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

    CNN has picked up on the story of Debbie Shank, whose fight with Wal-Mart over reimbursement of her medical expenses was on the front page of The Wall Street Journal last November.  At that time, I wrote about her unsuccessful efforts to reach a compromise with Wal-Mart regarding its health plan’s right to be repaid for medical expenses incurred in connection with Ms. Shank’s motor vehicle accident, which left her severely brain-damaged.  In August, she lost her appeal before the Eighth Circuit Court of Appeals, and last week, the Supreme Court of the United States denied her petition for a writ of certiorari.  James A. Shank, et al. v. Administrative Committee of the Wal-Mart Stores Inc. Associates' Health and Welfare Plan, No 07-791.

    CNN focuses on the human interest aspect of her story and doesn’t try to grapple with the policy issues, but the statement from Wal-Mart’s spokesman seems inaccurate:

Wal-Mart’s plan is bound by very specific rules … We wish it could be more flexible in Mrs. Shank’s case since her circumstances are clearly extraordinary, but this is done out of fairness to all associates who contribute to, and benefit from, the plan. 

    Undeniably, Wal-Mart has the right to pursue its subrogation interest against Ms. Shank’s recovery, but nothing forces Wal-Mart to seek reimbursement of the entire amount, or an amount equal to the remaining settlement.  The implication that Wal-Mart was required to pursue the recovery of its entire claim is incorrect.  In fact, health plans routinely negotiate in these circumstances like these in order to receive some recovery, without leaving the plan participant or beneficiary in circumstances as dire as Ms. Shank's, and Wal-Mart clearly could have done that here.  

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    Less than one year after being named as president of The Greenbrier, the CSX Corporation-owned resort in White Sulphur Springs, West Virginia, Paul Ratchford resigned.  His departure was unexpected, as reflected by this editorial entitled, "Ratchford - We barely knew him," which appeared in The (Beckley, West Virginia) Register- Herald on September 19, 2007.  One sentence stands out: “We don’t know the details surrounding his departure and likely never will.”

    That statement is no longer true, thanks to a lawsuit filed in the Circuit Court of Greenbrier County, West Virginia last week by Ratchford against CSX, its West Virginia subsidiary, and several individuals.  Here are the complaint, courtesy of the plaintiff’s counsel, Barry L. Bruce, and the Associated Press story on the lawsuit. 

    Ratchford has asserted claims for violation of the West Virginia Wage Payment and Collection Act, breach of contract, wrongful discharge, tortious interference with contractual relationship, intentional infliction of emotional distress, California labor statute violation, and fraud.  He seeks damages of $50 million.

    Ratchford alleges that after being recruited to The Greenbrier from his position as general manager of the Ritz Carlton resort in Half Moon Bay, California, and receiving assurances that, if he desired, he could remain as president of The Greenbrier for the rest of his career, he was terminated by Michael Ward, CEO of the CSX Corporation, “without cause or explanation and within a 45 second conversation” on September 18, 2007. 

    Here are some of Ratchford’s allegations in support of his wrongful discharge claim:

During the Plaintiff’s investigation into how to return the Company [The Greenbrier] to profitability, he uncovered that the executives of CSX and/or CSX Corporation were receiving an enormous amount of free benefits for themselves, their families, and their friends all at great expense to the Greenbrier.

CSX executives were receiving free meals and excessive discounts from the food and beverage outlets and greatly discounted merchandise from the Greenbrier shops.  None of such benefits were attributed as “income” to said executives, all in contravention of West Virginia tax laws.  Said executives were also receiving hotel rooms free or at greatly discounted rates.  Executives had accounts with the Greenbrier known as “city ledger accounts”, all of which were not paid or paid at a fraction of their cost to said executives.  Plaintiff also learned that CSX Corporation executives and families, including retired executives and directors, received highly discounted rooms and meals, all without counting same as income.

Plaintiff immediately discontinued these policies and reported his findings to Michael Ward and others at CSX Corporation.

