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

    Insurance coverage was at issue in recent decisions from two federal appeals courts, in which one court found that no coverage was available, while the other interpreted which of two companies’ policies was excess coverage.

    In Scottsdale Ins. Co. v. Flowers, 2008 WL 140968 (January 16, 2008), the Sixth Circuit Court of Appeals was asked to review a district court’s declaratory judgment that Flowers, a therapist employed by the Morton Center, was not covered by the Morton Center’s liability insurance policy with Scottsdale Insurance Company for tort damages resulting from his sexual relationship with Burke, who had been his patient. 

    The appeals court first engaged in a thorough analysis and determined that the district court properly exercised its jurisdiction under the Declaratory Judgments Act.  The court then turned to whether Flowers’ affair with Burke fell within the scope of his employment with the Morton Center, such that there would be coverage under Scottsdale’s policy.

    The court concluded that the meaning of the legal term of art, “scope of employment,” was not ambiguous under Scottsdale’s policy, and therefore the district court correctly found that the policy excluded coverage for Flowers’ activities that were not within the scope of his employment.  Having determined that Scottsdale’s insurance policy was not ambiguous, the court proceeded to address whether Flowers’ affair with Burke came within the scope of his employment as a therapist with the Morton Center.

    The court was guided by precedent that focuses on the employee’s motive in determining whether he or she acted within the scope of employment.  Consequently, the court found that Flowers’ motivation for the affair was his own sexual proclivities, and not the furtherance of the Morton Center’s business.  Burke claimed that Flowers acted negligently, and not intentionally, by having the affair with her, but the court observed that Flowers did not have the affair with her as part of her treatment, but for his own benefit.  Thus, as a matter of Kentucky law, there was no insurance coverage for damages resulting from Flowers’ affair with Burke.

    The remaining issue for the Sixth Circuit’s consideration was the propriety of an amended order entered by the district court on Burke’s motion.  In its original order, the district court ordered that “plaintiff, Scottsdale Insurance Company, has no duty to extend coverage to Norman Flowers for any of the torts alleged in [Burke’s civil action].” (Emphasis added.)  However, Burke moved the court to amend its order because the Morton Center was trying to use the original order to preclude litigation on the issue of its liability in Burke’s state court action. 

    The district court vacated its original order and entered an amended order that found that Scottsdale “has no duty to extend coverage to Norman Flowers for his sexual affair with Kathleen Burke.”  (Emphasis added.)  

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    Last Friday, January 18 was the deadline for former West Virginia University head football coach Rich Rodriguez to pay the first third of his $4 million buyout to WVU.  Rodriguez and his representatives had indicated that he would not pay the buyout because of his belief that WVU did not satisfy its obligations under his contract, so it was no surprise when he did not make the payment.  Neither was it a surprise when WVU amended its complaint to assert a claim for breach of contract due to Rodriguez’s failure to pay.  Here is the amended complaint.

    The news this week about Rodriguez has focused on the apparent deterioration of his relationship with WVU in 2007, according to an exchange of e-mails obtained by the Associated Press.  Here is the AP story in yesterday's Charleston Daily Mail.

    Rodriguez’s agent was quoted earlier this week as promising a “bombshell” when Rodriguez files his response to the complaint.  Beyond the counterclaim that Rodriguez is certain to file, the specific allegations that Rodriguez will make against WVU and its personnel are unknown.          

    WVU has added to its legal team the lawyer who represented former WVU head basketball coach John Beilein in negotiations over his buyout with WVU.  Robert Fitzsimmons of Wheeling was able to reduce the amount of Beilein’s buyout from $2.5 million to $1.5 million, payable in installments of $300,000 over five years.  Beilein’s contract did not have any time frame for him to pay the buyout.

    WVU likely agreed to accept a reduced amount because it was able to hire a new coach, Bob Huggins, very soon after Beilein’s departure, which enabled the school to avoid the problems typically associated with hiring a new coach.  That was not the situation with Rodriguez's departure, however, which may explain, at least partially, the university's aggressive stance with him.

    Also, Northern District Chief Judge Irene M. Keeley, to whom the Rodriguez case had been assigned, recused herself and reassigned the case to Judge John Preston Bailey, who sits in the Northern District’s Wheeling Division.

