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Wednesday, May 25, 2011

Virginia King v. ProMedica Health System, Inc., et al., Case no. 2010-1236
6th District Court of Appeals (Lucas County)

(Mary Jo Hudson), Superintendent of the Ohio Department of Insurance, in her capacity as Liquidator of the American Chambers Life Insurance Company v. Ernst & Young, LLP, Foley & Lardner et al., Case no. 2010-1324
10th District Court of Appeals (Franklin County)

PNH et al. v. Alfa Laval Flow, Inc., Case no. 2010-1430
7th District Court of Appeals (Mahoning County)

Cincinnati Bar Association v. G. Timothy Dearfield, Case no. 2010-2254
Hamilton County

Disciplinary Counsel v. Kenneth Levon Lawson, Case no. 2011-0131
Hamilton County


Does Law Require Medical Provider to Bill Services Solely to Patient's Health Care Insurer Despite Other Coverage?

When Accident Victim Also Has Medical Payments Coverage in Auto Insurance Policy

Virginia King v. ProMedica Health System, Inc., et al., Case no. 2010-1236
6th District Court of Appeals (Lucas County)

ISSUE:  Under Ohio’s insurance laws, when a health care provider or facility provides services to a patient that are covered under a contract between the provider and the patient’s health insurance company, may the provider decline to bill the patient’s medical insurance company and instead seek compensation for its services from the medical payments coverage in the patient’s auto insurance policy?

BACKGROUND: Virginia King was injured in a traffic accident and received medical treatment for her injuries at The Toledo Hospital, which is operated by ProMedica Health System Inc. At the time she received treatment, King was covered by a medical insurance policy issued by Aetna Insurance Company and ProMedica was one of the Toledo-area health care providers that had contracted with Aetna to provide medical care to Aetna-insured patients at negotiated rates that were lower than the top-line “retail” or non-preferred rates billed to uninsured patients. In completing the paperwork she was asked to fill out by the hospital, King indicated that she was also covered by an auto insurance policy issued by Safeco Insurance Company.

Rather than billing Aetna for King’s treatment according to the preferred rate schedule set forth in its contract with Aetna, ProMedica submitted a bill for King’s treatment at its higher, non-negotiated rates to Safeco under the “medical payments” coverage included in King’s auto insurance policy.

King filed a lawsuit against ProMedica in the Lucas County Court of Common Pleas. In her complaint, King alleged that ProMedica’s billing of her treatment to her auto insurance policy rather than to Aetna violated the requirement in R.C. 1751.60 (A) that: “ ... every provider or health care facility that contracts with a health insuring corporation to provide health care services to the health insuring corporation’s enrollees or subscribers shall seek compensation for covered services solely from the health insuring corporation and not, under any circumstances, from the enrollees or subscribers, except for approved copayments and deductibles.” 

ProMedica moved for dismissal of King’s complaint on the basis that it had not sought payment directly from  King for her treatment but rather had billed her auto insurance company, and therefore R.C. 1751.60(A) was not applicable to the facts of the case. The trial court agreed and dismissed the case on the basis that it did not state a claim for which relief could be granted. 

King appealed.  On review, the 6th District Court of Appeals reversed, reinstated King’s complaint, and remanded the case to the trial court for further proceedings.  In its opinion, the court of appeals noted that the plain language of the statute requires a health care provider to seek compensation for services covered by a health insurance contract “solely” from the health insurance company, and held that this language not only bars a provider from billing the patient for covered services, but also bars billing such charges to anyone else, including another insurance company through which the patient may also have coverage.

ProMedica, supported by amicus curiae (friend of the court) briefs submitted by several health care industry and professional groups, sought and was granted Supreme Court review of the 6th District’s decision.

Attorneys for ProMedica argue that the language in R.C. 1751.60(A) must be read in context with other parts of Ohio’s insurance laws that provide for the coordination of benefits between two or more insurance providers in cases where an insured person’s loss or injury is covered by more than one company. In this case, they assert, the trial court properly interpreted R.C. 1751.60(A) as inapplicable to King’s situation because the statute is limited in scope to situations in which there is no need for coordination of benefits because a patient’s only source of coverage is his or her health insurance policy.

