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Judge Says Attorney Fees Must be Based on Future Damages, Not Annuity

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In an opinion issued May 6, 2013, Philadelphia County Judge Mark I. Bernstein upheld a $78.4 million verdict that was awarded in a medical malpractice case approximately one year ago.  Among several issues raised on appeal, it was determined that the total amount of a jury’s future damages award, not the cost of an annuity, was the proper basis for calculating attorney fees for the plaintiff’s firm. 

The underlying case of Nicholson-Upsey v. Touey, et al. involved a child who suffered a loss of oxygen during a delay in her delivery, resulting in the development of quadriplegic cerebral palsy.  During labor, the obstetrician, also a defendant in the case, declared the child dead after he was unable to detect a fetal heart beat on ultrasound.  Over an hour later, another ultrasound was performed and revealed the presence of heart beat.  While delivery was performed immediately thereafter, the child was born with significant deficits.  During the course of trial, evidence was introduced showing that the ultrasound equipment used to detect the fetal heart beat was inadequate.  In May 2012, the jury rendered a verdict against the defendant hospital for $78.4 million, one of the highest awards ever recorded in Philadelphia County.  The hospital appealed on multiple grounds, including several issues regarding delay damages and the calculation of attorney fees which were deemed by the court to be “issues of first impression.” 

In addressing the calculation of attorney fees, Judge Bernstein took note of the Medical Care Availability and Reduction of Error (MCARE) Act, stating that the fees were to be made in a lump sum payment as opposed to a periodic disbursement based on the accrual of future medical costs.  As the jury’s award was based largely on the child’s future medical expenses, the award for attorney fees had to be based on the present value of their total amount, i.e. the sum of money which would equate to the cash total of all future medical costs, if paid on the date of verdict.  To find the present value, a “discount rate” of 2.96% was applied to the total amount of future damages, thereby reducing the award to $29.8 million.  Under their contingency fee agreement, it was therefore calculated that the plaintiff’s firm was entitled to $9.9 million of the $29.8 million award. 

Counsel for the defendant hospital argued that since the MCARE Act allowed the child’s future medical expenses to be funded by an annuity, the same annuity should also be used to pay the attorney fees for the plaintiff’s firm.  However, Judge Bernstein rejected this position, noting that a qualified funding plan, engineered to pay out only for the life of the child, could significantly benefit the defendant hospital in the event of the child’s “early demise.”  Under the MCARE Act, while such circumstances would effectively halt the hospital’s payment toward the child’s medical costs, so too would they put a stop to any payments made toward attorney fees.  According to Judge Bernstein, the latter scenario was not an intended purpose of MCARE Act, which was instead designed to curtail insurance industry costs and prevent windfalls to plaintiffs. 

In addition to his ruling on the calculation of counsel fees, Judge Bernstein upheld the award of delay damages made under Pennsylvania Rule of Civil Procedure 238.  Noting that such damages were to be based on the present value reduction of the jury’s award, the delay damages total of $2.5 million was deemed appropriate. 

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