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

    Last month, I wrote about the class action filed by employees of U.S. Sugar, who claim that their shares of company stock have been devalued as a result of mismanagement and self-dealing by the company’s officers.  In 1983, the employees participated in an ESOP (employee stock ownership plan) which traded their participation in a pension plan for ownership of the company’s stock, which is not publicly traded.  Thus, the employees have to depend on what the company is willing to pay to redeem their shares, which, according to allegations in the lawsuit, has been far less than what the shares are actually worth. 

    Then, last week, in an unexpected development, Florida Governor Charlie Crist announced that, as part of the restoration of the Everglades, Florida is willing to pay U.S. Sugar $1.75 billion for its 187,000 acres in four counties in southern Florida.  The company would lease the property back from Florida for six years, then go out of business.  Here are the statements issued by U.S. Sugar and by Governor Crist’s office, and an Associated Press story in today’s New York Times, which reports that the proposed purchase is moving forward.  

    This post by Suzanne Wynn in her Pension Protection Act Blog notes that the ESOP participants (U.S. Sugar's employees), as the owners of the largest block of stock, are the largest group affected by the purchase. 

    Although a lot has been written already about Florida’s proposal (and that’s all it is at this point), I have not seen any discussion of how a purchase price for the employees’ shares of stock would be formulated.  This deal may represent an opportunity for U.S. Sugar’s employees (and remaining shareholders) to obtain some value for their stock, but it does not seem to affect the issues in the litigation.

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    When I last wrote about West Virginia University’s lawsuit against Rich Rodriguez, its former head football coach, WVU had filed an amended complaint in order to assert a claim for breach of contract based on Rodriguez’s failure to make the first one-third payment of his $4 million buyout by January 18.  Since then, there have been some significant developments in the lawsuit. For simplicity, I will review them in chronological order.

    On January 29, Rodriguez filed a letter of credit for $1.5 million with the Court, presumably to show his good faith in dealing with WVU and also to attempt to satisfy WVU's claim for less than $4 million.  WVU has been adamant that it will not settle for less than the full amount of the buyout, and as the case has developed, nothing has happened to weaken WVU’s position.

    Also on January 29, WVU moved for leave to conduct jurisdictional discovery on the issue of Rodriguez’s residency, in order to defeat the removal of the action to federal court based on Rodriguez’s position that he and his wife established their residency in Michigan prior to WVU filing suit against him in West Virginia state court on December 27, 2007.  WVU had moved to remand the action on January 17 on the grounds that first, it was not a citizen of West Virginia for purposes of diversity jurisdiction and that second, Rodriguez was still a citizen of West Virginia when WVU filed suit.  Here are WVU's motion and memorandum in support.

    On February 1, Rodriguez answered the amended complaint and asserted a counterclaim against WVU and filed a third-party complaint against the West Virginia University Foundation, the fund-raising arm of WVU.  Rodriguez attached as an exhibit another letter of resignation to Ed Pastilong, WVU’s athletic director, dated January 10, 2008, in which he elaborated on his reasons for leaving WVU so abruptly:

On [sic] my resignation letter dated December 18, 2007, I did not list some of the reasons for my resignation.  It was not until I read that lawsuit against me by the West Virginia University Board of Governors did [sic] I realize that I needed to put in writing my reasons that I felt that West Virginia University has material [sic] and substantial [sic] breaches [sic] in [sic] our Agreement.

On February 4, Rodriguez filed his response to the motion to remand, and on February 8, WVU filed its reply.

    United States District Judge John Preston Bailey didn’t waste any time in ruling on the motion to remand, and entered an order on February 11 that granted the motion and denied as moot WVU’s motion to conduct discovery.

    Much to Rodriguez’s chagrin, I imagine, Judge Bailey did not reach the issue of whether Rodriguez had established residency in Michigan by the time he was sued, but focused on WVU's status.  In finding that WVU was an arm or alter ego of the State of West Virginia, which defeated diversity jurisdiction, Judge Bailey acknowledged that “’almost universally’ courts have found that public state universities are ‘arms of the state.’”  Thus, Rodriguez's removal of the suit was improper as the Court did not have jurisdiction.  Judge Bailey denied WVU's motion for attorney's fees and costs against Rodriguez, however, because he found that Rodriguez had a colorable basis for removal and did not remove the action in bad faith. 

    The action is back in the Circuit Court of Monongalia County in Morgantown before Judge Robert B. Stone.  West Virginia University Board of Governors v. Rodriguez, Civil Action No. 07-C-851.

