Posts Tagged ‘Louisiana’

Child’s Personal Injury Settlement Includes Claim by Parents


Helene Jackson (not her real name) was a minor when she underwent heart surgery, and the outcome was not positive. She was seriously injured, and her parents Stephen and Jacqueline (also not their real names) ended up suing the doctors and the manufacturers of medical devices used in the surgery. The parents alleged that the devices failed, and that Helene’s injury was a result of that failure.

Stephen and Jacqueline also alleged that they were injured — they lost the right of “consortium.” That common-law concept recognizes that profound injuries to a family member can affect not only the person directly injured, but also the spouse, children and parents, who lose not only companionship and filial relationships but also the ability to rely on financial support from the injured person. In the case of parents that financial component can be both speculative and delayed, but nonetheless many states (including Louisiana, where Helene and her family lived) recognize that the “loss of consortium” claim has some value, as well.

Eventually the manufacturers of the device offered a settlement, and the plaintiffs agreed that the total amount was acceptable. That meant that there would be $8.25 million to pay past medical providers, attorneys fees, and legal costs. After that, the relative values of Helene’s, Stephen’s and Jacqueline’s claims would have to be determined. By this time Stephen and Jacqueline had gotten divorced, and they had separate attorneys representing them (individually and, in each case, in their roles as parent of Helene).

As the outlines of the settlement became clearer to Jacqueline, she apparently had problems with two things. First, she insisted that no one had told her that someone outside the family would have to be appointed to handle Helene’s money — and that there would be administrative costs associated with that arrangement. Second, she did not agree with the trial judge’s allocation of $65,000 of the total settlement to her as her recovery for the loss of consortium claim. She refused to sign the settlement documents, and final resolution of the dispute was delayed for almost eight months — during which time the settlement funds had to be held in a non-interest-bearing account.

Eventually the settlement was approved and the funds distributed. Jacqueline then sued the two law firms that had represented her and her daughter’s interests. She alleged that because no one had told her about the need for a conservatorship or trust arrangement for her daughter, and because no calculation of her share of the settlement had been made, she and her daughter lost interest on the settlement money and incurred substantial additional legal fees to resolve their concerns.

The law firms both moved for summary judgment — that is, for a determination that Jacqueline’s claim had no merit. Hearing on that motion was held before the judge managing the civil proceeding, and he agreed with the lawyers. After Jacqueline’s lawsuit was dismissed, she appealed the ruling. By this time a separate person had been named to represent Helene’s interest in the settlement and apportionment issues, and he joined in Jacqueline’s appeal.

Before the Louisiana Court of Appeal, Jacqueline raised several other issues. By not telling her about the need for a professional manager of Helene’s settlement, she argued, the law firms had violated lawyers’ ethical rules (the Rules of Professional Conduct, which in Louisiana are very similar to those adopted in almost every state). One law firm had consistently told her that she would be entitled to recover her lost wages (she had to quit work to take care of Helene), and the trial judge had ruled that she should not be allowed to recover that amount. The trial judge had applied an unacceptable method of apportioning her share of the damages, she argued. And, not least importantly, she pointed to the testimony of her expert witness — a law professor at Loyola University New Orleans College of Law — who had opined that her lawyers’ actions fell below the standard of care in the community.

After considering all of that information and Jacqueline’s arguments, the Court of Appeals agreed. They reversed the dismissal of the legal malpractice actions, and sent the entire case back to the trial judge for further consideration. They also sent back the allocation calculation, directing the trial judge to consider Jacqueline’s claims for lost wages and medical expenses incurred (in addition to her loss of consortium claim). Jones v. ABC Insurance Co., December 12, 2013.

At first glance it might seem that this appellate case offers little insight that would be useful in other large personal injury/malpractice/products liability settlements. But it does offer an opportunity to make a few observations about the process, with an eye toward helping plaintiffs (and family members) understand the process AND helping their lawyers think about how to handle litigation.

