Posts Tagged ‘class action’

Maryland Medicaid Agency Settles Multi-Million Dollar Lawsuit

MARCH 22, 2010  VOLUME 17, NUMBER 10

This week’s Elder Law Issues was written by our friend and Maryland colleague Ron M. Landsman. He describes the resolution of a class lawsuit he initiated in Maryland, challenging that state’s practice of setting Medicaid patients’ co-payment amount too high to allow them to pay nursing home bills incurred while they were waiting for Medicaid eligibility.

Preliminary approval of settlement of a class action suit in Maryland implements protection for nursing home residents who mess up their Medicaid eligibility and run out of money to pay for their care before they actually qualify for Medicaid benefits.

This is a common problem. The nursing home resident who is spending down misunderstands the rules or is careless, and finds himself with too much to qualify for Medicaid but not enough to pay the current nursing home bill.

The way Maryland was calculating residents’ co-payments, he would not have money to pay the old bill. Federal law requires – and the settlement implements – co-payment calculations that allow the resident to pay the old bill.

The resident is relieved of the risk of discharge for non-payment, and the nursing home gets paid for providing services. Legal Aid Bureau lawyers said they were using the new rules, which have been partly in effect while the suit was pending, to protect their clients from involuntary discharge because it gave them a way to pay the old bills once on Medicaid.

The Maryland class action, Eunice Smith, et al. v. John Colmers, et al., is believed to be the largest settlement ever paid by the Maryland Medicaid agency – up to $16 million in 2010-2012 to nursing homes that were underpaid because of the co-payment miscalculation. The nursing homes will then apply the previous resident co-payments to the old nursing home bills. If there is a shortfall and not enough to pay the old bills, the nursing homes receiving payment will have to forgive those old debts. That may amount to up to $64 million in claims against residents forgiven.

The settlement also requires the Maryland Medicaid agency to make comprehensive changes in the way it calculates co-payments so that it does it correctly in the future.

Cy Smith and Bill Meyer of Zuckerman Spaeder LLP in Baltimore, and Ron Landsman of Rockville, represented the plaintiff class. Landsman obtained the federal agency ruling that Maryland’s old rules for co-payments violated federal law, which then triggered the private lawsuit. Smith and Meyer led the negotiations resulting in a complicated 16-page “protocol” for making claims and payments to nursing homes.

The order signed on March 11 gives the settlement preliminary approval as “fair, reasonable, and adequate.” Notice will be sent to all class members, and they can “opt out” of the class action, if they want, to pursue their own claims for corrected co-payment calculations. But those doing so will be subject to a limit of three months for most old bills, which does not apply to the settlement, and they will not automatically have any unpaid portion of their old bills forgiven by the nursing home.

The settlement is scheduled for final approval on May 12, 2010.

Trustee in Fee Dispute Must Repay a Share of Bank Profits

JUNE 3, 2002 VOLUME 9, NUMBER 49

When a trustee charges fees in excess of what is due, how much should it have to repay to the trusts? That was the question posed and decided recently by the U.S. Court of Appeals for the Ninth Circuit, sitting in California.

Security Pacific National Bank merged into Bank of America in 1992. Before the merger, Security Pacific operated a trust department which was handled thousands of trusts. In over 2500 of those trusts, the bank had signed fee agreements with the individuals whose funds had established the trusts.

In each of the trusts in question, Security Pacific’s fee agreement set out a percentage fee and committed the bank not to raise that percentage unless the trusts’ settlors agreed or the probate court ordered the higher fee. Despite those agreements, the bank raised its fees a total of nine times between 1975 and 1990.

When Bank of America took over Security Pacific’s trust department it discovered that fees had been collected illegally. The improper fees amounted to more than small change—Bank of America calculated the overcharge at $24 million, which it refunded in 1994. It also calculated that it owed interest totaling $17.8 million, and refunded that amount as well.

Late in 1994 Carol F. Nickel sued the Bank of America on behalf of one of the trusts and asked that her lawsuit be certified as a class action. She argued that the bank should at least have compounded the interest it paid when it reimbursed the trusts, and that it really should have paid a portion of bank earnings during each of the years of the overcharges. The case ended up in federal court and ultimately in the Circuit Court of Appeals.

California law expressly provides the remedy for a breach of a trustee’s fiduciary duty, but the statute gives the court several options as to how to calculate the damages. One way—the one chosen by the District Court—is to calculate the damage plus simple interest at the legal rate. Another would have been to calculate the amount that each trust would have earned had it been allowed to retain the fees wrongfully collected, but the District Court found that approach to be impossible to implement in 2500 individual cases, and the Court of Appeals agreed.

The third method of calculating damages, rejected by the District Court, was the Court of Appeals’ favorite, however. Saying that “the elementary rule of restitution is that if you take my money and make money with it, your profit belongs to me,” the Court of Appeals ruled (by a 2-1 vote) that the proper measure of damages was to calculate the share of the bank’s profit in each year attributable to the overcharges, and to have that amount paid to the trusts. Nickel v. Bank of America National Trust and Savings Association, May 17, 2002.

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