West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

    Remember this?  Time magazine selected Cynthia Cooper, Sherron Watkins, and Coleen Rowley as its Persons of the Year in 2002 for their courage and determination in coming forward and reporting financial and ethical improprieties at their respective employers, WorldCom, Enron, and the FBI. 

    Things certainly have changed.  An Associated Press story published in today's Sunday Gazette-Mail (Charleston, WV) describes what happened to employees of military contractors in Iraq who have reported fraud and corruption committed by their employers: "They have been fired or demoted, shunned by colleagues, and denied government support in whistleblower lawsuits against contracting firms."

    What  may be most distressing about their treatment is the lack of support from the government.  The article reports that the government has not joined a single qui tam suit alleging Iraq reconstruction abuse, estimated in the tens of millions, even though at least a dozen such lawsuits have been filed since 2004.  The government can join the case, as the Department of Justice has done in cases involving Medicare and Medicaid fraud and domestic contractor overbilling.  But cases against Iraq reconstruction contractors seem to be off limits.  And if the government doesn't join the case, the perception, right or wrong, is that the case doesn't have much merit.

    Qui tam lawsuits, which are brought under the Federal False Claims Act, 31 U.S.C. § 3729 et seq., seek to recover on behalf of the government and the plaintiff and provide for treble damages.  Take a look at The Whistleblower Law Blog written by Brian F. LaBovick, which has a lot of information on this area of law.
       

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    The New York Times reports that the Department of the Interior tomorrow will issue a regulation drafted by its Office of Surface Mining, which will allow the coal mining method of mountaintop removal to continue and expand.  in the article, Joe Lovett, executive director of the Appalachian Center for the Economy and the Environment, calls the regulation the administration’s “parting gift to the coal industry.” 

    Mountaintop removal has generated an enormous amount of litigation, and Lovett holds open the possibility of challenging this new regulation in court.

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    Last week, I wrote about the three Kentucky lawyers who are accused of taking an extra $65 million from their Fen-Phen clients.  On August 10, United States District Judge William O. Bertelsman granted the defendants’ request for a continuance of their October 15 trial, but ordered the defendants taken into custody until their new trial in January 2008.  He was concerned that if the defendants remained free on bond, they were flight risks and also could conceal the monies they allegedly took from their clients.  Then, on August 14, he set a hearing for August 21 regarding the defendants’ detention based on information that had just come to light. 

    Since then, on August 15, the defendants filed their notices of appeal with the Sixth Circuit Court of Appeals from the District Court’s order revoking their bond and remanding them into custody.

    Also on August 15, the defendants filed emergency motions objecting to the jurisdiction of the District Court to proceed with the hearing on August 21 in light of their notices of appeal.  On August 20, the Court granted the defendants’ emergency motions to the extent that it agreed that the notices of appeal may deprive the court of jurisdiction and therefore unable to hold the detention hearing on August 21.  The Court canceled the hearing, but did not take any action regarding the defendants’ detention, however, so they remain in custody.  

    Finally, on August 20, the defendants moved to recuse Judge Bertelsman under 28 U.S.C. § 144 on the grounds that he has a “personal bias or prejudice either against him [the defendant] or in favor of any adverse party.”  Here is defendant William J Gallion’s affidavit, which was submitted in support of the motion to recuse.  As of today, there haven't been any new filings.

    A couple of observations.  First, as I read 28 U.S.C. § 144, if the affidavit is “timely and sufficient,” then Judge Bertelsman’s recusal is mandatory: “such judge shall proceed no further therein, but another judge shall be assigned to hear such proceeding.”   So it seems that the judge whose recusal is being sought determines whether the affidavit is adequate, which may not be a good position for the defendants. 

    Second, Judge Bertelsman’s concern for the individuals who were clients of the defendants is obvious in his order, as reflected by his discussion of the Crime Victims' Rights Act.  He was troubled that the defendants' clients have to wait on the outcome of the criminal trial in order to have their civil claims resolved. 

    While his concern for the interests of the individuals is laudable, it has come at the expense of the defendants’ rights.  Pretrial detention serves no purpose in this case, which is what I predict the Sixth Circuit will hold.  Interestingly, Gallion's affidavit says that after Judge Bertelsman revoked the defendants' bond and ordered them into custody, Gallion's lawyer told the Court that in that case, they'd go to trial on October 15.  But according to Gallion, Judge Bertelsman continued walking off the bench and didn't respond.  

