Surviving an Energy Industry Down-Cycle

This article was published in OIPA Wellhead, a publication produced by Oklahoma Independent Petroleum Association and distributed to its membership.

Resulting financial stress on your business can be survived

By Elizabeth K. Brown

brown-elizabeth-portrait

Liz Brown is a director at Phillips Murrah, P.C., where she has practiced for most of her legal career. Liz is primarily a tax and transactional lawyer with a special emphasis in the energy industry.

As we all know all too well, the profitability of the energy industry is dependent on oil and gas prices, which are often volatile and generally cyclical. Unfortunately, we in the oil and gas business are in the midst of another industry down-cycle.

According to the recent Baker Hughes’ North America Rig Count report, the number of rigs drilling for oil and natural gas has been cut in half since November. The price of oil has been cut by more than half as compared to last year. In response to lower prices, some oil and gas companies have reportedly reduced their capital expenditure budgets, reported substantial losses, and are selling off assets.  Service and drilling companies have announced major layoffs and so far appear to have been the hardest hit.

Under these circumstances, virtually all companies that are engaged in the Oklahoma energy sector, whether they are exploration and production or service companies, are dealing with reduced profitability and some are struggling to meet their financial obligations.

When a company that relies on a robust energy sector starts to feel the pinch of a down-cycle, restructuring debt or seeking relief through a Chapter 11 bankruptcy reorganization may be the way for the business to survive. Either the workout or a bankruptcy allows the business to have some time for the economy or business sector to recover or for the business to work through its financial difficulties.

What to do?

When a company is experiencing financial stress, the best course of action is to accept the reality of the situation and address it quickly. The first step is for the business to develop a budget so that it has a clear understanding of its current monthly revenues and expenses, its projected future revenues and expenses based upon reasonable assumptions, and the current and estimated future value of its assets. Once the business has that information, it can develop a pragmatic approach to dealing with its expenses and liabilities and will then be ready to approach it creditors with a plan for restructuring.

“If a company is having trouble meeting its obligations, creditors want to know why, what is being done to address the situation and, ultimately, what the overall prospects for recovery are for the business, both outside and through bankruptcy.” said Phillips Murrah bankruptcy attorney Stephen W. Elliott.

The Workout: Avoiding Bankruptcy

A workout is an out-of-court process through which the business owner and the creditors of the business try to reach an agreement to modify the terms of their contractual obligations. Workouts typically involve an agreement of the business’ primary lender to waive defaults or forbear on the lender’s rights to collect interest and principal payments on the loan for a period of time to give the business the opportunity to get back on its feet.  The workout terms may include debt forgiveness, changes in loan amortization, reduced interest rates, or deferred principal or interest payments.

The ultimate goal of the workout is to allow the business to continue operating so that (i) the creditors of the business can ultimately be paid more than they would have received if the business was shut down and the assets were sold at liquidation prices; and (ii) the business can recover from its financial difficulties, all without the costs, delays, and potential uncertainties frequently inherent in bankruptcy. If the workout would be as or more beneficial to the business and its primary creditors than a bankruptcy, then bankruptcy can often be avoided.

“In my experience, candid communication is often the key to avoiding bankruptcy and resolving financial issues through a workout,” Elliott continued.

What are Benefits of Bankruptcy?

Bankruptcy provides potential, wide-ranging benefits to the debtor not available through out-of-court workouts. In a Chapter 11, the debtor oftentimes acts as trustee of the business and continues to manage the company as the “debtor in possession.” Chapter 11 affords the business a number of tools to restructure its debt.

One of the best known is the automatic stay which stops collection efforts outside of the bankruptcy court and keeps the business and its assets from being picked apart piecemeal by creditors. Additionally, in bankruptcy, the business may be able to obtain financing on more favorable terms than it could outside of bankruptcy by giving the post-bankruptcy lender priority over other creditors. Also, there is the possibility in bankruptcy for the business to be able to rapidly sell assets free and clear of liens and even over creditors’ objections, which under some circumstances may be the only way for the business to be able to sell its assets for fair market (as opposed to liquidation) value or to obtain funds to continue the operations.

Finally, the bankruptcy process provides the business with the opportunity for the bankruptcy court to bind creditors involuntarily to the reorganization plan of the business.  The reorganization plan may restructure obligations and discharge debts of the business. This ability of the bankruptcy court to bind creditors can be critical if the business owner’s efforts to put a workout together have failed due to some creditors’ refusal to agree to the proposed workout terms or because there are too many creditors for the business to be able reach an agreement with them.

Action Beats Hesitation

The best course of action for the business owner to deal with financial stress on the business is to be proactive, regardless of whether the solution is in the form of a workout or entails a bankruptcy.  Communication among the business and its creditors is very important.  Generally the earlier the lines of communication are opened between the business and its creditors, the better the chances are of a successful resolution.  The failure of the business to communicate with its creditors concerning its financial stress will often result in creditors assuming the worst and taking legal action that the creditor might not have taken if the business owner had simply communicated with them.  Once those collection actions have begun, filing bankruptcy may be the only course of action available to save the business.

A business owner’s denial of the precarious financial situation of the business or inaction can result in a needless loss of business value and can potentially impair the business’ ability to restructure or reorganize and survive the financial crisis. If you find that your business is in a precarious financial situation, taking action now may minimize the problems created by the down-turn.

About the author:

Elizabeth K. Brown is an attorney and director of Phillips Murrah P.C., a member of the OIPA board of directors and CEO of The Gloria Corporation, an oil and natural gas exploration and production company.

 

NewsOK Q&A: E-players enter health market

From NewsOK / by Paula Burkes
Published: August 19, 2015
Click to see full story – E-players enter health market

Click to see Mary Holloway Richard’s attorney profile

Consumers can search for doctors and clinical experts on a new product of Google called “Helpouts.” The trial is limited to symptoms related to common conditions or diagnoses and a wide range of pediatric concerns.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Q: Is Google becoming a provider of health services?

A: One new Google product, “Helpouts,” allows consumers to search for clinical experts and then to video chat with those doctors. This project is in its final stages, and Google is working with some existing medical groups who are verifying the credentials of the doctors who are participating in the trial. The trial is limited to symptoms related to common conditions or diagnoses and a wide range of pediatric concerns. One pediatrician, for example, is available for free consultations with the goal of eliminating gaps created by isolated visits in favor of applied multidisciplinary expertise. Not all of the offerings are related to health care and not all of them are free.

Q: What’s the impetus for this expansion by Google and presumably other technology companies?

A: A consulting company, PWC, has referred to this trend as a move toward “… building a new health economy centered around the consumer.” Stated another way, there are patient needs to be met and patient populations to be built by providers. This is likely to bring new players into local, state and regional health care communities who may position themselves to receive revenue from shrinking health care dollars. For example, Walmart is experimenting with health conglomerate Kaiser Permanente to access physicians via Skype in two of its California locations. Providers who’ve petitioned the Department of Health and Human Services to allow Affordable Care Organizations to be reimbursed for “connect care” argue that it will improve quality and reduce costs. Providers participating in the Medicare Shared Savings Program can’t currently bill for services provided using advanced technology.

 

NewsOK Q&A: Sunshine Act applies to dentists, podiatrists, optometrists and chiropractors

From NewsOK / by Paula Burkes
Published: August 11, 2015
Click to see full story – Law also applies to dentists, podiatrists, optometrists and chiropractors

Click to see Mary Holloway Richard’s attorney profile

Physicians should review federal Open Payments database

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Q: The Physicians Payments Sunshine Act (“Sunshine Act”) was passed with the intent of limiting the affect of prescribing and treatment practices by payments to providers by manufacturers or groups involved with product selection known as group purchaser organizations. Does this mean that payments to physicians are actually listed on this website?

A: Yes, but the law doesn’t just apply to physicians. It also applies to dentists, podiatrists, optometrists and chiropractors. It doesn’t apply to medical or osteopathic residents, physician assistant or nurse practitioners. This information is reported annually by manufacturers and purchasing groups and is available to anyone on the Centers for Medicare and Medicaid Services (“CMS”) website https://openpaymentsdata.cms.gov/. The database is part of the Open Payments program created as a result of the Sunshine Act.

Q: What options does a provider have if he or she believes that information about a reported payment is inaccurate or misleading to the public?

A: There is a process by which physicians and other providers can seek to correct information they believe to be false. A dispute resolution process begins with a 45-day period during which a provider reviews and works with manufacturers or purchasing organizations to correct the information. During the following fifteen days, the reporting entity (manufacturer or group purchasing organization) can submit corrections to the Open Payments database. This combined 60-day period is the only time that corrections can be submitted by manufacturers and purchasing organizations. CMS will not mediate such disputes but encourages the parties to work together to resolve their dispute. You can see from this description that it is the physician’s or other provider’s responsibility to monitor this information on the website.  Providers can locate relevant data by their names.

Q: What kinds of payments are included in the CMS Open Payments database?

A: First, it applies to payments by manufacturers. That means manufacturers of prescription drugs, biologic agents and medical devices and supplies. Second, it also applies, as I have mentioned, to groups formed to help providers such as hospitals, home health agencies and nursing homes save money and time by purchasing in volume and obtaining manufacturers’ discounts. These are the group purchasing organizations. Third, it applies to payments such as consulting fees, honoraria, food, travel, entertainment, education, research support, charitable contributions, investment interests, grant, and any direct compensation. That’s not even a complete list.

Q: What is the impact of this database?

A: Many physicians, dentists, podiatrist, optometrists and chiropractors regularly disclose to their patients their participation as lecturers, researchers and consultants to such manufacturers and purchasing organizations. Where that is the case, there is likely to be minimal impact from such information appearing on the CMS website. There a great deal of criticism of the Open Payments program, however. For example, a listing of a specific payment or group of payments may be taken out of context and appear unexplained and create in inaccurate impression and a negative response that is not merited. It seems clear that there will be continued refinement of both the regulations and the manner in which the data is presented to the public in the future.

