The "Made-Whole" Doctrine in Tennessee

My law review article, "'Made-Whole" Made Fair:  A Proposal to Modify Subrogation in Tennessee Tort Actions," is among the top ten down loads in its category on the Social Science Research Network.

Here is an abstract of the article:

This Article proposes the adoption of the “Modified Made-Whole Doctrine Proposal." Part I begins by explaining the roots of the law of subrogation rights and its current jurisprudential inconsistencies. It also explores the relationship between such subrogation rights and the made-whole doctrine in the context of Tennessee tort law as well as how this doctrine would be applied in Tennessee today. Part II briefly outlines some of the general questions regarding Tennessee’s current application of the made-whole doctrine, particularly the unresolved issues surrounding the impact of comparative fault on subrogation rights. These are questions which the author’s suggested Proposal is designed to directly address. The detailed framework of this Proposal, including its five fundamental Principles and their underpinning rules, are set forth at length in Part III. Finally, Part IV concludes by analyzing the practical application of this Proposal throughout the various stages of the litigation process and offers guidance to judges, attorneys, and litigants alike as to how such subrogation disputes can be equitably resolved. In sum, the Modified Made-Whole Doctrine Proposal is meant to provide for the efficient, just application of the made-whole doctrine to subrogation interests with respect to Tennessee’s law of comparative fault.

Click on the link above for free access to the article.  The article is published in the inaugural edition of the Belmont Law Review beginning at page 71.



Tennessee Made-Whole Doctrine

The Belmont Law Review published an article I wrote about the made-whole doctrine in its inaugural issue.  Here is a description of the article.  

This Article proposes the adoption of the “Modified Made-Whole Doctrine Proposal." Part I begins by explaining the roots of the law of subrogation rights and its current jurisprudential inconsistencies. It also explores the relationship between such subrogation rights and the made-whole doctrine in the context of Tennessee tort law as well as how this doctrine would be applied in Tennessee today. Part II briefly outlines some of the general questions regarding Tennessee’s current application of the made-whole doctrine, particularly the unresolved issues surrounding the impact of comparative fault on subrogation rights. These are questions which the author’s suggested Proposal is designed to directly address. The detailed framework of this Proposal, including its five fundamental Principles and their underpinning rules, are set forth at length in Part III. Finally, Part IV concludes by analyzing the practical application of this Proposal throughout the various stages of the litigation process and offers guidance to judges, attorneys, and litigants alike as to how such subrogation disputes can be equitably resolved. In sum, the Modified Made-Whole Doctrine Proposal is meant to provide for the efficient, just application of the made-whole doctrine to subrogation interests with respect to Tennessee’s law of comparative fault.
It is available for download here:  
Those of you who are fighting made-whole challenges or who are attempting to establish new law in the area may find the article helpful.  The article does not address ERISA subrogation issues - it concerns itself only with "made-whole" law in Tennessee.
Thanks to Ryder Lee for his help on this article.

How NOT to Handle an ERISA Subrogation Lien

Georgia lawyer David T. Lashgari thought it was a good idea to distribute $500,000 in personal injury settlement proceeds knowing that there was an ERISA-protected subrogation interest for $180,000. 

Then he thought it was a good idea to fight an effort by the subrogee to get the money from him and his client. 

Then he thought it was a good idea not to obey a court order that required him and his client to put $180,000 into his trust fund pending final judgment in the case.  (He said he and his client didn't have the money.)

After a year of waiting for the money to be deposited, the district judge held both Lashgari and his client in civil contempt, ordered them to produce financial records that would establish their financial situation, and ordered Lashgari to report himself to the State Bar of Georgia. 

The records produced were, in the opinion of the Seventh Circuit Court of Appeals, "absurdly inadequate."

Then, Lashgari thought an appeal was a good idea. The  appeal brief filed on behalf of him and his former client was a "gaunt, pathetic document," their appeal to be deemed frivolous, and their conduct called "outrageous."

The remand requires the district court to determine whether Lashgari and his client should be jailed until they comply with the order to deposit the funds in a trust account.

And briefing is being held on sanctions for a frivolous appeal.

One must ask - could this situation have been handled any worse?  Lashgari tried to argue that the settlement did not cover injuries in the original car wreck but only post-accident tortious conduct by the defendant.  I do not know enough about the facts to say whether such an argument could be plausibly made or not.  I do know that it is poor judgment to disburse money claimed by a subrogee before resolving the matter.  How do you bring the issue to a head assuming that it cannot be negotiated?  Keep the disputed money in your trust account and file declaratory judgment action.

The case is Central States, Southeast and Southwest Areas Health and Welfare Fund v. Lewis, No. 13-2214  (7th Cir. Mar. 4, 2014).


Important Medicare Subrogation Decision From the 9th Circuit Court of Appeals

The 9th Circuit Court of Appeals has ruled that a private Medicare Advantage Organization plan cannot sue a plan participant’s survivors for reimbursement of medical payments out of the proceeds of an automobile insurance policy.

The case is Parra v. PacificCare of Arizona, No. 11-16069 (9th Cir. April 19, 2013),  Parra was struck by car and was seriously injured.  His medical expenses were paid by Defendant, a Medicare Advantage Organization ("MAO").  Parra died from his injuries, and his survivors brought a claim under Arizona's wrongful death law.  The MAO also asserted a claim for monies it paid for medical expenses.  GEICO, the tortfeasor's insurer, issued a joint check to the parties for the full amount of the MAO's claimed interest, to be held in trust pending the outcome of the dispute between the survivors and the MAO. 

The survivors sued PacificCare, saying that it had no right to seek recovery of monies from the wrongful death settlement.

The 9th Circuit affirmed dismissal of the MAO's claims, holding that it did not have a right to pursue its claim under the statutes that creates MAOs.  The Court also ruled that a private right of action did not exist under the facts.  The decision includes an extensive discussion about Medicare subrogation generally and the rights of MAOs in particular.

Neither the district court nor the appellate court reached the issue of whether the contract between Parra and the MAO gave MAO a right in the recovery.  (Note:  Arizona law has a provision similar to that in Tennessee that provides that wrongful death proceeds are free from claims of the decedent's creditors.)  Presumably, that issue will be hashed out in state court.


