Factual Background

The decedent became a resident of a skilled nursing facility. At admission, she signed a written agreement to resolve certain disputes by binding arbitration under the Maryland Uniform Arbitration Act (MUAA). (Op. at 1-2). The scope of the agreement specifically included wrongful death claims. It also stated that it bound persons who could make wrongful death claims. (Id. at 2).

The decedent received medical care in the facility and then ultimately died. Afterward, the decedent’s daughter brought a lawsuit for wrongful death in the Circuit Court for Baltimore County. (Id. at 3).

Later the same month, the facility filed a separate action with a petition for an order to arbitrate under CJP 3-207. The daughter opposed the petition because she had not signed an arbitration agreement. The court consolidated the cases but maintained separate files. (Id. at 4).

The trial judge denied the petition to arbitrate, stating that the cases were no longer consolidated and specifically that the order was a final, appealable order under Rule 2-602(b). The facility appealed and also filed a motion to stay the wrongful death case pending the appeal. The trial judge then granted the motion to stay. (Id. at 5).

Court of Special Appeals on Arbitration of Wrongful Death Claims

First, the Court of Special Appeals raised on its own initiative whether the facility has a right to appeal from a judgment in an independent case, as opposed to a motion in the wrongful death case. (Id. at 1). The trial court’s order fully adjudicated the only claim in that separate action and terminated the case. Accordingly, the CSA held that the facility had the right to appeal from the final judgment in an individual action. (Id. at 11-12).

The CSA then turned to the wrongful death issue. Both parties agreed that a survival claim was subject to arbitration. Still, they asserted that wrongful death arbitration was a first for the Maryland appellate courts. (Id. at 1, 16-17).

A wrongful death claim is separate, distinct, and independent from a survival claim, even when they both arise out of the same tortious act. The wrongful death statute created a new cause of action. (Id. at 17).

Statute

The wrongful death statute identifies who has claims. The claims belong to them, and the claimants do not bring an action in a derivative or representative capacity. (Id. at 18). Accordingly, the decedent never owned the wrongful death claim and had no power to bind the owner of the claim to arbitrate. (Id. at 18).

The Maryland wrongful death statute requires that the death result from an act that would have entitled the decedent to bring an action if death had not occurred. CJP 3-902(e). The statute, however, does not require the wrongful death plaintiff to pursue the claim only in the forum in which the decedent would have been able to assert her claim if she had survived. The statute did not give the decedent the authority to waive the wrongful death plaintiff’s right to proceed in court. (Id. at 39).

Accordingly, the CSA affirmed the judgment of no arbitration. (Id.).

Commentary by Baltimore Medical Malpractice Lawyer Mark Kopec on Arbitration of Wrongful Death Claims

This opinion is a vital arbitration decision. It will ensure that wrongful death claimants do not have to arbitrate their cases in Maryland based on arbitration agreements entered into by the decedent. One of the most important principles in interpreting arbitration agreements is that they should be voluntary. This decision recognizes that wrongful death claimants who had no dealings with the defendant did not voluntarily agree to arbitrate their claims. This ruling sets a precedent for future cases involving similar circumstances.

This case grew out of a larger issue: the development of arbitration agreements in medical care settings. These insertions are happening most in nursing homes, as this case involved. The voluntariness requirement demands scrutiny of these arbitration clauses to ensure that the contracts prominently disclose them and clearly describe the rights that the person is waiving. The larger issue is the ethical and legal implications of using arbitration clauses in contracts with individuals who may not have the cognitive abilities to understand what they are signing fully.

Given that nursing home residents may not have the cognitive abilities to understand what they are signing, arbitration clauses in these agreements are very troubling. Hopefully, courts will give such clauses the scrutiny that they deserve. Fortunately, hospitals and doctor offices are not extensively using arbitration clauses.

Mark Kopec is a top-rated Baltimore medical malpractice lawyer. Contact us at 800-604-0704 to speak directly with Attorney Kopec in a free consultation. The Kopec Law Firm is in Baltimore and helps clients throughout Maryland and Washington, D.C. Thank you for reading the Baltimore Medical Malpractice Lawyer Blog.

In part 2, I will discuss the issue of whether the wrongful death claim had to be arbitrated.

Factual Background

The decedent became a resident of a skilled nursing facility. At admission, she signed a written agreement to resolve a broad range of potential controversies by binding arbitration under the Maryland Uniform Arbitration Act (MUAA). (Op. at 1-2). The scope of the agreement included wrongful death claims. It also stated that it bound persons who could make wrongful death claims. (Id. at 2).