NewsOK Q&A: Americans with Disabilities Act cites only dogs as service animals

From NewsOK / by Paula Burkes
Published: July 24, 2015
Click to see full story – Americans with Disabilities Act cites only dogs as service animals

Click to see Mary Holloway Richard’s attorney profile

Federal law has a narrow definition of what animals can be considered service animals under the Americans with Disabilities Act.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Q: Sunday is the 25th anniversary of the signing of the federal Americans with Disabilities Act (ADA). What animals are currently considered to be service animals?

A: The definition of “service animal” comes from the ADA and includes animals individually trained to perform tasks for individuals with disabilities. As of 2011, Titles II (state and local government services) and III (public accommodations and commercial facilities) of the ADA recognize only dogs as service animals, although there’s a separate provision about mini-horses. In addition to service dogs, there are sensory or social signal dogs, psychiatric service dogs and seizure response dogs.

Q: Is there a difference between a “service animal” and a “therapy animal?” 

A: Service dogs are trained to perform tasks or to do work for people with disabilities such as guiding the blind, alerting the deaf, pulling a wheelchair, reminding a person with a mental health diagnosis to take medications, or protecting a person who is having a seizure. The work must be directly related to the person’s disability. Therapy animals provide supports and comfort to people in many different types of situations.  There seems to be an impression among some members of the public that the service designation includes untrained animals providing comfort to owners of varying degrees of independence. It is generally true that a mental health provider may provide a letter indicating that a “regular” pet provides emotional support as needed by the owner who has a mental health condition or disability, and special training is not required. An  important distinction is that these are working animals and not pets. In my representation of hospitals over the years, I’ve been asked to advise concerning requests for visitation by a broad array of animals including burros, boutique cattle, and cats to serve specifically as therapy or emotional support animals. Some of the relevant case law from other jurisdictions involves monkeys and one involves a sugar glider, an Australian
opossum-like creature.

Q: Do these rules apply just to hospitals or do they also apply to other types of facilities and providers of health services?

A: The guidelines for service animals also apply to surgery centers, dental clinics, assisted living and long-term care facilities, and urgent care and outpatient clinics. The federal requirement is to allow service animals to accompany persons with disabilities in all areas of a facility or office where the public is normally allowed to go. It’s my experience that hospitals are better prepared than these other sites listed and physician offices to respond to these requests. Hospitals generally have policies and procedures that mirror state and federal laws and industry best practices.

Q: Are there limits to these ADA requirements?

A: When service dogs raise valid concerns about patient safety and quality of care, all providers in their distinct care settings will find it necessary to balance patient, staff, employee and public safety interests. Common valid concerns for institutional and non-institutional providers include infection control, allergies, animal control, safety of others, disruption of care or ability to safely provide quality services. An example of such a concern is a situation where a service dog’s presence is desired in a health care setting but there’s no one to provide the necessary care for the service dog. I also have encountered service animals with open wounds or otherwise in need of veterinary care that posed risks to patient care and to personnel that had to be considered. Another issue that has arisen is a service dog trained to be protective in a manner that impedes care by staff, such as a dog trained to place itself between the patient and others.

Illinois Court of Appeals Supports a High Bar for Overcoming State Statute’s Peer Review Immunity for Hospital

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

By Mary Holloway Richard, JD, MPH

An Illinois appellate court recently upheld a trial court decision granting summary judgment in favor of a hospital in a case where the plaintiff sought to limit a hospital’s statutory peer review immunity.1 Upholding a stringent standard imposed by the trial court, the appeals court ruled that the Illinois peer review statute requires pleading and proof of actual or deliberate intent to harm, or clear indifference to or disregard for, the peer-reviewed physician, along with resulting physical harm to the physician, and that mere harm to reputation is not enough. In this case, OB/GYN Dr. Valfer alleged merely that Evanston Northwest Healthcare (ENH) had failed to follow the proper procedures in dealing with him and that this failure had caused him reputational harm. The appeals court held that this fell short of the showing required to overcome the state law peer review immunity.

Valfer’s medical staff privileges at ENH were renewed in November 2000 for one year and for an additional nine months in September 2001. He re-applied for privileges and was informed that issues had arisen requiring a review of his surgical procedures for the preceding 12 months. In June 2002, Valfer agreed to stop scheduling surgeries at ENH, and his operating privileges were suspended pending resolution of patient safety issues involving unnecessary procedures. Valfer was notified by the service chief that he would not recommend Valfer’s reappointment. In July 2002, the medical executive committee agreed with that recommendation and provided Valfer with written notice of its decision not to reappoint him and also notified him of his hearing rights.

In 2004, an ad hoc hearing was held in which the service chief and another competing physician testified against Valfer. The decision not to appoint was upheld. Valfer appealed the decision to the appellate review committees; the ad hoc committee’s decision was upheld and was affirmed by the Board. Valfer continued to admit patients until the decision not to reappoint became final in March 2005. During the three-year period from Valfer’s final application for reappointment to the effective date of non-reappointment, no changes were made in ENH credentialing software, and he continued to be listed in “good standing” and to admit patients.

In 2007, Valfer sued for civil damages resulting from ENH’s decision not to reappoint him. ENH filed a summary judgment motion seeking to dismiss the breach of contract claim. ENH argued there was no breach as ENH had followed relevant procedures and was immune under both the state statute2 and the federal Health Care Quality Improvement Act (HCQIA).3 The summary judgment motion was granted.

On appeal, Valfer argued that there was, in effect, a reappointment by virtue of his continuing patient admissions and that this raised a question of fact as to ENH’s allegedly improper reliance on reappointment, rather than peer review, procedures. Valfer also characterized HCQIA immunity as limited to peer review and therefore not applicable because of ENH’s alleged reliance upon reappointment, rather than peer review, procedures. He argued that there was no peer immunity because of its willful or wanton denial of his privileges because of peer review by competitors. ENH responded in part that immunity under the Illinois peer review statute applied by virtue of the “willful or wanton” language and in the face of Valfer’s failure to allege physical harm to himself from the decision not to reappoint, and that the four statutory requirements for HCQIA immunity had been met.

In upholding the lower court’s decision the appellate court focused on legislative intent and the clear and unambiguous language of the statute. By giving effect to all statutory language, the court concluded that Illinois statutory immunity exists in the absence of willful or wanton misconduct. The plaintiff’s allegations of breach of contract by ENH for failure to follow the proper bylaws did not satisfy the statutory requirement of willful or wanton misconduct. The court cited precedent for overriding peer review immunity for civil damages where a defendant’s course of action demonstrates actual or deliberate intent to harm others or clear indifference to or disregard for a person and concluded that physical harm must necessarily be alleged and proved in order for a party to be civilly liable for peer review activities.4 According to the court, to require anything less, such as allowing damage to business or reputation to suffice, would make the peer review immunity meaningless and discourage such activities.

While parties often focus on HCQIA as the primary source of peer review immunity, this case illustrates that hospital counsel should not overlook the robust and vital protections that often co-exist under companion state law peer review privileges.


1 Valfer v. Evanston Northwest Healthcare, No. 1-14-2284, IL App (1st) 2015.
2 Ill. Hospital Licensing Act 210 ILCS 85/1 et seq (West 2012).
3 42 U.S.C. 11101 (2012).
4 Valfer at par. 29 citing Larsen v. Provena Hospitals, 2015, IL App (4th) 140255.

Roth: Ex-Im Bank must have its life span extended

Jim Roth’s Friday column, Earth Business, appears in The Journal Record.
Originally published in The Journal Record on July 17, 2015.
View Jim Roth’s attorney profile here.


Jim Roth is a Director, Chair of the firm’s Clean Energy Practice and a former Oklahoma Corporation Commissioner.

Ex-Im Bank must have its life span extended

The hotly contested Export-Import Bank of the United States has been in existence since 1934 by executive order, was made a separate agency by Congress in 1945 and exists to finance and insure foreign purchases of American goods for customers unable or unwilling to accept credit risk.

This seemingly sleepy entity has been in the news lately due to its upcoming potential death. Its most recent three-year charter lapsed as of July 1 because of Congress’ inaction and unwillingness to reauthorize. Today, the bank cannot engage in new business and can only manage its existing loan and business portfolio.

The Ex-Im Bank has been a dividing political issue since its conception. Created to help the U.S. increase exports and create more jobs here, it has been hugely successful in those objectives.

The Ex-Im Bank currently helps 129 Oklahoma companies with global exports of nearly $1 billion in total export value, $938 million in total insured shipments, guaranteed credits or disbursed loan amounts and $815 million in total authorizations. This enormous economic infusion has created thousands of Oklahoma jobs creating products, machines and services.

The U.S. Import-Export Bank, like most Ex-Im banks around the world, focuses in financing private-sector exports and has helped create or maintain many thousands of jobs all across America. Its recent years have seen more focus toward energy and manufacturing products, thus creating a growing political divide in Washington along the way.

Today, those most concerned about the potential death of the bank have been the alternative energy sectors, which have used the bank more recently to finance some of their green energy ventures. Yet just a few years ago, the bank was heavily criticized for “being on a fossil-fuel binge” for supporting liquid gas projects for Exxon-Mobil in Papua New Guinea and a coal plant in India with ties to Wisconsin business interests.

Meanwhile, growing antagonism today about the bank seems to be coming from lobbyists in the fossil-fuel sector and conservative groups representing American banks that don’t want the competition for lending.

And to stray away from any specific sector of the U.S. economy to the larger picture, it is clear what the importance of the Ex-Im Bank is to the U.S. economy. The future of American exports and job creation seems bleak without the institution because this is the U.S. Ex-Im Bank, while many other countries have their own banks that finance exports and they have bidding wars in highly contested export markets.

What this means is that if the U.S. Ex-Im bank did truly die on June 30, the U.S. export market is likely to shrink exponentially without financing. This loss of financing may hurt small businesses worse, those who rely on the bank for their overseas transactions. In fact, significant percentages of the bank’s finances go to small businesses with 164,000 jobs created in 2014 alone. So the facts are pretty clear that without the U.S. Export-Import Bank American businesses and jobs are at stake. Surely Congress must understand that?

It is critical that our country support the U.S. Ex-Im bank for its importance to American businesses, both large and small, in places like Oklahoma and beyond.