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    The Supreme Court of Appeals has voted 5-0 to rehear A.T. Massey Coal Company, Inc.’s appeal of the  $50 million verdict obtained in 2002 by Hugh Caperton and companies he operated.  The Court originally ruled 3-2 in November to reverse the verdict.  The case will be reargued on March 12.

    Circuit Court Judge Donald Cookman was appointed to replace Chief Justice Elliott E. “Spike” Maynard, after the Chief Justice recused himself amid allegations that his personal friendship with Massey Energy Company chairman Don Blankenship would affect his ability to be impartial.  Justice Brent Benjamin, who appointed Judge Cookman, rejected a request by the Harman companies that he recuse himself, based on Blankenship's involvement in his 2004 campaign.

    Here is the Associated Press story, which includes Massey’s statement about the Supreme Court's decision to reconsider the verdict.

    Also, I need to correct my post last Saturday about Justice Benjamin's refusal to recuse himself.  In his statement, he said, in part, that, "Simply conclusory accusations and assumptions are plainly  insufficient to support a motion for disqualification[,]"  not "simply accusatory accusations," as I wrote.

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    The situation regarding the composition of the Supreme Court of Appeals when it takes up the plaintiffs’ motions for reconsideration in Caperton v. A.T. Massey Coal Company, Inc. has been clarified by Justice Brent Benjamin’s decision yesterday afternoon not to recuse himself from the case, as the Harman companies had requested.  I do not have the text of Justice Benjamin’s statement or any order from the Supreme Court, but Paul Nyden’s  article in today’s Saturday Gazette-Mail quotes from the statement. 

    Here is the statement as quoted in the Nyden article:

The motion seeking disqualification comes over three years after the 2004 election and focuses entirely on that election. It contains nothing about this justice’s record on the court. There are no allegations that this justice has, or has had, any relationship with Mr. Blankenship or any Massey company in his 20-plus years of private practice. Simply accusatory accusations and assumptions are plainly insufficient to support a motion for disqualification.

    The plaintiffs, Harman Development Corporation, Harman Mining Corporation, and Sovereign Coal Sales, Inc., renewed their motion to disqualify Justice Benjamin based on the involvement of Massey Energy Company chairman Don Blankenship in the 2004 election in which Justice Benjamin defeated incumbent Justice Warren McGraw.  Blankenship provided significant support to Justice Benjamin’s campaign.  Here is the companies' motion to disqualify Justice Benjamin filed in October 2005. 

    Also yesterday, Justice Benjamin, who is acting chief justice in this case due to Chief Justice Maynard’s recusal, appointed Circuit Court Judge Donald H. Cookman to serve as the fifth justice when the Court holds its rehearing conference on January 24.

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    Supreme Court of Appeals of West Virginia Chief Justice Elliott E. "Spike" Maynard has recused himself from further participation in Caperton v. A.T. Massey Coal Company, Inc., et al., in which the Supreme Court reversed the plaintiffs' $50 million verdict   The plaintiffs have filed motions for reconsideration, which the Court will take up on January 24.  Here is the order entered by the Clerk and Chief Justice Maynard's memorandum to the Clerk.  

    Here is the text of the memorandum:

It is not enough to do Justice--Justice also must satisfy the appearance of Justice.  I have decided to voluntarily recuse myself from this case.  I will recuse myself despite the fact I have no doubt in my own mind and firmly believe I have been and would be fair and impartial in this case.  I know that of a certainty.

The issue, because of the controversy surrounding this case, is no longer an issue of whether I can be fair and impartial.  Rather it has now become an issue of public perception and public confidence in the courts.  Above all else, I am very concerned about how the public views this court.

Without question, the Judicial Branch of state government should always be held in the highest public confidence and trust.  The mere appearance of impropriety, regardless of whether it is supported by fact, can compromise the public confidence in the courts.  For that reason -- and that reason alone -- I will recuse myself from this case.