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    In January, a jury in Roane County, West Virginia determined that natural gas producers had failed to honor their leases with gas well owners, and awarded a class of more than 10,000 natural gas well owners a total of $404 million in damages.  The plaintiffs contended that Columbia Natural Resources, LLC, formerly owned by NiSource, Inc., and now owned by Chesapeake Energy Company, systematically and deliberately underpaid them in violation of their leases by withholding the production costs from the royalties paid to the plaintiffs.  The jury's verdict included compensatory damages of $134 million and punitive damages of $270 million.

    Roane County Circuit Judge Thomas C. Evans, III entered an order affirming the verdict on June 27, 2007.  Estate of Garrison G. Tawney, et al. v. Columbia Natural Resources, LLC, et al., Civil Action No. 03-C-10E (Circuit Court of Roane County, West Virginia).  Once the court enters the final order, the defendants have four months to file their petition for appeal with the Supreme Court of Appeals of West Virginia.

    In response to the outcry against the verdict by natural gas producers, West Virginia Governor Joe Manchin proposed a bill for the Legislature’s consideration during its three day special session, which ended yesterday, which, among other things, would have given the producers an implied covenant in all oil and natural gas leases that allows companies to deduct reasonable post-production costs when calculating royalties to the landowners.  (The deduction of these costs formed the basis for the plaintiffs' claims in Tawney.)

    The Legislature chose not to take any action on the bill, on the grounds that it was too complicated to be considered in such a short session.  In all likelihood, the Governor will resubmit the bill when the Legislature’s regular 60 day session begins in January 2008.  Here is The Charleston (West Virginia) Gazette’s story this morning on the bill’s fate, as well as posts from Monday and yesterday by AP Larry Messina, who blogs at Lincoln Walks At Midnight.  But it’s clear that the opposition to the bill voiced by the landowners, who include individuals and businesses, also was a consideration in the Legislature’s decision not to consider the bill.

    What is not clear is whether the bill would apply to the jury’s verdict in Tawney.  Messina posted this compilation of stories earlier in the week, including another Gazette article that said that the bill would effectively overturn the verdict because the implied covenant would be retroactive and would apply to the defendants in the action.  But the bill specifically provided that its provisions would apply only in cases where there had been no jury verdict or final decision or judgment by a court of competent jurisdiction. 

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    Tom Ricks is The Washington Post’s military correspondent and the author of Fiasco: The American Military Adventure in Iraq.  He writes a weekly column in The Post's Sunday edition called “Tom Ricks’s Inbox,” which, as the name suggests, “aims to give readers a snapshot of the conversations that play out in Ricks's e-mail inbox.”

    His column from August 12 was entitled “Ten Lessons the Army Has Taught Me,” and was based on a post from an anonymous blogger at walterreed.blogspot.com about what the Army has taught him. Here are the lessons in summary fashion.  But do yourself a favor and read the column, which has an explanation for each one. 

1.               Always have a notepad, pen, watch, knife, and flashlight on hand.
2.               Have a copy of everything. If it’s important, have two copies.
3.               Make friends wherever you go.
4.               Make an SOP. Know the SOP. Work the SOP.
5.               Sleep.
6.               Don’t go cheap.
7.               Find humor everywhere.
8.               Don’t tolerate oppression.
9.               Tell your story.
10.             Never forget.

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    In June, Mylan Laboratories Inc. and UDL Laboratories, Inc., one of its subsidiaries, sued their former counsel, Eliot G. Disner and his firm, Eliot G. Disner, P.C., in the Circuit Court of Monongalia County, West Virginia (Morgantown), for what they claimed was negligence and breach of contract regarding advice he provided on antitrust issues.  Here's the complaint. 

