Opinion
No. 2010-CV-00414 No. 2010-CV-00294 No. 2015-347
05-02-2017
Georgia A. Tuttle, M.D., LRG Healthcare and Derry Medical Center v. New Hampshire Medical Malpractice Joint Underwriting Association And In the Matter of the Winding Down of the New Hampshire Medical Malpractice Joint Underwriting Association
ORDER
This case involves claims of policyholders of the New Hampshire Medical Malpractice Joint Underwriting Association ("JUA") who seek to recover excess proceeds from the JUA's operation. Pursuant to RSA 404-C: 17, the Receiver of the Association, Insurance Commissioner Roger A. Sevigny, ("Receiver") has filed a pleading he captions "Receiver's Motion for Approval of Interim Distribution, Interpleader and Related Discharge Pursuant to RSA 404-C:17," reciting that he believes sufficient funds exist to make a distribution of $50 million in excess proceeds to policyholders. The Receiver believes that it is necessary to maintain a reserve of $36 million in assets to address remaining costs and obligations of the JUA in receivership including administrative and operational expenses of the JUA, the expenses of the receivership, the tax obligations of the JUA and to provide a reasonable reserve for unknown and unexpected obligations of the JUA.
No funds have actually been deposited with the Court, but the Insurance Commissioner has indicated that he is prepared to tender the funds in accordance with the statutory provisions.
Georgia A. Tuttle, M.D., LRG Healthcare and Deny Medical Center ("Plaintiffs"), purporting to act as representatives of all other policyholders have filed a Renewed Motion for Preliminary Class Certification, Appointment of Class Counsel, and Approval of Notice. Plaintiffs argue that this action should proceed as a limited fund class action in accordance with the provisions of Fed. R. Civ. P. 23(b)(1)(B). However, Superior Court Rule 16, which governs class actions, contains no analogous provision, and for the reasons stated in this Order, the Court does not believe that it has authority to treat the Plaintiffs' claims against the res as a class action against a limited fund without guidance from the New Hampshire Supreme Court. Accordingly, the Renewed Motion for Preliminary Class Certification, Appointment of Class Counsel and Approval of Notice is DENIED WITHOUT PREJUDICE. Counsel for the Plaintiffs shall prepare an Interlocutory Transfer Without Ruling pursuant to New Hampshire Supreme Court Rule 9 containing at least the question of whether: (1) in the circumstances of this case, the Plaintiffs may bring a class action against the funds held by the Insurance Commissioner accordance with RSA 404-C: 17, pursuant to Superior Court Rule 16 and (2) if such an action may be maintained, what procedures should be utilized by this Court to ensure fair adjudication of the competing claims. Since appellate review is necessary, the Court briefly sets forth the background of this case.
I
A. Tuttle v. New Hampshire Medical Malpractice Joint Underwriting Ass'n, 159 N.H. 627 (2010) ("Tuttle I")
This case arose from litigation between the parties described in Tuttle et al v. New Hampshire Medical Malpractice Joint Underwriting Ass'n, 159 N.H. 627 (2010) ("Tuttle I"). The Joint Underwriter's Association ("JUA") administers a mandatory risk sharing plan authorized by RSA 404-C. The plan provides access to medical professional liability insurance coverage to medical providers in the State of New Hampshire. The JUA is governed by a Board of Directors, which is vested with authority over the operation of the plan, subject to the oversight of the Insurance Commissioner. The JUA owes contractual and regulatory duties to its policyholders. The rights and obligations between the JUA and the policyholders are set forth in the insurance agreement. The Insurance Department rules govern application of the excess surplus from premiums remaining after claims and expenses. N.H. Admin. Rules, Ins. 1703.07(d). Pursuant to these regulations, any excess surplus may be applied to reduce future assessments of the Association or may be distributed to policyholders. Id.
In 2009, the Insurance Commissioner issued an analysis determining that $55,000,000 would fulfill the JUA's capital needs. The Legislature then passed Laws 2009, 144:1, which Plaintiffs challenged as unconstitutional. The law required the JUA to transfer a total of $110,000,000 to the State's general fund during fiscal years 2009, 2010, and 2011. Plaintiffs sued, the trial court found in favor of Plaintiffs, and on appeal to the Supreme Court, the Court held that the language of the policies and the regulations, taken together, vests the policyholders with contractual rights in the treatment of any surplus for their benefit. Tuttle I, 159 N.H. at 633, 643-44, 650-52.