SCOTUS Releases Opinion in ERISA Subrogation Case

The United States Supreme Court has released its opinion in U.S. Airways v. McCutchen, No. 11-1285 (USSC April 16, 2013), a case that raised the issue of whether "equitable doctrines and defenses," such as the "common fund" doctrine and the "made whole" doctrine applied to subrogation interests governed by the Employees Retirement Income and Security Act of 1974 ("ERISA").

McCutchen was injured in a car accident and received $110,000 in a personal injury settlement - $10,000 from the defendant's liability insurer and $100,000 from his underinsured motorist insurance carrier.  His attorneys' fees were 40% of the recovery, leaving McCutchen with $66,000.  U.S. Airways had paid the medical bills incurred to treat the injuries in the accident, and demanded repayment of 100% of the monies it paid - $66,866.  When McCuthen refused to do so, U. S. Airways filed suit in federal court.

The USSC ruled that U.S. Airways had the right to enforce what it called an "equitable lien by agreement." and thus had a right to recover its money notwithstanding any argument that McCutchen was not made whole.

The issue of whether the U.S.Airways recovery should be reduced by the amount of money paid in attorney's fees to secure the recovery was a different story.  The Court found that the U.S. Airways plan was silent on whether the common fund doctrine applied and therefore the common fund doctrine applied.  The Court made it clear that a properly draft Plan could trump the common fund doctrine.  Here is a summary of the Court's language on this point:

The rationale for the common-fund rule reinforces that  conclusion. Third-party recoveries do not often come free: To get one, an insured must incur lawyer’s fees and ex­penses. Without cost sharing, the insurer free rides on its beneficiary’s efforts—taking the fruits while contributing nothing to the labor. Odder still, in some cases—indeed,  in this case—the beneficiary is made worse off by pursuing a third party. Recall that McCutchen spent $44,000 (rep­resenting a 40% contingency fee) to get $110,000, leaving  him with a real recovery of $66,000. But US Airways claimed $66,866 in medical expenses. That would put  McCutchen $866 in the hole; in effect, he would pay for the privilege of serving as US Airways’ collection agent. We  think McCutchen would not have foreseen that result  when he signed on to the plan. And we doubt if even US  Airways should want it. When the next McCutchen comes  along, he is not likely to relieve US Airways of the costs of  recovery. See Blackburn v. Sundstrand Corp., 115 F. 3d  493, 496 (CA7 1997) (Easterbrook, J.) (“[I]f . . . injured  persons could not charge legal costs against recoveries,  people like [McCutchen] would in the future have every reason” to make different judgments about bringing suit,  “throwing on plans the burden and expense of collection”).  The prospect of generating those strange results again  militates against reading a general reimbursement provi­sion—like the one here—for more than it is worth. Only if  US Airways’ plan expressly addressed the costs of recovery  would it alter the common-fund doctrine.

Opinion, Page 16.

Thus, lawyers representing plaintiffs now will need to scour the relevant documents to determine whether the common fund doctrine has been adequately trumped by the language of the Plan.  To be sure, there will be a rush by many Plans to re-write Plans with this decision in mind.  

As a lawyer who represents plaintiffs in personal injury and wrongful death litigation, we see more and more greed by those with subrogation interests.  That those insurers are permitted to receive money from another policy that the insured paid for - like an uninsured motorist insurance policy - is particularly offensive.

I happen to believe that a health insurer should be reimbursed the expenses it incurs that are later recovered as part of a recovery by the insured in a third-party claim.  And I believe that that the insured should not be able to structure a settlement in such a way that can defeat that interest.  But the common fund doctrine should apply in all cases, and the health insurer's recovery should be reduced to reflect a reduced recovery of the insured because of collectability issues, liability issues, etc.  Current law wrongfully favors the economic interests of employers and their health insurers at the expense of employees and their families.  The USSC has made it clear that it has deferred to Congress on the issue and the chances are virtually nil  that Congress will modify ERISA  to actually benefit an employee.


SCOTUS Takes Medicaid Subrogation Case

The United States Supreme Court has agreed to consider E.M.A. ex rel. Plyler v. Cansler, 674 F.3d 290 (4th Cir.2012), in which the 4th Circuit Court of Appeals said that North Carolina's one-third cap on the state's recovery against a Medicaid recipient's settlement proceeds as provided in its third-party liability statutes, which inherently raised unrebuttable presumption in favor of the state that allocation of one-third of a lump sum settlement was consistent with federal law, violated anti-lien provision in federal Medicaid law.

The Court said that

As the unanimous [Arkansas Department of Health & Human Services v. Ahlborn, 547 U.S. 268, 126 S.Ct. 1752, 164 L.Ed.2d 459 (2006)] ... decision makes clear, federal Medicaid law limits a state's recovery to settlement proceeds that are shown to be properly allocable to past medical expenses. In the event of an unallocated lump-sum settlement exceeding the amount of the state's Medicaid expenditures, as in this case, the sum certain allocable to medical expenses must be determined by way of a fair and impartial adversarial procedure that affords the Medicaid beneficiary an opportunity to rebut the statutory presumption in favor of the state that allocation of one-third of a lump sum settlement is consistent with the anti-lien provision in federal law.

The petition was granted on September 25, 2012. 

Fortunately, the Tennessee statute is much fairer than the North Carolina statute, and takes into account many factors that impact a plaintiff's recovery and uses those factors to fairly reduce the Medicaid (Tenncare) subrogation interest.

Thanks to Roger Baron for bringing the granting of the cert petition to my attention.

8th Circuit: Law Firm Cannot Be Sued For Failure to Hold Money to Satisfy ERISA Subrogation Interest

The Untied States Court of Appeals for the Eighth Circuit has ruled that a law firm that was admittedly aware of an ERISA subrogation interest and disbursed settlement  funds from a third-party claim  to its client could not be held personally liable for failure to pay the funds to an ERISA plan.

In Treasurer, Trustees of Drury Industries, Inc. Health Care Plan v. Goding , No. 11-2885 (8th Cir. Sept. 7, 2012), Goding was hurt in a slip and fall accident.  He received medical insurance benefits from an employer-sponsored health insurance plan.  He also brought a third-party claim and settled the case. Goding's attorneys, Casey and DeVoti, P.C. ("Casey"), were aware of the subrogation interest but distributed all of the proceeds of the settlement (after deduction for attorney's fees and expenses) to Goding.  The Plan pursued collection efforts against Goding, but he declared bankruptcy and the obligation to the Plan was discharged.  The Plan then pursued a recovery against Casey, asserting multiple theories of recovery.