Attorneys for King point out that the provisions of state insurance law that authorize coordination of benefits confer that authority on insurance companies, not on health care providers like ProMedica. They argue that the medical payments coverage included in King’s auto insurance policy was her personal property purchased through separate premium payments she made to Safeco, and that coverage should have been available to reimburse her for co-pays, deductibles and other medical expenses for which her Aetna health care policy provided limited coverage or no coverage at all. They assert that ProMedica’s action in refusing to bill King’s medical insurer for covered services at its negotiated contract rates, and instead billing those services at retail, non-negotiated rates to her auto insurer, violated the plain language in R.C. 1751.60(A) that requires providers to seek payment for covered services “solely from the health insuring corporation.”  They assert that ProMedica’s tactic was part of a new super-aggressive billing strategy in which the hospital seeks to maximize its compensation by avoiding the lower billing rates it has negotiated with health care insurers and instead preemptively exhausting  third-party benefits that should remain available to its patients.

Contacts
Patrick F. McCartan, 216.586.3939, for ProMedica Health Systems Inc.

John T. Murray, 419.624.3000, for Virginia King.

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Is Arbitration Clause in Vendor's Contract With Insurance Company Enforceable Against State In Liquidation Action?

Where State Seeks Recovery from Accounting Firm for Alleged Negligent Audit

(Mary Jo Hudson), Superintendent of the Ohio Department of Insurance, in her capacity as Liquidator of the American Chambers Life Insurance Company v. Ernst & Young, LLP, Foley & Lardner et al., Case no. 2010-1324
10th District Court of Appeals (Franklin County)

ISSUE: When the Director of the Ohio Department of Insurance is acting in her statutory role as liquidator of the assets of an insurance company that has been declared insolvent,  and the director files a lawsuit on behalf of the insolvent company’s estate against a third-party vendor seeking damages for alleged professional negligence, is a mandatory arbitration clause in the contract between the alleged negligent vendor and the insurance company enforceable against the liquidator?

BACKGROUND: In exercising her statutory duties as liquidator of an insolvent insurance company, American Chambers Life Insurance Company (ACLIC), former director Mary Jo Hudson of the Ohio Department of Insurance filed suit in the Franklin County Court of Common Pleas against the Ernst & Young (E&Y) accounting firm. The complaint sought damages from E&Y on behalf of the insurance company’s creditors based on a claim that E&Y had acted negligently and contrary to state law in performing an audit of ACLIC’s financial statements prior to the insurer being declared insolvent.

In its response to the complaint filed by Hudson, who has since been succeeded in her position by current director Mary Taylor, E&Y asked the trial court to transfer the case to arbitration pursuant to a mandatory arbitration clause that was included in the letter of agreement through which ACLIC had contracted with E&Y to perform the disputed audit. The court denied E&Y’s motion, citing a 2003 decision, Benjamin v. Pipoly, in which the 10th District Court of Appeals held that an arbitration clause in a pre-insolvency contract was not enforceable against the state in a subsequent proceeding brought by the director of insurance under the Liquidation Act. E&Y appealed. The 10th District upheld the trial court’s ruling, reaffirming its holding in Pipoly. E&Y sought and was granted Supreme Court review of the 10th District’s decision.

Attorneys for E&Y argue that the 10th District’s rulings in this case and Pipoly are contrary to a line of Ohio court decisions recognizing a strong public interest in favor of enforcing arbitration clauses in contracts, including cases in which arbitration clauses have been held enforceable when the interest of an original party to the contract passes to a successor in interest. In this case, they say, the insurance director “stands in the shoes” of ACLIC because the state’s claim is based on its status as successor-in-interest to the insurer’s contract with E&Y. Therefore, they say, the state should be required either to abide by the arbitration clause or walk away from the contract in its entirety, but should not be permitted to abandon only the arbitration clause while continuing to enforce the other contract terms against E&Y.

