Medicare Advantage Plans: There is a New Lien in Town
Erin T. Collins, Hedrick Gardner Kincheloe & Garofalo, LLP
Attorneys defending clients in civil and workers’ compensation cases understand that settlements involving Medicare beneficiaries must involve an arrangement to reimburse traditional Medicare for claim-related conditional payments made under Medicare Parts A and B. There is an established process (albeit a long and arduous one) to obtain a conditional payment demand from traditional Medicare when settling these types of claims. As the title of this article indicates, there is now yet another box to check when resolving claims with Medicare-eligible claimants: Do any Medicare Advantage Plans have a lien against this settlement?
Medicare Advantage Plans are not actually new; however, they are becoming increasingly popular with Medicare-eligible individuals, and recent litigation indicates they may have the same or similar recovery rights as traditional Medicare. Medicare Advantage Plans are insurance plans for Medicare-eligible individuals administered by private entities (for example: Medicare Blue, Humana, AARP) but funded in part by the federal government. See 42 U.S.C. §§ 1395w-21-28. It is Medicare’s formal position that these plans should be given the same rights of recovery against third party claims as traditional Medicare. (See CMS Memorandum on December 5, 2011, re: Medicare Secondary Payment Subrogation Rights, Authored by Danielle R. Moon, J.D., M.P.A., and Cynthia Tudor, Ph.D.)1. Several Courts throughout the country have recently allowed these plans to recover their payments from settlements through filing a private cause of action in federal court. In re Avandia Mktg. Sales Practices and Products Liability Litigation, 685 F.3d 353 (3d Cir. 2012); Humana Ins. Co. v. Farmers Texas County Mutual Insurance Co., 95 F. Supp. 3d 983 (W.D. Tex. 2014); Collins v. Wellcare Healthcare Plans, Inc., 73 F. Supp. 3d (E.D. Louis. 2014). Assuming this position continues to prevail, Medicare Advantage Plans will be able to bring private causes of action against insurers - even after a settlement - in the event they are not reimbursed out of the settlement proceeds. To add insult to injury, these plans may also be able to seek double damages against primary payers under the right set of circumstances. See 42 U.S.C. § 1395y(b)(3)(A).
Approximately one third of all Medicare-eligible individuals have enrolled in a Medicare Advantage Plan. See “Don’t Settle for Less: Protecting Medicare Advantage Plans’ Recovery Rights,” Aaron P. Frederickson, 88 A.P.R. Wis. Law. 30 (April 2015). As such, it is likely that most workers’ compensation and/or liability defense attorneys are currently handling at least one case involving a Medicare Advantage beneficiary (even if they do not know it). There are unique challenges presented when dealing with Medicare Advantage Plans, and although some questions remain unanswered, here is basic information for attorneys handling cases involving claimants with a date of birth of 1950 or earlier, or with a long-term SSA-approved disability.
Awareness of the “new lien” in town is step number one to protecting clients from future liability related to Medicare-related liens. Good luck out there!
1Found at: https://www.cms.gov/Medicare/Health-Plans/HealthPlansGenInfo/downloads/21_MedicareSecondaryPayment.pdf
2 Found at http://web.wmitchell.edu/law-review/wp-content/uploads/2015/05/5.-Jordan_Website.pdf,
Department of Education Sides with Transgender Student’s Allegations of Sex-Based Discrimination
Sidney O. Minter, Teague Campbell Dennis & Gorham, LLP
On November 2, 2015, the Department of Education (the “DoE”) issued a potentially landmark decision regarding the rights of transgender students. This decision was issued following months of investigation into allegations that Palatine High School District 211 (the “District”) discriminated against a transgender female (“Student”) on the basis of her sex. The DoE determined that the District violated federal discrimination laws by denying Student access to gender-appropriate locker rooms because she is transgender.
In December 2013, Student filed a complaint against the District alleging violations of Title IX. of the Educational Amendments of 1971 (“Title IX”). Based on the allegations of Student’s complaint, she was born a male at birth, but identified as a female from a young age. The complaint also indicated that Student came out to her family as transgender a few years earlier and that she owned a United States passport identifying her as a female. The complaint outlined that Student had been diagnosed with a psychological condition—gender dysphoria—a condition for persons who experience incongruence between their experienced/expressed gender. In addition, Student indicated that, for the past few years, she lived her life as a female (There was not any discussion regarding whether Student underwent a medical procedure to change her sex). This included dressing and presenting as a female, requesting that everyone refer to her by her female name, requesting that everyone refer to her using female pronouns, and by using female restrooms.
During her eighth grade year, she requested a meeting with administrators from the District regarding her transition to high school. Following a meeting with a psychologist from the District, she was informed that she would be allowed to use girls’ restrooms, to wear female uniforms during gym class, and to participate on female athletic teams. However, at the same time, she was informed that she would not be allowed to use girls’ locker rooms to change for her daily gym class. Instead, she was instructed to use a separate bathroom, which she contended was far from the gym. Following this decision, Student met with the District’s principal—who confirmed the District’s position regarding Student’s access to girls’ locker rooms.
Student’s Legal Arguments:
In Student’s complaint against the District, her legal counsel alleged a number of legal claims. First, Student alleged the District had engaged in per se discrimination by singling Student out for differential treatment and segregating her from other students because of her gender identity. Next, she alleged that the District engaged in per se discrimination against Student due to her change of sex. Lastly, she alleged that the District’s decision to ban her from the girls’ locker rooms was unlawful sex stereotyping under Title VII.
The District’s Legal Arguments:
The District has made a number of legal arguments, but, ultimately, its legal position seems to be steeped in Constitutional Rights—namely, the Right to Privacy. The District believes its decision to not allow Student unfettered access to the girls’ locker rooms is both lawful and reasonable. The District emphasized that its position protects the privacy rights of all students when changing clothes or showering before or after physical education and after-school activities. Moreover, the District noted that it continues to support transgender students and families—while always balancing the rights and concerns of the other 12,000 or so students it serves. Further, the District believes that it has provided individual accommodations in a manner that does not infringe on the privacy concerns of other students, and will continue to do so—despite the DoE’s ruling. Lastly, the District underscored that it is prepared to contest the DoE’s ruling through litigation—if necessary.
Department of Education’s Ruling:
On November 2, 2015, the DoE found that the District denied Student access to the girls’ locker rooms because of: (1) her gender identity, and (2) her gender nonconformity. If true, both of these claims are actionable causes of action. The DoE’s ruling mandates that the District: (1) reach a solution before the expiration of thirty days (on or before December 2, 2015); or (2) face enforcement, which could include administrative law proceedings or a Justice Department court action. Additionally, the District could lose some or all of its Title IX. funding.
Potential Ramifications of the Ruling:
This case is the first of its kind and could lead to new legal precedent in the developing area of discrimination against transgender individuals. The parties on both sides of this issue—whether the District violated federal discrimination laws by not allowing Student unfettered access to the girls’ locker rooms—are fighting for the rights of many. The District is advocating for similarly situated schools across the country. The District believes it has been reasonable and complied with applicable federal laws as it relates to Student’s treatment. On the other hand, Student is fighting for transgender students across the country who have been subjected to discriminatory treatment, and/or been ostracized, bullied or demeaned.
I believe this case will be litigated in federal district court because it seems that the District will not comply with the DoE ruling. The legal arguments being advanced by both sides are nuanced and broad sweeping. Determining whether a person’s right to be treated equally should be given more, less or the same credence as another person’s right to privacy is a very difficult legal question. This type of legal question may prove to be one that can only be decided—once and for all—by our nation’s highest court—SCOTUS. To add an additional layer to this case, I also believe the issue of accommodation can easily be applied in other areas of society—such as the workplace. With such potentially wide-sweeping ramifications, I believe we have only reached the tip of the iceberg with respect to the relevant legal issues discussed above.
I will continue monitoring this case because the final decision could very well set legal precedent—as it relates to transgender individuals—in public schools across the country.
What must a plaintiff “beat” to recover attorney fees under the 2011 amendment to N.C. Gen. Stat. § 6-21.1?