We cannot let party politics affect our financial future negatively. If U.S. industry wants a better future for markets overseas, the U.S. Ex-Im Bank must have its life span extended.

And oh by the way, the best part is that it won’t cost taxpayers a thing. When do we ever get that good of a trade?

Bankruptcy issues from the creditor perspective

Gavel to Gavel appears in The Journal Record. This column was originally published in The Journal Record on July 16, 2015.


Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases.

Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases.

By Phillips Murrah attorney, Gretchen Latham

During a bankruptcy case, we often hear about the debtor perspective. Whether due to unfavorable market conditions or poor planning, the result is financial hardship that inhibits a borrower from completing a loan agreement.

On the other side is the creditor, a lender that supplied funding and would like to recover as much of the investment as possible. Legal issues from the creditor perspective differ from that of the debtor. Some typical creditor-related issues include:

Standing to lift a stay

When a bankruptcy is filed, the debtor gets the benefit of an automatic stay preventing collections activities by the creditor. To enforce a security interest, the creditor can request to lift the stay.

More frequently, given recent rulings by the Oklahoma Supreme Court in foreclosure matters, debtors challenge the creditor’s right to even enforce the security interest. Thus, the result is the debtor seeks the stay to remain in place. Creative debtor attorneys are now making an attempt to use the state Supreme Court’s reasoning in bankruptcy court as well.

Timely execution of the statement of intention

There is some case law holding when debtors fail to timely perform their stated intent, the stay is lifted. When this happens, it is appropriate for a lender to file for relief from the stay and cite these cases as legal authority for the request.

Appropriate value for vehicles in a Chapter 13

A Chapter 13 “reorganizes” debt and allows the debtor to make one monthly payment to a trustee, who then disburses payment to the creditors. When a vehicle loan is involved, lenders are seeing frequent attempts to cram down the vehicle’s value in order to pay less. A savvy creditor will know how and when to object to this type of plan treatment.

Adequate protection payments in a Chapter 13

Often, it takes months for a Chapter 13 plan to confirm. For the creditor, this presents the problem of not receiving payment on their loan for a significant amount of time. The remedy is to seek an order of adequate protection, which will direct the trustee to make a pro rata payment to the creditor pending confirmation of the plan.

King v. Burwell: U.S. Supreme Court Decision Upholds ACA Tax Credits

By Mary Holloway Richard, JD, MPH

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

On Thursday, June 25, 2015, the United States Supreme Court issued its long-awaited opinion in King et al. v. Burwell, Secretary of Health and Human Services, et al. .[i]  The decision came the week before many of the nation’s foremost health care attorneys met in Washington, D.C. to share information, meet with regulators and network in the interests of their clients.  As you might imagine there was significant discussion about the impact of the decision both in the contexts of formal presentations and hallway conversations.

The decision in this case was considered by some attorneys and commentators to hold the key to the future of the Affordable Care Act (ACA).[ii]   In the King case the ACA’s premium tax credits, as applied to federally financed plans, were challenged.  The premium tax credits worked to reduce the premium amounts for nearly 90% of all persons who have purchased health insurance through the state health insurance marketplace, known as a “health insurance exchange,” which provides consumers the opportunity to compare prices and plans.

The Supreme Court’s 6-3 decision held that the premium tax credits at issue would continue to be available in the dozen or so state-sponsored exchanges as well as in the more than thirty states with federally sponsored exchanges operated by the federal government.  The Court applied familiar theories of statutory interpretation to interpret the both the meaning of the statute and the intent of Congress to make premium tax credits available to individuals enrolled in insurance plans through both state- and federally-operated exchanges.  The Court chose not to defer the interpretation to the federal agency responsible for enforcing the tax credit, the Internal Revenue Service.  This is significant because it effectively forecloses the opportunity for any future administration to alter the interpretation to restrict the premium tax credits to the state-operated exchanges.

The challengers to the ACA language argued that, read literally, the specific ACA language at issue limits premium tax credits to state-operated exchanges only.  Justice Scalia’s twenty-one page dissent was described as scathing by many of us who made presentations at AHLA last week.  Justice Scalia wrote that “[w]ords no longer have meaning if an Exchange that is not established by a State is ‘established by the State.’”[iii]  He also wrote in his dissent, “Perhaps sensing the dismal failure of its efforts to show that ’established by the State’ means ‘established by the State or the Federal Government,’ the Court tries to palm off the pertinent statutory phrase as ‘inartful drafting.’ This Court, however, has no free-floating power to ‘rescue Congress from its drafting errors.’”[iv]

Oklahoma is the site of a federal marketplace where, had the decision come down for the challengers, more than 87,000 persons would have been at risk for losing tax credits, and the state was at risk of losing over $18,000.00 in revenue, according to the Kaiser Family Foundation.[v]  The average tax credit per Oklahoma enrollee is $209.00, and, without the tax credit, there would have been an estimated 243% increase in the average premium.

At least while President Obama is still in office, the Court’s decision in King v. Burwell means that the threats to the ACA will mostly disappear.  The national uninsurance rate is likely to continue to fall because the ACA incentives—the ACA requires individuals to buy health insurance or face a penalty on their taxes and helps them afford health insurance through the premium tax credits. Fewer uninsured presumably also means health care providers will have less uncompensated care.

In the nation and in Oklahoma, we will continue, at least during this administration, generally to see a decreasing uninsured population and less uncompensated care for providers.  However, all of this is in the context of complex, increased regulation such as the proposed regulations for both Medicare and Medicaid that were indirectly and directly respectively spawned by the ACA.  The King decision, so long-awaited, appears to have deflated the opponents to the ACA for the time being.  The Court’s decision also means that the next Presidential and congressional elections may be critical to the fate of the ACA as changes now would only be placed in motion by Congress.



[i]
 576 U.S. ____  (2015), No. 14-114, slip op (June 25, 2015).

[ii] The Patient Protection and Affordable Care Act, 42 U.S.C. §18001 et seq. (2010).

[iii] 567 U.S. at ___-___ (principal opinion) (slip op. dissent, at 2.

[iv] Id. at 17.

[v] Kff.org/interactive/king-v-burwell-effects/

Who gets Grandma’s Twitter? Ownership, rights to Internet-based materials

Clay Ketter

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation including financial restructurings and bankruptcy matters.

By Clay Ketter
Guest Column in The Journal Record
Originally published Sept. 3, 2014

The amount of material we store in the so-called cloud has seen amazing growth. Be it a Web-based email account, iTunes music collection, or a blog dedicated to humorous pictures of cats, each of us has information we value that is solely accessible through the Internet.

Issues of ownership and rights to these Internet-based materials can be tricky. What happens to these rights once a person dies? In the past, family members may have wondered who would inherit the family silver. Now, issues may arise as to not only who gets Grandma’s Twitter account, but whether the account is even transferable.

Oklahoma is a pioneer as to these issues. A statute in effect since 2010 gives an executor the power to take control over social networking, blogging, instant messaging or email accounts following the owner’s death. Oklahoma’s statute, though, predates the explosion of cloud computing and leaves open issues such as how or if digital assets can be conveyed.

Delaware recently became the first state to pass comprehensive legislation aimed at addressing what happens to digital assets. House Bill 345 provides that, upon one’s death, digital assets are to be treated the same as physical assets and gives an executor broad authority to take control of and transfer them. The law applies not just to Web-based accounts, but to video, images, and other digital materials.

gravestone-failwhaleHowever, the Delaware law states that it is subject to certain provisions contained in end user license agreements. Signing up to a new digital account typically requires agreeing to a user agreement. Given the length and complexity of these agreements, it’s a fair assumption that people often agree to the terms without having read the actual agreement. If one were to read the agreement, they would find that typically they are not acquiring the actual digital asset, but instead a limited license to use the asset. For example, when you purchase a song on iTunes, you are actually buying a license.

Therefore, all you effectively end up owning is the personal right to listen to the song. Even under the Delaware statute, upon one’s death, that limited license would prevent the song from being transferred.

You may want to think twice before amending your will to leave a relative your iTunes library. That is, unless you dislike them.

EEOC and Proposed Wellness Regulations: What is means to Healthcare Providers

By Mary Holloway Richard, Attorney

shutterstock_healthcareWellness is in the news again.  Large employers have inserted wellness protocols and metrics into the workplace with great enthusiasm.  Advertisements for webinars tout the importance of clinicians and counsel getting on the wellness bandwagon, and articles on the topic appear daily in local and national newspapers.

The wellness debate continues and focuses on these issues:

  1. Financial impact
  2. High risk diseases and conditions subject to detection and prevention such as diabetes, hypertension, obesity and smoking
  3. Impact of economic status on health and ability to access to programs supporting lifestyle change (e.g., no time to attend a course or to exercise.

The Equal Employee Opportunity Commission (“EEOC”) is the federal agency charged with oversight of employer compliance with the Americans with Disability Act (“ADA”) and specifically with guiding employers in properly complying with the ADA in the context of popular wellness programs.  The ADA is, of course, statutory; supporting regulations and interpretive guidelines are issued by the agency.  While the interpretive guidelines do not have the force of law, they are regularly instructive as a window into the agency’s perspective and intent in terms of review and enforcement

Recently, the EEOC proposed a rule change in which it will reverse its own policy on whether or not employer-sponsored wellness programs discriminate against employees.  The EEOC is now saying that such programs do not necessarily discriminate against workers. The agency also indicates that such employers have yet to show the financial benefits of such programs. The EEOC’s proposed rule change would allow for employers to decrease premiums as an incentive for employees to comply with recommended health screenings and to improve their health metrics without violating federal disabilities laws.

Presented in late April, 2015, the EEOC’s  proposed wellness regulations seek to establish how such a program must be structured in order to comply with the ADA’s rule permitting disability-related inquiries and medical exams by a “voluntary health program.”[i]  The proposed regulations require:

  • A cap on an employer-incentive or penalty at 30% of the total cost of employee-only coverage under the plan. [ii] Total cost refers to employer plus employee contributions.
  • Additional requirements for employers offering a wellness program in conjunction with a group health plan, including notice to employees of the medical information to be obtained and by whom and how the information will be used and how safeguards against improper disclosure.
  • New confidentiality provisions to be applied to information obtained in wellness programs by sponsors or wellness vendor.
  • The program itself must be created in such a way as to promote health status, prevent disease and not be overly burdensome on plan participants.