B. Tuttle, et al v. New Hampshire Medical Malpractice Joint Underwriting Association, No. 2010-CV-294 ("Tuttle II")
In July 2010, Plaintiffs brought a lawsuit to compel disbursement of the excess surplus. Tuttle, et al v. New Hampshire Medical Malpractice Joint Underwriting Association, No. 2010-CV-294 ("Tuttle II"). In June 2011, the Legislature enacted RSA 404-C:14, II which required the JUA to conduct an evaluation to determine what funds it held that were "excess surplus funds:"
All such excess surplus funds have resulted from premiums paid under assessable and participating medical malpractice insurance policies, belong to the policyholders who paid these premiums, and shall be returned as directed under this section. Within 60 days from the effective date of this section, all excess surplus funds . . . shall be interpleaded into the Merrimack County Superior Court, docket no. 217-2010-CV-00414 for the purpose of adjudicating all policyholders' claims to excess surplus funds.RSA 404-C:14, II. In addition, RSA 404-C:14, VI removes all participation from the Insurance Commissioner: "[t]he approval of the commissioner of insurance shall not be required for any action contemplated under this section." Pursuant to the law, the JUA recognized an obligation to pay $85,000,000 to the policyholders and segregated the remaining $25,000,000 for payment of possible federal tax obligations.
No funds were interpleaded by the Insurance Commissioner, the other requisites of an interpleader action had not been complied with, and the Court recognized that an adverse legal claim was necessary for it to have authority to act. The case was certified for class treatment only on a contract claim against the JUA. Plaintiffs alleged that all parties had the same—or substantially identical—insurance contracts with the same provisions, which remained unchanged in all material respects during the class period. Thus, the Court found that the proposed class appeared to meet the requirements of numerosity, commonality, typicality, adequacy, and predominance, and the Court preliminarily approved the Class on February 7, 2012 and ordered that notice be sent to the putative Class Members. Smilow v. Sw. Bell Mobile Sys., Inc., 323 F.3d 32, 40 (1st Cir. 2003) (affirming predominance where one claim alleged breach of contract); Oscar v. BMW of North Am., LLC, 274 F.R.D. 498, 506-07 (S.D.N.Y. 2011) (finding commonality fulfilled where one claim alleged breach of contract).
In August 2011, Plaintiffs filed a motion for certification of a settlement class. However, at a hearing on preliminary approval, the parties advised the Court that no settlement existed and asked the Court to certify the Class as a liability class. The Court denied the Motion without prejudice, and Plaintiffs filed a Supplemental Motion. The Supplemental Motion sought to certify a class consisting of all JUA policyholders who purchased assessable and participating insurance contracts, issued on or after January 1, 1986 through the date of the final fairness hearing ("class period"). The Class Members would be the named insureds who purchased a policy, as reflected in the JUA books and records.
At oral argument on final certification the parties asked the Court to construe their cause of action as a contractual-right theory, without a breach. The JUA continued to deny any wrongdoing, but it did not dispute the Class's contractual rights. Despite this modified theory of recovery, Plaintiffs fulfilled their burden of proving that the Class Members shared a question of law in common. This Court granted final certification on June 15, 2012.
Prior to certification, Class Counsel had moved for summary judgment on the contractual right theory on May 1, 2012. On June 1, 2012, the JUA responded and this Court granted the Motion for Summary Judgment on June 27, 2012. Since liability had been established by grant of summary judgment, the only issue remaining was the appropriate distribution of the common fund. Superior Court Rule 16 (h) specifically provides, "[I]f the court renders judgment in favor of a plaintiff class, the court may, in its discretion, order the defendant to pay damages . . . in any manner it deems appropriate."