Allen C. Smith, Hedrick Gardner Kincheloe & Garofalo, LLP
Absent a statute allowing for the recovery of attorney fees and costs, litigants in North Carolina bear their own costs. Prevailing plaintiffs to recover attorney fees in actions for personal injury and property damage in which the plaintiff can show the following:
(i) that there was an unwarranted refusal by the defendant to negotiate or pay the claim which constitutes the basis of such suit, (ii) that the amount of damages recovered is twenty-five thousand dollars ($25,000) or less, and (iii) that the amount of damages recovered exceeded the highest offer made by the defendant no later than 90 days before the commencement of trial.
(i) that there was an unwarranted refusal by the defendant to negotiate or pay the claim which constitutes the basis of such suit, (ii) that the amount of damages recovered is twenty-five thousand dollars ($25,000) or less, and (iii) that the amount of damages recovered exceeded the highest offer made by the defendant no later than 90 days before the commencement of trial.
N.C. Gen. Stat. § 6-21.1 (2013) (emphasis added).
North Carolina amended N.C. Gen. Stat. § 6-21.1 in 2011 to include the “unwarranted refusal” language; increase from $10,000 to $20,000 the cap on amount of damages for which attorney fees may awarded; add the very important language about the “amount of damages recovered exceed[ing] the highest offer made by the defendant no later than 90 days before trial; and limiting the amount of fees that can be recovered to $10,000. The legislature amended the statute in 2013 again to increase the cap on the amount of damages eligible for an award of attorney fees from $20,000 to $25,000.
As of this date, there is no appellate law in North Carolina addressing “amount of damages recovered” from the 2011 version of N.C. Gen. Stat. § 6-21.1. The only appellate decision addressing the 2011 version of N.C. Gen. Stat. § 6-21.1 is an unpublished one (Morales v. Garcia, 761 S.E.2d 753 (N.C. App. 2014)) which focuses on the “unwarranted refusal” requirement.
What is meant by “amount of damages recovered?”
The threshold question is how to determine whether a jury (or bench) verdict qualifies for an award of fees under N.C. Gen. Stat. § 6-21.1. Does the court compare the jury verdict to $25,000 and the highest offer? Is something added to the jury verdict? If so, what is added? Most likely, the position of a plaintiff’s attorney will depend on whether he or she is trying to beat the offer or keep the “amount of damages recovered” at or under $25,000.
If the plaintiff’s attorney is in the position of trying to beat the offer, expect him to present the court with case law interpreting “judgment finally obtained” under Rule 68 , which addresses offers of judgment, in making his argument for attorney fees. The case of Stillwell v. Gust, 148 N.C. App. 128, 557 S.E.2d 627 (2001), review denied, 355 N.C. 500 (2002), interprets “judgment finally obtained” used in N.C. Gen. Stat. § 1A-1, Rule 68 (“Offer of judgment”). The Stillwell Court holds, “’Judgment finally obtained’ means the amount entered as final judgment modified by any adjustments.” 148 N.C. App. at 131, 557 S.E.2d at 629 (quoting Poole v. Miller, 342 N.C. 349, 353, 464 S.E.2d 409, 411 (1995), reh’gs denied, 342 N.C. 666, 467 S.E.2d 722 (1996)). The adjustments include interest, costs, and even attorney fees.
Prior to 2011, N.C. Gen. Stat. § 6-21.1 allowed an award of attorney fees “where the judgment for recovery of damages is ten thousand dollars ($10,000) or less . . .” N.C. Gen. Stat. § 6-21.1 (2010) (emphasis added). However, the new version of N.C. Gen. Stat. § 6-21.1 does not use the term “judgment” or “judgment finally obtained” – it replaced “judgment for recovery of damages” with “amount of damages recovered” and added the qualification of “the highest offer made by the defendant no later than 90 days before the commencement of trial.” These changes make the language in Stillwell inapplicable to the determination of whether fees may be awarded.
Instead of looking at case law that interprets “judgment finally obtained,” a trial court needs to look at case law interpreting “amount of damages recovered.” In short, the Court is to consider “damages” as opposed to “judgment.” The case of Brown v. Millsap provides the Court with the items or elements a trial court is to add together when considering a request for attorney fees. 358 N.C. 212, 594 S.E.2d 1 (2004) (per curiam decision adopting dissenting opinion of Judge Tyson of NC Court of Appeals in 161 N.C. App. 282, 588 S.E.2d 71 (2003)).
The Brown Court explained what items the trial court is to consider or add together when making a decision about whether a case even qualifies for an award of attorney fees under N.C. Gen. Stat. § 6-21.1. Those items are the jury award and prejudgment interest. 161 N.C. App. at 286, 588 S.E.2d at 73. Significantly, both the NC Court of Appeals (2002) and Supreme Court (2003) decided Brown after the Court of Appeals (2001) decided Stillwell.
In Brown v. Millsap, the jury returned a verdict of $9,500, and the trial court refused to award attorney fees after concluding that “the judgment obtained exceeded “$10,000.00.” 161 N.C. App. at 282, 588 S.E.2d at 71. The trial court included the award ($9,500), pre-judgment interest ($669.76), and costs ($435) when reaching the decision that “judgment for recovery of damages” exceeded $10,000 (which has now been replaced by $25,000). 161 N.C. App. at 283, 588 S.E.2d at 72.
The NC Court of Appeals reversed the trial court, recognizing that “damages and costs are legally separate items” and ruling that “damages” only apply to the jury verdict for purposes of determining whether the $10,000 figure is exceeded or not. Id. (citing Sowell v. Clark, 151 N.C. App. 723, 567 S.E.2d 200 (2002)).
In his dissent opinion that the Supreme Court adopted, Judge Tyson agreed that costs and damages are separate and opined that the jury award is to be combined with mandatory prejudgment interest, but not costs, in determining whether the “judgment for recovery of damages” exceeds $10,000. 161 N.C. App. at 287, 588 S.E.2d at 71.
In conclusion, Judge Tyson wrote:
The trial court erred by adding discretionary court costs of $435.00 to the jury's award of $9,500.00 with interest to determine whether plaintiff was entitled to be heard on its motion for attorney's fees under N.C. Gen. Stat. § 6-21.1. This error is harmless because the trial court was required to automatically add pre-judgment interest of $669.76 to the jury's verdict of $9,500.00.
Id. (emphasis added).
The trial court erred by adding discretionary court costs of $435.00 to the jury's award of $9,500.00 with interest to determine whether plaintiff was entitled to be heard on its motion for attorney's fees under N.C. Gen. Stat. § 6-21.1. This error is harmless because the trial court was required to automatically add pre-judgment interest of $669.76 to the jury's verdict of $9,500.00.
Id. (emphasis added).
Interestingly, even the Stillwell Court acknowledged “damages” are the amount that the jury awards: “After a jury trial, the trial court entered judgment awarding Lisa E. Gaffney Stilwell (“plaintiff”) damages in the amount of $5,401.00 and attorneys’ fees and costs in the amount of $10,853.75 in her civil negligence action against Amanda Danley Gust (“defendant”).” 148 N.C. App. at 129, 557 S.E.2d 628 (emphasis added). The jury had returned a verdict of $5,401 for Plaintiff. Id.
Under North Carolina law, the trial court is to add the jury award and interest together to determine whether “the amount of damages recovered exceeded the highest offer made by the defendant no later than 90 days before the commencement of trial.” N.C. Gen. Stat. § 6-21.1 Costs incurred by Plaintiff are a legally separate issue and not part of any equation when determining whether attorney fees may be awarded under N.C. Gen. Stat. § 6-21.1. This is a fair interpretation which favors the plaintiff when trying to keep the award at or under $25,000 and the defendant when comparing the award to the highest offer.
To keep a plaintiff’s attorney from being duplicitous, pin the attorney down before the trial – in writing! For example, at some point during the negotiations, ask the plaintiff’s attorney what the “amount of damages recovered” includes. Quite frankly, if the plaintiff’s attorney is concerned about staying under $25,000, you may get a different answer than if the attorney is concerned about beating the offer. At a minimum, make your position known, as most plaintiff attorneys are reluctant to take a position.
The language in N.C. Gen. Stat. § 6-21.1 (“Allowance of counsel fees” and N.C. Gen. Stat. 1A-1, Rule 68 (“Offer of judgment”) is different. In some cases, the plaintiff will beat an offer of judgment but not the “highest offer made by the defendant no later than 90 days before the commencement of trial.” In such a case, the plaintiff may recover costs (as defined by N.C. Gen. Stat. § 7A-305 – court reporting fees, expert witness fees, etc.) but not attorney fees.