This does not relieve the employers from compliance with HITECH and HIPAA and the Affordable Care Act.  In addition and importantly, employers will be faced with differing requirements by the Internal Revenue Service, the Department of Labor and the Department of Health and Human Service — the agencies responsible for implementing the Affordable Care Act. These inconsistencies may be resolved at the close of the public comment period for these new EEOC proposed regulations. The period for public comment closes on June 19, 2015.


[i] It is likely that most wellness programs will fit into this category.

[ii] The Affordable Care Act’s non-tobacco incentive is held to the same limit for wellness programs including collection of health data.  The additional cap in the proposed regulations is for the same amount for the tobacco incentive for participation-only wellness programs unless the employer does not fall within the purview of the ADA (less than 50 employees.)  The policy ramification is that the EEOC does not distinguish between a tobacco-cessation wellness program where the participants are questioned about their tobacco use from one where a nicotine test is required of them to verify tobacco use or non-use.


Mary feat img 142x177

AuthorMary Holloway Richard is recognized as one of pioneers in healthcare law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Click to see her  attorney profile.

In the face of industry uncertainty, proactively protect assets and family wealth

This article was published in OIPA Wellhead, a publication produced by Oklahoma Independent Petroleum Association and distributed to its membership.

Worried about the future? Take a proactive look at asset protection planning, family wealth preservation trusts

By Elizabeth K. Brown and Mike McDonald

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Liz Brown is a director at Phillips Murrah, P.C., where she has practiced for most of her legal career. Liz is primarily a tax and transactional lawyer with a special emphasis in the energy industry.

For those of us who lived in Oklahoma during the 1980s, it may feel a little like deja vu all over again.

While the Oklahoma economy is more diversified than it was in the 1980s, our State’s overall well-being is still tied heavily to the health of the oil and gas industry.

As a whole, our industry is much stronger and more financially sound than it was in the 1980s. But, if oil prices remain where they are now, or drop lower, difficult times may be ahead for all Oklahomans, but especially for energy producers and service companies.

Those of us who are concerned about the potential impact of this recent downturn and want to take steps to minimize any resulting financial hardship should take a serious look at asset protection planning.

Asset protection planning typically incorporates a wide range of techniques accepted under Oklahoma and bankruptcy law to shield assets from the claims of creditors.

The key to a solid asset protection plan is to establish the plan before a financial crisis is on the horizon, since transfers made with the intent to hinder, delay or defraud creditors or when the transferor is insolvent can be attacked and possibly invalidated. One of the asset protection planning tools available under Oklahoma law is the Family Wealth Preservation Trust, created under the Oklahoma Family Wealth Preservation Trust Act passed in 2004. This unique but little known Oklahoma law permits a person to transfer Oklahoma assets to a revocable “Preservation Trust” and protect those assets from claims of that person’s creditors.

To qualify as a Preservation Trust, the trust must meet the following requirements:

  • The Trust must be established by an individual (the “Grantor”);
  • The Trust must have as a trustee or co-trustee an Oklahoma bank or trust company — one that is chartered under Oklahoma law or is a nationally chartered bank or trust company that has a place of business at a physical location in Oklahoma;
  • The beneficiaries may only be certain “qualified beneficiaries” — the grantor’s spouse, the lineal ancestors and descendants of the Grantor or of the Grantor’s spouse, qualified charities and trusts for the sole benefit of qualified beneficiaries (note that the Grantor is not eligible to be a beneficiary);
  • A majority in value of the assets of the Preservation Trust must consist of “Oklahoma assets” — stocks, bonds, and ownership interests in Oklahoma-based companies, bonds issued by the state of Oklahoma or an Oklahoma governmental agency, accounts maintained with an Oklahoma-based bank, and real estate and mineral interests located in Oklahoma; and
  • The Trust Agreement must provide that the income produced by its assets is subject to Oklahoma income tax.

Until last year, there was a $1 million cap on contributions to a Preservation Trust. Effective Nov. 1, 2014, however, the Oklahoma legislature lifted the cap so that the Act now exempts all trust assets held in a Preservation Trust from attachment or execution to satisfy a judgment against the Grantor. This recent amendment eliminating the cap makes the Preservation Trust a much more attractive asset protection planning tool since now all assets in a Preservation Trust, regardless of value, are protected from claims of the Grantor’s creditors.

The most unique feature of the Preservation Trust is that the trust agreement can provide that the Preservation Trust can be revoked or amended by the Grantor at any time. This power of revocation or amendment allows the Grantor to retain ultimate control over the assets transferred to the Preservation Trust. Until the Act was passed, Oklahoma law did not allow a Grantor of a trust to set up a revocable trust and protect the assets in trust from the claims of the Grantor’s creditors. As a result, creditors could easily reach assets held in a revocable trust to satisfy their claims against the Grantor. Now, however, as long as the assets are held in the Preservation Trust, those assets are not subject to the claims of the Grantor’s creditors even though the Grantor has the power to revoke the Preservation Trust at any time.

Many energy companies that are owned and operated by Oklahoma producers are “Oklahoma-based companies” and thus suitable assets for transfer to a Preservation Trust. An Oklahoma-based company is a corporation, limited liability company, limited partnership, limited liability partnership or other legal entity formed or qualified to do business in Oklahoma that has its principal place of business in Oklahoma. The most problematic part of the Act seems to be the requirement that an Oklahoma bank or trust company serve as trustee or co-trustee of the Preservation Trust, since the fees of the corporate trustee increase the associated costs.

A typical asset protection plan for an Oklahoma oil and gas producer could, for example, involve the Grantor setting up a Preservation Trust and transferring equity interests in the Grantor’s Oklahoma-based business to the Preservation Trust. Alternatively, the Grantor could set up a new limited liability company (“Newco”) funded with Oklahoma marketable securities or deposit accounts, then transfer a part or all of the membership interests in Newco to the Preservation Trust. By doing so, the Newco membership interest owned by the Preservation Trust would be protected from the claims of the Grantor’s creditors.

If the Preservation Trust is set up in accordance with the Act (and subject to the provisions of the Uniform Fraudulent Transfer Act under which creditors, in certain instances, can attack asset transfers), any assets that are held in the Preservation Trust, including the stock or other equity interests in the Oklahoma based business, will not be subject to the claims of the Grantor’s creditors so long as a majority in value of the assets are Oklahoma assets. Even if the Preservation Trust owns some assets that are not Oklahoma assets, those assets also would still be protected as long as the majority in value of the assets in the Preservation Trust are Oklahoma assets.

In our industry, we have certainly weathered economic storms before and no doubt we will weather this one as well. While we are all hopeful that oil prices will recover in the short term, none of us have a crystal ball. Therefore, it is smart to consider taking some defensive moves now, including developing an asset protection plan possibly with a Preservation Trust. If you set up a Preservation Trust and the worst-case scenario develops, the assets in the Preservation Trust will be protected from the claims of your creditors. On the other hand, if and when the skies clear and commodity prices rebound, you can simply revoke the Preservation Trust and go back to business as usual.

Ask yourself…what do you have to lose?

About the authors:

Elizabeth K. Brown is a shareholder in the law firm of Phillips Murrah, P.C. She is also CEO of The Gloria Corporation, an independent oil producer based out of Ada, and a member of the Board of Directors of the Oklahoma Independent Petroleum Association and the National Stripper Well Association.

Mike McDonald, owner of Triad Energy in Oklahoma City, has served as chairman of the OIPA and president of the Domestic Energy Producers Alliance. He holds a juris doctor from the University of Mississippi and a master of laws degree from New York University.

 

Tort reform shows how Oklahoma product liability law evolves

This Gavel to Gavel guest column, originally published in The Journal Record on June 4, 2015, contains insights by Phillips Murrah attorney Cody Cooper concerning Oklahoma Product Liability Law. Cody Cooper contributed to “An Overview of Oklahoma Product Liability Law,” co-authored by Phillips Murrah Directors Tom Wolfe and Lyndon Whitmire for the April 2015 edition of the Oklahoma Bar Journal.
View Cody Cooper’s attorney profile here.


Cody J. Cooper is an associate attorney with Phillips Murrah whose practice is concentrated in commercial litigation, product liability, and intellectual property.

Cody J. Cooper is an attorney with Phillips Murrah whose practice is concentrated in commercial litigation, product liability, and intellectual property.

Exploding gas cans, scolding-hot coffee, misfiring rifles, popping exercise balls and sticking gas pedals. What do these things have in common? Each of these products was the center of some of the most memorable product liability lawsuits.

Since Kirkland v. General Motors, the Oklahoma Supreme Court has recognized product liability claims and the law has continued to grow and evolve.

For simplicity’s sake, law develops primarily in two ways: the Oklahoma Legislature enacts statutes and case law is developed from courts’ opinions applying those statutes.

The Oklahoma Legislature creates the statutes by which claims and parties are governed and this has an obvious, direct impact in Oklahoma product liability actions.

Oklahoma courts then interpret these statutes and apply them in product liability lawsuits. The courts’ decisions provide guiding authority on issues and allow parties to understand how laws will be applied in the future.

Both play critical roles, but can lead to conflict over how the law will ultimately operate. Such is the case currently with tort reform. In the past few years, wide-ranging legislative changes have caused conflict and consternation at the Capitol and in the courtroom.

Tort reform statutes have had widespread implications in product liability lawsuits, including caps on potential recoverable damages, providing substantial protection for product sellers, requiring plaintiffs to provide medical records, and shielding manufacturers from claims regarding inherently unsafe products.

In 2009, the Oklahoma Legislature passed House Bill 2818 (the 2009 Act), followed by a 2011 statute amending many parts of the 2009 Act. In 2013, several individual cases held tort reform unconstitutional, which led to the Oklahoma Supreme Court striking the entire act as being unconstitutional for violation of the single-subject rule that requires that laws only address a single subject – to prevent logrolling. Later that year, the Oklahoma Legislature through a special session, modified and revived many of the laws struck down by the Oklahoma Supreme Court and enacted new ones.