    Mylan alleges that Disner committed malpractice in three ways.  First, he "allowed Mylan to enter into the exclusive supply agreement with Profarmaco/GYMA [who were to supply Mylan with the "active pharmaceutical ingredients" for lorazepam and clorazepate for the generic versions of the drugs on an exclusive basis] without fully investigating the issues or apprising Mylan of the substantial risks."  Mylan also alleges that Disner allowed it "to engage SST/FIS [another supplier of lorazepam and clorazepate] in discussions on a similar exclusive arrangement, introducing a damaging horizontal element into an antitrust equation."   Finally, Mylan alleges that after the FTC initiated an investigation into Mylan's conduct, Disner "offered no advice to mitigate the problems facing Mylan or suggesting the risks that Mylan faced -- instead advising that the FTC would accept a harmless consent decree, that the FTC had no ability to seek damages, and that the states would drop their claims when the FTC dropped its claims."

    According to the complaint, after acting on Disner's advice, Mylan was hit with an investigation by the FTC, which turned into an action seeking disgorgement of Mylan's profits of more than $120 million on certain products.  Mylan was also sued by several states, various direct purchasers, who obtained class certification for their suit, and several indirect purchasers.  Mylan ended up settling with the FTC, the states, and the indirect purchasers for $147 million, and also paid $14.6 of the $35 million settlement of direct purchasers' class action.  In 2005, Mylan went to trial against four of the plaintiffs who opted out of the class settlement, and was found to be liable for slightly more than $12 million.  But with attorney's fees and treble damages, the plaintiffs seek judgment for approximately $80 million.  Finally, Mylan alleges that it has spent more than $55 million in attorney's fees and expenses for itself and for Profarmaco/ GYMA, which Mylan indemnified.

    Disner, who is representing himself and his firm, last month removed the case to the Northern District of West Virginia where it is pending before Chief District Judge Irene M. Keeley.  Mylan Laboratories, Inc. v. Eliot G. Disner, Civil Action No. 1:07-CV-00095-IMK.  The defendants' answer or responsive pleading is due by August 24. Continue Reading...

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    More twists in the case involving the three Kentucky lawyers who are awaiting trial on charges they took an extra $65 million in fees from their Fen-Phen clients. 

    In June, I wrote about the wire fraud indictments issued against William J. Gallion, Shirley A. Cunningham, Jr., and Melbourne Mills, Jr. by a federal grand jury in Covington.  The three are awaiting trial, which had been set to begin on October 15, and had been free on their own recognizance. Their lawyers requested a continuance to have additional time to review documents, and the prosecution joined in the request.

    According to The (Louisville) Courier-Journal, United States District Judge William O. Bertelsman expressed concern about the incentive for the defendants to transfer the funds to an off-shore account or themselves to flee if they remained free on bail, and advised the defendants and their counsel that if he granted their motion, he would revoke their bail. (The defendants had already surrendered their passports.)  Following a hearing on the motion, Judge Bertelsman granted the continuance and ordered the defendants taken into custody and incarcerated in the Boone County Jail.  Trial is now set for January 7, 2008.

    But as of Tuesday afternoon, there’s another development.  The Courier Journal reports that based on new information that was not available last week, and which he did not describe, Judge Bertelsman has set a hearing for next Tuesday. He has also ordered Gallion, Cunningham, and Mills to submit complete financial statements prior to the hearing.  The defendants' lawyers had already filed notices of appeal for the order revoking their clients' bail, and did not request next Tuesday's hearing. 

    The Courier-Journal  has another article that features commentary from well-known legal ethics experts about the ruling.  Judge Bertelsman's comments at last Friday's hearing, as also described in the article, demonstrate a concern for the public's perception of the legal profession as a whole.  But, as the ethics experts pointed out, his concern should be for the individual defendants.

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    A reference to West Virginia in connection with today’s recall of Mattel toys got my attention. By way of background, the U.S. Consumer Product Safety Commission today ordered the recall of more than 20 million toys manufactured by Mattel, Inc. because of concerns about the amount of lead and other toxins in the toys.  Earlier this month, the CPSC ordered the recall of 1.5 million toys manufactured by Mattel’s Fisher-Price division.  Mattel has already taken out full-page ads in several newspapers in which its CEO reiterates its concern for and commitment to children’s safety.

        The reference to West Virginia came in The Wall Street Journal's Law Blog's interview of Victor Schwartz regarding the prospect for litigation created by the recall.  Schwartz, is a partner at Shook, Hardy & Bacon, but is perhaps better known as the spokesperson for the American Tort Reform Association (the organization that listed West Virginia as its number one “Judicial Hellhole” in 2006).