Send the plaintiff’s attorney a letter containing the offer (e.g., we offer $10,000 in exchange for a voluntary dismissal with prejudice and release of all claims) to address the attorney fee issue and a separate offer of judgment to address the potential for costs. Keep in mind, that it will be easier for the plaintiff to recover costs. Make sure your client understands the different standards that determine whether attorney fees and costs may be awarded.
Use the prayer for relieve in the complaint to your advantage. In Superior Court, the plaintiff will demand of “an amount in excess of $10,000.00 (and now $25,000).” How does this amount compare to the jury verdict? If the amount sought in the complaint is well in excess of the jury verdict and the defendant made a reasonable offer, the defense attorney has reasonable argument that there was no “unwarranted refusal by the defendant to negotiate or pay . . .” N.C. Gen. Stat. § 6-21.1. See also, Harrison v. Herbin, 35 N.C. App. 259, 261, 241 S.E.2d 108, 109 (1978), cert. denied, 295 N.C. 90 (May 8, 1978( (addressing plaintiff’s reliance on Hicks v. Albertson and holding that “[w]hile the statute is aimed at encouraging injured parties to press their meritorious but pecuniarily small claims, we do not believe that it was intended to encourage parties to refuse reasonable settlement offers and give rise to needless litigation by guaranteeing that counsel will, in all cases, be compensated”).
If you like rock and roll, you will love this video: https://www.youtube.com/watch?v=SnnL8wEDNJM.
1“If the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer. The fact that an offer is made but not accepted does not preclude a subsequent offer.” N.C. Gen. Stat. § 1A-1, Rule 68(a) (emphasis added).
Our president, David Hood, asked me to write introducing myself as a new member. I am honored and grateful to be included in this Association, and grateful David asked me to share a little about my practice.
I am proud to be a defense attorney, although I rarely get involved directly in civil litigation. Instead, I represent healthcare professionals in obtaining licenses, defending licensing board disciplinary investigations and charges, in hospital privilege disputes, HMO and other health insurance credentialing and de-selection, DEA registration and show cause proceedings, Medicare exclusion, NPDB reporting and disputes, and military medical credentialing. Although I primarily defend healthcare professionals, I also serve as prosecutor and hearing officer in hospital privileges cases at various hospitals throughout North Carolina.
Litigation in these fora bears a passing resemblance to litigation in court. The basic tools of proof and persuasion are similar. However, there are many differences. Mere public disclosure of the allegations can be very embarrassing, perhaps devastatingly so. There rarely is a judge, and the other side gets to pick the jury (the agency members, typically). The rules of evidence and civil procedure may not apply. Statutes of limitation nearly never stop a case against my client but are usually very strictly enforced when they cut off a defense or right to a hearing or appeal. Compulsory process is often available only to the other side. In some cases, the burden of proof is on my client to establish that he or she did not commit an offense or is of good character. The end result of the “trial” might be a recommendation rather than a binding decision, and the courts may be available only for a pure appeal rather than a new trial. This appeal, if available, typically is limited in its scope. Finally, although insurance might pay my fee, there typically is no coverage whatsoever for any other consequences of the proceeding.
Medical malpractice defense counsel and I work together on issues where there is intersection between the Medical Board and a malpractice claim. The Board reviews all malpractice claim payments, and a Medical Board investigation sometimes precedes and occasionally affects the progress of a malpractice case. Indeed, my first encounter with the Association was as a speaker at the 2010 annual meeting’s malpractice breakout session on how Medical Board and malpractice cases can affect one another.
I got my start in this area of law in 1994 when I became the first in-house chief prosecutor and general counsel to the North Carolina Medical Board, where I remained until the end of 2000. I started my solo practice in Durham, North Carolina, in January 2001.
I am a past president of the North Carolina Society of Health Care Attorneys and have served several terms on the governing councils of the Health and Administrative Law Sections of the North Carolina Bar Association. I have been included in The Best Lawyers in America® in the field of Health Care Law since 2013 and was named the Best Lawyers® 2014 Raleigh Health Care Law “Lawyer of the Year.” I have a Bachelor of Science in Physics (1982) and a Juris Doctor with Honors (1989), both from the University of North Carolina at Chapel Hill. I was an officer in the United States Marine Corps, serving in Beirut, Lebanon, in 1984.
Whenever I can be of help to you or one of your clients, I would be honored for you to ask.
Demasters v. Carilion Clinic: Elimination of the “Manager Rule” in Title VII LitigationSidney O. Minter, Teague Campbell Dennis & Gorham, LLP
Twenty Tips To Take To Trial
By David W. Hood, Patrick Harper Dixon LLP, Hickory NC
Lawyers talk. It’s what we do. I have been in a lot of trials - seen a lot of lawyers do a lot of cool things, and seen a lot of lawyers do a lot of stupid things (definitely including me.) If we want to communicate well to the judge and jury when we are in trials, we need to keep several things in mind.
In fact, we should keep exactly 20 things in mind, and they helpfully all begin with the letter “T”. Wow, how totally convenient.
Let’s begin with preparation before the trial begins. When you are packing your bag for your big trip into the courtroom, there are things you better not forget:
1)Theme. Whenever you hear someone speak effectively, whether it is a sermon, or a political speech, or a jury argument, you can usually distill down into one phrase what the overall point was. That is how a trial theme needs to work. If your friend asks you what case you are trying next week, you should be able to explain the gist of it briefly, but meaningfully. I tried a case with one of my partners where our theme basically was “This is the case where the woman walked out in front of a truck.” Your theme could be less fact-specific, like “This is a case about taking personal responsibility for your actions.” Or you can throw around unnecessary Latin like lawyers often do, as I did once where the case had surface appeal, but not much substance underneath – so my theme was the NC state motto, Esse Quam Videri, which basically means “to be rather than to seem.”
Lots of different types of themes can work – what does not work is trying a case without an overarching theme. I recommend planning your trial theme by starting with the jury issues/instructions (what is it the jury will be deciding and on what basis), then work backwards through the likely evidence that helps or hurts your ability to prove or disprove the important points on each jury issue. Then you can settle on your theme, to tie together the important facts you think will decide the issues for the jury. The theme should be something you at least set the stage for in jury selection and opening statement, even if you don’t say your theme phrase or sentence in so many words until your closing.
I have seen lawyers try a case without an organizational theme. It generally sucks. Don’t do it.
2) Test. Once you have an idea for your theme, flesh it out a little with what you might say in opening and/or closing to explain the theme a little. Then, try it out with other lawyers and, especially, with real people too. We get so caught up in our cases, we live with them and watch them develop over months and years, and thus we lose perspective. You need to test both your theme and your overall trial strategy on folks, and for goodness sake don’t argue with their reactions even if you feel tempted to. Those reactions are a gold mine of information for you, so that you can better persuade the finders of fact at trial. Test your legal arguments on other lawyers as well, as it is also easy to lose perspective on what a judge may or may not go for after you have lived with a case for a long time.
Don’t fall in love with your arguments. You may think they are awesome – but if your spouse says huh-uh, listen to him or her and come up with something else. Winning is not everything, but I’m here to tell ya that losing ain’t nothing. So don’t let your ego get in the way. In fact, if there is a person that you don’t often agree with, seek them out as a test subject. There may be people like that on your jury, so you need to know how they react to your case.
3) Technology. Plan ahead of time with respect to your technology needs for the particular trial you will be conducting. I am not a big-time proponent of trial technology, by any means. In my experience, the fancy stuff can go wrong so often that you lose any benefit of the whiz-bang because the jury is wondering if you are a screw-up. However, I am a Luddite minority on this point and I know it. The important thing I want you to take from this Tip is that you had better practice the hell out of a powerpoint or an animation, or whatever else you plan to use to soup up your presentation. Tech with a glitch is so, so much worse than no tech at all.
Find out what the particular courthouse has in terms of equipment, for playing deposition transcripts or showing documents on a screen, or whatever. Not every court room can be quite as advanced as the ones in Haywood County (yes, Haywood County – I said that right, it’s pretty impressive.) In fact, in some counties you will need to bring your own DVD player and television, even, so please find out and plan ahead. Then, go early to scope out the courtroom so you can figure everything out ahead of time. I tried a case in Hendersonville one time where the opposing counsel wanted to show hundreds of pictures of a condominium project, but then it turned out that to allow all the jury to see the photos well, the projector had to be situated so far from the electrical outlet that the cord would not reach.