The clash between legislators and Oklahoma courts make it difficult for parties to understand what the future holds for product liability law in Oklahoma. The only certainty is that the law will continue to evolve.

 

 

NewsOK Q&A: Healthcare providers can use Oklahoma’s unclaimed property fund to collect on unpaid bills

From NewsOK / by Paula Burkes
Published: June 3, 2015
Click to see full story – Healthcare providers can use Oklahoma’s unclaimed property fund to collect on unpaid bills

Click to see Gretchen M. Latham’s attorney profile

Gretchen Latham, a litigator at Phillips Murrah law firm, talks about how physicians can recoup payment by making a claim to the state treasurer for unclaimed property.

Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases.

Gretchen M. Latham’s practice focuses on representing creditors in foreclosure, bankruptcy, collection and replevin cases.

Q: I understand it’s becoming increasingly difficult for healthcare providers to collect fees from patients and third-party payers for services rendered. What can they do?

A: Collection of these monies through the judicial system involves the filing of a lawsuit, and often times strict compliance with collection and privacy laws. And the time frame within which any significant collection activity takes place can be months or even years. Luckily, physicians, and nearly everyone, can make a claim with the state’s Unclaimed Property Fund to recoup funds in certain circumstances.

Q: What is unclaimed property?

A: Unclaimed property consists of obligations and liabilities for businesses which have been inactive, or have not been paid for a period of time. The funds may be in the form of a security deposit, an overpayment on an account, collateral pledged as security on a loan, payroll and wage obligations, or stocks and bonds.

Q: How does property attain unclaimed status?

A: When the rightful owner of the property fails to contact the holder of the property for a specified period of time, the property is considered unclaimed. A typical example is when an employee leaves his or her job prior to receiving the last paycheck, and there’s no forwarding address for the employer’s use in mailing final payment. Upon showing proof of ownership and making a valid claim, the state will relinquish the property to its rightful owner.

Q: How does the state come into possession of unclaimed property?

A: Holders of unclaimed property are required by law to make an annual report of the property being held. After the holder makes a diligent effort to contact the rightful owner both within and outside the state’s borders without success, the holder is then required to deliver the unclaimed property to the state treasurer.

Q: Can physicians and other providers rely on this claim process for more than clinic visit charges?

A: In the medical field, making a claim for unclaimed property can help physicians recover funds due them for a variety of reasons. Perhaps the practice has been sold and not all the funds due as part of the transaction have been paid. Although there’s no time limit on claiming the provider’s property, the sooner the claim is made, the sooner he or she will get paid.

PM attorney Mary Richard appointed vice chair of AHLA Behavioral Health Task Force

Mary Holloway Richard, Of Counsel to Phillips Murrah’s Healthcare Practice Group, has been appointed Vice Chair of the American Health Lawyers Association’s Behavioral Health Task Force.

AHLA-logo-bigRichard was formerly a co-chair of the Providers and Clinicians Committee of the Behavioral Health Task Force.

She has represented both institutional and non-institutional providers of health services, as well as patients and their families.  Her career has included work at hospitals, outpatient clinics, behavioral health facilities and rehabilitation facilities and clinics.

Richard will be participating in a panel discussion entitled “Hot Topics in Behavioral Health” at the AHLA Annual Meeting in Washington, D.C. in June, 2015.

The Behavior Health Task Force was established by the nationwide professional organization to provide education for attorneys about the legal issues that arise in the provision of services to behavioral health patients and to alcohol and drug treatment providers and patients.

Regulation focuses on financial ties between physicians and industry

Phillips Murrah healthcare attorney, Mary Holloway Richard published an article about the Sunshine Act in the May/June 2015 issue of the Oklahoma County Medical Society publication, The Bulletin.


CMS seeks to mitigate potential impact on prescribing and treatment practices

Sunshine-Act-MHRThe Physicians Payments Sunshine Act (i) (“Sunshine Act”), despite its name, currently places no direct reporting requirements on physicians. Rather, the Sunshine Act requires that certain manufacturers of prescription drugs, biologic agents, medical devices and medical supplies (“Manufacturers”) and group purchasing organizations (“GPOs”) report to Centers for Medicare and Medicaid Services (“CMS”) payments in specified amounts (ii) and other transfers of value to physicians (iii) and to teaching hospitals (iv). In addition, ownership and investment interests in applicable Manufacturers and GPOs held by physicians (and immediate family members) must be reported annually by applicable Manufacturers and GPOs. Covered payments include cash (or cash equivalent, in-kind items or services), stock (including stock options or ownership interest dividend profit or other return on investment), and other forms of payment to be determined in the future by CMS. While it is not the physician’s duty to report, the reporting requirement directly impacts physicians who receive such payments as their names appear on a list on the CMS website accessible by patients and other consumers (v).

The purpose of the Sunshine Act is to identify potential biases in physician prescribing and treatment practices, to reveal conflicts of interest for clinical researchers and educators, and to identify transactions in which payments involving potential referrals by physicians exceed fair market value. The Sunshine Act creates the Open Payments Program for the actual reporting of the financial payments and transfers of value to physicians. Currently the burden is on the Manufacturers to report payments for consulting fees, contracted services, honoraria, gifts, entertainment, food, travel, education, research, charitable contributions, royalty or license, current or prospective ownership or investment interest, grants, direct compensation for serving as faculty or speaking at a medical education program, and any other nature of payment or transfer of value as defined by the Secretary of the Department of Health and Human Services (“HHS.”) The form of the payment and the nature of the payment must be reported. See Table 1 below. Data has been collected since August, 2013, and is due to CMS by March 31 of each year. The first report was available to the public on September 30, 2014, and the 2014 report is predicted to be available on June 30, 2015 (vi).

The regulations provide for a formal dispute resolution process whereby physicians can seek to correct inaccurate information. In September, 2014, representatives of pharmaceutical and biotechnology companies and organized medicine expressed concerns about the database and its presentation of data to the public in a potentially misleading manner. CMS shut down the Open Payments system for a period of time to address these issues. On October 30, 2014, CMS announced a procedure for Manufacturers and GPOs to report information not previously accepted by the system because of data errors, and CMS extended the reporting time accordingly. CMS has provided guides for Manufacturers to use to correct records and for covered recipients to correct information submitted in compliance with the regulations (vii).

Registration with CMS to receive notifications and information submitted by Manufacturers and GPOs is voluntary. This information is now available on the CMS website, to public and regulators alike, but the website itself continues to present issues of accuracy and ease of on-line accessibility. Physicians and teaching hospital representatives have the opportunity to review and, if appropriate, dispute information reported about them in the Open Payments System (viii).

open payments graph

Source: ttps://www.cms.gov/OpenPayments/About/How-Open-Payments-Works.html

It has been necessary to resolve a number of procedural and substantive issues with the reporting requirements including initial confusion about the information that had to be reported and by whom. Example of substantive issues to be resolved may be helpful is understanding the regulatory climate. Some confusion has surrounded the CMS treatment of payments related to continuing medical education. “Direct payments” have always been included in the Sunshine Act’s reporting requirements. “Indirect payments” refers to payments by a manufacturer to a continuing education organization where the Manufacturer directs that the third party provide the payment or transfer to a covered recipient. In the October, 2014, final regulations, CMS responded to widespread criticism of its treatment of the CME by requiring reporting in 2017 payments (direct and indirect) made to continuing education organizations in 2016 as long as the speaker can be identified (ix). Further, payments to physicians for speaking at CME programs need not be reported if the following conditions are met:

  • The CME program meets accreditation/certification standards of one of the following: (1) the Accreditation Council for Continuing Medical Education; (2) the American Academy of Family Physicians ; (3) the American Dental Association’s Continuing Education Recognition Program; (4) the American Medical Association; (5) the American Osteopathic Association; and
  • The Manufacturer or GPO does not pay the speaker directly; and
  • The Manufacturer or GPO does not select the speaker or provide the third party, such as the CME vendor, with a distinct, identifiable set of individuals to be considered as speakers for the CME program (x).

Other frequent questions concern Manufacturers providing meals and other event support and sponsorships to physicians. In this context the Open Payments program is very specific–e.g., where a Manufacturer’s sales representative brings a meal to a staff meeting or a community education event for a number of persons, the cost of the meal is divided by the number of persons who actually eat the meal and this benefit is reported only if it exceeds $10.00 per person. This does not include meals eaten by support staff. Financial support of buffet meals at large-scale medical conferences is not reportable. The “User Guide” for Open Payments published by CMS is over 350 pages long and provides additional guidance to those reporting and those reviewing reports. It is accessible on-line (xi).

The Open Payments System is expected to significantly impact historic financial support of provider, patient and community education by industry. Importantly, these regulations and reporting requirements echo federal policy designed to avoid improper payments and incentives and market influence. These are the same concerns that spawned the expansion of federal antitrust, Stark and Anti-kickback law within health care.

Ms. Richard is a health care lawyer at Phillips Murrah, P.C. in Oklahoma City and was formerly in house counsel with INTEGRIS Health, Inc.


The Natures of Payment that are of Interest to CMS

Nature of payment Definition Examples
Consulting fee Payments made to physicians for advice and expertise on a particular medical product or treatment, typically provided under a written agreement and in response to a particular business need. These payments often vary depending on the experience of the physician being consulted. Example 1: Company A has developed a drug to treat patients with a particular disease and wants advice from physicians on how to design a large study to test the drug on patients. Dr. J has a large number of patients with this disease and has experience doing research on how well medicines work for this condition. Company A asks Dr. J if he would spend about 10 hours per month to work with other physicians to create a new research study. Dr. J agrees and is paid for his time.Example 2: Company C has designed a new tool for surgeons to use when they are doing heart surgery. The company pays some physicians to give the new tool a “test drive” on a computer-simulated patient at the company headquarters. The physicians are paid an hourly fee for their time testing the tool and giving advice on how to make it work better. They are also paid for flights, hotel rooms and meals.
Compensation for services other than consulting, including serving as faculty or as a speaker at an event other than a continuing education program. Payments made to physicians for speaking, training, and education engagements that are not for continuing education. A physician who frequently prescribes a particular drug is invited by the company that makes that drug to talk about the medicine to other physicians at a local restaurant.  The physician is paid for preparation time as well as the time spent giving the talk.
Honoraria Similar to consulting fees, but generally reserved for a one-time, short duration activity. Also distinguishable in that they are generally provided for services which custom prohibits a price from being set. A medical device manufacturer representative goes to a medical meeting and asks some physicians there for an hour of their time to talk about features they would like to see to improve a particular device. This representative pays each physician a one-time honorarium.