The decedent received medical care in the facility and ultimately died. The decedent’s daughter brought a lawsuit for wrongful death in the Circuit Court for Baltimore County. (Id. at 3).

Later the same month, the facility filed a separate action with a petition for an order to arbitrate under CJP 3-207. The daughter opposed the petition because she had not signed an arbitration agreement. The court consolidated the cases but maintained separate files. (Id. at 4).

The trial judge issued an order denying the petition for arbitration and tried to make it so the defendant could immediately appeal. The Order stated that the cases were no longer consolidated and that the order was a final order and could be appealed pursuant to Rule 2-602(b). The facility appealed and filed a motion to stay the wrongful death case pending the appeal. The trial judge granted the motion to stay. (Id. at 5).

Court of Special Appeals on Appealing an Order for Arbitration

The Court of Special Appeals raised on its own initiative whether the facility has a right to appeal from a judgment in an independent case instead of a motion in the wrongful death case. (Id. at 1).

The CSA noted that a party can appeal only from a final judgment on the merits unless an exception exists. There are narrow exceptions under CJP 12-303, the collateral doctrine, or Rule 2-602(b). (Id. at 5).

The CSA observed that most parties do not file a separate lawsuit to compel arbitration but instead file a motion to compel arbitration in the existing action. The Court of Appeals has repeatedly held that an order denying a motion to compel arbitration in an existing case is not a final judgment and cannot be immediately appealed under any exception. (Id. at 8-11).

Here, the facility filed its petition to compel as a separate case. The trial court’s order fully adjudicated the only claim in that separate action and terminated the case. Accordingly, the CSA held that the facility had the right to appeal from the order denying arbitration as a final judgment in a separate action. (Id. at 11-12).

The CSA also stated that since there was a final judgment, the Rule 2-602 certification was not applicable. Rule 2-602 applies to cases with multiple claims or more than two parties. It applies to orders that do not dispose of an entire case. (Id. at 12).

When the trial court consolidates cases, and a judgment disposes of one case, that judgment is appealable even though there are unresolved claims in the other consolidated case. (Id. at 12).

Commentary by Baltimore Medical Malpractice Lawyer Mark Kopec an Appealing an Order for Arbitration

This case has significant practical implications. A medical malpractice defendant seeking to compel a plaintiff to arbitrate has two paths, each with consequences.

The defendant can file a motion to compel arbitration in the plaintiff’s lawsuit. If the trial court denies the motion, the defendant cannot immediately appeal the order denying arbitration. The parties will proceed to trial, and then the defendant can appeal the arbitration ruling. Suppose the appellate court decides that the matter requires arbitration. In that case, it will vacate the jury verdict and remand the matter for arbitration. In this instance, the parties will spend much time and money on a trial that ultimately becomes unnecessary.

However, in the alternative, the defendant can file a petition to compel arbitration in a separate lawsuit. If the trial court denies the petition, the parties can immediately appeal the denial of the arbitration order and seek a stay in the other case. The parties can finalize the arbitration question before expending the time and resources on a trial.

Choice

In many instances, like the one in this case, the defendant will decide which of these two options to pursue. If the plaintiff believes the arbitration argument is weak, they may not care which option the defendant chooses. However, suppose the defendant has a significant argument for arbitration. In that case, hopefully, the parties will both believe that a separate action, with its immediate appealability, would be the most efficient way for the litigation to proceed.

You can also read other Blog posts on appeal and arbitration issues.

Mark Kopec is a top-rated Baltimore medical malpractice lawyer. Contact us at 800-604-0704 to speak directly with Attorney Kopec in a free consultation. The Kopec Law Firm is in Baltimore and helps clients throughout Maryland and Washington, D.C. Thank you for reading the Baltimore Medical Malpractice Lawyer Blog.

Factual Background to Quantum Meruit Arbitration

The client retained the plaintiff firm (Firm 1) for a car accident case.  Firm 1 recommended a $1.25 million settlement. The client declined and hired a second firm (Firm 2). Firm 1 asserted an attorney’s lien against the client. (Op. at 5-6). Afterward, Firm 2 went to trial and obtained a judgment of $1.46 million. (Id. at 6).

The firms discussed dividing the legal fee but could not agree. Firm 1 suggested arbitration and an arbitrator. Firm 2 agreed, and the firms agreed on an arbitration date (Id. at 6-7).