He found this out while the jury was watching him trying to rig this thing up on the fly. Ugh.
4) Travel. If you only try cases in a large urban county like Mecklenburg or Wake, then a) I guess you can skip this Tip and b) I feel sorry for you. If you do travel out into God’s country though, in another one of our lovely 100 counties, you need to do some homework before jury selection begins. What are the towns and cities in that county and what are their demographics? Are people from that part of the county likely to be biased against your guy or gal because of where they are from? Who are the big employers in that county and what do they make or do (so you can seem knowledgeable during voir dire.) And for Pete’s sake, don’t underline the fact that you are from out of town by making extraneous comments or by mispronouncing things.
Here are a few of my favorite examples of what not to do. I had an out of state lawyer try a case against me in my home county one time – and when a prospective juror was named Isenhower he went off on a tangent with the guy about how cool it was that he shared a last name with President Eisenhower and how he must be asked all the time if he were related…and all us local folks were rolling our eyes since there are literally thousands and thousands of people in Catawba County with that name, spelled about four different ways.
And then there was the land development case I tried over in Statesville where a know-it-all expert from Charlotte came up there to say how he was very, very familiar with the standards and procedures of the “Erdell” County Building Inspections Department. On cross, I politely asked him to say again what county he thought we were in, and he again, helpfully, mispronounced Iredell County as “Erdell” County. But yeah, he was an expert on how that county did things. Yep.
5) Terse. As in, keep things brief and to the point when planning your trial strategy, theme, examinations and arguments. Lawyers often talk too much, about too many different things, in a trial. It is not effective communication. If you are defending a personal injury case, for example, you should probably pick only one target primarily to shoot at – the plaintiff’s credibility, the doctor’s over-treatment, the spouse’s trumped up consortium claim, the lawyer’s overreaching. Pick only one because it is hard to make a scattershot approach work.
If anything this Tip is even more important when making legal arguments during a trial. If you have a legit argument for directed verdict, or to exclude important evidence, or whatever, please do not pollute your good argument with a bunch of crappy ones. Lawyers do this all the time, and it is a terrible blunder. Make your point, do it persuasively, and then stop talking. I know you want to give the judge several ways for you to win, I get that, but judges are loath enough to make any definitive rulings as it is. The practical effect of talking too much is that you lose whatever persuasive force you had going with your best argument. Same is true for case law – ONE case is enough unless you are just trying to show the weight of the law being on your side, but in that event just suggest to the judge that they only need to look at the one best case with which you started your argument.
6) Three. Humans tend to think in groups of three. Rhetoricians call this the Rule of Three, or if they also like to throw around unnecessary Latin like we lawyers do then they say “Omne Trium Perfectum.” Think about it – it is a common rhetorical device, because people remember it if you say something in a group of three: Life, Liberty and the Pursuit of Happiness; Stop, Look and Listen; the Good, the Bad and the Ugly. The list can go on and on. It works in speechwriting, it works in stand-up comedy, and it works very well in court.
I am not saying that you HAVE to create a group of three points. But if you can figure out how to do it, the technique will help the jurors remember your points back in the jury room. I have tried something like 200 jury trials, give or take, and I bet I was able to use the Rule of Three is at least 180 of those. So, by God, you can do this. If you have a bunch of points to make that is perfectly fine, but group them into three categories. Then, after you win your case, you can go back to the office and tell your co-workers: Veni, vidi, vici. (Caesar and Cicero and those blokes already knew about the Rule of Three some 2 bloody thousand years ago, so what’s your excuse?)
7) Tactics. A trial is not a game. But game theory can be used to help you win it. Every decision you make of a strategic or tactical nature is either a net positive for your position or a net negative. Sure, the outcome of the trial might end up as a draw, like in Chess, but that is not what you are aiming for when you plan your strategy. I am not suggesting that you refuse any procedural proposal made by the other side just because if they want it, you should not want it. Often you get more out of an evidentiary or other agreement than the side that proposed it, or perhaps you agree to it because you think the judge will like you to and that will pay off later in good will. I am only suggesting that you think carefully before any decision to make sure that the net positive is for you rather than against you.
My most important reason for including this Tip, though, is for multi-party cases. Just because you are at the defense table with a co-defendant does not mean you are on the same team with them. Depending on the pleadings or factual situation, you might actually be able to make common cause easier with the plaintiff instead. Conversely, if you are a third-party defendant brought in because the defendant says you are the real cause of the problem, for example, that does not mean you need to put up your dukes and fight with the defendant. Unless the plaintiff asserts a direct claim against you, then your interests and the defendant’s are exactly the same on the liability issue – to convince the jury that the defendant is not liable, since if that is true then neither are you. I had a case one time with a significant coverage issue where my defendant may have been outside the scope of employment and thus without insurance coverage – and the plaintiff’s lawyer was so intent on kicking the crap out of my client that he started asking questions in deposition that would help the carrier trying to get out of coverage. Not bright. Think carefully about your interests vis-à-vis the other interests in the case, then plan your strategy accordingly.
8) Thoughtfulness. Alright, now we move away from pretrial considerations to Tips about what style to use once you are in the courtroom. Be thoughtful, considerate, and use good etiquette. If you are normally a horse’s behind, step out of character when you are in trial. Don’t treat opposing counsel with disrespect, don’t whisper with your client too much (jurors think it is rude if you overdo it), don’t make facial expressions when the other party or lawyer is talking, and for Heaven’s sake don’t yell at your son, in front of the jury, because he is there to help you with your trial technology and it is not going well. Yes, I saw this happen with a normally very good Charlotte lawyer one time, and could hardly believe it.
9) Temperance. This one is a corollary to the last one. Maybe the Rules of Professional Conduct are not always sensible. But the one that says you should yield gracefully to the rulings of the court…yeah, that one is pretty helpful. Lawyers don’t like to lose an argument, heck neither do I, but you cannot keep arguing with the judge after you lose a point. That is, you cannot do that if you want any chance of coming back from that to win the case. I cannot tell you how many times I have seen this happen. I remember doing it myself one time, where I got carried away with myself and blurted out “Yes it is indeed relevant!” after a judge excluding my proposed evidence on the grounds that it was, ahem, irrelevant. And this was in front of one of my all-time favorite Superior Court judges.
Of course, one of the reasons I like him is because he has such an even keel, and is himself very well-tempered. He merely put me in my place the next time the jury left the room, and he was completely right to do that. He and I have never spoken of it again. There are some lawyers, though, who cannot let things go even after the judge calls them down. They keep arguing, they hold a grudge, they mutter under their breath, etc. In addition to “lawyers”, we should also call these folks “losers” since that is what they are apparently trying to do.
10) Truth-Telling. Jurors need to be able to trust you. They need to know you are being honest, fair and reasonable with them. One good way to screw that up is to be excessive, to exaggerate, or to embellish. (Hey, I just did a Rule of Three, everyone!) We have all seen this in court before, where a lawyer takes a perfectly good case and uses language that makes it sound like the most important or substantial matter since Brown v. Board of Education. As a defense attorney, sometimes my best strategy is to hope that the other side will not be able to avoid the temptation, and will turn the jury off by being excessive.
Good example of this Tip, or more accurately, the failure to follow this Tip, occurred in a trucking case I tried. The woman was hurt really bad, she had a significant claim that had substantial future damages from a permanent injury. Instead of putting up a reasonable life-care plan, however, the plaintiff’s attorneys put up a pile of smelly manure. $2 million for home health care for 8 hours, every day, 365 days a year, for the next 40 years – for a woman who could certainly take care of herself and had no trouble functioning in court for the 6-day trial. Plus - 40 years of gym memberships (um, if someone is so bad off that they cannot function at home without 8 hours of daily care, are they really likely to go to the local Planet Fitness for, ahem, the next 40 years?) and over $100k to buy and keep up a handicap van when the woman does not use a wheelchair. It was pretty bad, and they did not recover what they wanted. Don’t oversell, don’t overreach, and don’t overdo it.
11) Time. We never seem to have enough of it. At least, I know I don’t. People can’t stand for their time to be wasted. And yet, lawyers forget about this when they are conducting trials. Judges and juries appreciate organization in your presentation not only because it helps them understand the points you are making, but also because they appreciate you not wasting time. If there is a minor point you could fight about or ask questions about, consciously decide whether it is worth the effort, don’t just do it because you can. This is hard advice even for me to follow sometimes, and I am the one giving it.