The trial judge and appellate court rejected all theories.  The ERISA claims were rejected because the Plan had the right to seek equitable remedies only and, since Casey no longer had the money, no equitable claim could be asserted against it.  The Court noted that Casey never agreed to protect the subrogation interest - it only acknowledged the existence of it, The state law claims were rejected because they were preempted by ERISA.



Supreme Court to Review ERISA Subrogation / Reimbursement Rights

The United States Supreme Court will determine whether an employee benefits plan govered by ERISA is subject to equitable limitations when it demands reimbursement of benefits paid a covered employee who recovers money in personal injury and wrongful death litigation.

The case that will be reviewed is U.S. Airways, Inc. v. McCrutchen, No. 10-383 (3rd Cir. Nov. 16, 2011), ,which is discussed at length in a blog post titled "Third Circuit Says Equity Applies to Subrogation Rights Under ERISA Plan."

Here is the issue as stated in the cert petition:

Whether the Third Circuit correctly held -- in conflict with the Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits -- that Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) authorizes courts to use equitable principles to rewrite contractual language and refuse to order participants to reimburse their plan for benefits paid, even where the plan’s terms give it an absolute right to full reimbursement.

Not necessarily what you would call a neutral statement of the issue, would you?  Then again, they call it "appellate advocacy" for a reason.

Unfortunately, the McCruthchen opinion does not directly address the application of the "made whole" doctrine in these cases. Why? The made-whole doctrine was not raised by McCrutchen.

Nevertheless, this is an important development in the law. Hopefully, the SCOTUS will apply some common sense and equity to these health insurance contracts. Although some insurers will behave in a responsible way, all too many of them refuse to reduce their lien even by the amount it cost the plaintiff to acquire the money for them. These insurers will need clear direction from the SCOTUS before they will behave in an equitable way.

Note: The Ninth Circuit Court of Appeals reached a similar result in CGI v. Rose, No. 11-35127 (9th Cir. June 20, 2012).  That subrogation decision was addressed in a recent post on this blog.


9th Circuit Limits Rights of ERISA Health Insurer

The United States Court of Appeals for the Ninth Circuit has ruled that an employer-based health insurance plan did not have a right to full reimbursement from a personal injury plaintiff who recovered only a fraction of her damages from the wrongdoer.

The case is CGI v. Rose, No. 11-35127 (9th Cir. June 20, 2012).

In denying the insurer’s claim against Rose, the Court held that “parties may not by contract deprive [a court] of its power to act as a court in equity.”  In a concurring opinion, Circuit Judge Schroeder observed that it would be “manifestly unfair” to allow the plan to recoup 100% of its medical expenses. Such a result, Judge Shroeder observed, would “leav[e] the beneficiary vastly undercompensated for her actual damages” and “unjustly enrich” the ERISA plan, which had been paid premiums for the expenses it was now seeking to recoup. 

The opinion is consistent with US Airways v. McCutchen, a case decided by before the Third Circuit. 

Is the tide beginning to shift to fairness and common sense?  It sure feels like it.

Thanks to Public Justice for its work on this case.

Medicare Issues Proposed Rules on "Future Medicals"

The Centers for Medicare & Medicaid Services have issued proposed rules to address the issue of how Medicare beneficiaries will protect Medicare's interest when future medical care is claimed or the settlement or judgment released (or has the effect of releasing) claims for future medical care.

Here are the proposed regulations issued by CMS.  The proposed regulations have 7 different options, the first four of which are available to current and future Medicare beneficiaries.  The final three options are available only to current beneficiaries.

Attorney Sued for Failing To Protect Subrogation Interest; Ordered to Re-Pay Trust Account Pending Outcome of Case

A personal injury attorney may be sued in federal court for the failure to pay a subrogation interest subject to ERISA and required to put money back into his trust account pending the outcome of the subrogation fight.

So holds the United States District Court for the Northern District of Illinois.  In Central States v. Lewis, No. 11 CV 4645 (N.D. Il. May 15, 2012a personal injury attorney settled a case for a client and disbursed funds to himself and the client without paying the subrogation interest claimed by Central States.  Central States sought a preliminary injunction against the attorney and client to restore the money to the attorney's trust account so that the plan could proceed with an action against the trust account.  The court agreed, and stated that even the attorney's fee must be restored to the account, even if the attorney has already commingled the monies with other funds.

The Lewis court cited with approval the Longaberger opinion from the Sixth Circuit Court of Appeals, a case familar to all tort practioners.

The amount of the settlement was $500,000 and the claimed subrogation interest is $108,033.46.  Since the plaintiffs, and not the plaintiff's lawyer, have to re-pay the monies, the lawyer may not have to put any money back into his trust account.   However, if the plaintiffs have spent the money, or refuse to put it into the trust account pending the resolution of the case, the lawyer will have to do so because the order requires both the client and the lawyer, jointly and severally, to pay the funds.

Lesson:  resolve subrogation interests before disbursing funds or at least before disbursing any funds that that would cause the balance held  in trust to be less than the claimed subrogation interest.  This lawyer is spending lots of time and money to defend this matter and, at the end of the day, may be on the hook for this money.

Will A Special Needs Trust Trump An ERISA Subrogation Interest?

The Court of Appeals for the Fifth Circuit has ruled that the assets held in a special needs trust created out of the proceeds of a personal injury settlement are not available to satisfy an ERISA subrogation interest.

The Court held that the injured plaintiff never had possession or control over the money.  The Court also determined that the trust and trustee could not be sued because the only asset in the trust was the right to future periodic payments in an annuity held by another.

The case is ACS Recovery Services, Inc. v. Griffin,  No. 11-20266 (5th Cir. April 2, 2012).   Footnote 4 of the opinion distinguishes a decision from the 8th Circuit involving a special needs trust.

Will this work in the 6th Circuit?  Apparently there is no case on point.  However, this opinion does a nice job reviewing the USSC opinions on the subrogation issue when ERISA controls and offers a step-by-step guide on how to avoid a subrogation interest in the 5th Circuit.


Third Circuit Says Equity Applies to Subrogation Rights Under ERISA Plan

The Court of Appeals for the Third Circuit has had that equitable principles such as unjust enrichment apply to the subrogation rights of an employer under an ERISA plan.