The arbitrator sent the lawyers an email in which he “offer[ed] his assessment from [his] position as the chosen arbitrator.” He noted that he had offered to act as a mediator, had been attempting to mediate, and had “felt that progress was being made” when, during the preceding week, Firm 1 stated it would not be participating in the quantum meruit arbitration. (Id. at 7). 

Firm 1 then filed an action against the client in Circuit Court for Montgomery County. (Id. at 8). The arbitrator issued a decision considering Firm 1’s submission before withdrawing. The arbitrator awarded Firm 1 15% of the contingency fee, $87,500, and its costs. (Id. at 9).

In the circuit court case, Firm 2 moved for dismissal or summary judgment on behalf of the client. Firm 1 opposed the motion, contending that the emails between the firms did not constitute a written arbitration agreement. (Id. at 10). The circuit court granted summary judgment for Firm 2, finding that Firm 1 could have filed a motion to stay the arbitration. The court also found an agreement to arbitrate. It further noted that Firm 1 had not filed a petition to vacate the arbitration award. (Id. at 10-11).

Appellate Court Analysis on Quantum Meruit Arbitration

Maryland favors voluntary arbitration as reflected in the procedures outlined in the Maryland Uniform Arbitration Act, CJ 3-201 et seq. The Act provides that an arbitration award binds both parties and is enforceable in court. There are limited exceptions. (Id. at 2). To ensure voluntariness, the Act provides two ways to challenge the existence or validity of an arbitration agreement. (Id. at 2-3). These are a Petition to Stay Arbitration, CJ 3-208, and a Petition to Vacate an Arbitration Award, CJ 3-224. (Id. at 3-5).

On appeal, Firm 1 sought to challenge the existence of an agreement to arbitrate. However, the Appellate Court ruled that Firm 1 failed to raise the issue properly – by filing a petition to stay arbitration under CJ 3-208 or to vacate the arbitration award under CJ 3-224. (Id. at 11). Accordingly, the Appellate Court affirmed the circuit court. (Id. at 14).

Commentary by the Baltimore Medical Malpractice Lawyer

The decisions by the circuit court and the Appellate Court were predictable, in accordance with established law. The Arbitration Act sets forth ways to challenge an arbitration process or award, and, significantly, Firm 1 did not follow those. The Appellate Court did not answer whether there was a valid agreement to arbitrate. However, nothing in the opinion suggested that the issue would have had any merit.

The more interesting aspect of this case is why Firm 1 did not proceed with the quantum meruit arbitration. Although the reason is unknown, some factors may have influenced that decision, and they are worth examining. 

Contingency Fee

Firstly, Firm 1 represented the client under a contingency fee agreement. The money recovered for the client provided the basis for the legal fee, not the time spent on the case. The contingency fee percentage would have been in the standard range of 33-40%. Firm 1 conducted the litigation for a time and obtained a $1.25 million settlement offer. Using the expected fee range, Firm 1 anticipated a fee of $415,000 to $500,000. Firm 1 probably recommended this as a strong settlement offer. The only fact we have to evaluate the settlement offer in hindsight is the judgment of $1.46 million. Using the judgment as a reference point, I agree that the settlement offer was strong.

However, the choice ultimately belongs to the client. The client declined the settlement offer and changed law firms. We don’t know why. At this point, Firm 1 would likely not do as well as it would have if the client had accepted the offer. This reality highlights the importance of the client’s autonomy in legal proceedings.

Firm 2 took over, tried the case, and got a significantly better result at $1.46 million.

Quantum Meruit

Once the client left Firm 1, Firm 1’s compensation changed to an analysis of how much work it contributed to the overall work done on the case. We don’t have numbers, but Firm 2 spent much effort trying the case.

Medication Versus Arbitration

Mediation and Arbitration are different processes. Both are voluntary. Mediation remains voluntary, with a party able to terminate it at any time. It is a process where a neutral third party, the mediator, helps the disputing parties to reach a mutually acceptable agreement. Arbitration, however, is usually agreed to be binding on the parties once voluntarily entered into. It is a more formal process where a neutral third party, the arbitrator, makes a decision usually binding on the parties.

If these processes are conducted in one case, the mediator and arbitrator are usually different people, but not always. In this quantum meruit arbitration case, one person did both.

There is a difference in opinion on whether the mediator should share their assessment of the dispute’s merits in mediation. On the one hand, a mediator is supposed to be neutral, and that does not involve sharing an evaluation. However, some mediators have found that strategically sharing views on the merits can be a tool that allows them to be more effective than if they refrained from doing so. Medical malpractice lawyers who mediate want effective mediators. As a result, many active medical malpractice case mediators share their assessments of the case to an extent in mediation.