Attorneys for the Department of Insurance respond that the Ohio Liquidation Act provides a single, comprehensive legislative scheme through which all claims asserted on behalf of and against an insolvent insurance company are consolidated for resolution in a single forum, the Franklin County Court of Common Pleas. They assert that sorting through contract-based claims one-by-one for referral to separate arbitration proceedings would significantly delay and complicate resolution of competing claims against insolvent insurers, and defeat the purpose of the statutory liquidation scheme. They also argue that, because the statutory provisions and case law favoring arbitration are general in nature, while the statutes and case law mandating centralized resolution of claims arising in insurance company liquidations are specific to that narrow and specialized context, the 10th District correctly held in Pipoly and in this case that where there is a conflict between a general and a specific statute, the more specific provision takes precedence.

Contacts
Alexandra T. Schimmer, 614.995.2273, for Mary Taylor, Director, Ohio Department of Insurance.

John R. Gall, 614.365.2806, for Ernst & Young LLP.

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Does Federal Law Preempt State Tort Action Based on Non-Debtor's Alleged Abuse of Bankruptcy Proceedings?

PNH et al. v. Alfa Laval Flow, Inc., Case no. 2010-1430
7th District Court of Appeals (Mahoning County)

ISSUE: May a party to a federal bankruptcy action who is not the debtor seeking relief pursue a tort action in state court against another party to the bankruptcy action, who also is not the debtor, based on a claim that the second party intentionally abused the bankruptcy litigation process to cause harm to the plaintiff?

BACKGROUND: This case arises from complex and protracted business litigation involving Alfa Laval Inc., a manufacturer of industrial food and beverage processing equipment, and Richard Creatore, president of an Ohio company known as Girton, Oakes & Burder, Inc. (GO&B) and several other closely held business entities. Between 2001 and 2003, GO&B operated both as a non-exclusive distributor of Alfa Laval’s products in a three-state area including Ohio and as a producer and marketer of its own line of valves and fittings that competed with some of Alfa Laval’s products.

By 2003, GO&B owed Alfa Laval more than $1 million, and Provident Bank was threatening to foreclose on a loan through which Creatore and two partners had financed their purchase of GO&B.
Alfa Laval representatives met with Creatore and proposed several measures to minimize the impact on Alfa Laval if Provident foreclosed on its note.  Creator rejected Alfa Laval’s proposal and instead formed a separate company, PNH, that purchased the GO&B note from Provident. Within hours after the loan purchase transaction was completed, Alfa Laval filed an involuntary bankruptcy action against GO&B in federal bankruptcy court in Youngstown. The bankruptcy court granted a motion by Alfa Laval to appoint an interim trustee to take over management of GO&B, forcing Creatore to relinquish operational control over the company.

Creatore subsequently formed a new company, Diversified Product Components, which began producing and marketing products that completed with Alfa Laval’s. Alfa Laval asked the bankruptcy court to issue an order barring Creatore’s new company from competing with Alfa Laval. The court refused to accept the motion, indicating that only the interim bankruptcy trustee could seek such an order, and then only after filing an adversary complaint on behalf of GO&B.  Alfa Laval subsequently filed an adversary complaint in the bankruptcy court identifying itself and the trustee as co-plaintiffs. The complaint, which was not signed by the trustee, alleged among other claims that Creatore, PNH and several other Creatore-owned entities had improperly diverted and fraudulently transferred corporate assets from GO&B to Creatore and his other companies. The complaint asked the court to issue a restraining order against the defendants and to subordinate the secured interest in GO&B that PNH had purchased from Provident Bank. The trustee entered into a compromise settlement agreement with the defendants regarding the adversary complaint. In its entry approving the settlement, the bankruptcy court noted that the adversary complaint had presented claims that were “the exclusive right of the Trustee to assert.”

Creatore and PNH later filed a civil lawsuit in the Mahoning County Court of Common Pleas asserting state law claims against Alfa Laval for tortious interference with a business relationship, defamation and abuse of process based on its conduct in initiating and pursuing the adversary complaint in bankruptcy court. Among other claims, the complaint alleged that Alfa Laval had improperly identified the bankruptcy trustee as a co-plaintiff in its adversary complaint without the trustee’s prior assent, and had made unsupported charges against Creatore and PNH in the complaint as part of a deliberate strategy to use the bankruptcy proceeding as a weapon to eliminate Creatore as a business competitor. 