Footnotes:

(i) The Physician Payment Sunshine Act is Section 6002 of the Patient Protection and Affordable Care Act, 42 U.S.C.§18001. The regulations can be found at: http://www.cms.gov/OpenPayments/Downloads/Affordable-Care-Act-Section-6002-Final-Rule.pdf.

(ii) There are specific reporting thresholds for applicable manufacturers and GPOs. The Open Payments reporting thresholds are adjusted based on the consumer price index. This means that for 2015 (January 1 – December 31), if a payment or other transfer of value is less than $10.21 ($10.00 for 2013, $10.18 for 2014), unless the aggregate amount transferred to, requested by, or designated on behalf of a physician or teaching hospital exceeds $102.07 in a calendar year ($100.00 for 2013, $101.75 for 2014), it is excluded from the reporting requirements under Open Payments. http://www.cms.gov/OpenPayments/Program-Participants/Applicable-Manufacturers-and-GPOs/Data-Collection.html.

(iii) This law applies to physicians and other providers, but, for the purposes of this article, we will only reference physicians. The other providers as defined in Section 1861(r) of the Social Security Act to whom this law applies include medical and osteopathic physicians, dentists, podiatrists, optometrists and chiropractors. Providers exempted include medical and osteopathic residents, physician assistants, nurse practitioners and allied health practitioners. However, in some circumstances, payments to these types of providers may be imputed to physicians, thereby triggering the Manufacturers’ obligations to report payments.

(iv) Manufacturers and GPOs may also be referred to in this paper as “covered recipients.”

(v) https://openpaymentsdata.cms.gov/.

(vi) http://www.cms.gov/OpenPayments/About/Resources.html

(vii) The American Medical Association offers a toolkit for physicians to use in reviewing and dispute reports at: http://www.ama-assn.org/ama/pub/advocacy/topics/sunshine-act-and-physician-financial-transparency-reports/sunshine-act-toolkit.page?

(viii) See Flow Chart 1 in content.

(ix) 42 C.F.R. §403.902.

(x) 42 C.F.R. §403.904(g).

(xi) www.cms.gov/Regulations-and-Guidance/Legislation/National-Physician-Payment-Transparenct-Program/Download/Open-Payments-User-Guide-%5BJuly-2014%5D.pdf.

An Overview of Oklahoma Product Liability Law

This scholarly article contains updated material concerning Oklahoma Product Liability Law. Phillips Murrah President and Director, Tom Wolfe co-authored the original article with former colleague, Chris Pearson, who is now a partner at the Law Firm of Germer, Beaman & Brown in Austin.

The first update, which garnered a 2003 Maurice Merrill Golden Quill Award from the Oklahoma Bar Association, featured Phillips Murrah Litigation Practice Group Leader and Director, Lyndon Whitmire and Ruth Anderson Gates, who is now senior in-house counsel at Nissan North America Inc.

The article, now in its second update, includes contributions from Phillips Murrah Associate Attorney, Cody Cooper.

This article was originally published in the Oklahoma Bar Journal.

By Chris Pearson, Thomas G. Wolfe, Lyndon Whitmire and Cody J. Cooper


shutterstock_liability sign web

Any discussion of Oklahoma product liability law must start where Oklahoma product liability law started, with the Oklahoma Supreme Court’s 1974 opinion in Kirkland v. General Motors Corp. 1 In Kirkland, the plaintiff was driving her friend’s new Buick Opel on Interstate 44 in Tulsa County.2 It was alleged that the driver’s seat back suddenly collapsed, leaving her unable to control the car. As a result, her vehicle hit the highway median and then struck an oncoming vehicle head-on.3 Approximately one month after the accident, General Motors (GM) issued a recall letter to all owners of Buick Opels concerning the “seat back adjustment mechanism.”4

The plaintiff’s pleadings alleged that her injuries were proximately caused by a defective seat and GM’s breach of the implied warranty of fitness.5 During the trial, GM contended that the seat was not defective and that the accident was caused by the plaintiff driving while intoxicated and at excessive speeds, which GM claimed constituted a misuse of the product. Plaintiff appealed after the jury returned a verdict for GM.6

As Justice Doolin predicted in Kirkland, that case “set the pattern” in Oklahoma for product liability litigation. Some 40 years later, most Oklahoma federal and state court product liability opinions cite Kirkland at least once and it remains the leading case on various product liability issues. This article (an update on two previous iterations) discusses the developments in Oklahoma product liability law since the issuance of the Kirkland opinion.

WHO MAY BE A PLAINTIFF?

In Moss v. Polyco Inc.,7 an opinion rendered on the same day as Kirkland, the court dis cussed the reach of the product liability cause of action. In Moss, the plaintiff, a customer in a restaurant, was injured when a plastic container of drain cleaner fell from a bathroom shelf, causing the contents to come in contact with the plaintiff’s body.8 The court noted there was no adequate rationale or theoretical explanation why nonusers and nonconsumers should be denied recovery against the manufacturer of a defective product, and thus expressly included bystanders in the class of potential plaintiffs.9 In so doing, the court agreed that the manufacturer who places into commerce a product rendered dangerous to life or limb by reason of some defect is strictly liable in tort to the one who sustains injury because of the defective condition.10 More than two decades later, Oklahoma extended the right of recovery to bystanders who: 1) are directly physically involved in an incident; 2) are injured from viewing the injury to another as opposed to learning of it later; and 3) had a familial relationship to the injured party.11

In a product liability cause of action involving death, the determination as to who may be a plaintiff is governed by statute.12

A significant restriction on the ability of an injured party to pursue a product liability cause of action may arise in “failure to warn” cases.13 The duty to warn extends to an ordinary consumer or user, which has been defined as “one who would foreseeably be expected to purchase the product involved.”14 In Rohrbaugh v. OwensCorning Fiberglass Inc., 15 the court found that the wife of an insulator, whose only exposure to the asbestos insulation was her exposure to her husband’s clothes, was not a foreseeable purchaser or user of the product. Thus, the court reasoned, the manufacturer had no duty to warn the wife of the danger of exposure to its products.16

WHO MAY BE A DEFENDANT?

Expanding on its use of the term “manufacturers’ product liability,” the Kirkland court included, within the meaning of “manufacturers,” all “processors, assemblers, and all other persons who are similarly situated in processing and distribution.”17 Later opinions have recognized that product liability causes of action may be brought against a product retailer18 as well as a commercial lessor,19 and, in the proper situation, a product liability action may be available against the supplier of a component part.20 In short, Oklahoma courts have recognized that a product liability cause of action may properly be stated against those engaged in the business of buying and selling products who inject a defective product into the stream of commerce, whether through sale or other means.21 However, all defendants in the chain of distribution are not automatically liable for a defective product. Responsibility for the defect must be traced to the proper defendants.22 Additionally, a bailor may not be held liable under a product liability theory where the bailor maintains control of the product, and thus, does not inject it into the stream of commerce.23

Notwithstanding the breadth of Kirkland and its progeny, it is incumbent upon the plaintiff, even in a strict liability case, to establish a causal link between the defendant’s acts and/or omissions and the plaintiff’s injuries and damages. As the Oklahoma Supreme Court noted in Case v. Fiberboard Corp.,24 the public policy favoring recovery by an innocent plaintiff does not justify the abrogation of the defendant’s right to have “a causative link proven between the defendant’s specific tortious acts and the plaintiff’s injuries where there is a lack of circumstances, which would insure there was a significant probability that those acts were related to the injury.”25 In Case, the court refused to apply the market share liability, alternative liability, concert of action and enterprise liability theories that allow a plaintiff to circumvent the “significant probability” standard.26

It is clear that a product liability cause of action may not be brought against an ultimate consumer of the product in question. In Potter v. Paccar Co.,27 the court stated that the product liability theory was not “so expansive that it permits an injured party to require everyone to defend his or her relationship to the defective product.”28 The court thus granted a motion to dismiss filed by the owner of a battery that exploded and caused the plaintiff to lose sight in his right eye. In Allenberg v. Bentley Hedges Travel Serv. Inc., 29 the court held that product liability theory does not apply to the commercial seller of a used product if the alleged defect was not created by the seller, and if the product was sold in essentially the same condition as when it was obtained for resale.30 Likewise, a parent company that sold used equipment to a related entity whose employees were later injured using that same equipment was not considered a “seller” for purposes of product liability.31 The court defined a “commercial seller” as a seller who is in the business of selling used goods.32

Like courts in numerous other jurisdictions, the Oklahoma Supreme Court has held that a successor corporation may be liable on a product liability theory for injuries caused by the products manufactured or distributed by the acquired entity. In Pullis v. United States Electrical Tool Co.,33 the court stated that as a general rule, where one company sells or otherwise transfers all its assets to another company, the latter is not liable for the debts and liabilities of the transferor. However, exceptions to the rule exist where there is an agreement to assume such debts or liabilities, where the circumstances surrounding the transaction warrant a finding that there was a consolidation or merger of the corporations, and where the purchasing corporation was a mere continuation of the selling company.34

Similarly, the Oklahoma Supreme Court has held that a claimant, injured by a defective product after the dissolution of the manufacturing corporation, may, under the proper facts, seek recovery against the former shareholders of the corporation to the extent of the assets received by them.35

WHAT ARE THE BASIC ELEMENTS IN A PRODUCT LIABILITY ACTION?