    The issue of the Chief Justice's friendship with Massey Energy Company chairman Don Blankenship and his continued participation in the case has attracted a lot of attention, as reflected by Adam Liptak's article today in The New York Times  and this entry on The Wall Street Journal Law Blog.   Here is Associated Press reporter Lawrence Messina's article today. 

    In another development, Harman Mining Development Corporation, Harman Mining Corporation, and Sovereign Coal Sales, Inc. yesterday renewed their motion to disqualify Justice Brent Benjamin from participation in the case.  The plaintiffs first made the motion in October 2005, at which time Justice Benjamin declined to recuse himself.  The renewed motion focuses on the role played by Blankenship in Justice Benjamin's election in 2004, when "Blankenship invested more than $3 million in direct or indirect support of Justice Benjamin -- more than any person, other than a person seeking his own election, had ever spent to effect the outcome of a state judicial race, certainly in West Virginia and perhaps in the United States."   Here is the renewed motion, which had also sought the Chief Justice's disqualification.  As of today, Justice Benjamin has not indicated whether he will recuse himself.

    As Adam Liptak noted, Chief Justice Maynard did not indicate whether he was withdrawing his vote or making his disqualification retroactive, as the plaintiffs had requested.  Furthermore, when a Supreme Court justice recuses himself or herself, the chief justice appoints the substitute justice.  But here, where the chief justice has recused himself, I don't know whether the justice with the most seniority (Robin Davis) or the one next in line for chief justice (Brent Benjamin) makes the appointment.   Of course, that issue is complicated by the motion pending against Justice Benjamin.

    I think Chief Justice Maynard is going to have to address the remainder of the plaintiffs' motion, i.e., advise whether his recusal is retroactive to the oral argument in September, which would require the parties to start over, or whether he intends his recusal to apply only to the plaintiffs' motions for reconsideration.

    These are my posts from earlier this week about the Maynard disqualification issue and the plaintiffs' motions for reconsideration of the Court's decision.

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    A group of investors has filed a securities class action against International Coal Group, Inc. and several of its officers and directors, including chairman Wilbur L. Ross, Jr. and president Bennett K. Hatfield, alleging that the company and its representatives made “false and misleading statements” about the company’s performance and “made materially incorrect public statements in press releases and shareholder reports that artificially inflated the price of [ICG’s] stock prior to and after ICG’s November 21, 2005 Reorganization and Stock Exchange (the “Reorganization”)."   Saratoga Advantage Trust v. ICG, Inc., et al., Civil Action No. 2:08-CV-00011. 

    The plaintiff is Saratoga Advantage Trust, which, according to its Website, “consists of seven proprietary investment portfolios, each representing a major investment asset class.”  The action is brought on behalf of all persons and entities who purchased securities of ICG between April 28, 2005 and June 8, 2006, inclusive, and was filed in the United States District Court for the Southern District of West Virginia  on January 7, 2008 and has been assigned to Judge John T. Copenhaver, Jr.   

    Here is the complaint, which further alleges that:

Specifically, the defendants failed to disclose material adverse facts and publicly issued false information in public filings and other statements to the investment community by misinterpreting the Company’s woeful safety record and historical environmental non-compliance. As a result, the Company’s operations and financial performance were deteriorating and defendants’ statements to the contrary concerning its current and future business prospects were false, lacking any reasonable basis in fact, and made by defendants in knowing disregard of true facts.

    In April 2007, the City of Ann Arbor Employees' Retirement System and Iron Workers of Western Pennsylvania Pension Plan sued ICG, alleging that ICG falsely claimed to be able to mine coal safely and profitably, which caused its stock to lose value.  I wrote about that lawsuit in this post.

   Last June, Saratoga Advantage Trust filed a motion in that case for appointment as lead plaintiff and approval for its counsel to serve as lead counsel.  Here are its motion and memorandum in support.  The Court denied Saratoga's motion and appointed the City of Ann Arbor Employees' Retirement System and AIP Alternative Strategies Funds - Alpha Hedged Strategies Fund (one of the original plaintiffs, but not mentioned in the complaint) as co-lead plaintiffs.  Here is the Court's order.

    Note that in the new action, Saratoga is the only plaintiff named, which would seem to ensure its position as lead plaintiff.