        Schwartz opined that medical monitoring for the children who played with the toys probably would not be effective. He pointed out that “medical monitoring has been rejected by most courts,” but that in those states where it existed, namely West Virginia and Missouri, he suggested offering to set up a fund to help the child’s family with medical expenses, but not to offer cash, since "most people just take cash and run out and buy a pick-up truck.”

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    Discovery regarding insurance reserves is a complicated issue.  A party in litigation against an insurance company in a bad faith or unfair trade practice case will often make a discovery request for the reserve set by the insurance company for the underlying claim on the theory that the reserve reflects the insurance company’s true valuation of the claim.  David Rossmiller at Insurance Coverage Law Blog has written about rulings made by federal courts in California (as described by J. Craig Williams at May It Please The Court) and Missouri in discovery disputes over reserve information.

    The issue has been addressed recently by the Supreme Court of Appeals of West Virginia in State ex rel. Erie Ins. Property & Cas. Co. v. Mazzone, 2007 WL 1661461 (W. Va. 2007), in which Erie Insurance Company sought a writ of prohibition to prevent enforcement of the circuit court’s order requiring disclosure of its insurance reserves to the plaintiff in a third-party bad faith case.

    Erie claimed that its reserve information constituted opinion work product, which, under West Virginia Rule of Civil Procedure 26(b)(3), may be disclosed “only upon a showing that the party seeking discovery has substantial need of the materials … and that the party is unable to without undue hardship to obtain the substantial equivalent of the materials by other means.”  Erie also contended that reserve information is generally treated as opinion work product. 

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    The Fourth Circuit Court of Appeals, located in Richmond, Virginia, and responsible for federal appeals from Maryland, Virginia, West Virginia, North Carolina, and South Carolina, is usually described as the most conservative federal appellate court in the country. But a front page story in today’s Washington Post explains that the court’s composition has become more politically balanced, due mostly to vacancies that have not been filled by the Bush administration.

    The 15 member court currently has five Democrats, five Republicans, and five vacancies.  The article explains that the vacancies have been created by retirements and resignations among Republican members, which is affecting the balance of power on the court.

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    Brooke County (Wellsburg) Circuit Judge Martin Gaughan has affirmed the jury's verdict of $100 million in punitive damages against Massey Energy Corporation and its subsidiary, Central West Virginia Energy Company in the lawsuit filed by Wheeling-Pittsburgh Steel Corporation, according to Associated Press reporter Tim Huber.  I wrote about the verdict last month. 

    In a ruling entered last Thursday, the court entered judgment on the punitive damages verdict.  The court found that the defendants' conduct warranted punitive damages, and that the award bore a reasonable relationship to the harm caused by the defendants, as well as to the jury's award of compensatory damages.  The court also entered judgment on the compensatory damages verdict of $119.85 million, but offset the verdict by nearly $4.5 million to account for a dispute over the price of coal.  The court also found that the plaintiff was entitled to an additional $24 million in pre-judgment interest.  Here is a copy of Judge Gaughan's order, courtesy of plaintiff's counsel, David B . Fawcett, who advises that additional post-trial motions are forthcoming. 

    I noted that Massey had announced that its second quarter earnings would be affected because it had reserved only $16 million to cover any loss, and it would have to increase its reserve.  But according to Huber's article, Massey has decided not to increase its reserve over $16 million because it believes it has strong grounds for an appeal. 

    The West Virginia Rules of Appellate Procedure provide that the defendants have four months from the date of the final order to file their petition for appeal with the Supreme Court of Appeals of West Virginia.  The petition is discretionary, meaning that the court first decides whether to accept  the appeal, rather than as a matter of right, as in federal court.   With additional post-trial motions to be filed, however, the circuit court has not yet entered the final (appealable) order in the case.

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    I wrote last week about the video that was posted on YouTube on June 26, which consisted of clips from depositions of six medical malpractice plaintiffs followed by clips from surveillance videos of five of them, which purport to show contradictions between their testimony and their activities.  The plaintiffs are suing Dr. John King for malpractice.  Also, last week, a jury ruled that the hospital that hired and credentialed King and HCA, its corporate parent, could be defendants in the lawsuits.