Mediators often strategically share assessments as the mediation progresses, and sometimes, they only do it if it looks like the mediation will break down. This approach limits any downside. It is generally an attempt to keep the mediation going. If one party does not like the mediator’s input, they can conclude the mediation. It was already almost there anyway.

Mediation and Arbitration

However, another aspect is when the mediator changes roles to become an arbitrator. While the mediator wants to encourage a settlement, the mediator must be careful not to share any view on the merits that would make a party lose confidence in the quantum meruit arbitration. I wonder if that happened here.

Firm 2 had offered 10% of the contingency fee to resolve the matter, which would have been approximately $58,000. (Id. at 6 fn. 4, 9).

The Appellate Court noted that the arbitrator had “offered his assessment as arbitrator” while mediating the case. It provides no further details. (Id. at 7). The arbitrator ultimately awarded Firm 1 a $87,500 fee, specifically representing 15% of the contingency fee.

We don’t know why Firm 1 did not go through with the quantum meruit arbitration. Maybe they received an assessment during mediation that they did not like. That would also highlight the dangers discussed above.

Of course, Firm 1 may have had other reasons. They had to be disappointed in missing out on a $400,000-500,000 fee. But that ship had sailed. The client went with another firm, and Firm 1 was going to be significantly limited by principles of quantum meruit. None of this gave Firm 1 a right to walk away from arbitration, but it may explain why they did.

You can also read about other Arbitration decisions on this Blog.

Mark Kopec is a top-rated Baltimore medical malpractice lawyer. Contact us at 800-604-0704 to speak directly with Attorney Kopec in a free consultation. The Kopec Law Firm is in Baltimore and helps clients throughout Maryland and Washington, D.C. Thank you for reading the Baltimore Medical Malpractice Lawyer Blog.

What is a Structured Settlement Annuity?

Lawyers often use structured settlements in personal injury case settlements, including Maryland medical malpractice cases. When the parties settle, the plaintiff receives some or all of the funds to buy an annuity. The annuity is a contract that provides for future payments.

The plaintiff can customize when the payments are received. For instance, in the case of an injured child, the parents may provide annuity payments when the child needs college tuition. The annuity can schedule future payments periodically to ensure the injured person receives money regularly. These can help with future medical expenses or general costs of living.

The defendant purchases the annuity through a broker who works with insurance companies that issue annuities. There are tax advantages to annuities in personal injury structured settlements. The future payments are tax-free.

Sale of a Structured Settlement Annuity and Arbitration

Despite the above, sometimes the injured person wants to get the remaining money out of the annuity. An adult plaintiff may have changed their mind on an annuity, or a child who has become an adult may want to get out of the annuity their parent arranged for them.

An industry has developed to respond to the people who want out of their annuities. They are factoring companies. They will give a lump sum of cash to the annuity owner to purchase the annuity and receive future payments under the annuity.

Present Value

Annuities have a present value based on current interest rates. If you receive $1,000 today or $1,000 a year from now, you should choose now. However, the choice is more difficult if you could choose between $1,000 today or $1,050 a year from now. If the current interest rate is 5%, many would prefer to wait and be compensated 5% for waiting.

The seller of an annuity will now receive less than the total of the future payments. The problem for the sellers is that many of these factoring companies offer unreasonably low offers, significantly less than present value calculations. In other words, the offers are often an abysmal financial deal for the seller.

So why would the sellers accept these terrible offers? Many times, the sellers are financially unsophisticated. Sometimes, they have cognitive injuries that occurred as part of the events in their underlying claim. They may often be in difficult financial circumstances, needing the money for medical expenses or other living costs. Of course, sometimes the sellers want the money now, even if it is a bad deal for them.

Maryland law regulates the sale of structured settlements to protect sellers. CJP 5-1102. It requires court authorization of the sale. One of the factors for courts to consider is whether the injured party has received independent professional advice.

The factoring companies have paid lawyers to advise sellers in these transactions. There has been litigation in Maryland for sellers challenging the sales as fraudulent. In one of the cases, the issue was whether the parties had to arbitrate the claims.

Access Funding, LLC, et al. v. Chrystal Linton, et al.: Sale of Structured Settlement and Arbitration

In Access Funding, LLC et al. v. Chrystal Linton et al. (December 1, 2022), the Maryland Supreme Court issued a reported opinion on an arbitration issue. The general rule is that a plaintiff s allegation of fraudulent inducement of a contract containing an arbitration agreement do not invalidate the arbitration clause. The arbitration agreement is considered severable from the rest of the agreement. The plaintiff must allege that the defendant procured the arbitration clause by fraud.