In U.S. Airways, Inc. v. McCrutchen,  No. 10-383 (3rd Cir. Nov. 16, 2011), McCrutchen was seriously injured in a car wreck.   He spent several months in physical therapy and ultimately underwent a complete hip replacement.  Since the accident, McCutchen, who had a history of back surgeries and associated chronic pain, has also become unable to effectively treat that pain with medication. The accident has rendered him functionally disabled.  McCutchen’s Health Benefit Plan (the “Plan”), administered and self-financed by US Airways, paid medical expenses in  the amount of $66,866 on his behalf.

Suit was filed on behalf of McCrutchen but a combination of multiple victims of the same wreck and limited liability insurance coverage meant that, after payment of fees and litigation-related expenses, McCrutchen's net recovery was only $66,000.  His law firm  placed $41,500 in a trust account, reasoning that any lien found to be valid would have to be reduced by a proportional amount of legal costs.  

U.S.Airways demanded repayment of the entire amount of money it paid.  It said that the language of its Plan permits it to recoup the $66,866 it provided for McCutchen’s medical care out of the $110,000 total that he recovered regardless of his legal costs.  

McCutchen argued  that it would be unfair and inequitable to reimburse US Airways in full when he has not been fully compensated for his injuries, including pain and suffering.  He argued that US Airways, which made no contribution to his attorneys’ fees and expenses, would be unjustly enriched if it were now permitted to recover from him without any allowance for those costs, in essence to reap what McCutchen has sown.  He further argued that  if legal costs were not taken into account, US Airways will effectively be reaching into its beneficiary’s pocket, putting him in a worse position than if he had not pursued a third-party recovery at all.  
Citing the Plan’s use of the language “any monies recovered,” as well as previous decisions from the Third Circuit Court of Appeals, the District Court rejected McCutchen’s arguments and granted summary judgment to US Airways.  The Court required McCutchen to sign over the $41,500 held in trust and to pay $25,366 from his own funds. 


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The Common Fund Doctrine and Med Pay Claims

The Alabama Court of Civil Appeals has ruled that the common fund doctrine applies to the determination of the payment of attorneys' fees when monies for payments made under  medical payments coverage are collected in a personal injury case. 

In Mitchell v. State Farm, No 2100184 (Ala. Civ. App.  10/7/11),  Mitchell's attorney thought that State Farm, which paid monies for some of Mitchell's medical bills, should have its subrogation interest reduced by the amount Mitchell paid the lawyer to recover the money for the benefit of State Farm. The attorney for the plaintiff relied on the common fund doctrine to assert the claim against State Farm.

The Court of Civil Appeals held that the common fund doctrine applied.  It then rejected State Farm's argument that its policy voided any obligation to pay an attorney's fee for the recovery of the med pay coverage for its benefit.  Finally, and perhaps most importantly, the Court rejected the argument that the common fund doctrine was voided by the "active participation" of its lawyer.  The Court noted that although State Farm said it didn't need the plaintiff's lawyer to collect its money for it, State Farm did nothing to collect the subrogation interest until after the plaintiff's attorney negotiated the settlement.

This is a common problem faced by plaintiff's lawyers and their clients, and this decision is another tool we can use to stop insurance companies from getting a free ride on the back of the plaintiff's lawyer.




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Worker's Compensation Liens for Future Medical Bills

The recent decision  of the Tennessee Court of Appeals in Joshua Cooper, et al. v. Logistics Insight Corp., et al., No. CV (Tenn Ct. App. May 16, 2011) potentially upsets the apple cart for workers’ compensation liens on third-party tort recoveries. The prevailing view for a decade has been that the employer gets no lien or credit for future medical expenses. That isn’t entirely clear any more after this one.

Employee filed suit against Defendants, and Employer who paid Employee’s workers’ compensation benefits intervened. Employee settled with Defendants and filed a notice and order of voluntary dismissal. Employer moved to set the case for trial, contending Employer was not part of the settlement and was actively engaged in obtaining expert medical proof as to Employee’s future medical expenses. The trial court set the case for trial, but then granted Defendants’ motion to dismiss Employer’s suit for failure to state a claim upon which relief could be granted under Tenn. R. Civ. P. 12.02(6). Employer appealed.

On appeal, Defendants contended that Employer was not entitled to a credit on Employee’s recovery “for medical expenses that have not been incurred and are speculative.” The Court of Appeals looked to the workers’ compensation lien statute at Tenn. Code Ann. § 50-6-112(c)(1) and (2):

(1) In the event of a recovery against the third person by the worker, or by those to whom the worker’s right of action survives, by judgment, settlement or otherwise, and the employer’s maximum liability for workers’ compensation under this chapter has been fully or partially paid and discharged, the employer shall have a subrogation lien against the recovery, and the employer may intervene in any action to protect and enforce the lien.

(2) In the event the net recovery by the worker, or by those to whom the worker's right of action survives, exceeds the amount paid by the employer, and the employer has not, at the time, paid and discharged the employer’s full maximum liability for workers’ compensation under this chapter, the employer shall be entitled to a credit on the employer’s future liability, as it accrues, to the extent the net recovery collected exceeds the amount paid by the employer.

The Court of Appeals held that “[i]ntervention in the tort suit was proper under Tenn. R. Civ. P. 24 to assert [Employer’s] rights under Tenn. Code Ann. § 50-6-112, and [Employer was] entitled to present proof as to the likelihood and amount of future medical expenses it would incur on behalf of [Employee] to protect [Employer’s] rights to a credit under § 50-6-112(c)(2).” The court distinguished Graves v. Cocke County, 24 S.W.3d 285 (Tenn. 2000) and Hickman v. Continental Baking Company, 143 S.W.3d 72 (Tenn. 2004).

In Graves, the Supreme Court held that an employer who settled a workers’ compensation case for a lump sum was entitled to subrogation on the employee’s third-party claim based upon the lump sum workers’ compensation settlement amount, but was not also entitled to a credit towards any future medical payments the employer made for the employee. The Supreme Court stated in Graves:

Accordingly, we hold that the “credit on the employer’s future liability” as used in Tenn. Code Ann. § 50-6-112(c)(2), (3) does not encompass future medical payments when the parties have settled the case for a lump sum award. This construction of the statute recognizes the importance of finality in lump sum cases and avoids the other problems noted above.

In Hickman, the employee settled a third-party tort claim first, then notified the employer two months after disbursing the third-party settlement proceeds. The employee’s workers’ compensation trial came later. The Supreme Court held that, while the employer was entitled to the credit against future liability for workers’ compensation benefits, the credit did not apply to future medical expenses.