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    Let me note a few developments in WVU's lawsuit against its former head football coach, Rich Rodriguez.

    Yesterday, Rodriguez removed the lawsuit from the Circuit Court of Monongalia County to the Northern District of West Virginia at Clarksburg, based on an amount in controversy in excess of $75,000 and diversity of citizenship between the parties.  Here are Rodriguez's notice of removal and his notice of filing of notice of removal.  Rodriguez alleges that plaintiff WVU's Board of Governors is a West Virginia resident, while he

had established residency in the State of Michigan at the time this lawsuit was commenced [on December 27, 2007].  As has been widely reported in the local press, Coach Rodriguez had been physically present in the State of Michigan and had a clear intention to remain there at the time of the commencement of this action as the football coach at the University of Michigan.

West Virginia University Board of Governors v. Rodriguez, Civil Action No. 1:08-CV-00041.  The action has been assigned to Chief Judge Irene M. Keeley.

    For completeness, here is Exhibit D to WVU's complaint, which is Rodriguez's resignation letter to WVU Athletic Director Ed Pastilong, and which I failed to include in my original post about WVU's lawsuit against Rodriguez. 

    But this week, what is more significant than the procedural development are the revelations that, after announcing his departure for UM, Rodriguez destroyed or removed files that may be WVU's property (although his agent has described them as Rodriguez's personal files), and  used his WVU-issued cell phone to call recruits, presumably to inform them of his plans.  Because the news about the destruction of the files has been widely reported, for now, here are Dave Hickman's article in Tuesday's Charleston Gazette and Mike Casazza's article in yesterday's (Charleston) Daily Mail. 

    Casazza also has an article about the cell phone use in today's Daily Mail,  The paper obtained the cell phone records from WVU under the West Virginia Freedom of Information Act. 

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    Hugh Caperton, whose verdict against A.T. Massey Coal Company, Inc. for $50 million was reversed by the Supreme Court of Appeals of West Virginia by a vote of 3-2, yesterday filed an amended motion to disqualify Chief Justice Elliott E. “Spike” Maynard from participating in the plaintiffs’ petitions for reconsideration of the Court’s decision and seeking the withdrawal of his vote in Massey’s favor.

    The basis for the amended motion is that Caperton “has become aware of the existence of thirty-four (34) photographs which depict Chief Justice Maynard and Mr. Blankenship vacationing together in the Kingdom of Monaco during the time period of July 3-5, 2006.  Copies of twenty-four of these photographs are attached hereto as Exhibit A.”  The motion also states that, “[t]en (10) of the photographs also depict, in addition to Chief Justice Maynard and/or Mr. Blankenship, two females apparently traveling with them as companions.”  Those photographs have been filed under seal.   

    The motion and the underlying relationship between Chief Justice Maynard and Blankenship are the subject of a story today in The New York Times by Adam Liptak, entitled “Motion Ties W. Virginia Justice to Coal Executive.”   For more local coverage, here are stories by Paul J. Nyden in today’s Charleston Gazette and by Associated Press reporter Lawrence Messina. 

    Yesterday I wrote about the petitions for reconsideration filed by Caperton and his companies, as well as Caperton’s motion to disqualify Chief Justice Maynard, which was filed earlier this month, which alleged that less than two weeks before the Court issued its decision in Caperton’s appeal, Chief Justice Maynard and Blankenship had been seen having dinner together.

    The standard for disqualification of a Supreme Court justice is governed by Rule 29 of the West Virginia Rules of Appellate Procedure, which provides that, “[a] justice shall disqualify himself or herself, upon proper motion or sua sponte, in accordance with the provisions of Canon 3(E)(1) of the Code of Judicial Conduct or, when sua sponte, for any other reason the justice deems appropriate.”  Canon 3(E)(1) provides that, “[a] judge shall disqualify himself or herself in a proceeding in which the judge’s impartiality might reasonably be questioned ….” 

