February 17, 2000
Supreme Court to Hear Arguments Next Week on HMO Case
Next Wednesday U.S. Supreme Court justices will hear arguments
in Pegram v. Herdrich, No. 98-1949, which involves the scope of
the broad definition of 'fiduciary' in the Employee Retirement Income
Security Act (ERISA), according to The National Law Journal.
The justices will decide whether physician-owners of an HMO that gives
its physicians financial incentives (in addition to their salaries) to
contain costs have breached their duty of loyalty to patients under the
1974 act. The managed care industry warns that a defeat for them could
have a significant negative effect on employers' ability to provide
affordable and quality health care. Cynthia Herdrich, who suffered from
a ruptured appendix and peritonitis after her HMO physician decided to
have her wait more than a week for an ultrasound of a painful abdominal
mass, has supporters who argue that if health care consumers lose what
many view as a David v. Goliath legal fight, HMOs will not be
accountable to anyone. ERISA imposes fiduciary duties on those with
discretionary authority over the management or administration of private
employee benefit plans. A fiduciary is required to act 'solely in the
interest of' plan participants and beneficiaries when providing benefits
and defraying the reasonable expenses of administering the plan. ERISA
provides the plan and plan beneficiaries with a federal cause of action
for breach of these duties of loyalty and care. During the past five
years, federal courts have slowly begun to accept arguments that bring
health-care related suits against HMOs within ERISA's limits, according
to Professor Wendy E. Parmet of Northeastern University School of Law,
who filed an amicus brief supporting Herdrich on behalf of several
non-profits representing health care users and providers.
Charter Behavior Health Systems Files Chapter 11
Charter Behavioral Healthcare Systems LLC, Alpharetta, Ga.,
announced that it filed for chapter 11 protection in the District of
Delaware and that it will sell its core businesses, according to a
newswire report. The largest private provider of behavioral health
services in the country, Charter announced last week that it would close
33 facilities. Charter said that after a thorough analysis of all
options to enhance profitability, it concluded that it must seek a buyer
for its core business as part of its overall plan to reorganize
operations. The sale to COPI Healthcare, a subsidiary of Crescent
Operating Inc., is to be accomplished through the chapter 11 process and
is subject to bankruptcy court bidding procedures. Charter has secured
confirmation of its existing credit facility through the sale process
and said it has sufficient cash to continue normal operations. The
budget for the bankruptcy provides for current payment of all
post-petition interest to the banks, rent to the landlord for the core
facilities and all invoices for goods and services delivered after the
filing. Crescent Real Estate Equities Co. and its affiliates, which are
the landlord and owner of the health care facilities, has been
authorized by Charter to market and sell the closed health care
properties subject to the master lease with Crescent.
Judge Dismisses Martin's Bankruptcy Case
Bankruptcy Judge Robert A. Mark (S.D. Fla.)
has accepted Miami Dolphins wide receiver Tony Martin's request to
dismiss his bankruptcy case, according to the Associated Press. Martin
filed for bankruptcy protection last year when he was unemployed, had $2
million in debt and was facing federal charges of laundering drug money.
Attorney Robert A. Schatzman of Adorno & Zeder, PA,
Miami, said Martin was 'at the low point of his life' when he filed but
that his life is very different today, having signed a four-year
contract with the Dolphins last spring. Martin told the court that his
contract will pay him about $10 million over the course of the next
three years. In addition, Martin was acquitted of the laundering charges
in August. With Judge Mark's ruling, Martin's creditors, who say Martin
owes them as much as $2.8 million, will be forced to pursue payment on
their own. The ruling also prevents a court-appointed trustee from
following up on her earlier claim that Martin hid at least $200,000 in
assets and lied on his bankruptcy petition. Judge Mark said, 'This case
presents facts that logically support dismissal.'
Footstar to Purchase 102 Just For Feet Stores
Footstar Inc., Mahwah, N.J., a discount footwear and athletic
apparel retailer, announced yesterday that it will acquire 102 stores
and the Internet business of its rival Just For Feet Inc. for $72.6
million, according to Reuters. Just For Feet filed chapter 11 last
November and subsequently announced plans to sell its assets. Footstar
has agreed to acquire 79 Just For Feet Stores, 23 specialty retail
stores and the corporate headquarters building in Birmingham, Ala.
Democratic Couple's Financial Dealings Exposed
Since Edward Mezvinsky, a former member of Congress, filed for
bankruptcy protection recently, major financial problems have come to
light, The Washington Post reported. His wife, Marjorie
Margolies-Mezvinsky, also a former member of Congress, recently withdrew
from the campaign to be the Democratic challenger to Sen. Rich Santorum
(R-Pa.), stating that she could 'no longer make the commitment to this
campaign to put me in a position to win,' and cited her mother's health
and her family's needs. She did not say that the couple's finances were
a disaster with millions owed to individuals and banks.
Margolies-Mezvinsky also filed for bankruptcy protection last Thursday,
seeking to discharge her debts, many of them co-signed with her husband.
Her attorney said, 'After evaluating all of the information which has
come to her attention in the past few weeks, she concluded that,
unfortunately, the immense amount of debt created by Ed's business
dealings left her no alternative.' Meanwhile, Fairfax County, Va.,
businessman David G. Sonders has filed a lawsuit alleging that Mezvinsky
defrauded him of $500,000 in a complicated business scheme that
reportedly involved transferring money out of the African nation of
Ivory Coast. The U.S. Attorney's office is reviewing the matter to see
if there was any criminal activity. The suit was filed in Alexandria,
Va., in December. The day before Mezvinsky was to provide detailed
financial records to the Virginia court, he filed for bankruptcy
protection. Others making such claims include A.C. Mercurio, a
Philadelphia businessman who is owed $1.2 million. He was involved in a
similar investment deal. The couple owes at least $5 million to various
creditors; some debt is solely Mezvinsky's and some involve loans and
unpaid bills in the couple's names.
Klett Lieber Rooney & Schorling Adds Attorneys to
Delaware Office
Klett Lieber Rooney & Schorling announced that it has added
six attorneys to its Wilmington, Del, office, including bankrutpcy
specialsts Teresa K.D. Currier and Adam G.
Landis; they and the other new attorneys were most recently
with Duane, Morris & Heckscher. The Wilmington office was formed in
1997. Bill Manning, a senior member of the new group and a former chief
of staff to Governor Pierre S. duPont IV, said, 'We are very excited to
join a young firm that has already established a strong presence in the
Mid-Atlantic region.'
Conflicting Reports About Japanese Company's Interest in
Iridium
DDI Corp., Japan's third largest telecommunications company,
said today it may dissolve struggling satellite phone operator Nippon
Iridium Corp., the Japanese arm of U.S.-based Iridium LLC, which is in
chapter 11, according to a newswire report. This report, however,
conflicts with another report from Nippon Iridium shareholder, Kyocera
Corp., which said it has no plans to pull out of the Iridium business.
DDI is Nippon Iridium's largest shareholder with a 35.7 percent stake,
and Kyocera has a 10 percent stake. DDI has not said when it would
dissolve Nippon Iridium, which as 4,000 Japanese subscribers. Kyocera
said that the 'media report was incorrect' that it would pull out of the
business. A spokesperson for the company said, 'We expect Iridium LLC's
restructuring to be successful.'
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