Plaintiffs proposed a Plan of Allocation dated March 13, 2012 (the "Plan of Allocation"), which provided, in substance, that each class member will receive a percentage distribution equal to their respective percentage of the total premiums paid since 1986. Because the only distinguishing factor among Class Members is the amount of premium each class member paid, the proposed Plan of Allocation uses premium data to divide the common fund on a member-by-member basis. Relying on the JUA's premium records, the Claims Administrator was to calculate each class member's percent of total premiums paid from January 1, 1986. That percentage will be used, after deducting approved contributions awards, fees, and expenses, to determine each class member's share of the common fund. The Plan of Allocation returns between 37 and 40 percent of an individual member's premiums paid, but it does not attempt to consider the time value of premiums paid because this calculation could have federal tax implications that would decimate the entire common fund for all Class Members. In this way, the Plan of Allocation avoids retroactive tax assessments.
The Court found that the Plan of Allocation provided a fair, reasonable and equitable basis to calculate distributions. The Court's finding was further confirmed by the absence of any substantive objections. The Plan of Allocation was adopted as the Order of this Court for the administration of the "Distribution Fund" and distribution took place in accordance with this Court's order of October 9, 2012. The Court's order provided that $85 million should be distributed immediately and that $25 million should be held as a Federal Tax Reserve. The Court's Order of October 9, 2012 provided that class counsel and counsel for the JUA shall notify the Court when the IRS matter reached resolution and upon such notification the JUA was required to tender the balance of the Federal Tax Reserve to the Claims Administrator. On June 10, 2013 counsel notified the Court that the Internal Revenue Service and the JUA concluded a closing agreement satisfying the Court's condition for release and transfer to the claims administrator of the entire federal tax reserve, and the funds were tendered to the Claims Administrator by the receiver on or about June 10, 2013 for distribution to the class.
C. The September, 2015 Motion to Bring Forward
In September, 2015 counsel for the Tuttle II class, Nixon Peabody LLP, filed a Motion seeking that Tuttle II be reopened for consolidation with a simultaneously filed matter, this case, In re Interpleaded Funds of the New Hampshire Medical Malpractice Joint Underwriting Association, 2015-cv-520. The Plaintiffs brought a proposed declaratory judgment action seeking a declaration that the Court accept jurisdiction and control over funds to be transferred to the Court and approve a plan of allocation to return the funds transferred pursuant to RSA 404-C: 17 to the class and to each subclass.
By Order dated January 12, 2016, the Motion to Bring Forward, Reopen and Consolidate was DENIED WITHOUT PREJUDICE. The Court reasoned that the class period in the proposed declaratory judgment action runs from January 1, 1986 to the termination of the receivership, which was different from the class period in Tuttle, 2010-CV-254, which ran from January 1, 1986 through the date of the fairness hearing. Moreover, the parties were not identical. (Order, Jan. 12, 2016.)
Plaintiffs recognized this issue, and moved to reconsider, asserting that the Court had misapprehended whether the class representatives could act as members of subclasses. Plaintiffs also responded to the Court's statement that there is no authority for the proposition that a class action may be brought against property by referencing Fed. R. Civ. Proc. 23(b)(1)(B). (Order, Jan. 12, 2016.)
The Court denied the Motion to Reconsider on February 24, 2016, finding that the action could not procced because there was nothing for the Court to adjudicate. The action purported to be an action in rem, brought against funds to be interpleaded into the Court. Since at the time of the filing, no funds had actually been interpleaded into the Court, no claimant had been served, and the Insurance Commissioner was not a party defendant, the Court had no jurisdiction to make orders which would bind the Commissioner, the Receiver or control the funds and the Motion and a Motion to Reconsider were denied without prejudice. (Order, Feb. 24, 2016, p. 2.) No appeal was taken.