Plaintiff advised Defendant, Michael Ward, he was going to stop the aforesaid policy and institute a policy that all employees would be limited to a flat 25% discount which was approved by Michael Ward.

Plaintiff’s investigation uncovered that executives of CSX and CSX Corporation were receiving "free” medical/physical examinations from The Greenbrier Clinic, an independently owned and operated business, in exchange for said business not having to pay fair market rent to the Company.  Again, the employees receiving these benefits did not count same as income in contravention of West Virginia tax laws.

    In support of his claim for fraud, Ratchford alleges that:

As a direct and proximate result of CSX and/or CSX Corporation’s fraud, the Plaintiff has suffered the equivalent of a career death sentence in the resort  industry.   Plaintiff suffers from Post Traumatic Stress and has come under a psychologists’ [sic] care.  Plaintiff purchased a home in West Virginia as he had full intention to stay at the Greenbrier for the rest of his working career; a decision that was completely reasonable given Ted Kleisner and Bruce Rosenberger’s statements to Plaintiff about the President’s position.

    Ratchford has attached as an exhibit to the complaint his offer letter, which provided, inter alia, that if  his employment was terminated by CSX, other than for cause, or if he terminated his employment for good reason, prior to completing five years of employment, he would receive a lump sum severance payment equal to two times his annual base salary (which was $350,000 per year when he started in 2006).  Both "cause" and "good reason" are defined in the letter.   Ratchford received his severance pay of $700,000 on October 26, 2007, but alleges that because the payment was made more than 72 hours after his termination, it violated the the West Virginia Wage Payment and Collection Act.

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    A few weeks ago, photographs surfaced that showed Supreme Court of Appeals of West Virginia Chief Justice Elliott E. “Spike” Maynard and Massey Energy Company Don L. Blankenship vacationing together in Monaco and, to put it mildly, created a controversy about the Supreme Court’s decision in Caperton v. A. T. Massey Coal Company, Inc., in which Chief Justice Maynard was in the majority.  On the plaintiffs’ motion, the Supreme Court agreed to reconsider its decision, and the parties argued the case again last week.  Chief Justice Maynard and Justice Larry Starcher recused themselves from the Court’s reconsideration of the appeal. 

    Apparently, the photographs have had a more profound effect, as the Federal Bureau of Investigation and the United States’ Attorney’s office for the Southern District of West Virginia are investigating the relationship between the Chief Justice and Blankenship.  The Wall Street Journal reported on the investigation last Thursday, as part of a story on the Caperton rehearing.  On Friday, in The Charleston Gazette, Paul J. Nyden reported that Court employees and at least one justice had been interviewed.  According to Nyden's article, Chief Justice Maynard has questioned the Journal’s story and discounted the existence of the investigation, although he said he would welcome an independent investigation so that he could show that he received nothing from Blankenship. 

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    There have been some significant developments this week in the medical malpractice lawsuits against discredited surgeon John A. King, which were removed to federal court as a result of the bankruptcy petition filed by King last year in Alabama.

    On Wednesday, the plaintiffs represented by the firm of Curry & Tolliver informed the United States District Court that they had negotiated the settlement of their claims with several parties, including David McNair (King’s physician’s assistant) and the corporate entities consisting of Teays Valley Health Services, Inc. d/b/a Putnam General Hospital, HCA, Inc., Healthtrust, Inc.-The Hospital Company, and Hospital Corp., LLC.  The plaintiffs’ motion to lift the stay also identified several cases in which further proceedings, such as the appointment of a guardian ad litem or court approval of a wrongful death settlement, are necessary. Here are the plaintiffs’ motion and Paul J. Nyden’s article in yesterday's Charleston Gazette.   

    The motion did not disclose the amount of the settlements, and informed the Court that Curry & Tolliver’s clients’ claims against King, Robert Edwards a/k/a Bob Edwards, Wright Medical Technology, Inc., and EBI L.P. would continue.  The latter two defendants manufactured spinal implant devices used by King in some of the surgeries.  Additionally, the claims of the remaining 54 plaintiffs, who are represented by other counsel, will continue against all defendants, although Nyden reported that those cases could soon settle against HCA and Putnam General.