In Kirkland, the court noted that the plaintiff must prove three elements to prevail in a product liability action:

Plaintiff must prove the product was the cause of the injury; the mere possibility that it might have caused the injury is not enough.

Plaintiff must prove that the defect existed in the product, if the action is against the manufacturer, at the time the product left the manufacturer’s possession and control. [Citation omitted.] If the action is against the retailer or supplier of the article, the plaintiff must prove the article was defective at the time of sale for public use or consumption or at the time it left the retailer’s possession and control.

Plaintiff must prove that the defect made the article unreasonably dangerous to him or his property as the term “unreasonably dangerous is … defined.”36

Early post Kirkland cases have, in reviewing the elements that the plaintiff must establish to prevail in a product liability case, either restated or rephrased the above quoted passage from the Kirkland decision.37 However, more recent decisions have essentially added a “fourth element” requiring the plaintiff to establish personal injury or damage to property other than the allegedly defective product.38

Causation. The causation requirement, the same requirement that has existed in traditional negligence actions, has frequently been cited as a necessary element in the product liability plaintiff’s case.39 At least one court has refused to apply the doctrine of res ipsa loquitur in an Oklahoma product liability case, but the plaintiff need not exclude all other possible conclusions.40 Additionally, at least one court has held that the “but for” theory of causation is illustrative of negligent conduct, but is inapplicable in proving products liability actions.41

The abnormal use or misuse of a product may serve as a complete defense to the product liability action to the extent that the abnormal use or misuse defeats the causation requirement.42 Where it is established that a subsequent modification of the product, rather than a manufacturing or design defect in the product, is the intervening and superseding cause of the injury (as opposed to the concurrent cause), no cause of action exists against the manufacturer.43 Similarly, the plaintiff’s recovery may be barred by a finding that the injuries and damages were caused solely by someone other than the named defendant.44

Under the current Oklahoma product liability causation standard, “[a] manufacturer’s products liability plaintiff need not exclude all other possible conclusions. However, the mere possibility that a defect caused the injury is not sufficient.”45 Additionally, Oklahoma courts have rejected the theories of “alternative liability,”46 “market share liability”47 and other “nonidentification theories.”48

The causation requirement does, however, become somewhat distorted in a situation where a distributor of a defective product is named as a defendant in a product liability action. In such a case, as the court noted in Braden v. Hendricks,49 “it is immaterial to the plaintiff’s case that the defect in the product was not caused by the distributor.”50 As noted previously, the liability of the manufacturer and distributor is coextensive even though the distributor was in no way responsible for the presence of the defect.51

Existence of a Defect. Central to the plaintiff’s case in a product liability action is proof that a defect existed in the product either at the time the product left the manufacturer’s control52 (where the defendant is the manufacturer) or at the time the product was sold for use to the general public.53 As the court noted in Mayberry v. Akron Rubber Mach. Co., 54 a product may be defective because of: 1) manufacturing defects;55 2) supplier flaws;56 3) design defects;57 or 4) a failure to supply proper warnings to the product’s dangers.58

It is generally recognized that in most product liability cases the existence of a defect must be proved by expert testimony.59 In 2004, the Oklahoma Supreme Court adopted the standards set forth in Daubert v. Merrell Dow Pharm. Inc. 60 and Kumho Tire Co. v. Carmichael61 for civil cases.62 Hence, when faced with a proffer of expert scientific or engineering testimony, an Oklahoma trial court, acting as the gatekeeper, will determine at the outset whether the reasoning or methodology underlying the testimony rests upon a reliable foundation.63 Moreover, the trial court must also determine whether an expert’s testimony is “relevant to the task at hand.” That is, the testimony must not only be relevant, but it must “fit” the facts of the case.64 It should be noted that the 10th Circuit held that a district court may reject as untimely a Daubert motion raised late in the trial process, stating: “counsel should not ‘sandbag’ Daubert concerns until the close of an opponent’s case, thereby placing opposing counsel and the trial court at a severe disadvantage.”65 Appellate review of a trial court’s decision, with respect to the admission of expert scientific testimony, is made under the abuse of discretion standard.66

Unreasonably Dangerous Defect. The mere proof of a defect does not, per se, when coupled with the causation element, establish a product liability cause of action. Rather, as the court noted in Kirkland, the defect alleged and proven must render the product “unreasonably dangerous.” The Kirkland court, adopting the standard set forth in Section 402A (comment G) of Restatement (Second) of Torts, defined “unreasonably dangerous” as follows: “the article sold must be dangerous to an extent beyond that which would be contemplated by the ordinary consumer who purchases it, with the ordinary knowledge common to the community as to its characteristics.”67 This definition of the term has been adopted in subsequent decisions.68 The analysis of whether a product is unreasonably dangerous focuses on the time of manufacture, not on the present day standards.69

The importance of properly stating the “unreasonably dangerous” element was emphasized in Lamke v. Futorian Corp. 70 In that case, the Oklahoma Supreme Court affirmed the trial court’s dismissal of the plaintiff’s product liability cause of action be-cause the plaintiff had not sufficiently alleged that the products involved were more likely than would be expected by the ordinary consumer to cause the damages alleged. The court emphasized that a manufacturer may not be held responsible merely because its product is not as safe as other similar products. Rather, it must be shown that the product is less safe than expected by the ordinary consumer.71

Harm to Something Other Than The Product. In Waggoner v. Town & Country Mobile Homes Inc.,72 the Oklahoma Supreme Court addressed the issue of whether a plaintiff can pursue a product liability cause of action when there is only economic loss. The court reasoned that there is no need to extend the product liability theory into an area occupied by the Uniform Commercial Code and held that “no action lies in product liability for injury only to the product itself resulting in purely economic loss.”73 If, however, there is personal injury or damage to other property that resulted from the product defect, the plaintiff may recover damages for the personal injury and/or the other property loss, as well as for the damage to the product.74

Limitation on Implied Warranty Claims. Oklahoma Courts uniformly recognize that Kirkland “renders it unnecessary in a products liability action to consider a recovery based on implied warranty.”75 After Kirkland, the only possible recovery based upon “implied warranty” is under a Uniform Commercial Code violation when the same has been properly pleaded.76

WHAT IS THE APPLICABLE STATUTE OF LIMITATIONS?

The Kirkland court noted that an action based on product liability is an action for injury to personal property or for injury to the rights of another, and thus concluded the two-year statute of limitations generally applicable in Oklahoma for tortious conduct would also apply in product liability cases.77 The plaintiff may “extend” the limitations period by one year by filing, then dismissing, the action without prejudice.78 In Ross v. Kelsey Hayes Inc.,79 the court held that this applies so long as the initial action is filed before the limitation period expires. The defendant need not be served in order to activate the one year “extension.”80

Oklahoma courts have applied the discovery rule in those product liability actions in which particular hardships, or other circumstances, justify different accrual rules.81 In Daugherty v. Farmers Cooperative Ass’n, 82 the Oklahoma Supreme Court held that acquisition of sufficient information, which if pursued, would lead to the true condition of things, would start the running of the statute of limitations.83

In Huff v. Fiberboard Corp.,84 the 10th Circuit held that the statute allowing a personal representative two years from the date of the death of the injured party85 to bring an action does not serve to extend the time to sue if the deceased, on the date of his death, had no cause of action against the manufacturer for the injuries which caused his death. Thus, where the decedent knew, or reasonably should have known, more than two years prior to his death that he had the condition for which the action is ultimately brought, and the defendant caused it, the action is time barred.86

Recognition of the discovery rule in product liability actions has raised the question of whether Oklahoma’s statute of repose87 applies in product liability actions. Early indications from the Oklahoma Supreme Court were that it did apply to manufacturers.88 In Ball v. Harnischfeger Corp., 89 the Oklahoma Supreme Court held that the statute of repose might bar a product liability claim if the manufacturer was acting as a designer, planner, construction supervisor or observer, or constructor of an improvement to real property. Similarly, in O’Dell v. Lamb – Grays Harbor Co.,90 the court held that a product liability claim involving an allegedly defective conveyor was barred because the conveyor was an “improvement to real property” and the case was filed more than ten years after the conveyor was installed.91

WHAT DEFENSES ARE AVAILABLE?

The Kirkland court noted three defenses available to the product liability defendant: lack of causation, abnormal use and assumption of risk.92 Subsequent courts have continually reviewed the availability of these, as well as other defenses.93

Lack of Causation. If some act of the plaintiff caused the injury, rather than the product itself, the plaintiff may not recover. Thus, abnormal use,94 subsequent modification,95 or events, acts or omissions over which the defendant had no control may serve to defeat the causation requirement.

Abnormal Use or Misuse. The leading case on the issue of what constitutes an abnormal use or misuse of a product is Fields v. Volkswagen of America Inc. 96 In Fields, the Oklahoma Supreme Court significantly restricted the applicability of the abnormal use defense. The court noted that the defense of misuse or abnormal use of a product refers to cases where the method of using a product is not that which the maker intended or is a use that could not reasonably be anticipated by a manufacturer. As the court noted, a distinction must be made between use for an abnormal purpose and use for a proper purpose but in a careless manner (contributory negligence).97 The court, however, emphasized the latter element of foreseeability, stating that “to determine wheth er the use of a product is abnormal, we must ask whether it was reasonably foreseeable by the manufacturer. A manufacturer is not liable for injuries resulting from such use if it is not foreseeable.”98 Thus, the Fields court characterized the plaintiff’s alleged drinking and speeding as a “use for a proper purpose, but in a careless manner” and noted that such “contributory negligence” was not a defense unless it caused the accident.98

Subsequent cases have acknowledged the existence of the abnormal use or misuse defense in product liability cases under the proper factual circumstances.100 Oklahoma has expanded the scope of admissible evidence for product liability actions concerning motor vehicles and seat belts by requiring submission of evidence of the nonuse of a seat belt, unless the individual is under the age of 16.101

Comparative Negligence or Fault. In Kirkland, the court held that the Oklahoma comparative negligence statute102 did not apply in product liability actions, and therefore, the plaintiff’s contributory negligence or fault is a defense only where it reaches the point where it was the cause of the injury alleged.103 Despite a growing trend in other jurisdictions, subsequent Oklahoma decisions have consistently held that the plaintiff’s negligence is not used to reduce the plaintiff’s recovery in a product liability action.104