    According to a story in the Saturday Gazette-Mail (Charleston, WV), lawyers for HCA sent a letter last Thursday to Putnam County Circuit Judge O.C. Spaulding, in which they denied that their client had anything to do with the video.  The video posted on June 26 came after the circuit court imposed a gag order and sealed the pleadings on June 8.  That order was necessitated, at least in part, by an earlier video posted on YouTube that purported to show surveillance of one of the plaintiffs, but actually was another of a person unrelated to the litigation.  That video had been released by a media consultant retained by the defendants. 

    In the letter, HCA's lawyers advised the court that they had informed their media consultant, who has not been identified, and a group known as the Center for Individual Freedom of the court's June 8 gag order.  However, two other groups, the Evergreen Freedom Foundation and the National Federation of Republican Assemblies, mentioned the June 26 video in e-mails sent to the Associated Press on July 20, in which they decried lawsuit abuse.  A representative of the Republican group denied receiving the video or having any contact with anyone involved in the malpractice cases.

    I think HCA's lawyers' letter raises more questions that it answers.  The video was made by someone who had access to both the plaintiffs' video depositions and their surveillance videos, which would seem to be a pretty small number of people.  And I'm willing to bet that the defendants had not shared the surveillance videos with the plaintiffs.  I suspect that a third party, who was furnished with the deposition videos and the surveillance videos, made the YouTube video and posted it.  The court needs to find out who's responsible so that it can prevent this conduct from continuing to occur. 

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    In June, I wrote about the gag order imposed by Putnam County Circuit Judge O.C. Spaulding in the medical malpractice cases pending against Dr. John King.  The order was prompted, at least in part, by a video that appeared on YouTube, which purported to show one of the plaintiffs pushing a shopping cart, which she apparently had testified she was no longer able to do.  The trouble was the woman in the video wasn't the plaintiff, she was someone unrelated to the litigation.  At a hearing on June 8, the defense lawyers admitted to giving materials to their media consultant, who provided them to (unnamed) third parties.  The court also entered an order, effective June 8, sealing all pleadings filed in the cases.

    Now, according to Associated Press reporter Larry Messina, whose story appeared in yesterday's Charleston (West Virginia) Gazette, on June 26 (more than two weeks after the gag order was entered), another video was posted on YouTube, which consisted of clips from six of the plaintiffs' depositions, followed by clips from surveillance videos of five of the plaintiffs, showing them purportedly engaged in activities they said they couldn't perform.  Messina's attempts to reach the poster were not successful, and I was unable to find the video today on YouTube when I searched for it.  Judge Spaulding is apparently aware of the video, but has not indicated how he intends to proceed.

    Obviously, the video was intended to portray the plaintiffs negatively, but even if its goal was to make them look sympathetic, it is prohibited by the gag order.  Judge Spaulding should make a serious inquiry into how the video ended up on YouTube, and sanction whomever is responsible.  The other Putnam County judge presiding over the King malpractice cases, Edward Eagloski, has already revoked the pro hac vice admission of a Texas lawyer who had appeared on behalf of the defendants, and the same thing could easily happen here.

   

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    This morning's Charleston (West Virginia) Gazette has a story by Paul Nyden about the jury's verdict finding Putnam General Hospital liable for negligently hiring and credentialing Dr. John King.  Nyden points out that Putnam General lost its credentialing files for King, which resulted in an adverse inference instruction being given to the jury (meaning that the jury may infer that because the hospital lost the file, its contents hurt the hospital and helped the plaintiffs).

    Putnam General's lawyer argued in his closing that King had not done anything wrong, which probably came as a surprise to the jurors, who, being from Putnam County, have been exposed to media reports for the past few years about the results of King's brief time at Putnam General, such as patients who had limbs amputated needlessly, patients who had surgeries to implant hardware that had not received FDA approval, and patients left in such precarious positions medically that they literally can't find other doctors to assume their care. 

    The dilemma for Putnam General is that if it argued in this trial that King was a horrible surgeon, it is at least implicitly conceding liability for hiring and credentialing him.  On the other hand, if Putnam General took the approach (which it did)  that it did nothing wrong and would hire King again if given the opportunity, it has no credibility with the jury. 

    Considering that the jury's verdict means that Putnam General is now a co-defendant in 122 medical malpractice suits in Putnam County and could be liable for punitive damages, its exposure (or more precisely, HCA's exposure as the owner of Putnam General) could reach into the tens or hundreds of millions of dollars.

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