    On Thursday, the district court granted the plaintiffs’ consolidated motion to remand the actions to the Circuit Court of Putnam County, West Virginia, finding that equitable remand was appropriate, even though the civil actions are related to King’s Chapter 7 bankruptcy and therefore conferred subject matter jurisdiction on the Court under 28 U.S.C. §§ 1334(b) and 1452(a).  Here are Judge John T. Copenhaver, Jr.'s Memorandum Opinion and Order and Nyden’s article in today's Gazette.

    The district court acknowledged that the defendants’ concerns about “an irremediable taint present in the jury pool” were “no small matter,” but found that other factors argued in favor of remand.  Specifically, the court found that remand “presents no significant [bankruptcy] estate administration concerns.”  Second, although “some discrete issues respecting federal law have arisen in this action and mass removal,” those issues are “quite limited[,]” (compared to the number of issues that are “routine factual questions presented under state law negligence and damage theories that state circuit courts encounter with some frequency.”  Third, the court recognized the extensive efforts already undertaken by the state court judges to prepare the cases for trial: “A forum switch at this juncture would require perhaps multiple judicial officers in this district to familiarize themselves with the voluminous record and rulings made in the circuit court.  Comity is necessarily threatened in such a setting.”  Thus, the court concluded “that a majority of the applicable factors weigh[ed] in favor of equitable remand[,]” and remanded the 124 actions to circuit court.

    Finally, one other story in the Gazette this week about King discussed a development, which, because of its relative insignificance, I have saved for the end of this post.  According to Nyden’s article in Wednesday’s edition, King has applied to become a real estate appraiser in Tennessee, Before you start laughing, his application “for trainee registration and exam approval” was approved unanimously by the Tennessee Real Estate Appraiser Commission at its December meeting.  King’s plan is to work as a physician for 10 to 12 days per year and spend the balance of the year working as an appraiser.

    Apparently, King did not tell the commission about the medical malpractice lawsuits pending against him in West Virginia or Alabama, but, according to the minutes of the December meeting, did explain that he had to leave West Virginia because “’he was a whistleblower against a group of physicians who were participating in health-care fraud[,]’” who “’made false accusations against him to the West Virginia Medical Board that led to other medical boards suspending his license.’”

    Not surprisingly, the commission’s administrative director has sought guidance from the national Appraisal Foundation about how to process King’s application.

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    This post is not about business litigation, but about a situation playing out in the federal courts in Washington, D.C. that presents some significant issues in media law.  Toni Locy, a former USA Today reporter who holds the Shott Chair of Journalism at the Perley Isaac Reed School of Journalism at West Virginia University, is currently embroiled in a struggle to protect the anonymity of her sources, without putting herself in jeopardy.

    For background about Locy's situation, here is a link to The Wall Street Journal Law Blog’s stories and to the Associated Press story in the Washington Post.  (In the interest of disclosure, I worked with Locy at the Daily Athenaeum, the student newspaper at WVU, many years ago.  She was the managing editor, while I was a lowly staff writer.)  When Locy worked for USA Today, she wrote about Dr. Steven Hatfill, who was alleged to have played a role in the 2001 anthrax attacks.   In fact, in 2002, the FBI and then-Attorney General John Ashcroft described Hatfill as a “person of interest.”  Hatfill did not have any involvement in the attacks, however, and filed suit in the District of Columbia against the United States for violating his privacy by leaking information to the press.  Hatfill v. Mukasey, et al., Civil Action No. 1:03-CV-1793 (RBW).  As part of his lawsuit, Hatfill wants to know the names of Locy’s sources at the FBI and the Department of Justice.  