Don’t just ask questions of a witness because you think people expect you to. I usually ask no questions whatsoever of a witness unless there is really something useful I can get from them. Don’t put on duplicative witnesses just because you can, and because it was your plan going in to put on certain witnesses. If things go really well with your first witness, consider just not calling the next one at all unless there is something unique and good you can get from that witness. Always focus your brain on what you are trying to prove or disprove, and how close you are to achieving that goal. If you can achieve it using less time, do that. Juries like that.
12) Tempo. Don’t be one-dimensional in trials. Communication experts will tell you that variety is not only the spice of life, but also helps people to learn. Repetition can be useful, sure, in terms of making sure the jury hears your theme and supporting facts enough times to really take, but I am not talking about what you say or do here as much as how you say or do it. For example, change your speaking style at different points in the trial. You could be a little more deadpan with some witnesses and more animated with others. By all means change the dynamic level of your voice for dramatic effect. When saying something really important in closing, for example, consider saying it much softer than you have been talking. That will actually emphasize it better than saying it more loudly.
Let me give away another couple of tricks here. Sometimes it can be effective, when beginning your closing, to start talking before you even stand up from your chair. It’s interesting, and makes the jury think you have something so important to say that you cannot wait to stand up and walk over to them. This is particularly true if you are responding to something completely unreasonable or unfair said in the preceding argument. Once you do stand up, vary the location from which you are speaking. It is more interesting, and thus will help the jury pay attention to what you are saying. If you have three major points to make (and you probably WILL, right?) then consider choosing three specific places in the floor to go to and each time you talk about one of those points, go to that same place in the floor.
One more idea – I had a case one time where the issue was that my landlord client tried to contact the tenant a number of times about a certain issue but the tenant did not respond. So when discussing that issue in closing I said “And here’s the response my client got from the defendant…” and then just looked at the jury in complete silence for about 15-20 seconds. It drove home just how uncomfortable it is when someone tries to make contact and all they get is silence in return. Plus, hopefully it was interesting – and thus more memorable.
13) Totality. A final stylistic point before we start talking a little more substantively about trial communication. By “totality”, I mean to underscore that while I have been focusing on specific points of style, I also think it critical for you to remember that you are communicating to the jury from the very moment you drive into the parking lot of the courthouse the first day of the trial. They may see you get out of your car, interact with other lawyers in the parking lot, stand in line with them at the metal detector or skip through (I suggest waiting in line unless the deputy won’t let you.) Basically, everything you do, verbal or non-verbal, tells the jury what kind of person you are. Be very careful. Even if you really are hot stuff, or think you are, be very sure that is the persona you want to portray at any time the jury might be watching. I would vote no, by the way. Be the person that you would want to present a case to you if you were a judge or juror – confident, but not a know-it-all; friendly, but not overtly back-slappy with others in the courthouse (that looks juvenile); focused, but not with blinders on to everyone around you.
14) Think. This brings me to a related point, but one more about your specific case than general style. Please remember to guard your mouth when walking around the courthouse during the trial. World War I gave us a very useful saying – “Loose Lips Sink Ships.” I once saw a defense attorney discuss his case in the hallway with another attorney prior to jury selection, mentioning things like the carrier he was there for and the settlement offers, WHILE POTENTIAL JURORS WERE AROUND. It was a classic case of loose lips. Be very careful about seeing people you know around the courthouse, and if you do need to talk to them try to steer the conversation away from the case you are trying. unless you are absolutely sure there are no eavesdroppers.
15) Talk. While we are on the subject of jury selection, let’s talk about the primary purpose of jury selection in most civil trials. Spoiler alert – it is not really about discovering which jurors to strike. Sure, that can be important, but frankly beyond a few obvious disqualifying answers to your voir dire questions, it can be maddeningly difficult to really figure out which jurors you should keep. Instead of focusing completely on that issue, consider instead the potential you have to connect with the jurors during the process by carrying on conversations with them. It is your only chance to have bilateral, give-and-take contact with them. Use it. Here I think you really should talk even if you have little to say. You may not really care, for selection purposes, about exactly what they do at their jobs, or whether anyone in their family has a law enforcement background. But follow up on such things anyway, to give you the chance to establish rapport with that juror. I know, I know – the jury instruction about voir dire specifically says that is not what the process is for. I am here to tell you, though, that if you don’t pay attention to establishing rapport with those jurors while at the same time conducting the jury selection process, you may be establishing negative rapport instead.
Remember, most aspects of a normal trial are zero-sum. Either that jury selection helped you create a relationship with the jury that will help them believe you in your closing, or it didn’t.
16) Theory. If you were listening earlier, then you know that before trial you should have come up with a theme, and a supporting plan of action that puts that theme into practice to win the jury issues. Now you are in the trial, though, and things have not worked out exactly as you expected. A witness surprised you. The judge excluded something important, or let something screwy in. Now that you have analyzed that document in light of how that other witness came cross, is the document now helpful or harmful to your position? Sure, you need a theory but make it a flexible one.
17) Training. When you get into the heat of battle, don’t forget your training. There are basics you don’t want to forget just because your heart is racing faster than Usain Bolt. For example, don’t ask a cross exam question to which you don’t know the answer. Excellent advice we learned in law school, but the temptation at trial can really be spectacular. I have deviated from the rule myself on occasion, sometimes with great success, but by God the odds are against you. Tread very carefully when leaving that straight and narrow path. Don’t ask leading questions on direct – you will be tempted to when the chips are down because you know exactly what you need the witness to say. Remember though that the jury is more persuaded by the witness than by you, because you are the lawyer and thus paid to spin things a certain way. The jury wants to hear from the witness without the lawyer putting words into his or her mouth with leading questions.
18) Trees. As in, don’t miss the forest because of the bloody trees. This is important. Many of the battles we wage in trial are not likely to influence the outcome of the war. Try to remember what is important, and devote your time and your attention to those points. The British won most of the set-piece battles in the American Revolution but lost the war, because they didn't realize that destroying the American army was way more important than taking territory by winning particular battles. Sometimes your client will want to focus on something else, some issue that really gets the juices flowing but that you know very well is not important. Pull rank, tell that client that while the tree may be very important to him, you need to focus instead on the whole forest.
The big picture is whether you are winning or losing, not whether the other side got the better of some evidentiary fight that is probably of secondary importance. In a similar vein to what I have said before, guard your time and do not get side-tracked.
19) Teach. There is a difference between teaching and preaching. As much as I like to mix things up a bit and get a little theatrical when I think it will help the jury remember something, I do think it is important that you not overdo the rhetoric. I have seen lawyers argue in a way that was preachy or over-the-top, like they were about to pass a collection plate around afterwards. You need to be emotional where appropriate, of course, but stay grounded to the issues the jury will be answering and the facts necessary for the jury to formulate those answers. The jury is not there to do rough justice based on who the parties are rather than what the evidence shows. Instead, they are there to “listen to the evidence and render their verdict accordingly”, in the words used to impanel the jury before opening statements. Raw emotional power can be, well, powerful, but in my experience jurors appreciate being treated more like partners in a process rather than sheep to be herded. Good teachers establish ties with their students, respect their intelligence, and partner with them in the learning process. Do that.
20) Listen, and Adapt. Hey, wait a minute, Hood! I thought all Twenty Tips were going to start with the letter T! What’s your problem!
My problem is that people don’t listen. They just keep barreling along with their preconceived notions and they don’t realize it when the ground shifts beneath them, because they are not paying attention. Trials are organic creatures, they grow and change and go off in directions you cannot expect. Unless you really, truly listen to what is happening during the trial you may not realize that your grand plan has become impossible to pull off. So, even if your plan is to list Twenty Tips that all start with T, don’t be afraid to adapt if that train leaves the tracks. Even if some client does not show up (yep, been there), or a witness says for the first time that she kinda wasn’t paying attention to the road because she was putting on lipstick (yep, had that), or you suddenly realize that the plaintiff is not going to put on the evidence you were going to use to focus the jury’s attention on a different negligent party than your client (yep, happened to me last week actually as I write this), your trial is not lost necessarily. Trial practice is about preparation, absolutely, but it is even more about thinking on your feet.