In this case, the Court of Appeals held that “the language in Hickman that an employer ‘is not entitled to a credit against future liability for medical expenses that are unknown or incalculable at the time of the trial’ indicates that such a determination is a factual inquiry, not a question of law.” Citing Hickman, 143 S.W.3d at 78. Thus, Employer was entitled to present a claim and proof of the likelihood and amount of future medical expenses for the purpose of “protecting [Employer’s] rights to a credit under § 50-6-112(c)(2).

I respectfully disagree with the Court of Appeals. In Graves and Hickman, the Supreme Court held that an employer is not entitled to a credit on future medical expenses. A credit on future medical expenses is different from a lien on the employee’s recovery from the third-party. The nature of a credit means that the employer will not have to pay those medical expenses when they are actually incurred, as opposed to allowing the employer a present value lien to take from the employee’s third-party claim. Why, then, would the employer be allowed to prove the amount of a future, speculative “credit” in the third-party case? If the employer proves that the employee is likely to incur $25,000 in future medical expenses, and the employee actually incurs $70,000, does that mean the employer gets a credit on the first $25,000 but has to pay the remaining $45,000 in medical benefits? 

The result in this opinion undermines the policy considerations that guided the results in both Graves and Hickman:

And even accepting the employer's argument that it is seeking a credit against future medical payments and not reimbursement from benefits already paid, it is certainly foreseeable that some workers will not seek medical treatment or will be denied medical treatment because they will have to pay for it themselves. Such a result is inconsistent with the policy underlying the workers' compensation system of providing injured workers with needed medical treatment.

Furthermore, we believe that the trial court's concern about finality of judgments is a compelling one. This Court has repeatedly expressed concern that reopening workers' compensation agreements frustrates the legitimate goals of judicial economy and finality of settlements. See, e.g., Cox v. Martin Marietta Energy Sys., 832 S.W.2d 534, 538 (Tenn.1992); Hale v. CNA Ins. Co., 799 S.W.2d 659, 661 (Tenn.1990); but see Brewer v. Lincoln Brass Works, Inc., 991 S.W.2d 226 (Tenn.1999). Many subrogation cases like the one at bar would be in and out of court for years-in some instances every time the employee needed medical treatment—if the employer's interpretation of Tenn.Code Ann. § 50–6–112(c) was adopted. The employer's position is inconsistent with the goals of judicial economy and finality of settlements.

Graves v. Cocke County, 24 S.W.3d 285, 288 (Tenn. 2000)

The present workers' compensation case was not settled for a lump sum as was the case in Graves. However, our construction of Tennessee Code Annotated sections 50–6–112(c)(2) and (3) in Graves is not affected by the manner in which the benefits are paid. Employees will be placed in the difficult position of not being able to spend their third-party recoveries even if periodic payments are credited against the third-party recovery. Holding these funds hostage for an indefinite period of time is just as unacceptable under these circumstances as it was in Graves. As such, the logic underlying Graves compels us to reach a similar result in this case. We therefore apply the holding of Graves to the present case and conclude that Continental is not entitled to a credit against future liability for medical expenses that are unknown or incalculable at the time of the trial of the workers' compensation case.

Hickman v. Cont'l Baking Co., 143 S.W.3d 72, 78 (Tenn. 2004)

Expect the Tennessee Supreme Court to weigh in on this one.

Re-Payment of Health Insurance Plans Covered by ERISA

On a weekly, if not daily, basis, plaintiff's personal injury lawyers have to deal with subrogation interests.  Many of those subrogation claims involve the law of ERISA.  

This opinion out of the Illinois Court of Appeals addresses the issue of disputes over the amount of money to be re-paid to the holder of the subrogation interest.

Defendant had a personal injury claim.  Plaintiff sought subrogation and claimed that it was due almost $63,000.  Defendant claimed that some of the expenses sought did not arise from medical treatment caused in the incident giving rise to the personal injury claim.  Plaintiff countered with answers to interrogatories in the personal injury claim, in which Plaintiff contended that back surgery (the subject of the disputed medical claim) was related to the accident).  Defendant argued that her physicians did not causally link the back problems to the accident, and therefore Plaintiff's subrogation interest in any future personal injury settlement or judgment proceeds should be reduced accordingly.  Plaintiff countered that one physician said the link was possible, that it determined the subrogation amount, and that under ERISA the court should defer to its decision and order that the amount of the subrogation interest include amounts for the surgery.

If you do personal injury work, you need to read the entire opinion.  However, this excerpt will give you a feel for the result:


This court recognizes that a court must defer to the plan administrator’s choice between competing medical opinions so long as it is rationally supported by the record evidence.  See Black,582 F.3d at 745-46, citing Semien, 436 F.3d at 812. This court concludes that there is no  rational support in the record for [Defendant] Rotech’s choice to rely on Dr. Wilson’s vague, unspecific opinion rather than Dr. Potts’ opinion.  Dr. Wilson testified that he could not give an opinion regarding whether the treatment he provided was necessary because of the collision because any such opinion “would be speculation.”  Moreover, this court concludes that Rotech could not reasonably disregard Dr. Potts’ opinion on the basis that Dr. Potts did not see Huff after July 1, 2006.  First of all, it is not true.  Dr. Potts testified that he saw Huff on August 9, 2006.  In addition, Dr. Potts provided treatment to Huff before the October 2004 accident, shortly after the accident and well into 2006, more than one and one-half years after the accident.  There is no reasoned basis for disregarding Dr. Potts’ clear, well explained opinion and accepting the vague, admittedly speculative, opinion provided by Dr. Wilson, who did not see Huff until more than one and one-half years after the accident.  This court concludes that Rotech arbitrarily refused to accept reliable evidence, the deposition testimony of Huff’s treating physician, Dr. Potts.  See Holmstrom, 615 F.3d at 774-75. Rotech ’s rejection of Dr. Potts’ testimony could only have been “based on selective readings that are not reasonably consistent with the entire picture.”  See Holmstrom, 615 F.3d at 777


The court also rejected the Plaintiff's position that Defendant was judicially estopped from denying that causal relationship between her back injury and the motor vehicle wreck given her answers to interrogatories.  