Alfa Laval sought and was granted summary judgment on the defamation claim, but the trial court denied summary judgment on the tortious interference and abuse of process claims. After extensive intervening litigation, Alfa Laval moved for dismissal of the plaintiffs’ remaining claims on the basis that a state court lacked subject matter jurisdiction over those claims because they arose in a federal bankruptcy proceeding. The trial court granted the motion to dismiss, agreeing that the plaintiffs’ claims were preempted by federal bankruptcy law.

The plaintiffs appealed the order of dismissal.  On review, the 7th District Court of Appeals affirmed the trial court’s holding that because the damages alleged by Creatore arose from bankruptcy proceedings over which federal courts had exclusive jurisdiction, the plaintiffs could not pursue recovery for those damages through a tort action brought under state law in a state court. Creatore and PNH sought and were granted Supreme Court review of the 7th District’s decision.

Attorneys for the plaintiffs argue that under U.S. Supreme Court decisions including Medtronic v. Lohr (1996) and Bates v. Dow Agrosciences LLC (2005), federal statutes preempting an area of law must be read narrowly to preclude state court consideration of only those issues that Congress plainly intended to preempt. They assert that the core intent of the Bankruptcy Code is to provide an opportunity for honest debtors to make a new start and to ensure the equitable and expeditious distribution of the debtor’s assets among creditors. They contend that the tortious interference and abuse of process claims they asserted against Alfa Laval in state court had no impact on the resolution of the bankruptcy proceedings involving GO&B or distribution of its assets, and therefore the lower courts erred in holding that those claims were preempted by federal bankruptcy statutes.

Attorneys for Alfa Laval respond that the claims set forth in Creatore’s state tort action are explicitly premised on alleged violations of federal law that occurred in the course of the GO&B bankruptcy proceedings. They point to federal court decisions including Miles v. Okun (2005) which they say have held that “remedies and sanctions for improper behavior and filings in bankruptcy court” are part of the uniform national regulatory scheme that Congress intended to create when it enacted the U.S. Bankruptcy Code, and such claims are therefore preempted from litigation in state courts.

Contacts
Jeffrey T. Witschey, 330.665.5117, for Ronald Creatore and PNH.

Frank G. Mazgaj, 330.670.7300, for Alfa Laval Inc.

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Attorney Discipline

Cincinnati Bar Association v. G. Timothy Dearfield, Case no. 2010-2254
Hamilton County

The Board of Commissioners of Grievances & Discipline has recommended that the license of Cincinnati attorney G. Timothy Dearfield be suspended for one year, with the final six months of that term stayed, for violations of state attorney discipline rules in his dealings with a client in a bankruptcy case.

The disciplinary board based its recommendation on findings that Dearfield improperly placed an advance of court costs he received from the client in his office operating account rather than in a client trust account;  improperly designated all fees advanced to him by the client as “non-refundable” when the client could be entitled to a refund of unearned fees; and impermissibly used the refund of the client’s unused court costs as leverage to obtain an agreement by the client not to file a disciplinary grievance against him.

In its report to the Court, the board noted the mitigating factor the Dearfield has no prior disciplinary infractions and the aggravating factors that he acted with a dishonest or selfish motive, failed to fully cooperate and employed deceptive practices during the disciplinary process, and refused to acknowledge the wrongful nature of his conduct.

Dearfield has filed objections to the board’s findings and recommended sanction. Among other arguments, he asserts that the rule violation and aggravating factors found by the board as a result of the settlement release he required his client to sign should be overturned because his conduct took place in 2009 while the impropriety of such a release was not established until April 2010 when the Supreme Court released its decision in Disciplinary Counsel v. Chambers. Dearfield also asserts that he should receive mitigation credit for refunding his client’s court costs, and that the sanction recommended by the board is disproportionate to the penalties imposed in similar cases. He urges the Court to impose a reprimand rather than a license suspension as a more appropriate penalty.

The Cincinnati Bar Association, which prosecuted the complaint against Dearfield before the disciplinary board, urges the Court to adopt the board’s findings and recommended sanction. Bar counsel points to several disciplinary cases pre-dating Chambers in which this Court held that attempts by an attorney to persuade or induce a client not to pursue an ethics complaint, or to cease cooperating with an ongoing disciplinary investigation, were contrary to the attorney’s ethical duties.