First, it is important to remember that the lawyers representing Helene, Jacqueline and Stephen had an inherent conflict of interest. Yes, all three plaintiffs shared the common goal of maximizing the settlement amount. But once a lump-sum settlement has been proposed, and the parties agree that it is in an acceptable range, the conflict becomes clear: every dollar assigned to Jacqueline, or Stephen, would be subtracted from Helene’s share. Because Helene is a child, the people usually authorized to consider her interests would be (you saw this coming) Jacqueline and/or Stephen. Parents involved in litigation on behalf of their children need to understand this delicacy from the earliest possible moment, and lawyers should take care to avoid making the conflict any worse.

Second (and perhaps more importantly), clients need to understand that it is very seldom possible for family members to manage the proceeds from a personal injury claim on behalf of their injured minor child — or, for that matter, claims on behalf of their incapacitated parents, spouses or other relatives. The courts will be involved in oversight, and there will be strict accounting requirements, and there will usually be professional management. In some cases that cost can be avoided by putting sharp restrictions on the kinds of investments and the access to funds, but that kind of arrangement is simply not going to work on a multi-million dollar settlement.

It is tempting for personal injury lawyers to tell their clients that everything will be alright when the settlement is completed, and that they will be able to buy a new house, a new vehicle, a therapy pool, or whatever they want. At a time when it is important to keep the client focused on the negotiation process, it can be difficult to introduce an unwelcome concern. But it ultimately does a disservice to the client — and to the lawyer-client relationship — to gloss over the realities concerning management of settlement funds.

If nothing else, perhaps we can accomplish this much here: if parents involved in litigation search for “settlement of child’s personal injury claim” or similar terms, maybe they will reach this page. Then they can ask their lawyers for more clarification about how the settlement funds will be managed, and how their respective claims will be apportioned. It is important information that clients should have, even (perhaps especially) if it makes them unhappy.

Personal Services Agreement Upheld As Payment for Value

APRIL 2, 2007  VOLUME 14, NUMBER 40

When Mary Brewton entered a Louisiana nursing home in January, 2003, her husband Marvin stayed in their family home. The value of the home was not considered in calculating her eligibility for Medicaid assistance with the nursing home costs, and so she qualified immediately. When her husband moved into the nursing home with her three months later, however, their home went on the market—and ultimately was sold late in the same year.

While the home was listed for sale, the Brewtons entered into a personal services agreement with three relatives. They agreed to pay a lump sum of $150,000 once the home was sold, and the relatives agreed to provide services for as long as either Mr. or Mrs. Brewton should live. A few months after the sale of the home, $118,805.22 was transferred to the relatives, and Mr. Brewton applied for Medicaid assistance with his own nursing home costs soon thereafter.

When the state Medicaid agency considered Mr. Brewton’s application, it realized that the payment could affect Mrs. Brewton’s application for benefits. After deciding that the transfer of her one-half interest in the sale proceeds had been a gift to the relatives, the agency withdrew her Medicaid assistance; she appealed, but an Administrative Law Judge agreed with the agency.

A state judge reversed the agency’s denial of Medicaid. In the judge’s view the promise to perform work for Mr. and Mrs. Brewton for the rest of their lives had some value, and he ruled that the Medicaid agency had not shown that the transfer exceeded that value.

The Louisiana Court of Appeal agreed with the trial judge, over the Medicaid agency’s objections that there could be no valuable services to perform since Mrs. Brewton’s care was being provided by Medicaid Far from taking care of all of her needs, said the appellate judges, Medicaid left a number of tasks to the relatives, including handling the couple’s financial dealings; cleaning up, listing and ultimately selling the house; replacing clothing lost in the nursing home’s laundry; and obtaining replacement hearing aids for Mr. Brewton (who, like many long-term care patients, persistently lost or mislaid his hearing aids).

In addition, the relatives visited the Brewtons regularly and helped ensure that Mr. Brewton cooperated with the nursing home staff despite his growing confusion. On one occasion Mr. Brewton left a hospital and had to be physically returned by the relatives. In short, the personal services contract provided value for the $150,000 payment, and it should not have been treated as a gift. Brewton v. State of Louisiana Department of Health and Hospitals, March 13, 2007.

Compare the Brewton holding, however, to the similar case involving Marion Andrews of Swampscott, Massachusetts. Mrs. Andrews owned her home, a lovely but deteriorating Victorian, which she could not afford to keep after she moved into a nursing home. Her daughter and son-in-law considered offers in the range of $150,000 to $175,000, and obtained the estimate of a real estate agent that they might get as much as $225,000 for the home. Instead, they took leaves of absence from their own work, invested a small amount (about $2,600) in paint and other supplies, and spent the next year working on fixing up the house.

