exposure-based incident/injury/accident/illness).
• The beneficiary obtains a liability insurance (including self- insurance) settlement, judgment, award, or other payment for a Total Payment Obligation to Claimant (TPOC) of $300 or less.
• There are no multiple settlements, judgments, awards or other payments for the same underlying claim which total more than $300.
• A demand [letter from MSPRC] has not been issued.

Currently, reporting requirements under the Medicare Secondary Payer (MSP) Act require claims resolved on or after October 1, 2011 for over $5,000 to be reported to the Centers for Medicare and Medicaid Services (CMS) starting January 1, 2012. In an effort to analyze the impact of the threshold on both funds recovered and costs of compliance, RAND looked at data from auto injuries and medical malpractice claims in a recently published Occasional Paper, “Recovery Under the Medicare Secondary Payer Act: Impact of Reporting Thresholds.” RAND authors Eric Helland and Fred Kipperman concluded that maintaining a reporting threshold for cases resolved, such as $5,000, will have a minimal impact on revenue and significantly relieve reporting burdens. Using auto accidents as an example, and  assuming there is no reimbursement to Medicare from recoveries on claims under the threshold, “retaining the $5,000 reporting threshold would reduce recoveries by 2.4 percent, or $24 million, while reducing the number of claims that must be reported by 43 percent.” As many insurers have implemented procedures to address conditional payments on every claim involving a Medicare recipient, regardless of the reporting threshold, it is possible this reduction in recovery will be even less, with great savings to the insurance industry. As costs are often passed on to consumers, many may benefit should CMS maintain a $5,000 reporting threshold.
The RAND paper may be accessed at http://www.rand.org/pubs/occasional_papers/OP332.html

For more information on the author of this post, click here.

In Wilson v. State Farm, a ruling made June 14, 2011 in the USDC, WD KY, the court found an insurer did not act in bad faith in its refusal to pay a settlement while Medicare as Secondary Payer issues remain unresolved.    In summary, a settlement agreement was reached, the defendant wanted to resolve Medicare liens before paying the plaintiff and plaintiff’s counsel refused to cooperate and would not let State Farm talk to Medicare. Instead he “asked State Farm to deposit the full policy limits in an escrow account from which the Medicare lien would be paid. Plaintiff agreed “to hold State Farm . . . harmless from any claim by Medicare.” Medicare was not involved in nor bound by this agreement. As an alternative, State Farm suggested including Medicare as a payee on the settlement check. Plaintiff rejected this request. Finally, State Farm decided to await Medicare’s determination of the value of its lien and then issue separate checks to Medicare and Plaintiff.â€�

Plaintiff filed an action claiming “to delay payment of the $50,000 more than thirty days merely to protect Defendant from later liability to Medicare� was bad faith. Plaintiff ad a separate count under a KY statute that would allow for 12 percent interest and reasonable attorneys fees where an insurer failed to settle a claim without reasonable foundation. While the bad faith action was pending, State Farm learned the lien amount and paid the plaintiff and Medicare.  

The court found that “ to comply with federal law and to protect its own legitimate interest against overpayment is reasonable and certainly is not in bad faith. Defendant did not delay payment in order to pay less or harass Plaintiff. Motorists Mut. Ins. Co., 996 S.W.2d at 452-453 (stating that “there must be proof or evidence supporting a reasonable inference that the purpose of the delay was to extort a more favorable settlement or to deceive the insured with respect to the applicable coverage”). While it may serve Defendant’s self interest to comply with federal law, such action was not bad faith, especially when Plaintiff apparently refused to cooperate with Defendant’s attempts to pay the claim more quickly.â€�

The court also found that the delay was based on a “ ‘ reasonable  foundation’ “ when the delay in payment of the settlement was to seek “assurances concerning the amount and payment of the lien.�

This is a great ruling for companies who are struggling with resolving Medicare issues on settled cases, working under threat of suit for sanctions.

For more information on the author of this post, click here.

From The Wall Street Journal, the full article can be found here

“Allright, BCS, if you haven’t already, it’s time to crank up your lawyers.

And it’s time to get them up to speed quickly, because the Department of Justice on Tuesday came knocking with a very pointed message: Tell us why the playoff system the NCAA has set up for college football’s highest level continues to exist.