The Access Funding case had additional factors which made the analysis more complex. Maryland law requires sellers to receive independent counsel and a court to approve the annuity sale. The parties argued over the significance of several factors, including that the plaintiffs did not plead a separate count that the defendants fraudulently procured the arbitration clause; they did not seek to have the agreements voided, and they had not appealed or otherwise sought relief in the case where the trial court had approved the sale transaction.

The judges of the Maryland Supreme Court split in their decision. The majority held that the circuit court must decide whether the parties must arbitrate the claims. The Court found that the plaintiffs had adequately pled fraud as the arbitration clause. The plaintiffs alleged that they had not received the independent counsel required by law. (Op. at 16-18). This failure included counsel to understand counsel to understand the arbitration agreement specifically. In addition, the arbitration clause conditioned arbitration on the closure of the transaction, and the plaintiffs challenged the validity of the court’s approval. (Id. at 4-5, 31-32). Because the agreement linked the arbitration clause to court approval of the sale, the arbitration clause was not severable from the rest of the contract. (Id. at 44).

Dissenting Opinion

The dissenting judge asserted that the plaintiffs were required to allege fraud specifically to the arbitration clause. Those allegations had to differ from the plaintiffs allegations that the defendant fraudulently induced the contract generally. The dissent believed the plaintiffs had relied on the same facts for both. (Dissent at 3-4). As a result, it would have been impossible for the trial court to limit its findings to the existence of an arbitration agreement. The trial court would necessarily decide that the defendants also procured the overall agreement by fraud. (Id. at 5). The dissent also argued that the requirement for court approval of the sale did not alter this analysis. (Id. at 8-9).

Commentary By the Baltimore Medical Malpractice Lawyer

Structured Settlement Sale and Arbitration

Access Funding Holding

Both the majority and dissent make persuasive arguments. Under the prevailing principles in the majority opinion, plaintiff lawyers can take away a few points. As discussed below, even though certain things will not be required, they should be provided when possible. As parties argue and courts interpret the Access Funding opinion, plaintiffs should position themselves as firmly as possible.

1. It is unnecessary to do a separate count for fraudulent inducement of the arbitration clause. However, there is no reason not to do this. It will clarify and emphasize that the fraud claims go specifically to the arbitration clause.
2. It is not necessary to seek to void the agreement. However, if such a claim fits in the relief the plaintiff is seeking, pleading it will complement pleading fraudulent inducement.
3. It is not necessary to allege facts that relate solely to fraudulent inducement of the arbitration clause, apart from inducement of the overall agreement. However, if such facts exist, they should be alleged. The plaintiff should plead anything the defendant did to conceal or misrepresent the existence, terms or applicability of the arbitration provision.

Factoring Industry

Annuity owners and lawyers should be careful when dealing with the factoring industry.

Owners of Annuities

Annuity owners should carefully evaluate whether to sell the annuity and, if so, on what terms. Leaving the annuity in place can make good financial sense. There is security in having future payments and protection against being able to spend those funds now.

There may be extenuating circumstances that require money now. In that instance, even though the seller cashes out the annuity, the seller could re-invest a significant portion for the future.

The annuity owner should get independent advice from someone knowledgeable about the industry and its current products.

Lawyers

Any lawyer who has a client considering selling an annuity should be cautious. The lawyer should ensure they are competent before advising on the transaction. Also, it is prudent to recommend a professional financial consultation. Access Funding shows the need to fully explain the requirement that any disputes over the structured settlement sale must go to arbitration.

Last, if the client is considering a transaction substantially less than the present value, the lawyer may want to steer completely clear of the situation. Point out how grossly unfair the offer is and put in writing that you will not provide any advice on it. Why? Because once you go down the road of giving advice, you cannot guarantee you can stay out of disputes like Access Funding. You can explain all the terms, recommend against the transaction, and put it all in writing. None prevents a plaintiff from later saying you didn’t explain it and they didn’t understand it. Some engagements are not worth taking.

Mark Kopec is a top-rated Baltimore medical malpractice lawyer. Contact us at 800-604-0704 to speak directly with Attorney Kopec in a free consultation. The Kopec Law Firm is in Baltimore and helps clients throughout Maryland and Washington, D.C. Thank you for reading the Baltimore Medical Malpractice Lawyer Blog.