[Defendant] Huff’s position in the circuit court case [about the relationship between the back injury and the wreck] was not successful and  she is not forever bound to her losing argument. Therefore, judicial estoppel has no application in this case. 
Read the opinion in Rotech Healthcare, Inc. v. Huff, No.  09-CV-224 (Il. Ct. App. March 8, 2011) here.   This opinion demonstrates the need to create an appropriate record to support a reduction in a subrogation interest.  The defendant's lawyers did a good job fighting for their client on this issue.


AAJ Seminar on Changes to Medicare Subrogation Reporting Rules

AAJ Education’s Breaking News in Medicare Secondary Payer Requirements: Moratorium on Reporting Teleseminar, November 23, will give you the breaking news and latest on Medicare Secondary Payer reporting requirements, the Bradley v. Sebelius 11th Circuit decision, what the moratorium means, and what happens next. To view the agenda and faculty, and to register, go to or call 800-622-1791 or 202-965-3500, ext. 8612. 

Medicare Reporting Rules Temporarily Abated

Hot off the press this morning from AAJ:

As all of you are aware, the Centers for Medicare & Medicaid Services’ (CMS) implementation of the Section 111 reporting requirements of the Medicare Secondary Payer Act (MSP) for liability settlements and the penalties associated with improper lien resolution has created turmoil and delay for anyone trying to reach a settlement in any liability case.

After several months of working with the Department of Health and Human Services (HHS) and CMS, we are pleased to inform you that today CMS is announcing a one year delay in implementation on Section 111 reporting requirements for claims involving liability insurance, retroactive to October 1, 2010 through October 1, 2011. This delay should facilitate settlements and allow for faster resolution of certain cases. In addition, we believe that during this period, CMS will suspend the issuance of MSP guidance documents, which have often been contradictory and a source of confusion.

We will continue to work with both CMS and HHS during this period to reevaluate and clarify their Medicare Secondary Payer requirements. Further, we understand that CMS will not require data that is not reported during the time period of the moratorium to be reported anytime in the future. CMS’s notification of this delay can be found on its Web site, click here

We understand that this will not resolve all of your issues with the Medicare Secondary Payer Act. AAJ will continue to work on resolving all Medicare Secondary Payer issues; in particular, we will focus on the issues surrounding finality and the lengthy period of time it often takes to resolve a lien with CMS. AAJ Public Affairs will continue to keep you apprised of any changes regarding this issue.

In addition, AAJ Education is holding a teleseminar on Tuesday, November 23 at 2:00 pm ET to discuss Medicare Secondary Payer reporting requirements, the Bradley v. Sebelius 11th Circuit decision, and what the moratorium means and what happens next. This program is open only to AAJ plaintiff members. To register, visit Breaking News in Medicare Secondary Payer Requirements: Moratorium on Reporting Teleseminar or call 800-622-1791 or 202-965-3500, ext. 8612.

In the meantime, if you have additional questions, please contact Sarah Rooney, AAJ Regulatory Counsel, at



Important Medicare Subrogation Decision

The United States Court of Appeals for the Eleventh Circuit has ruled that Medicare is not entitled to rely on its field manual and argue that a subrogation interest be reduced under a "made whole" type of analysis only if a judgment is entered in the case.

In Bradley v. Selbelius, plaintiff settled a wrongful death case for policy limits, $52,500, and put Medicare on notice of the settlement.  Medicare asserted a $38,000+ lien, less procurement costs.  Plaintiff filed suit in the probate court and asked the court to determine the value of the case and the amount that needed to be re-paid to Medicare.  Medicare refused to participate.  

The trial judge ruled that the value of the case exceeded $2,500,000 and that Medicare's reimbursement should be cut to $787.50.    Medicare refused to recognize the probate court's decision, saying that its field manual provided that it need not rely on a court order allocating proceedings unless the court order was based on the merits of the controversy.   The estate paid Medicare under protest, exhausted its administrative remedies, and then filed suit in federal court.

The 11th circuit upheld the reduced subrogation amount.  Here are some key quotes from the opinion:

Counsel for the survivors and the estate acted sensibly, in a cost-effective manner. The nursing home neglect claim was settled for the full value of the available insurance. Clearly, if the language of the field manual applied, in practice, it would lead to an absurd Catch-22 result. Forcing counsel to file a lawsuit would incur additional costs, further diminishing the already paltry sum available for settlement. This flies in the face of judicial and public policy.


The Secretary's position is unsupported by the statutory language of the MSP and its attending regulations. The Secretary's ipse dixit contained in the field manual does not control the law. The district court also erred in relying upon the advisory language contained in a field manual as the rationale for its opinion upholding the actions of the Secretary.


The Secretary's position would have a chilling effect on settlement. The Secretary's position compels plaintiffs to force their tort claims to trial, burdening the court system. It is a financial disincentive to accept otherwise reasonable settlement offers. It would allow tortfeasors to escape responsibility.

You can read this wonderful opinion at 2010 WL 3769132 (11th Cir. Sept. 29, 2010).  Be sure to read the dissent.

One last point.  There is some great lawyering by the plaintiffs in this case.  Note the (a) plaintiff received and documented receipt of policy limits; (b) plaintiff proved the value of the case in probate court; (c) plaintiff gave Medicare the opportunity to participate in the probate court hearing, thus removing the right of Medicare to complain about the potential for its rights being affecting at a hearing it did not have notice of; (d) plaintiff exhausted administrative remedies before filing suit in federal court, thus removing a technical arrow from Medicare's quiver; and (e) plaintiff did not keep the money pending litigation but instead paid Medicare under protest.   Good job.

Thanks to my friend John Wood for alerting me about it.


State of Tennessee Has Subrogation Rights for Payments Made to Crime Victims

There are more and more tort cases arising after criminal acts, and one might forget that the State of Tennessee has subrogation rights to monies received in the later tort action.

T.C.A. Section 29-13-113 grants the state a subrogation right in proceeds recovered by the victim in a later torts suit.   The statute also requires that the district attorney be given notice of the filing of the tort suit and copied on all pleadings after the suit is filed.

A Fix to The Problem of Dealing With Medicare

Dealing with Medicare on subrogation issues can be a nightmare.  This bill, HR 4796, the Medicare Secondary Payor Enhancement Act, would help make things easier by requiring the Center for Medicare Services to respond to requests for their lien amount within 60 days.