When Mrs. Andrews’ daughter finally completed the work and sold the house, it fetched $429,000. Even as the sale of Mrs. Andrews’ home was closing, her daughter discovered for the first time that her mother could qualify for Medicaid assistance if the net sale proceeds were below a certain level, and so she created a $100,000 “invoice” for her and her husband’s work in fixing up the home. After payment of that invoice amount to themselves, they applied on Mrs. Andrews’ behalf for Medicaid assistance.

The state Medicaid agency denied eligibility, finding that the payment was actually a gift by Mrs. Andrews because there had not been any agreement that her daughter and son-in-law would be compensated for their work. The Massachusetts Superior Court agreed. While Mrs. Andrews’ daughter and her husband clearly “put a great deal of time and effort into the renovations,” there was no indication that Mrs. Andrews intended to pay them for their work from the outset, or even as the work progressed. In fact, ruled the judge, it appeared that the primary motivation for the invoice may have been to secure Medicaid eligibility rather than to compensate Mrs. Andrews’ daughter for any agreed-upon work arrangement. Andrews v. Division of Medical Assistance, February 14, 2007.

What are the combined lessons of the Brewton and Andrews cases? Two points, at least, can be extracted:

  • An agreement for legitimate services, even services to be performed prospectively, can be an appropriate payment from a prospective Medicaid applicant’s funds, and
  • Any such agreement should be prospective (entered into before the work is undertaken), in writing, and for a fair amount considering the work which will actually be undertaken.

Arizona Community Property Is Not Always Subject To Probate


Arizona is one of nine “community property” states in the country, and that can be the source of some confusion about estate planning, taxes and property ownership rights for married couples. Recent changes in Arizona’s law make the “community property” designation a little more friendly and understandable, and the benefits to this unique property ownership choice are now clearer.

“Community property” concepts were not part of the English common law. Under the system imported to most of the American states, property was owned by one spouse or the other, though the non-owner might acquire some rights in his or her spouse’s property. The French and Spanish, however, understood the marital community to be a separate entity from either spouse individually, and permitted the “community” to own property. Each spouse then holds an equal interest in the community’s property.

Those American states with rich Spanish or French histories tended to adopt some version of the community property concept. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin are community property states, although the method of implementing the concept varies somewhat. Alaska also permits some trust assets to be held as community property.

In community property states a married couple is presumed to hold assets as community property regardless of the actual title on the asset. Couples may, however, choose to hold their property in joint tenancy or as tenants in common if they wish.

One important advantage to having assets titled as community property comes, oddly enough, from federal tax law. Although capital gains taxes are ordinarily due any time an appreciated asset is sold, the increased value of property held by a decedent at the time of death is not taxed. The property’s income tax “basis” is said to “step up” to its value on the date of the owner’s death, often resulting in substantial income tax savings for heirs.

Jointly owned property only receives a partial “step up” in basis. Property held in joint tenancy will usually only get half the income tax benefit on the death of one joint owner. Community property, however, is treated differently: the entire value of a community property asset gets “stepped up” to the value on the first spouse’s death, resulting in twice the income tax savings.

The main drawback to holding community property in Arizona has long been the requirement of a probate proceeding to pass the property to the surviving spouse. Although the long-term tax savings can be substantial, the probate costs are immediate and, in most people’s minds, too high. Since 1995 Arizona has permitted married couples the best of both worlds: property can be held as “community property with right of survivorship” and secure the favorable income tax treatment while still avoiding the probate process. The value of this type of property ownership is, of course, restricted to married couples.

One caveat: some commentators, relying on fairly arcane interpretations of the federal tax law, argue that the “community property with right of survivorship” designation could conceivably be found to result in no step up in tax basis at all. So far the federal government has not taken such a position, but there remains some slight possibility of a problem. In addition, the effect of titling separate property as community property (with or without the “right of survivorship” language) has more than just tax effects. In other words, you should consult an Arizona attorney before changing title on your existing assets or deciding how to title a new acquisition.

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