    United States District Judge Reggie B. Walton (who presided over the I. Lewis “Scooter” Libby trial, during which former New York Times reporter Judith Miller was jailed for 85 days for refusing to cooperate with Special Prosecutor Patrick Fitzgerald’s investigation) ordered Locy to reveal her sources.  She refused to do so, however, and on February 19, Judge Walton held her in contempt.  At that time, he threatened to fine her, beginning at midnight yesterday, $500 per day for seven days, increasing thereafter to $1,000 per day for seven days, and finally increasing to $5,000 per day for seven days if she continued to refuse to identify her sources.  He also threatened to order that she had to pay the fines personally and could receive no financial assistance from USA Today or any media organization or anyone else.  That requirement is no small matter, considering that she could be facing fines of at least $45,500, but makes only $75,000 per year. 

    Last Friday, Judge Walton entered an order assessing the fines as described above and requiring Locy to pay them personally,"to maximize the potential that Ms. Locy will ultimately comply with the Court's order that she reveal her sources at the DOJ and FBI who disclosed information to her about the anthrax investigation."  He also refused to stay payment of the fines while Locy’s lawyers appealed his ruling .

    Locy’s lawyers yesterday filed an emergency motion to stay with the United States Court of Appeals for the District of Columbia Circuit, which entered an order this afternoon staying the payment of the fines while she prosecutes an appeal.  A hearing is scheduled before Judge Walton on April 3.

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    In January, I wrote about the so-called tripartite relationship among an insured, the insured’s lawyer retained and paid by the insurance company, and the insurance company, and an appeal before the Supreme Court of Appeals that illustrated some of the perils of the relationship.

    The Court  has issued its decision in Horkulic v. Galloway, 2008 WL 481000 (W.Va. 2008), which involved a dispute between the lawyer for William Galloway, the defendant in a legal malpractice case, and TIG Insurance Company, which insured Galloway and had retained his lawyer, William Wilmoth.  Galloway’s lawyer claimed that a settlement had been reached with plaintiff Jeffrey Horkulic, in which Galloway would confess judgment in the amount of $1,500,000, but that Horkulic 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 argued that the purported settlement would enable Horkulic to use Galloway’s confession of judgment in a separate bad faith action in order to establish the value of that claim, and appealed the Circuit Court of Hancock County’s order approving the settlement, including Galloway’s confession of judgment. 

    in a unanimous opinion by Justice Joseph Albright, the Court noted the difficulties presented by the parties' relationships:  

In the present case, TIG was not permitted to participate in the settlement enforcement hearing and thus cannot be deemed to have had a full and fair opportunity to litigate the issue.  More specifically, the order in question expressly declares that TIG will have the opportunity to challenge the $1.5 million confessed judgment by Mr. Galloway.  This case presents the classic tripartite configuration in which a party to a bifurcated bad faith action was not a party in the underlying action, despite the reality that such entity furnished counsel for the defendant in the underlying action.  The fact remains that Mr. Wilmoth, as counsel for Mr. Galloway hired through TIG, was not protecting the interests of the insurance company, TIG, while the settlement negotiation matters were being litigated in the lower court.  His duties as counsel ran solely to the interests of Mr. Galloway.

    The Court did not reverse the circuit court's order approving the settlement, but clarified TIG's right to challenge Galloway's confession of judgment:

Based upon the foregoing, we hold that a consent or confessed judgment against an insured party is not binding on that party's insurer in subsequent litigation against the insurer where the insurer was not a party to the proceeding in which the consent or confessed judgment was entered, unless the insurer expressly agreed to be bound by the judgment.  Therefore, an attack on the consent or confessed judgment in the subsequent litigation by an insurer who did not expressly agree to such judgment is a permissible direct, not collateral, attack on the consent or confessed judgment ...  The primary issue to be resolved in this appeal is the extent to which the specific August 25, 2006 order [approving the settlement] under inquiry may be utilized against TIG when the bifurcated bad faith claim is ultimately litigated.  Thus, subsequent to the filing of this opinion, the lower court will progress forward on the course it previously set, dissolving the stay and proceeding with discovery on the bad faith claim.