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    Last month, United States District Judge Joseph R. Goodwin found that the West Virginia Lottery Commission’s prohibition of certain words that video lottery operators could use in advertising their machines was an impermissible infringement on the operators' commercial free speech.  Words such as “casino,” “jackpot,” and “Vegas” have been banned from advertising since 2004, when the Limited Video Lottery Act was passed. 

    In its order, which granted the WV Association of Club Owners and Fraternal Services, Inc.’s motion for a preliminary injunction against John Musgrave, the directory of the West Virginia Lottery, the court found that “[t]he advertising ban infringes upon the limited video lottery retailers’ right to speak and impedes the public’s ability to engage in informed political discourse."

    Since the court issued its ruling, there has been an interesting and unexpected development.   The West Virginia Amusement & Limited Video Lottery Association, which was not involved in the litigation, and whose membership consists of 18 of the 37 companies authorized to lease machines, has informed retailers with video lottery machines supplied by its members that if they attempt to advertise as permitted by the court’s ruling, they will lose all but one of their machines.  The contracts between the companies leasing the machines and the retailers provide that a retailer must be allowed to have at least one machine. 

    The organization’s rationale apparently is that increased advertising that employs the words that the Act originally banned would generate a backlash against the machines and affect their popularity and hence their profitability.  Judge Goodwin anticipated this possible outcome when he wrote, "Lifting the LVLA's ban on commercial speech will bring limited video lottery into the light, thereby providing important information to those who want to play, and those who want to protest."

    AP reporter Lawrence Messina wrote an article about the controversy, and also has an entry on his blog , Lincoln Walks At Midnight, which reviews the coverage of the issue.

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    A few days ago, I wrote about a recent United States District Court decision awarding benefits to the widow of a man who had accidentally overdosed on prescription medications.  I noted that based on ERISA pre-emption, almost all such cases have to be brought in federal court, where the claims and damages available to plaintiffs are very limited.

    Today, in the Boston ERISA Law Blog, Stephen Rosenberg pokes a little fun at The Wall Street Journal Law Blog’s fascination this week with the doctrine of pre-emption, and accurately describes ERISA pre-emption (which the WSJ Law Blog has omitted from its discussion) as “the most important and interesting application of preemption ….”

    Rosenberg also points out that efforts by states to require employers to provide health care coverage to their employees demonstrate that ERISA pre-emption “is in fact the one area of preemption that consistently affects broad numbers of everyday, real life people ….”   He is referring to Maryland’s Fair Share Act, which was held by the Fourth Circuit Court of Appeals in Retail Industry Leaders' Association v. Fielder, 475 F.3d 180 (4th Cir. 2007),  to be pre-empted by ERISA, and to efforts by California to provide universal health coverage.  Rosenberg's post from August 27, entitled "California, Health Insurance and ERISA Preemption," includes a link to a paper on the topic by University of Maryland Professor Sharon Reece and a post by the Workplace Prof Blog.

    Rosenberg seems to doubt the success of such efforts (and he appears to be right, according to The Wall Street Journal article referenced above), but Brian King at the ERISA Law Blog has a contrary view, in this post from April 27. 

    My own view is that unless Congress amends ERISA’s pre-emption language (highly unlikely, at least in the short term) or the United States Supreme Court holds that ERISA’s scope of pre-emption is too broad (even more unlikely, given the enormous body of federal law, including, significantly, decisions from the Supreme Court, which has repeatedly endorsed that scope as demonstrating Congressional intent), legislation like California’s will be pre-empted. 

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    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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    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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    When West Virginia Governor Joe Manchin underwent a knee replacement last year, he complained afterward that he could not make sense of the medical bills he received, and questioned why a patient couldn't receive one bill that listed all of the providers' charges.

    According to the Charleston Gazette, based on his own experience, Manchin directed the West Virginia Health Care Authority to create a Website that would let consumers know the cost of various procedures.  The result is www.comparecarewv.gov, which permits searches by procedure or by hospital.  For each procedure, the site gives the average facility charge, the average professional charge, and the average total charge (the total of the facility and professional charges).  The type of procedure may affect the number of facilities available.  The site's obvious benefit is that the additional information enables consumers to make more informed choices about their care and treatment, and to weigh factors such as cost and distance.

    And one other feature in particular of the Health Care Authority's own Website, www.hcawv.org, merits a mention.  There is a link to a document repository called Your On-Line Document Archive (Y.O.D.A.), which provides access to many of the agency's filings, such as SEC reports, financial statements, and Medicaid and Medicare cost reports, which can be downloaded as PDFs (or in Excel format, for some of the spreadsheets.)   For example, here is Charleston Area Medical Center's 2006 Financial Disclosure, which details charges, fees and salaries of more than $55,000.

   

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