    Caperton’s amended motion alleges that:

It is beyond the realm of human comprehension that any judge could claim any semblance of impartiality when, before casting the deciding vote in a $76 million case, he accompanies the CEO of the litigant on the hook for that judgment on a luxurious trip to the French Riviera.  As if that were not enough, he then consciously chooses not to disclose the very fact of the trip.  Apparently unsatisfied, he then casts the deciding vote in support of a “majority” opinion which was not only expressly intended to deprive Mr. Caperton, by reason of a dismissal “with prejudice” of any further opportunity to obtain justice, but also to bestow a $76 million windfall upon Massey and good friend Don Blankenship.

    Rule 29 provides that the justice whose disqualification is sought “shall promptly notify the Clerk of the Supreme Court of his or her decision on the motion for disqualification and the Clerk of the Supreme Court shall promptly notify the other justices and the parties of such decision.”  As soon as Chief Justice Maynard makes his decision, which most likely will be in the form of an order, I’ll post it here.   

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    I am happy to announce that on Monday, July 14, 2008, I will host Blawg Review #142.   I'll post a reminder as the date gets closer, but I wanted to mention it today.  Blawg Review is a weekly summary of submissions from varied and various legal blogs.

    By the way, fellow Charleston law blogger, Bob Coffield, who blogs at Health Care Law Blog, is an old hand at hosting Blawg Review, having hosted #44 and #97.  I think it's time for him to sign up again.

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    On January 24, the Supreme Court of Appeals will consider the petitions for rehearing filed by Hugh Caperton and Harman Mining Compan, which ask the Court to reconsider its November 21, 2007 decision, which reversed their 2002 verdict for $50 million against A. T. Massey Coal Company, Inc. and several of its subsidiaries.  Caperton v. A. T. Massey Coal Company, Inc., 2007 WL 4150960.  Here are Caperton's petition and Harman Mining's petition, courtesy of Harman's counsel, David Fawcett.  The Clerk's office has not yet posted the dockets for the Court's conferences on January 24, but should do so this week. 

    Caperton and Harman challenge as procedurally and substantively improper the Supreme Court's retroactive application of its forum selection clause test, which it announced for the first time in its decision.  The Court determined that the Circuit Court of Boone County erred in denying Massey's motion to dismiss, based on the existence of a forum selection clause in a 1997 coal supply agreement entered into by Harman, Sovereign Sales, and Massey subsidiary Wellmore Coal Company (which was not involved in the litigation), which required all litigation to be brought in and adjudicated by the Circuit Court of Buchanan County, Virginia. 

    Caperton and Harman also challenge the Supreme Court's finding that their West Virginia lawsuit was barred by the doctrine of res judicata, based on the plaintiffs' 1998 lawsuit against Wellmore in the Circuit Court of Buchanan County, Virginia for breach of contract and breach of the duty of good faith faith and fair dealing, which resulted in a $6 million verdict for the plaintiffs.  They maintain that they were permitted to assert their tort claims against the Massey defendants separately from the Virginia breach of contract action. 

    The United Mine Workers of America moved for leave to file an amicus brief in support of the plaintiffs, which the Court denied on Thursday as premature, pending its decision on the petitions for rehearing.  The UMWA's interest in the action stems from the $15 million that its members and retirees are owed in benefits and compensation by Harman Mining, Sovereign Coal Sales, and Harman Development Company, all of which are in bankruptcy.  Here is the UMWA's motion and amicus brief.

    Still pending before the Court is Caperton's motion to disqualify Chief Justice Elliott E. Maynard based on his association with Massey chairman Don Blankenship.  The motion alleges that Maynard and Blankenship were seen having dinner on November 8, 2007, which was about two weeks before the Court issued its decision.  The motion asks that Maynard

disclose the nature of any meetings or discussions with Appellants, including Mr. Don L. Blankenship, during the pendency of this appeal, and, if such meetings or discussions occurred, to disqualify himself from participating in any consideration of Appellee Caperton's Petition for Rehearing, and further requests that Justice Maynard withdraw his earlier vote in favor of the Court's majority opinion in this matter ....

   Here is my post about the Supreme Court's decision, and Paul Nyden's article in The Charleston Gazette last week about the litigation. 

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    A post earlier this week in Stephen D. Rosenberg’s Boston ERISA & Insurance Litigation Blog ties in nicely with an appeal argued in front of the Supreme Court of Appeals of West Virginia on Tuesday, which was the first day of the Court’s Spring Term.  Here is the Court’s calendar for the entire term.