Y’all can think and sit at the counsel table at the same time, I bet. Appreciate what has happened, analyze how to deal with it, and adapt accordingly.
Hey, look: Appreciate/Analyze/Adapt – just happens to be another group of three…
The Rising Shortage of Stenographers
A stenographer is a very special type of person. Most have the ability to write at over 225 words per minute, just part of what makes stenographic reporting the most popular choice for documenting depositions. Operating a steno machine is more akin to playing a piano than typing on a computer keyboard. Contrary to common belief, stenographers don’t type much of anything at a deposition. They combine phonetic sounds into strokes that are then interpreted by Computer Aided Transcription (CAT) software. The result is a highly accurate and legally relevant document from a proceeding.
To this day, stenography is the only method of record keeping that can attain near perfect accuracy while providing a fully readable, searchable, and certifiable transcript as a proceeding is happening. Known as realtime court reporting, attorneys are able to annotate, bookmark, and review live testimony during the deposition. Realtime court reporting provides parties with a clear and instant understanding of testimony without having to wait for a final copy weeks later.
Because of the high level of proficiency required to be a stenographer, various reports indicate that only 5% - 10% of court reporting students ever make it to graduation. Part of the reason for this is that the price of a steno machine, CAT software, and ongoing support and maintenance can reach nearly $10,000, and the cost of tuition, books, and room and board can easily double that. However, graduation rates tell only half of the story. The more immediate and impactful change has been the decline in enrollment rates at court reporter schools across America. This phenomenon has helped contribute to the beginning of a dangerous cycle for the court reporting industry. As fewer and fewer students enroll, schools have been forced to close their doors, leaving even less opportunity for the industry to recruit young blood. With the current average age of stenographers at over 50 years old, all members of the court reporting community have taken notice.
The current predicament led the National Court Reporters Association to probe further, first to confirm the issues and second to combat them. In 2014, the NCRA released the first ever Court Reporting Industry Outlook Study with the help of Ducker Worldwide, a leading research and consulting firm. After analyzing the data, the consulting firm reported back an optimistic outlook on some relatively grim data. While the current supply of stenographers is believed to be balanced nationwide, regional shortages have already begun to emerge.
The study confirmed that retirement rates are on the rise and graduation rates have been steadily declining for at least two decades. The report forecasted that more than 5,500 additional stenographers will be needed by 2018 and at the time of the report, only 2,500 students were currently enrolled nationwide. Based on this outlook, the NCRA needed to act swiftly and decisively to turn the tide.
Armed with the industry statistics provided by Ducker Worldwide, the NCRA launched the Take Note campaign. With the assistance of BowStern, a well-known marketing and public relations firm, the Take Note campaign was launched with the primary focus of driving interest to court reporting among the youth of America. With major spots on programs such as Fox and Friends and a front page article in The Wall Street Journal, the NCRA acknowledged that the time to act is now and it was willing to put real advertising dollars toward its cause.
While the verdict is still out on the success of the Take Note campaign, court reporting companies are beginning to investigate and pilot alternative methods of capturing the official record. The early winner among the alternatives to stenography thus far is known as digital court recording. Digital court recording is the use of digital audio and video equipment to capture a proceeding. The audio is then sent to a legal transcriber (often a stenographer) who then creates the verbatim transcript.
Digital court recording is not an exact replacement for stenography, however it is a perfectly acceptable method for a high percentage of depositions. While digital court recording does not have the full suite of offerings of stenography, there have been major strides for innovation and positive change. Services that weren’t offered in the beginning of digital court recording are now available, such as read backs during a proceeding. Additionally, as a replacement for rough drafts, many digital court recorders offer a full copy of the deposition audio.
Freelance digital court recording has developed its first legs in states like Florida, Kentucky, Michigan, and Oregon. Existing court reporting firms are initially using the digital alternative to fill in gaps for last minute depositions and depositions that may not be profitable enough for a traditional stenographer. In small pockets around the country, pure-play digital court recording firms have even begun sprouting up where shortages are more prominent. As for the long-term success of digital court recording, it will largely be determined by the industry’s ability to enroll and graduate stenographers.
Will the foresight of the NCRA lead to success at finding, training, and developing new stenographers from Generations Y and Z? Many believe this will be the case but only time will tell. In the meantime, the world of stenography can hang its hat on a 96% market share and the ability to provide services such as realtime reporting that are unmatched by any other form of record keeping.
Written by Tony Wright
CaseWorks is a full-service court reporting, legal videography, and video conferencing company that has been serving the legal community of North Carolina for over 25 years. With 9 offices located throughout the state, and through its association with the National Network of Reporting Companies, CaseWorks is well-positioned to serve clients both in-state and around the country while delivering a level of personal service that is unmatched.
Medical Practice Competition RestrictionsBill Constangy*
The landscape is rapidly changing in North Carolina for the enforceability of employment contract restrictions on medical practice competition. The proliferation of medical practice employment contract covenants not to compete is consistent with the expanding use of such covenants to protect employers’ legitimate business interests in a multitude of businesses. Specifically in regard to medical practice, it has also been accelerated in North Carolina by the increased accessibility of medical specialty and other medical services throughout the state and the continuing rise of integrated health care systems.
It has become common for such health care systems, employing many physicians, and smaller medical practices to employ physicians bound by employment contract physician services agreements including covenants not to compete during employment and for a limited period of time after termination in a restricted physical area.
Such contracts often contain forfeiture clauses by which the offending physician agrees to give up certain retirement or other benefits, such as severance pay or pension rights, that the physician would otherwise receive. They also may contain even broader liquidated damage clauses that require the physician who violates the restrictions to pay a predetermined fixed sum based on a mathematical formula to compensate the employer medical practice for anticipated economic loss caused by the physician’s decision to remain in the restricted area and compete after termination of employment.
The inherent nature of medical services and the potential for harm to public health, raises significant public policy concerns in relation to the enforcement of such restrictions.
The North Carolina Court of Appeals noted in the 1988 case of Iredell Digestive Disease Clinic v Petrozza that “medical doctors are by no means immune from such agreements.” However, the court held that “[i]f ordering the covenantor to honor his contractual obligation would create a substantial question of potential harm to the public health, then the public interest outweighs the contract interests of the covenantee, and the court will refuse to enforce the covenant.” The court found that “public health and welfare would be harmed” by enforcing the covenant and leaving “only one gastroenterologist in Statesville.” Holding that covenant was unenforceable, the court noted that “[t]he doctor-patient relationship is a personal one and we are extremely hesitant to deny the patient-consumer any choice whatsoever.”
Interference with patient choice by physician non-compete agreements continues to be a major public policy concern. In November, 2014, the American Medical Association issued Opinion 9.02 in accordance with their Code of Medical Ethics concerning such restrictive covenants stating that “[c]ovenants-not-to-compete restrict competition, can disrupt continuity of care, and may limit access to care. Furthermore, the opinion urges physicians not to “enter into covenants that: (a) unreasonably restrict the right of a physician to practice medicine for a specified period of time or in a specified geographic area on termination of a contractual relationship; and (b) do not make reasonable accommodation for patients’ choice of physician.”
The issue of the “the effect of AMA's Code of Medical Ethics on validity of the restrictive covenants” was raised in Calhoun v. WHA Medical Clinic, a 2006 case heard by the North Carolina Court of Appeals. Two of the five physician employment contract covenants not to compete contained the following language: “no provision of this Agreement shall be enforceable by Company or Physician or any court of competent jurisdiction where local, state or federal laws and regulations and/or the AMA Code of Professional Ethics prohibits and/or discourages the conduct described in or intent of the provision(s) sought to be enforced.”
Technical evidentiary and assignment of error issues on appeal precluded the court from deciding this important question of the effect of a provision in the covenant making such covenant unenforceable if in violation of the AMA Code.
North Carolina courts have carefully distinguished substantial risk of harm to the public and mere inconvenience. The court in Statesville Medical Group. v. Dickey, a 1992 North Carolina Court of Appeals case, sets forth the following determinative risk factors: “the shortage of specialists in the field in the restricted area, the impact of ... establishing a monopoly ... in the area, including the impact on fees in the future and the availability of a doctor at all times for emergencies, and the public interest in having a choice in the selection of a physician.”