II
On March 15, 2017, Plaintiffs filed a pleading they captioned as "Lead Plaintiffs Renewed Motion for Preliminary Class Certification, Appointment of Class Counsel and Approval of Notice" ("Renewed Motion"). The Motion recited that on February 17, 2017 the JUA's Receiver sought to make a partial initial interpleader of $50 million into the Tuttle II docket. In that case, the Plaintiffs alleged that the Insurance Commissioner believed that $36 million was sufficient to address remaining costs and obligations of the JUA receivership, including administrative and operational expenses of the JUA, the expenses of the receivership, the tax obligation of the JUA and to provide a reasonable reserve for unknown and unexpected obligations. As Exhibit A to the Motion, Plaintiffs filed a proposed declaratory judgment, seeking the following relief:
32. Plaintiffs seek a declaration from this Court that they are, by virtue of their "Assessable and Participating" insurance contracts, applicable statutes and previously controlling regulations, the rightful, vested owners of all excess surplus funds in the NHMMJUA that remain after court approval of Receiver's liquidation of the NHMMJUA, transferred its coverage-related obligations, payment of its administrative and operational expenses, transfer or resolution of tax obligations and payment of receivership expenses.However, the New Hampshire Supreme Court has already decided that holders of JUA insurance contracts do in fact have a vested right in surplus funds held by the JUA. The real issue here is not a declaration of rights but a determination of what percentage of the funds should be distributed, what percentage should be retained and to whom the funds should be disbursed.
The Receiver has represented he believes that there are sufficient JUA funds to make a distribution of $50 million. Notably, the lead Plaintiffs do not challenged the Receiver's conclusion that $50 million should be distributed and that it is necessary that $36 million be retained by the JUA to ensure the continued operation of the JUA.
In the Renewed Motion, Plaintiffs asserted that they had resolved the issues raised by the Court in the February 2016 dismissal without prejudice of their previously filed First Amended Complaint. First, they asserted that no conflict among class members existed and that no subclasses would be necessary. (Memorandum in Support of Lead Plaintiffs Renewed Motion for Preliminary Class Certification, Appointment of Class Counsel and Approval of Notice, p. 10. (Hereafter "Memo in Support of Renewed Motion.")) Second, they pointed out that the Receiver has now tendered $50 million to the Court, and the Court therefore has jurisdiction. (Id. at p. 7-8.) Finally, they argued that this case could be treated as a limited fund settlement pursuant to Fed. R. Civ. P. 23(b)(1)(B). (Id. at 12-13.)
Plaintiffs recite that "the Receiver's Interpleader and Lead Plaintiff's Response address [the Court's concern's about proceeding in rem and whether a valid interpleader has occurred] by way of the Receiver's nominal appearance as the interpleader of the funds and his tender of $50 million to the jurisdiction of this Court." (Memo in Support of Renewed Motion, p. 8.). However, the Court does not believe a valid interpleader action has been brought by the Receiver.
Interpleader is an equitable remedy by which a party who asserts that he is ignorant of the rights of different claimants or at least that there is doubt as to which of them is entitled to a fund, may pay the money into court so that the claims may be resolved and, implicitly, avoid any further liability to him. Page Belting Co. v. F.H. Prince & Co., 74 N.H. 262, 263 (1907). There is little modern law regarding interpleader in New Hampshire, and no explicit rule such as Fed. R. Civ. P. 22. Parties nonetheless occasionally interplead funds in New Hampshire, and the Legislature has ordered that funds should be interpleaded into this Court so that claims can be resolved. The Plaintiffs have not been able to provide the Court with any case in which a Court has approved the class action mechanism in order to resolve competing claims to funds after interpleader.
It is true that several statutes reference the concept of interpleader but there is no interpleader statute or Rule.
It appears to the Court that the disuse to which interpleader has fallen may well be due the fact that in cases which would otherwise call for interpleader, defendants prefer to bring petitions for declaratory judgment to ensure that they can join all of the potential claimants. See, e.g. Ellis v. Royal Ins. Co., 129 N.H. 326, 328 (1987).
Interpleader requires the interpleading party to join all the parties it believes claim against it. See, e.g. Fed. R. Civ. P. 22(1). Under common-law interpleader, a party seeking to interplead must bring a Petition which:
. . . must set forth the names and addresses of the stakeholder and the claimants, state the facts on which their respective interests are founded, show how their claims are in conflict with each other, and allege that the claimants each demand the right of possession. The pleading must show, by allegations of fact that there is a reasonable basis for being unable to determine the merits of the claimant's title, that there is no means at law to obtain a determination of the issue and that there is a danger of loss without court intervention.G. MacDonald, Wiebusch on New Hampshire Civil Practice and Procedure, § 37.05 (3rd Ed. 2010) p. 37-4; see also Fed. R. Civ. P. 22.