Or, to put it another way, why a playoff system doesn’t exist and why we’re left with this nonsensical bowl system which, year after year after year seems to leave deserving teams out of the national championship conversation.

Click here for the letter, sent by Christine Varney, the head of the DOJ’s antitrust division, to Mark Emmert, the president of the NCAA. The letter reads, in full:

Dear Dr. Emmert:

Serious questions continue to arise suggesting that the current Bowl Championship Series (BCS) system may not be conducted consistent with the competition principles expressed in the federal antitrust laws. The Attorney General of Utah has announced an intention to file an antitrust lawsuit against the BCS. In addition, we recently received a request to open an investigation of the BCS from a group of twenty-one professors, a copy of which is attached. Other prominent individuals also have publicly encouraged the Antitrust Division to take action against the BCS, arguing that it violates the antitrust laws.

On March 2,2011, the New York Times reported that the National Collegiate Athletic Association (NCAA) was “willing to help create a playoff format to decide a national championship for the top level of college football.� In that context, it would be helpful for us to understand your views and/or plans on the following:

1. Why does the Football Bowl Subdivision not have a playoff, when so many other NCAA sports have NCAA-run playoffs or championships?

2.What steps, if any, has the NCAA taken to create a playoff among Football Bowl Subdivision programs before or during your tenure? To the extent any steps were taken, why were they not successful? What steps does the NCAA plan to take to create a playoff at this time?

3. Have you determined that there are aspects of the BCS system that do not serve the interests of fans, colleges, universities, and players? To what extent could an alternative system better serve those interests?

Your views would be relevant in helping us to detennine the best course of action with regard to the BCS. Therefore, we thank you in advance for your prompt attention to this matter.

As the WSJ’s Darren Everson writes, the letter represents the “most dramatic event in a series of recent developments buffeting the BCS.�

BCS executive director Bill Hancock said he’s confident the BCS complies with the law. “Goodness gracious, with all that’s going on in the world right now and with national and state budgets being what they are, it seems like a waste of taxpayers’ money to have the government looking into how college football games are played,â€� he said.”

From The Wall Street Journal

Glynis Martin, a 56-year-old New York social worker, started struggling to keep up with her credit-card bills about five years ago as the mortgage on her Bronx apartment ate up most of her paycheck.

Pretty soon debt-collection calls became routine for her, and in January, Midland Funding LLC sued Ms. Martin in Bronx County Civil Court for $4,524.84.

“I just couldn’t make ends meet and pay off those cards,” she says. “I would have paid them what I could. It seems like they just went straight to court.”

The strategy worked: Midland won a default judgment against her for $5,957.46 after Ms. Martin didn’t show up for the first court date. She is paying $60 a month.

On the same day the company sued Ms. Martin, it filed 109 other cases to recover delinquent debt in Bronx County Civil Court, part of the 4,279 cases filed there since the start of this year.

The average amount of money Midland sued to collect on one day was $2,069. None of the borrowers sued that day had lawyers, and only 10% showed up in court at all.

Across the nation, there is a surge in lawsuits against people who aren’t paying their bills, driven by the debt-buying industry that has boomed in the past three years as a sea of souring loans and credit-card obligations have become cheaper and cheaper to buy amid hard economic times.

Handing debt over to collectors is an important step in cleaning up the financial system, but the explosion in lawsuits—many for small sums—creates problems for the legal system. “There exists a real danger that the courts will be perceived as mere extensions of collection agencies,” says Thomas Donnelly, an associate judge in Cook County, Ill.

There are no nationwide figures available, but a survey of 20 judges across the nation by The Wall Street Journal yielded anecdotes of court calendars choked with debt-collection suits. For example, Judge Donnelly says he has heard as many as 400 cases a day, filed by debt buyers, debt collectors and their attorneys who have often lugged their filings to his courtroom in crates.

Midland, the company that sued Ms. Martin, is a unit of San Diego-based Encore Capital Group Inc., which buys distressed debt—loans on which borrowers have stopped making payments—for a few pennies on the dollar and often sues to collect. Encore says it filed 245,000 lawsuits last year, and nearly half its $487.8 million in gross collections came from legal actions. That is down from the 474,000 suits it filed in 2008, when the financial crisis created an explosion in bad debt. But Encore expects the number of lawsuits to climb this year because of the sluggish economy.