They also assert that the board did not assign mitigating value to Dearfield’s refund of his client’s court costs because the refund was clearly required under the Rules of Professional Conduct, and was only made after the client had initiated formal grievance proceedings against him.

Contacts
Arthur E. Phelps, 513.381.9200, for the Cincinnati Bar Association.

Karl H. Schneider, 614.224.1222, for G. Timothy Dearfield.

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Attorney Discipline

Disciplinary Counsel v. Kenneth Levon Lawson, Case no. 2011-0131
Hamilton County

The Board of Commissioners on Grievances & Discipline has recommended that the law license of former Cincinnati attorney Kenneth L. Lawson, who is currently living in Hawaii, be indefinitely suspended for violations of professional conduct rules arising from his conviction on a federal felony count of conspiracy to obtain controlled substances by deception.

Lawson, whose license has been under suspension since 2008 for multiple instances of misconduct involving mishandling of his clients’ cases and funds, admitted during the investigation of those violations that he had been addicted to prescription painkillers for a four-year period from 2003 to 2007, and had obtained OxyContin and other drugs throughout that period by means of fraudulent prescriptions he obtained from a physician. Lawson successfully completed a drug treatment program in 2007 and has been drug-free and actively involved in 12-step recovery programs since that time.

Shortly after the July 9, 2008 Supreme Court order indefinitely suspending Lawson’s law license was issued, he was indicted by a federal grand jury for conspiring with Dr. Walter Broadnax of
Cincinnati, who was a client of Lawson’s law practice, and with another individual to illegally obtain OxyContin and Percocet by deception between August 2003 and January 2007. Lawson entered a guilty plea and in April 2009 was sentenced to two years in prison.

The Office of Disciplinary Counsel subsequently opened a new investigation to consider disciplinary rule violations arising from Lawson’s criminal convictions. In its report, the board concluded that in engaging in a conspiracy to illegally obtain controlled substances Lawson’s conduct violated, among others, the state disciplinary rules that prohibit an attorney from engaging in illegal conduct involving moral turpitude; conduct involving fraud, deceit, dishonesty or misrepresentation; conduct prejudicial to the administration of justice; and knowingly counseling or assisting a client in conduct that the lawyer knows to be illegal or fraudulent.  

While disciplinary counsel proposed that Lawson be disbarred as the sanction for these violations, the board recommended that the Court impose an indefinite suspension to be served consecutively to Lawson’s current suspension. As the basis for its recommendation, the board cited extensive mitigating evidence including Lawson’s service to the Cincinnati court system and community, continuing commitment to maintaining  his own sobriety, and the leadership roles he has undertaken since 2007 in programs to assist others with substance abuse problems.

Both Lawson and Office of Disciplinary Counsel have entered objections to the board’s findings and recommendation.

Attorneys for Lawson argue that the new rule violations found by the board should be vacated and no additional sanction imposed against him because the illegal means by which he had obtained painkilling drugs from 2003 through 2007 was fully known to the Court and was part of the pattern of misconduct that the Court reviewed in his 2008 disciplinary case and for which it imposed his current indefinite license suspension.  They point out that the new complaint filed against him does not allege any rule violations that took place after or outside of the 2003-2007 time period covered by the prior discipline case, and argue that under either the civil doctrine of res judicata or the criminal doctrine of double jeopardy, Lawson should not be subject to additional penalties based on conduct for which he has already been punished.

Attorneys for the Office of Disciplinary Counsel argue that details of the criminal conspiracy through which Lawson obtained drugs through Dr. Broadnax, including the involvement of several of his law practice clients to serve as dummy “patients” who filled prescriptions and delivered the drugs to Lawson, were not included in the misconduct considered by the Court in its 2008 proceedings.  In light of the multiple additional rule violations set forth in the current complaint against Lawson, they urge the Court to reject the board’s recommendation of an additional suspension and instead permanently revoke Lawson’s law license.

Contacts
Jonathan E. Coughlan, 614.461.0256, for the Office of Disciplinary Counsel.

David C. Greer, 937.223.3277, for Kenneth Lawson.

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.