Plainly, the Receiver has not complied with the common-law requisites for a bill of interpleader. The bare bones pleading called " Bill of Interpleader" prepared by the Receiver, names no Defendants, and simply seeks as relief that the Court grant the interpleader and accept jurisdiction and control over $50 million in his possession pursuant to RSA 404-C: 17. The common law of interpleader contemplates that a party seeking to resolve competing claims must serve the potential claimants with orders of notice. G. MacDonald, Wiebusch on New Hampshire Civil Practice and Procedure, § 37.05 (3rd Ed. 2010) p. 37-4. The point of the procedure appears to be to ensure that the party submitting funds is not subject to multiple liabilities and insuring that there is an equitable distribution of available funds. Wright and Miller, 7A Federal Practice and Procedure Civ. § 1714 (2017). Under common-law precedent, a "nominal appearance as interpleader of the funds" would be insufficient to invoke the interpleader jurisdiction of the court. Parker v. Barker, 42 N.H. 78, 96 (1860). Moreover, here the Receiver apparently is in in possession of $86 million in surplus funds but only seeks to distribute $50 million in surplus funds. RSA 404-C-17, III seems to require transfer of all assets to the Court with the purpose of adjudicating the rights of the parties.
While traditional interpleader appears to afford the Plaintiffs and the putative class similar relief, the class action mechanism is more appropriate to resolve this dispute. Class actions, like interpleader, themselves have their genesis in equity and actions akin to class actions appear to have been recognized at common law in New Hampshire. Smith v. Bank of England, 69 N.H. 254 (1898). Treating all plaintiffs as members of a class is logical and reasonable. There is a limited fund of money available to former policyholders of the JUA and there are more than six thousand claimants. Those claims are essentially contractual in nature and should be subject to adjudication pursuant to fixed and definite metrics. It is critical that the Receiver be protected from a contract liability which could impair the operation of the JUA if 100% of the surplus were paid out. Resolution through a procedure which provides notice to all interested parties and gives them the opportunity to object to the method of allocation would satisfy due process and would be consistent with principles of aggregate adjudication. See generally Principles of the Law: Aggregate Litigation, § 1.02 (ALI 2009). Moreover, if this matter proceeds as a class action, the Court may appoint class counsel who will ensure that the limited fund is distributed equitably among all of the claimants rather than solely to the early claimants. Rubenstein, 2 Newberg on Class Actions, § 4.16 (5th Ed. 2016). Counsel have not even addressed the issue of the Court's authority to appoint counsel to represent the interests of over 6000 litigants with adverse interests to interpleaded funds, and the Court is unaware of any authority for such a proposition. See Id.
The Plaintiffs suggest that this case could proceed as a limited fund class action, pursuant to Fed. R. Civ. P. 23(b)(1)(B):
Moreover, as the Court observed at the October 5, 2015 status conference, the circumstances in this case are closely analogous to those contemplated by Fed. R. Civ. P. 23 (b)(1)(B) supporting importation of its principles. Under Rule 23 (b)(1)(B), where, as here, the prosecution of separate actions by individual members of the class would create the risk (indeed the virtual certainty) of adjudications with respect to individual members of the class that would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests, the court may certify the case as a mandatory class proceeding against a limited fund.(Memo in Support of Renewed Motion, p. 12.)
The United States Supreme Court has noted that among the traditional varieties of representative suits encompassed by Fed. R. Civ. P. 23(b)(1)(B) are those involving the presence of property which calls for distribution or management. Otiz v. Fibreboard Corporation, 527 U.S. 815, 834 (1999). Courts have been willing to take jurisdiction over funds such as trust assets, bank accounts, insurance proceeds, and company assets in a liquidation sale in order to ensure that claims are distributed in a proportional way to each class member's percentage of substantiating claims. Id. See Rubenstein, 2 Newberg on Class Actions, § 4.16 (5th Ed 2016).