    The post was entitled “The Three Rules of the Tripartite Relationship,” which refers to the relationship established when an insurance company’s policyholder is sued, and the insurance company provides a defense as required by the policy.  Even though the policyholder’s lawyer is retained and paid by the insurance company, he or she represents the policyholder’s interests exclusively.  But the tripartite relationship has the potential to create conflicting loyalties on the part of the policyholder’s counsel, whose obligation to represent the policyholder may be at odds with the interests of the insurance company that has retained him or her. 

    Stephen linked to an article entitled "On the Horns of a Defense Counsel Dilemma," and also proposed three rules of thumb that should govern the tripartite relationship.  Roy Harmon, who writes Health Plan Law, also wrote about the arrangement yesterday with a post entitled "Appointed Defense Counsel: The Small Print Enlarged."

    The tripartite relationship was at issue before the Supreme Court of Appeals in Jeffrey A. Horkulic, et al. v. William O. Galloway, et al., No. 33352, which involved an underlying legal malpractice claim.  Defendant Galloway’s malpractice carrier, TIG Insurance Company (“TIG”), appointed counsel for him, and he also retained his own private counsel.  A dispute developed between Galloway’s appointed counsel and TIG as to whether a settlement with Horkulic had been reached.  Galloway’s appointed counsel said the parties had reached a settlement, while TIG’s claims adjuster said they had not.

    The sticking point between Galloway and TIG was a provision that Galloway would confess judgment in the amount of $1,500,000, but that the plaintiff would accept Galloway’s policy limits of $500,000 in satisfaction of his claim, would not pursue Galloway’s personal assets, and would not record the judgment.  TIG's objection was that the plaintiff, who had also filed a third-party bad faith claim against TIG, would be able to use the confession of judgment in the bad faith case in order to establish his damages.  The Circuit Court of Ohio County entered an order approving the settlement, including Galloway's confession of judgment, and TIG appealed.

    As you can see from the circuit court’s order, as well as the parties’ briefs (here are TIG's brief, the plaintiff’s brief, and TIG's reply brief), the plaintiff’s appointed counsel clearly was at odds with TIG, the entity who retained and paid him. This conflict is what can make the tripartite relationship so problematic. 

    At the oral argument, which I watched via the Court’s webcast, TIG argued that it would be unable to challenge the confession of judgment during the prosecution of the third-party bad faith case, for the purpose of determining the plaintiff’s damages.  The plaintiff’s counsel repeatedly assured the Court that TIG could object to the judgment, but as some members of the Court observed, until the bad faith case is underway and the confession of judgment becomes an issue, TIG’s concern may be premature.

    Finally, one other issue that was consolidated for hearing on Tuesday with the underlying appeal was State ex rel. TIG Insurance Company v. The Honorable Arthur M. Recht, et al., No. 33353, which was TIG’s petition for a writ of prohibition against the circuit court’s award of attorney’s fees to Horkulic’s lawyer.  The circuit court ordered TIG to pay attorney’s fees at the rate of $500 per hour for the work involved in enforcing the plaintiff’s settlement with TIG, which amounted to $50,750.  Here are TIG’s petition, Galloway's response, and the plaintiff’s response.  (Incidentally, Galloway's position was that the circuit court did not exceed its authority in awarding attorney's fees and that the amount of the award was not excessive.)  The Supreme Court was not alarmed about the amount of the hourly rate, so I don’t anticipate that the Court will disturb the award.

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    For the second time in about two weeks, drug manufacturer AstraZeneca Pharmaceuticals LP has sued Mylan Pharmaceuticals Inc., alleging infringement by Mylan on its patent for cholesterol drug Crestor.  Here is the complaint, which was filed in United States District Court for the Northern District of West Virginia on December 28, 2007, and assigned to Chief Judge Irene M. Keeley. AstraZeneca Pharmaceuticals LP, et al. v. Mylan Laboratories, Inc., Civil Action No. 1:07-CV-00177.