    In other words, because TIG did not agree to be bound by Galloway's confession of judgment, TIG is free to challenge it during the litigation of the bad faith case.  But because the  bad faith case has not been litigated yet,  the Court cannot predict what effect, if any, the confession of judgment will have.

    In addition to TIG's appeal of the order approving the settlement, it had also sought a writ of prohibition against the circuit court's award of attorney's fees to Horkulic's counsel for  having  to enforce the settlement.  The circuit court awarded fees of $500 per hour for 101.5 hours and $54.00 in expenses.  TIG's challenge was based on its lack of opportunity to participate before the circuit court and that the award was excessive.

    The Supreme Court granted the writ based on TIG's lack of participation: "Thus, under the facts of this case, we find that the lower court erred in granting attorney fees against TIG without allowing TIG to participate in the evidentiary hearing addressing the pertinent issues culpability [sic] for the extensive delays of this case.  It is appropriate to grant a writ of prohibition and to remand this matter for a full evidentiary hearing to determine the extent of TIG's culpability in delaying the settlement." 

    Although the Supreme Court did not explicitly address the amount of the award, under West Virginia case law, such as Aetna Cas.& Sur. Co. v. Pitrolo, 342 S.E.2d 156 (W.Va. 1986), part of the circuit court's inquiry will necessarily focus on the reasonableness of the fees.

    Justice Robin Davis concurred on behalf of herself and Chief Justice Elliott Maynard in order to point out that by granting TIG's petition for a writ of prohibition, "this Court has made no determination with respect to the reasonableness of those fees." 

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    Some Dairy Queen franchise owners, including those in West Virginia, have filed suit against International Dairy Queen, Inc. as a result of its alleged effort to force them to make changes to their restaurants and their operations.  (I will resist the temptation, as Associated Press reporter Tim Huber did not, to describe Dairy Queen’s as a dilly of a problem.)  The Michigan Dairy Queen Operators’ Association, et al. v. International Dairy Queen, Inc., et al., Civil Action No. 1:08-CV-0036.

    Dairy Queen International, Inc., which is owned by Berkshire Hathaway Inc., wants its franchisees to increase the size of their restaurants and make other changes, such as adding table service.  But the franchisees claim that the changes would cost each owner between $275,000 and $450,000 to remodel its store, and require other expenses, such as the cost of updated equipment to conform to new menu specifications, additional labor and training costs, and the loss of revenue when the conversion to the new restaurant format takes place.   

    According to the plaintiffs’ amended complaint for declaratory judgment and injunctive relief,

    On behalf of their members (hereinafter “Member Franchisees” or individually “Member Franchisee”) whose franchise agreements do not contain arbitration clauses, the Plaintiffs seek declaratory and injunctive relief to prohibit Defendants from forcing their Member Franchisees to make an expensive conversion to a DQ Grill & Chill or a DQ/Orange Julius Treat Center on terms that are commercially unreasonable in view of the expense, on the one hand, and the lack of a reasonable rate of return, on the other hand.  Defendants’ attempts at forced conversion constitute a material breach of the existing franchise agreements and the duty of good faith and fair dealing that is implied as a matter of law in every contract.  Without the relief being requested in this action, the Member Franchisees are suffering, and will continue to suffer, irreparable damage through the actual or threatened losses of: (i) their coerced investments in the brand conversions; (ii) the business and goodwill that they have developed and nurtured as Dairy Queen franchisees; and (iii) the opportunity to realize the equity in their Dairy Queen franchises by sale.

    West Virginia Dairy Queen franchisees are members of North Eastern Store Owners, Inc., which also includes store owners from Virginia, Pennsylvania, Ohio and Kentucky.  Here is Jenni Vincent's story from the Martinsburg Journal, which provides some additional information on the West Virginia owners' involvement in the lawsuit.

    The lawsuit has just gotten started and so it's too early to predict the outcome,  but according to consultant Richard Adams, who is quoted in Huber's article, "Very seldom do the franchisees win an outright victory," [he]  says.  "It's usually something that's settled out of court."

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