In Dickey, the court held that a 2 year restrictive covenant with “the only endocrinologist living and practicing in Iredell County” was unenforceable because it “would create a substantial question of potential harm to the public health.” The court concluded that if the restrictive covenant were enforced patients would have to travel forty-five minutes to Charlotte or Winston-Salem for treatment and “that [t]he distance between the two locations may very well impact on the availability of a doctor at all times for an emergency.” The court also considered the fact that since the plaintiff would be contracting with a part-time specialist from Charlotte to provide such services in Statesville one-half day per week that the plaintiff would have a monopoly on endocrinologist services in Iredell County and there would be no fee competition.
Public policy issues, which are central to the strict scrutiny analysis and reasonableness requirement for all enforceable covenants not to compete, have taken a backseat in the North Carolina appellate courts’ determination of the enforceability of forfeiture and liquidated damages clauses related to medical practice non-competition.
The North Carolina appellate courts have taken a softer approach to such clauses and opened the door widely for an alternative approach to damages incurred by the employer as a result of post-termination competition. In a series of cases the courts held that such clauses are not covenants not to compete and are not subject to covenant not to compete enforceability standards.
In 1975, the North Carolina Supreme Court in Hudson v. North Carolina Farm Bureau Mutual Insurance upheld a forfeiture clause in an insurance agency employment contract with an agency manager. Pursuant to the contract the employee forfeited, that is, gave up, his rights to pension plan solely funded by the employer as a result of violation the post-termination non-competition restrictions in the contract. The court concluded that “the forfeiture, unlike the restraint included in an employment contract is not a prohibition on the employee engaging in competitive work but is merely a denial of the right to participate in the retirement plan if he does so engage.”
This rationale has been applied to such clauses in medical practice employment contracts.
The Court of Appeals in the 1987 case of Newman v. Raleigh Internal Medicine Associates, upheld a “limitation of practice” forfeiture clause in which a cardiologist gave up 90 days of post-termination benefits including a productivity bonus and a portion of his base salary by engaging in a similar practice in Raleigh.
In Nalle Clinic v. Parker, a 1991 North Carolina Court of Appeals case, reversed the trial and refused to enforce a “practice limitation clause” including a covenant not to compete and a liquidated damage clause. The court found that there would be substantial risk of harm to the public by enforcing a 2 year covenant prohibiting the only full-time practicing pediatric endocrinologist from practicing medicine or surgery in Mecklenburg County. The liquidated damages provision, which was cumulative and not an alternative to any other damages for violation, such as injunctive relief or loss of profits, would have required the physician to pay 50% of his monthly compensation for each month of the breach in addition to any other remedies.
In the 2002 North Carolina Court of Appeals case, Eastern Carolina Internal Medicine v. Faidas, which was appealed and affirmed by the North Carolina Supreme Court, the court enforced a stand-alone “cost sharing” liquidated damages clause that was not in addition to a traditional non-compete provision. The clause required the physician who chose to continue practice in Jones, Craven or Pamlico Counties to pay a “reasonable estimate” of the prospective damages pursuant to a mathematical formula. The court held that the provision was not an unenforceable penalty and was not a covenant not to compete.
In the 2006 Calhoun case, even though medical specialists were involved, the NC Court of Appeals unanimously held that the liquidated damages clauses were enforceable. The non-compete covenants at issue involved five cardiologists employed by a sixty physician multi-specialty group covering seven North Carolina counties. Upon termination the five employees were prohibited from practicing medicine in those counties. The liquidated damages clause contained a formula for assessing damages if the physicians chose to violate the restrictions and continue practicing in any or all of seven counties. The clause also included a provision requiring the physicians to pay back certain payouts that they otherwise received under the employment contract. The court held that there would be substantial risk of harm to public safety by enforcing the covenant if there were no provision allowing the physician to continue practicing in the restricted area. However, the court found that the liquidated damage clauses provided an alternative, allowing the physicians to compete upon compliance. The court held that such provisions are not considered to be a covenant not to compete and consequently not subject to the same scrutiny and enforceability factors as covenants not to compete.
Without denominating it as such, the North Carolina appellate courts appear to have adopted the “employee choice doctrine” applied by the Court of Appeals of New York in the 2006 case of Morris v. Schroder Capital Management. The rationale for this doctrine is explained in Morris, as follows:
We have recognized an exception to the general disfavor of non-compete provisions, however, in the “employee choice” doctrine. This exception applies in cases where an employer conditions receipt of post-employment benefits upon compliance with a restrictive covenant. The doctrine rests on the premise that if the employee is given the choice of preserving his rights under his contract by refraining from competition or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon an employee's liberty to earn a living. It assumes that an employee who leaves his employer makes an informed choice between forfeiting his benefit or retaining the benefit by avoiding competitive employment.
However, it should be noted that the Court of Appeals has extended the enforcement of such clauses beyond traditional forfeiture clauses which consists of giving up a benefit, such as the pension in Hudson, the progenitor of North Carolina’s forfeiture clause exception, to include broader liquidated damages clauses that involve payments of specific sums of money. Also, even under the New York “employee choice doctrine”, the New York courts refuse to apply this exception to at will or fixed term employees who are involuntarily terminated.
The Calhoun court did not differentiate between enforcement of the clause in regard to the one cardiologist who was involuntarily terminated the day before he intended to resign and the other four cardiologists who voluntarily resigned.
*Bill Constangy is a retired Superior Court Judge in Charlotte, an arbitrator and mediator, the author of a law book and numerous articles on employment law and other legal subjects.
U.S. Supreme Court Describes "Ordinary Principles of Contract Law"Michael W. Mitchell, Smith Anderson, LLP
In a contract governed by federal law, does “The End” really mean “The End”? Some federal courts have said “no,” but the U.S. Supreme Court has just said “yes.”
Most contract cases in federal court involve the application of state substantive law and so it is uncommon for the U.S. Supreme Court to expound on what it considers to be the contract principles to be applied in federal cases where no state’s substantive law applies. But in a recent unanimous decision, M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015) (four justices concurring in a separate opinion), the Court took the opportunity to do just that when it vacated a Sixth Circuit decision because that court had failed to apply “ordinary principles of contract law” to a collective bargaining agreement.
The issue in M&G Polymers USA was whether the agreement, governed by The Employee Retirement Income Security Act of 1974 (ERISA), granted lifetime health benefits to employees even in the face of the agreement’s three-year term. In a prior case, International Union, et al v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), the Sixth Circuit had adopted its “Yard-Man” inference, pursuant to which courts could construe the grant of health care benefits in a collective bargaining agreement as vested and interminable despite express language setting an expiration date on the entire agreement itself.
In M&G Polymers USA, the collective bargaining agreement provided a durational clause, stating that the employer would provide health benefits for the duration of the agreement. The agreement provided for renegotiation of its terms in three years. Despite this explicit language, the Sixth Circuit applied its Yard-Man inference and held that the health care benefits were vested for the life of all retirees. In other words, health benefits would continue after the agreement’s expiration and for the remaining life of the retirees.
But the Supreme Court rejected the Yard-Man inference in M&G Polymers USA. As the Court explained, “[w]e interpret collective-bargaining agreements, including those establishing ERISA plans, according to ordinary principles of contract law, at least when those principles are not inconsistent with federal labor policy.” Below are the four basic principles the Court applied in reaching its decision:
Courts should use case-specific evidence to determine the intentions of the contracting parties and not the court’s own general suppositions regarding their intentions. The Supreme Court noted that the Yard-Man inference distorted the attempt to ascertain the intention of the parties because its “assessment of likely behavior…is too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intentions.” The Court also explained that courts may look to known industry customs or usages to determine the meaning of a contract. But, the parties first must prove that those particular customs and usages apply to the contract and do so with specific evidence in each case.
According to the Court, a written agreement is presumed to encompass the whole agreement of the parties. Therefore, it is not necessary for parties to include a separate durational clause in a contract in order to terminate any specific provision when the contract already contains a general durational clause.
The Court also described the proper application of the “illusory promises” doctrine. The doctrine discourages an interpretation of a contract that would render a promise illusory because an illusory promise cannot serve as consideration. And without consideration, a contract is invalid. The Sixth Circuit had held that the collective bargaining agreement would be illusory if the health care benefits did not vest for the life of the employee, because some employees would not get the benefit of the promise. But the Supreme Court explained that, if a promise is only partly illusory, then it is necessarily partly real. And a real promise can serve as consideration.