    In the action, AstraZeneca alleges that Mylan has infringed on its patent for Crestor, which is used to treat high cholesterol, by seeking FDA approval for rosuvastatin calcium tablets, which is the generic version of Crestor.  According to the complaint, Mylan’s position before the FDA is that AstraZeneca’s patent for Crestor is invalid and unenforceable.  Among other relief, AstraZeneca asks that “the effective date of any FDA approval of the Mylan Rosuvastatin Calcium Tablets shall be no earlier than the expiration date of the ‘314 patent….”

    On December 11, AstraZeneca had filed suit against seven generic drug manufacturers, including Mylan, in United States District Court in Delaware, alleging their infringement of its Crestor patent.  AstraZeneca’s complaint against Mylan is virtually identical to its West Virginia filing.  AstraZeneca Pharmaceuticals LP, et al. v. Mylan Pharmaceuticals Inc., Civil Action No. 1:07-CV-00805.  The other generics manufacturers named (in separate complaints) are Sun Pharmaceuticals Industries, Ltd., Sandoz Inc., Par Pharmaceutical Inc., Apotex Inc., Aurobindo Pharma Ltd., and Cobalt Pharmaceuticals Inc.

    In other Mylan litigation, Judge Keeley has denied the motion to dismiss filed by Eliot Disner in Mylan's legal malpractice lawsuit against him.  Here is Judge Keeley's order, which was entered on December 21, 2007.  On the same day, she also entered an order staying the case, based on a pending arbitration that may affect its outcome.  She has given the parties until March 3, 2008 to report on the status of the arbitration.  For some background on Mylan's claims against Disner, here is my post from last  August.

    Finally, one more item of interest about Mylan, which does not involve litigation (yet).  Mylan's chief operating officer, Heather Bresch, is accused of receiving an MBA from West Virginia University without satisfying the degree requirements when she was in the program nearly a decade ago.  Bresch, who is the daughter of West Virginia Governor Joe Manchin, was named COO in October, at which point the Pittsburgh Post-Gazette called WVU to verify her academic credentials.  According to the Post Gazette, which first reported on the situation on December 21, WVU initially said that Bresch did not have an MBA, then reversed its position a few days later, and explained that the discrepancy in its records was caused by the College of Business and Economics’ failure to transfer records for almost half her course work to the Office of Admissions and Records.

    As reported by the Post-Gazette, earlier this week, WVU Provost Gerald Lang named a three person panel to determine whether he did anything wrong in determining that Bresch had earned an MBA.  And today, the Post-Gazette published this editorial, which questions whether an out-of-state panel may have more credibility in investigating the allegations about Bresch's degree.

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    A California appeals court has ruled that health insurer Blue Shield of California improperly rescinded an insurance policy after its insured incurred more than $450,000 in medical expenses, then demanded that he repay more than $100,000.  Hailey v. California Physicians’ Service, 2007 WL 4472790 (December 24, 2007). 

    Blue Shield claimed that Steve Hailey made several misrepresentations in applying for insurance, but in a unanimous opinion, the Fourth Appellate District of the Court of Appeals disagreed.  The court found that Hailey’s wife, Cindy, who completed his application, did not entirely understand the application and therefore may have provided incorrect information.  Here is the court's ruling: 

We conclude [California Health and Safety Code] section 1389.3 precludes a health services plan from rescinding a contract for a material misrepresentation or omission unless the plan can demonstrate (1) the misrepresentation or omission was willful, or (2) it had made reasonable efforts to ensure the subscriber’s application was accurate and complete as part of the precontract underwriting process. Because both of these issues turn on disputed facts, the trial court’s summary judgment ruling cannot stand. We also conclude a triable issue of facts exists whether Blue Shield engaged in bad faith, and that the Haileys adequately alleged a cause of action for intentional infliction of emotional distress. We therefore reverse the judgment.

    The Wall Street Journal Law Blog wrote about the Hailey decision, and the San Francisco Chronicle had this story, which provided background about the Haileys' experience with Blue Shield.  Both articles also discuss actions taken by California regulators against insurance companies.  Last May, I wrote this post about Blue Cross of California’s decision to stop its practice of “use it and lose it,” which is another name for Blue Shield’s practice of “post-claim underwriting.”

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