Such an approach seems appropriate in this case, since excess disbursement of funds might lead to injury to prospective class member policyholders through an inadequacy of reserves for future operations of the JUA. It is conceivable that litigation by policyholders on a breach of contract basis could result in different determinations regarding the amount of funds to be withheld. A policyholder who makes a breach of contract claim against the Receiver can assert a contractual right to 100% of the current surplus of the JUA, seeking distribution though a breach of contract claim of his or her percentage of $86 million rather than of the $50 million the Receiver believes can be appropriately disbursed. This could conceivably render the JUA insolvent in the future, and limit the ability of other policyholders to recover. The principle behind a limited fund settlement is the potential for insufficiency of assets to satisfy all claims, which justifies "the limit on an early feast to avoid a later famine". Ortiz v. Fibreboard , 527 U.S. at 837. To effectuate the purpose of a limited fund settlement, such settlements are mandatory. Rubenstein, 2 Newberg on Class Actions, § 4.18 (5th Ed 2016):(" To achieve this goal, Rule 23 (b) (1) (B) suits are generally mandatory- that is, class members may not opt out").
But the Court has several concerns. First, RSA 404-C:17 seems to require that the action proceed by interpleader: "if any class of JUA policyholders cannot be represented or is barred from the old action, a new interpleader action shall be commenced to allow such policyholders to assert their claims with respect to funds". RSA 404-C: 17, III. Presumably this issue could be resolved by some procedural mechanism to provide notice to absent class members in a way which avoids the expense of formal service of process. But more importantly, Superior Court Rule 16, which governs class actions in State Court, does not have an analogue to Fed. R. Civ. P. 23(b)(1)(B). The current Superior Court Rule appears to have its genesis in the version of Fed. R. Civ. P. 23 current in the early 1980s. The New Hampshire Supreme Court has instructed trial courts to be guided by the provisions of Fed. R. Civ. P. 23. In re Bayview Crematory, LLC, 155 N.H. 71, 74 (2007). However, the Court cannot be guided by a Rule which was never enacted by the New Hampshire Supreme Court as part of the Superior Court Rules. This is particularly so with respect to any proposed limited fund settlement, which in order to effect its purposes, must be a mandatory settlement and therby cuts off substantive rights. The United States Supreme Court has cautioned against "adventurous application of Rule 23 (B)(1)(B)", emphasizing that a "limiting construction" that "stays close to the historical model... avoids serious constitutional concerns raised by the mandatory class resolution of individual legal claims". Ortiz v. Fibreboard, 527 U.S. 845; see also Rubenstein, 2 Newberg on Class Actions, § 4.18 (5th Ed 2016).
It is perhaps not surprising that the class action rule has not been amended since class actions in Superior Court are relatively rare in light of the provisions of 28 U.S.C. §1332(d), the Class Action Fairness Act. --------
RSA 490:4 provides that the New Hampshire Supreme Court is to exercise general superintendence of all courts of inferior jurisdiction to prevent errors and abuses. That authority has led the New Hampshire Supreme Court to state that it has power to "issue whatever process is necessary for the furtherance of justice", that its obligation is to allow "such procedure as justice and convenience require" and that the writs and processes the Court is authorized to issue "will include the best that can be invented" to provide litigants with a remedy. Boody v. Watson, 64 N.H. 162, 169-172 (1887). A lower court does not have such authority.
In the circumstances of this case, where the need for a remedy is apparent, the procedure to be applied unclear, and the amount of money at stake, $86 million, is significant, the Court believes that the New Hampshire Supreme Court should determine what procedure should be applied to adjudicate the competing claims of the policyholders in this matter. Accordingly, the Court orders that counsel for the Plaintiffs shall prepare an Interlocutory Transfer of Ruling pursuant to New Hampshire Supreme Court Rule 9 to the New Hampshire Supreme Court containing at least the questions of:
(1) Whether, in the circumstances of this case, the Plaintiffs may bring a limited fund class action against the funds the Insurance Commissioner seeks to tender to this Court in accordance with RSA 404-C: 17, III, in a manner akin to Fed. R. Civ. P. 23 (b)(1)(B) pursuant to Superior Court Rule 16; and
(2) If such an action may be maintained, what procedure should be utilized by this Court to ensure fair adjudication of the claims of identified claimants.
SO ORDERED
5/2/17
DATE
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/