J. Brandon Black, chief executive of Encore, says suing is the only way his company can recover money in many collection cases. “We always prefer to speak with our consumers directly and work with them to create an arrangement that retires their account,” he says. “Unfortunately, we rarely have the chance.” Only 6% of Encore customers respond to a letter, and only 18% respond to a phone call, he adds.

In the 1990s and early 2000s, U.S. consumers went on a colossal spending binge, fueled by easy credit. Total debt outstanding on credit cards rose to $1.9 trillion in 2007 from $475 billion in 1993. When the economy began contracting three years ago, millions of Americans stopped making their loan payments. Lenders have written off $3.2 trillion in consumer debt of all type since September 2007, according to Mark Zandi, chief economist of Moody’s Analytics. That tally includes home mortgages, auto loans and student loans in addition to credit-card debt.
…
The big explosion in lawsuits is coming not from lenders but from firms who buy debt. The four largest publicly traded debt buyers—Encore, Asta Funding Inc., Asset Acceptance Capital Corp. and Portfolio Recovery Associates Inc.—purchased $19.6 billion in distressed debt last year. They typically recover three times what they spend buying debt, according to the Association of Credit and Collection Professionals, a trade group.

If the economy bounces back next year, profits at Encore and other debt buyers are likely to rise as collections improve, analysts say. “There’s still a lot of distressed paper for sale, their collections are good and should only get better, so I’m expecting 2011 and beyond to be a good time for them,” says Mark Hughes, an analyst with SunTrust Robinson Humphrey.

Wall Street has taken notice. J.C. Flowers & Co. LLC, the private-equity firm, has a 24% stake in Encore. BlackRock Inc. owns 6.9% of Portfolio Recovery Associates, a Norfolk, Va., company. In October, the company reported its highest quarterly revenue ever.
…
Employees in Encore’s Midland subsidiary work with outside law firms to file debt-collection suits. Midland has a proprietary computer system called “You’ve Got Claims” that generates unsigned affidavits. In these documents, which are signed and submitted to the court, employees attest that borrowers owe the amount of debt that Midland is suing to collect.

In a deposition filed as part of a civil lawsuit against Midland, employee Ivan Jimenez testified that he signs 200 to 400 affidavits a day. The percentage of documents checked for accuracy against other records is “very few and far between,” he says. “As far as what I deal with, they just come from the printer as far as where we get them.”

U.S. District Judge David A. Katz ruled last year that the debt-collection company violated federal and Ohio laws by trying to collect $4,516.57 in credit-card debt using a phony affidavit. The company certified that the debt was genuine “based entirely” on the printout, rather than personal knowledge of the debtor, the judge concluded.

He refused a request to throw out the lawsuit, which won class-action status. Judge Katz wouldn’t comment on specifics of the case, though he says it shows that lawyers for borrowers should “be more diligent in looking to the underlying documentation” for debts being pursued by collectors.

Mr. Black of Encore, Midland’s parent company, says he wouldn’t comment on pending litigation. However, he emphasizes that “Midland had not misstated the amount of the debt.”
…
The article Boom in Debt Buying Fuels Another Boom—in Lawsuits is here

The Ninth Circuit recently held that discovery sanctions do not trump the merits and affirmed the grant of summary judgment.

The case involved securities litigation against Oracle and three of its officers alleging that Oracle missed its earnings per share target due to an elaborate scheme to defraud the public about the quality of Oracle products and the revenue gained asd a consequence of that fraudulent scheme. The Plaintiffs, despite having enjoyed discovery sanctions as a result of missing Oracle emails and dcouments, were unable to develop evidence to permit a reasonable jury to conclude that their losses were caused by the market’s reaction to defendants’ alleged fraud.

The case can be found here

Courtesy of the Illinois Supreme Court Twitter feed

Effective 01/01/11, Supreme Court Rules 216, 222, 603, 705, 706, 716 & 794 are amended, and effective immediately Supreme Court Rule 296 is repealed.

See more here