Thoughts About Subrogation

A defense lawyer and I were having a drink the other day and he told me that from time to time he has difficulty getting cases settled at mediation because plaintiff's lawyers don't have information about subrogation interests.  Here are some tips to avoid such problems:

  1. At the initial client meeting, as you help you client understand his or her rights and go through the outline of the types of damages he or she can recover if the case is successful, explain the law of subrogation.  To do so you have to ask whether any insurance company or governmental entity  paid the outstanding medical bills.  Then, explain that usually it will be necessary to re-pay  the entity that paid these bills monies from the proceeds of any settlement or judgment.  This not only informs the client of his or her obligation to re-pay the bills but also sets client expectations at an appropriate level.
  2. If the bills are paid by a private entity get a copy of the applicable insurance policy or summary plan description to determine if a right of subrogation or reimbursement exists and if the plan is an ERISA plan. 
  3. If the bills were paid by a governmental entity (in Tennessee this usually means either Tenncare or Medicare) you need to either know the law of subrogation or look it up.  The bottom line:   government payors have a right to be re-paid and it is your obligation, as a lawyer,  to help them get re-paid.  If you don't do so you (the lawyer) will be on the hook to re-pay these bills, so it is in your best interest to understand this law and help your client fulfill their  obligation.
  4. Remember that your client's medical bills may have been paid by worker's compensation.  If so, the payor has a statutory right of subrogation.  Ignore it at your peril.
  5. Gather all of the medical bills and determine who paid them.  Your client may not have given you accurate information about the entity that made the payments on the bills.  For instance, sometimes a client receives both Medicare and Tenncare benefits.  You need to know each entity that paid bills.   It is also possible that your client's auto insurance carriers paid some of the bills under a medical payments provision in the policy.  Get a copy of the policy to be sure, but auto insurance carriers almost certainly have a subrogation right for any such payments.
  6. Private health  insurers routinely send letters asserting subrogation interests.  Tell your client that they may be receiving such letters and make sure you get them.
  7. Ascertain the amount paid by each third-party before the mediation of the case.  This can be difficult, especially with Medicare, but start early and keep at it.  Do not accept numbers over the phone - try to get the payment amounts in writing.  If you get a total-payment figure over the phone confirm the number in an email or letter.   Do not wait until the day or even the week before the mediation to do this - you will not get the information you need before the mediation.
  8. You will need to check the claimed subrogation interest versus the amount actually owed.  Sometimes insurers include bills for care unrelated to the incident.  Thus, you must get a print-out of who the insurer paid and the date of service for that payment and compare it with your client's medical records.
  9. Get the name and telephone number of a contact person at the third-party payor that you can contact during a mediation.  Make sure you understand if their office is on Central time, Eastern time, or some other time - you need to know how late you can reach them.   Advise them that you have a mediation on a given day and that you will need to be able to reach them during the mediation.  
  10. Some payors will reduce the subrogation amount if the client is not "made-whole" even if they have no legal obligation to do so.  A version of the  made-whole doctrine is statutory for Tenncare payments and the common law made-whole doctrine applies to med-pay and non-ERISA health insurance policies in Tennessee.  Understand the law applicable to each third-party payor before the mediation.  
  11. In the days or weeks before the mediation as you explain the process to your client remind them once again of the need to re-pay the entities that paid the medical bills.  By doing so  you are reminding them of their legal obligation and at the same time setting a reasonable level of expectation of what will occur at the mediation.
  12. Have the relevant contact information and the claimed subrogation amounts with you at the mediation.  How often you contact the payor during the mediation is subject to many factors, but generally speaking as want to call them as the settlement appears to be coming together.  You can often negotiate the amount due, but be armed with the facts that will help you do so.  The best fact to use to negotiate a reduction is a liability insurance policy that is totally inadequate given the injuries and the lack of any assets from the defendant.   There are a multitude of other factors, such as immunity for one or more defendants, a damage cap for a governmental entity, very difficulty liability facts, etc.  If the made-whole doctrine is applicable all arguments must be marshaled and presented.  Some carriers are willing to cut their subrogation amount if you demonstrate a willingness to help get a difficult case resolved by reducing your fee.  Confirm any deals made in writing or by email.
  13. Try to have the subrogation issues resolved before you leave the mediation.  If that is impossible, then attempt to make the settlement subject to a satisfactory resolution of subrogation interests in the next few days.  Be sure the language of the agreement with the defendant provides that it is you (and your client) that must be satisfied with the resolution of the subrogation interests.
  14. As I mentioned above, it is difficult to get a straight, final answer out of Medicare.  Start early, and write to them often.  Try to get the name and number of  a human being.  If you cannot get an answer out of Medicare before the subrogation, you will be forced to estimate the amount of their subrogation interest.  You will usually be safe if you assume that Medicare paid 40 cents on each dollar charged by a health care provider.  In other words, if the hospital bill shows $10,000 you can assume that Medicare paid $4000.  It will usually be less.  However, this will help your client understand his or her "net" recovery and will help you negotiate with reasonable comfort.

Why should you care about all of this?  If you do not have a knowledge of subrogation law it will be more difficult to settle your client's case because your client will not be able to understand the "net" recovery.  If the client thinks that he or she is going to receive "X" and then finds out that "X" has to be reduced by a subrogation payment, he or she going to be upset.  If the subrogation interest is one that imposes an obligation of the lawyer to protect, you risk financial loss and/or disciplinary action for failure to fulfill that obligation.

In summary, part of being a plaintiff's lawyer is having a good grasp on the contractual and statutory rights of those who have paid your client's medical bills.  Another part of being a plaintiff's lawyer is addressing such matters directly in a manner consistent with the law, with both the payor and the client, to avoid future unpleasantness.

Medicare Subrogation in Wrongful Death Cases

From time to time I will see a question posted on the trial lawyers' listserve asking whether Medicare has a subrogation interest in wrongful death proceeds.  The answer is "yes," and this opinion helps explain why.

Tennessee wrongful death law permits the recovery of medical expenses incurred between the injury caused by negligence and the death.  Missouri has  similar law, and the Eighth Circuit Court of Appeals affirmed the right of Medicare assert a right to a portion of the proceeds.

The case is Mathis v. Leavitt, No. 08-1983 (8th Cir. Jan. 30, 2009).  Read it here.

By the way, I know some of you are thinking "doesn't Tennessee law provide that wrongful death proceeds are free from the claims of creditors and, if so, doesn't that mean that Medicare, asserting its interest as a creditor, does not have any right to repayment?"  Fair question, but recall that (a) medical expenses can be recovered under state law and (b) state law cannot trump federal law on this issue.