Finally, the Court recognized the “traditional principle that courts should not construe ambiguous writings to create lifetime promises.” The Court held that, generally, contractual obligations will cease upon termination of the contract. And when a contract is silent as to the duration of the term, a court may not infer that the parties intended it to last indefinitely.
While most commentators have focused on the importance of M&G Polymers USA in relation to collective bargaining agreements and health care benefits, the case also provides valuable insight into the Supreme Court’s view of those contract principles that federal courts should apply in the absence of applicable state law.
Reprinted with Permission.
North Carolina Erroneously Interprets How UIM Statute is Applied in Multiple Tortfeasor ScenariosDavid S. Coats, Bailey & Dixon, LLP
In the recent case of Lunsford v. Mills, No. 385PA13, 2014 N.C. LEXIS 1202 (December 19, 2014), a matter of first impression, the North Carolina Supreme Court decided when underinsured motorist (UIM) coverage is triggered under the provisions of N.C. Gen. Stat. § 20-279.21 in situations involving multiple tortfeasors. In doing so, the Court appears to have undermined the purposes of the UIM statute and allowed an injured party to recover more than the UIM coverage they bargained for, to the detriment of the UIM insurer.
The facts in Lunsford were that Defendant Mills was operating a tractor-trailer owned by his employer (Crowder) on Interstate 40 when he lost control while rounding a curve, causing the vehicle to collide with a concrete median and flip. Plaintiff Lunsford, a volunteer firefighter, was standing in the highway median attempting to lift Mills over the concrete barrier and carry him to safety when a second accident occurred: Defendant Buchanan, traveling the opposite direction on the Interstate, swerved to the left to avoid the vehicle in front of him (itself slowing due to the tractor-trailer accident) and struck Lunsford, causing him severe bodily injuries. At the time of the accident, Defendants Mills and Crowder were covered under a business auto policy issued by US Fire Insurance Company that carried $1,000,000 in limits. Defendant Buchanan was insured under a personal auto policy issued by Allstate Insurance Company that carried $50,000 in limits. Finally, Lunsford had two policies issued by NC Farm Bureau Insurance Company that carried combined UIM limits of $400,000.
Lunsford filed a negligence action against Mills, Crowder, and Buchanan, claiming that they were jointly and severally liable for his injuries. Lunsford also put his insurer, NC Farm Bureau, on notice of a UIM claim. When Allstate thereafter tendered its $50,000 limits to Lunsford, Lunsford’s attorney demanded that NC Farm Bureau tender its limits on his UIM claim. NC Farm Bureau refused, and Lunsford later settled his lawsuit against Mills and Crowder for $850,000 (out of their $1,000,000 in liability insurance coverage). When Lunsford continued to demand payment of the UIM coverage limits, NC Farm Bureau filed a motion for summary judgment arguing that Lunsford was not entitled to UIM coverage because the total amount of his settlements ($900,000) exceeded the $400,000 in UIM coverage. The trial court disagreed, however, and entered an order requiring NC Farm Bureau to pay Lunsford $350,000 (the $400,000 in UIM coverage minus the $50,000 first received from Allstate on behalf of Buchanan).
NC Farm Bureau appealed the trial court’s ruling, but the North Carolina Court of Appeals affirmed. In doing so, the court relied on the relationship between the “triggering provision” of N.C.
Gen. Stat. § 20-279.21(b)(4) and the statute’s definition of “underinsured highway vehicle.” The former provision provides that “underinsured motorist coverage is deemed to apply when, by reason of payment of judgment or settlement, all liability bonds or insurance policies providing coverage for bodily injury caused by the ownership, maintenance, or use of the underinsured highway vehicle have been exhausted.” (emphasis added). NC Farm Bureau focused on the “all liability bonds or insurance policies” language to argue that, in determining whether UIM coverage is triggered, the insured’s UIM coverage limit must be compared to the sum of all the liability limits of all the at-fault motorists. The Court of Appeals disagreed, however, noting that the term “underinsured highway vehicle” was defined by statute as “a highway vehicle with respect to the ownership, maintenance, or use of which, the sum of the limits of liability under all bodily injury liability bonds and insurance policies applicable at the time of the accident is less than the applicable limits of underinsured motorist coverage for the vehicle involved in the accident and insured under the owner’s policy.” (emphasis added). As the court reasoned, “a” means “one,” and thus UIM coverage is triggered as soon as the insured has recovered under all policies applicable to one underinsured motor vehicle. Consequently, UIM carriers are obligated to “first provide coverage, and later seek an offset through reimbursement or exercise of subrogation rights” against other tortfeasors.
Although the Court of Appeals’s decision was unanimous, the Supreme Court of North Carolina granted NC Farm Bureau’s petition for discretionary review, raising the specter of a reversal. The Supreme Court applied the same logic as the Court of Appeals, however, and the affirmed the trial court’s order requiring payment of NC Farm Bureau’s UIM coverage. In ruling, the court further noted that the purpose of the UIM statute – and the Financial Responsibility Act in general – was “to provide the innocent victim with the fullest possible protection.” Consequently, thecourt stated that “if Farm Bureau’s interpretation were adopted, insureds would be required to pursue all claims, including weak, tenuous ones, against all potentially liable parties, no matter how impractical, before being eligible to collect their contracted-for UIM benefits.” The court rejected NC Farm Bureau’s argument that the plaintiff received a windfall, noting that it could have preserved its subrogation rights against Mills/Crowder’s policy if it had timely advanced its UIM policy limits at the time of plaintiff’s initial settlement with Buchanan.
The Supreme Court’s decision in Lunsford provoked a dissent from Justice Newby. The dissent began by pointing out that the statutory purpose of UIM coverage is to provide a secondary source of recovery for an insured when the tortfeasor has insurance, but those insurance limits are insufficient to compensate the injured party. That purpose was thwarted on the facts in Lunsford, however, when not only did the plaintiff fail to exhaust the liability insurance limits of all the parties that he sued (by accepting a settlement for only $850,000 of Mills/Crowder’s $1,000,000 in limits) but he also received a windfall by receiving $350,000 in UIM benefits in excess of his agreed-upon damages. Justice Newby further argued that the Court of Appeals’s and Supreme Court’s interpretation of the UIM statute was flawed. According to Justice Newby, the definition of an “underinsured highway vehicle” falls within the “activation” provision of the statute, which tells us that UIM coverage is activated when the insured’s UIM policy limits are greater than the liability limits of policies connected with the tortfeasor’ s ownership, maintenance, or use of a highway vehicle. Because the combined liability limits of the jointly and severally liable tortfeasors exceeded the UIM coverage available under Lunsford’s policies, NC Farm Bureau’s UIM coverage was never activated. Justice Newby also rejected the majority’s fear that NC Farm Bureau’s interpretation would require insureds to pursue weak and tenuous claims, noting that Lunsford himself elected to sue multiple tortfeasors whose combined insurance coverage far exceeded the UIM coverage that he paid for. As he reasoned, “having chosen . . . to pursue simultaneously claims against multiple tortfeasors whose combined liability limits far exceeded plaintiff’s own UIM coverage, plaintiff was no longer able to access his UIM policy limits.” Finally, Justice Newby argued that the majority opinion blurred the distinction between a UIM carrier’s right of subrogation (if they advance their UIM limits upon notice of the insured’s settlement with a tortfeasor) and its ability to seek reimbursement from other tortfeasors.
In this author’s opinion, Justice Newby’s dissenting opinion correctly points out the multiple flaws in the Supreme Court’s opinion. As the UIM statute is interpreted by Lunsford, an insured who paid for UIM coverage limits of $400,000 – and thus protected himself only to that amount – was allowed to collect those limits in addition to the $850,000 that he received from other tortfeasors. Meanwhile, an automobile insurance carrier with moderate UIM limits was told that it should have paid those limits to its insured as soon as the insured settled with the tortfeasor with the lowest liability limits, otherwise its right to seek reimbursement of those limits from other tortfeasors was barred. This system, if it is allowed to remain in place, essentially places all of the risk on the UIM insurer, while the insured receives a benefit greater than it bargained for. In this regard, the Court has taken the “remedial nature” of N.C. Gen. Stat. § 20-279.21 a step too far.
This article was originally printed February 22, 2015 and reprinted with permission.
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