Medicare Subrogation

Plaintiff's lawyers:  do you want to have the hell scared out of you?  Read this article by Rick Swedloff on Medicare subrogation entitled "Can't Settle, Can't Sue:  How Congress Stole Tort Remedies From Medicare Beneficiaries."  The article appears in Volume 41.2 of the Akron Law Review.

[A 2003 amendment to the Medicare Secondary Payor Act, which grants rights to Medicare in personal injury cases where Medicare pays benefits] significantly affects the ability of Medicare beneficiaries to bring or settle individual tort claims, the incentives for attorneys to represent Medicare beneficiaries in individual and mass tort litigation, and the tort system generally. Because of this – and despite the fact that courts and academics have largely ignored this amendment – attorneys from around the country have sounded alarm bells since the government first took the litigation position now reflected in the MSP. Lawyers have raised serious concerns about their ability to bring and settle individual and mass tort litigation under the MSP’s harsh liability rules.   [Footnotes omitted.]


Your PI Cases - The Government Has Its Hand Out

We all know that Medicare and Tenncare has a subrogation right in PI and wrongful death cases, but new information being sought by Medicare has lead some lawyers to believe that Medicare will now be looking at case proceeds for payment of future medical bills.

 The Medicare, Medicaid and SCHIP Extension Act of 2007, §111, which requires liability (including self-insured), no-fault and workers' comp insurers to report certain information about injured parties who are entitled to Medicare.  New rules have been proposed on the subject and will go into effect on July 1, 2009.  You can review and comment on the new rules here.   The data required by the new rules will give the government a significant amount of information about PI and WD claimants and the concern is that the data will be used to insist that case proceeds be used to pay future bills.

I will follow the developments in this area and keep you advised.


New Made-Whole Decision

The Tennessee Supreme Court has released its opinion in Health Cost Controls, Inc. v. Gifford,  No. W2005-01381-SC-R11-CV  (Tenn. S. Ct. Oct. 17, 2007).  If the style of this case sounds you familiar you are not losing your mind - this case was before the Supreme Court  on the made-whole four years ago earlier.

This time the case was before the court on the issue of whether the plaintiff was made-whole.  The Supreme Court said this about the responsibilities of lawyers and judges in resolving this important issue in any particular case:

Trial courts should support their made-whole determinations with specific findings of fact regarding the monetary value of the injured party’s recovery from all sources and the monetary value of the injured party’s total damages. Furthermore, trial courts should make specific findings as to the value of each separate element of an injured party’s damages. Finally, if the trial court finds that the injured party has been made whole, reimbursement should be awarded to the insurer only to the extent that the injured party’s total recovery exceeds the injured party’s total damages. These requirements are necessary to ensure that the made-whole doctrine is consistently applied and to facilitate appellate review of made-whole determinations.

How much proof do you need on issues of pain, suffering, loss of enjoyment of life, disfigurement, and impairement?  The court said this:

[W]e conclude that for purposes of the made-whole doctrine it is sufficient for an injured party to present evidence of non-economic damages that is “as certain as the nature of the case permits” and that “enable[s] the trier of fact to make a fair and reasonable assessment of the damages.” Overstreet, 4 S.W.3d at 703.

Of course.   You just prove the value of your client's case.    You use evidence.  And you put that evidence in the record.  Then you help your trial judge reach a decision that is sufficiently documented in the record so that an appellate court can review the decision under the appropriate standard of appellate review.  Just like you do in any case.

It is as simple as that.

Read the opinion here.

Can A Special Needs Trust For a Child Escape An ERISA Subrogation Interest?

This decision from a federal judge in Pennsylvania will cause excitement throughout the tort bar:  he ruled for a plaintiff who worked to  protect assets from a claimed ERISA subrogation interest by having the proceeds of a settlement go from the defendant to a special needs trust.  published this article about the decision from Judge John P. Fullam.  The article does a nice job of explaining the articles put forward by all parties.

If you want to read the full decision in Mills v. London Grove Township, 2005-00122 (July 19, 2007), click here.

New Tennessee Subrogation Case

The Tennessee Supreme Court issued an opinion yesterday in the Abbott v. Blount County, Tennessee case.

In an opinion by now retired Justice Al Birch, the Court made it crystal clear that an insurance company could not require a plaintiff to get approval of plaintiff's health insurance company before settling a personal injury suit.  The Court said that it is  "clear that the made-whole doctrine applies regardless of the language found in the insurance contract. Contract terms that require the consent of the insurer would allow the insurer to withhold consent from any settlement that does not make the insured whole and thereby compel the insured to seek a larger award at trial. We disapproved of allowing insurers to contract away the right to be made whole in York, and we do so again today. Finally, we note that the lack of an insurer’s consent does not make an insured more likely to receive a double recovery."

The Court said that there was a genuine issue of material fact about whether the plaintiffs were made whole.

The Court also said that "if Blount County had knowledge of the Abbotts’ lawsuit and settlement negotiations but did not intervene or warn the insured that Blount County’s subrogation rights could affect the Abbotts’ recovery, then Blount County will be deemed to have waived those rights. However, the facts concerning whether Blount County had notice of the lawsuit and settlement negotiations are disputed, and, thus, we affirm the Court of Appeals’ holding that summary judgment as to this issue is inappropriate."

The cite to the Abbott case is No. E2004-00637-SC-R11-CV ; it was filed on November 7, 2006.  Read the opinion here.

Two points.  First, note that this case is governed by state law, not ERISA.  ERISA is a much different breed of cat.

Second, this opinion points out the need for the plaintiff to prove that he or she was not made whole.  It is not enough to say "look how bad I am hurt" or "See how much my medical bills are."  The plaintiff must introduce evidence from which the value of the case can be determined.  Evidence.  Real evidence.  Just like you use in court.  Oh, that's right, we are talking about court. 

For example, in our recent hearing on this subject, the insurer stipulated to the medical bills and records.  The insurer also stipulated that the judge could draw reasonable conclusions from the records about the permanency of the injuries (to avoid the cost of taking medical depositions).  We had a nurse testify about the medical treatment of each client.  We used illustrations - no reason a nurse cannot testify as to the accuracy of those.  We had our clients testify.  The total testimony was under 90 minutes.