Assumption of Risk. Voluntary assumption of a risk is a complete defense to strict product liability under Oklahoma law.105 But, general knowledge of a risk is insufficient to bar recovery.106 Rather, the defendant must establish a “voluntary assumption of a known risk created by a defect which existed in a product at the time it left the manufacturer.”107 In Smith v. FMC Corp.,108 the 10th Circuit stated the parameters of this defense, finding error in giving an assumption of risk instruction “in the absence of direct or credible and sufficient circumstantial evidence that the [defendant was] aware of the danger and voluntarily assumed the risk.”109 It is not, however, necessary that the plaintiff have “specific, technical knowledge of the cause of the product’s dangerous, defective condition.”110 Rather, the plaintiff’s general knowledge of the defective condition is sufficient to create a jury question on assumption of risk.111

Lapse of Time/Extended Use. Although the existence of a significant lapse of time between the manufacture of the product and injury is not a defense that can conclusively refute contentions that a product was defective, Oklahoma courts have found such evidence to be persuasive. In Hawkins v. Larrance Tank Corp.,112 the court noted that while the existence of a significant lapse of time between the sale of the product and the accident was a “damaging fact — one which frequently prevents any inference that the product was defective when sold … it does not preclude a finding of defectiveness at the time of sale.”113 Similarly, the extensive use of the allegedly defective product between its manufacture and the date of the injury, though not an absolute defense, has been held to be persuasive evidence as to the existence or nonexistence of a defect at the time the product left the manufacturer’s control.114 Thus, the fact that an aircraft engine operated satisfactorily for 538 flying hours after its sale,115 that bolts were in use three years prior to the date of an injury,116 or that a vehicle was driven 19,500 miles before an accident,117 has been held admissible to refute allegations that the product was defective at the time it left the possession and control of the defendant.

State of the Art. “State of the art,” as used in product liability actions, is construed by Oklahoma courts to mean simply the custom and practice in an industry. Compliance with such standards does not constitute an absolute defense to product liability actions,118 nor does compliance with a federal safety standard, in and of itself, establish a product is not defectively designed.118 However, as the court noted in Bruce v. Martin-Marietta Corp.,120 state of the art evidence is helpful in determining the expectation of the ordinary consumer, and thus, is relevant in determining whether a particular product is defective.121 Furthermore, state of the art evidence may be considered relevant to whether the manufacturer is, or should be, aware of various dangers associated with the product.122

Substantial Change in the Product.123 Oklahoma cases have adopted the Restatement (Second) of Torts §402A(1)(b), which imposes liability only when the product “is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.”124 Most decisions have stated that the plaintiff must establish a defect existed in the product at the time it left the control of the manufacturer.125 In Saupitty v. Yazoo Mfg.,126 however, the court noted that while the general rule is that a manufacturer is not liable when an unforeseeable subsequent modification alone causes the plaintiff’s injury, the manufacturer may be held liable where the subsequent modification was foreseeable.127

Learned Intermediary. Oklahoma courts have recognized that the duty to warn may be abated or lessened in cases where the user is not an “ordinary consumer” but is someone who does, or reasonably should, possess special skills or knowledge regarding the safe use of the product.128 The Oklahoma Supreme Court held in Duane v. Oklahoma Gas & Electric Co.,129 where a product is used in an industrial setting by one supposedly skilled at his job, a manufacturer has “no duty to warn of dangers inherent in the task or which are created by the oversight or negligence of the contractor or fellow employees.”130 In Hutchins v. Silicone Specialties Inc.,131 the court distinguished between products marketed toward the ordinary consumer and those distributed to professionals and reasoned that a product that might be unreasonably dangerous in the hands of a home handyman may not be defective when used at a commercial work site by professionals.132

Similarly, a drug or medical device manufacturer may, in most cases, warn the physician, rather than the patient/consumer, of dangers associated with the product.133 This creates the ability, in the proper factual scenario, to argue that the duty to warn is abrogated, or at least delegated, to the knowledgeable purchaser.134 In a failure to warn case with a learned intermediary, the plaintiff is entitled to a rebuttable presumption that the learned intermediary will heed any warnings given.135 However, the assumption is that the intermediary will heed the warnings, not that the warnings will ultimately be passed on to the patient. The defendant can rebut this presumption by “establishing that although the prescribing physician would have read and heeded the warning . . . this would not have changed the prescribing physician’s course of treatment.”136 The learned intermediary standard is a subjective standard that looks at what that particular physician would determine, not what an objective physician would determine.137

Obvious Defect. In the context of a duty to warn case, whether in negligence or product liability, the duty to warn exists only when those to whom the warning is to be communicated can reasonably be perceived to be ignorant of the dangers disclosed in a warning. That is, if the dangers or potential dangers are known, or should reasonably be known to the user, no duty to warn exists.138

Unavoidably Unsafe Product.139 In Tansy v. Dacomed Corp.,140 the court recognized the principles of comment K of the Restatement (Second) of Torts, Section 402A. Under these principles, some products that otherwise create a significant risk, but have great utility, may be deemed “unavoidably unsafe.” Comment K serves as an affirmative defense where the product is incapable of being made safe under present technology, but the social need for the product warrants its production.141 The defense is available only when the product is properly manufactured and contains adequate warnings.142 With Oklahoma Tort Reform discussed below, this defense has since been codified into Oklahoma law.143

Government Contractor Defense. This defense, originally articulated by the United States Supreme Court in Boyle v. United Technologies Corp.,144 provides product manufacturers with insulation from tort liability under state law for injuries allegedly caused by equipment manufactured according to specifications dictated by the military. The elements of the government contractor defense are as follows: 1) the United States approved reasonably precise specifications; 2) the equipment conformed to those specifications; and 3) the supplier warned the United States about the dangers and the use of the equipment that were known to the supplier but not to the United States. In Andrew v. Unisys Corp.,145 Judge Russell, noting a split of authority concerning whether the government contractor defense applied to nonmilitary contracts, found that a manufacturer of a nonmilitary product is entitled to assert the government contractor defense so long as it meets the threshold test established in Boyle. 146

Preemption. Oklahoma product liability claims against products that are subject to federal regulations may be barred by preemption. In Riegel v. Medtronic, 147 the United States Supreme Court held that “state requirements are preempted under the MDA only to the extent that they are ‘different from, or in addition to’ the requirements imposed by federal law.”148 Each product will be subject to a case-by-case analysis that will consider whether the federal regulations applicable to the product simply set a minimum standard or are meant to govern the field of the product at issue.149 Where federal law is intended to govern the entire field of the product at issue, the claim will be preempted. However, where the federal statutes and regulations merely set a minimum standard for products (such as automobile standards), compliance with those statutes is not an absolute defense to liability.150 While claims against medical devices approved under the Medical Devices Act may be preempted, the Supreme Court has not taken the same stance for warnings on prescription pill containers.151 In reviewing the preemption arguments of the parties related to the adequacy of a warning placed on a pharmaceutical drug, the Supreme Court opined, “it has remained a central premise of federal drug regulation that the manufacturer bears responsibility for the content of its label at all times. It is charged both with crafting an adequate label and with ensuring that its warnings remain adequate as long as the drug is on the market.”152 The court held, “[w]e conclude that it is not impossible for Wyeth to comply with its state and federal law obligations and that [the] common law claims do not stand as an obstacle to the accomplishment of Congress’ purposes.”153 Ultimately, as demonstrated by the cited case law, preemption will be both on a product-by-product basis as well as a case-by-case basis.

On May 2, 2014, the Oklahoma Legislature enacted a law that creates a “rebuttable presumption that [a] product manufacturer or seller is not liable for any injury to a claimant” caused by a product that is subject to federal or agency safety standards or regulations so long as the product manufacturer can show that it “complied with or exceeded” those standards.154 This same rebuttable presumption applies where a manufacturer can show by a preponderance of the evidence that the product was subject to “premarket licensing or approval by the federal government, or an agency of the federal government.”155 The statute explicitly states that the protection does not extend to manufacturing defects regardless of compliance with federal standards or premarket approval.156 This statute essentially codifies the preemption rulings addressed above.

WHAT DAMAGES ARE RECOVERABLE?

The Kirkland decision was considered by the court as an appeal from a defendant’s verdict and it did not address the issue of what damages are recoverable in a product liability action.

Compensatory Damages. Oklahoma courts have generally, without discussion, followed the general tort principle that one injured by the wrongful act or omission of another is entitled to fair and just compensation commensurate with the loss or damage sustained.157 Damages may be recovered for personal injuries arising out of a product liability action by an adult,158 a minor child,159 the parent or guardian of a minor child,160 and a spouse of an injured plaintiff.161 Damages caused by a product failure are also recoverable in a wrongful death action.162 The proper plaintiffs to a wrongful death action are determined by Oklahoma wrongful death and probate statutes.163 A survival action may be brought by the personal representative of the decedent.164

Punitive Damages.165 In Thiry v. Armstrong World Industries, 166 the Oklahoma Supreme Court held that plaintiffs may allege and prove exemplary or punitive damages as an element of damage in a product liability action. The court, reasoning that such awards were authorized by Oklahoma statute,167 stated that “punitive damages may be assessed against the manufacturer of a product injuring the plaintiff if the injury is attributable to conduct that reflects a reckless disregard for the public safety.”168 “Reckless disregard” for public safety is shown when the evidence indicates: 1) the defendant was aware of the defect and the likelihood that the injury would result from it; 2) the defendant could either remedy the defect or prevent the injury caused by it; and 3) notwithstanding the above, the defendant deliberately failed to take action to remedy the defect or prevent the injury.169 Under the applicable Oklahoma statute,170 a jury in an action for the breach of an obligation not arising from contract may award punitive damages for the sake of example and by way of punishing the defendant. Under Oklahoma law, awarding punitive damages is a two-stage process.171 In order to award punitive damages, the jury must first make a determination that there is clear and convincing evidence that the defendant is guilty of conduct evincing reckless disregard for the rights of others or the defendant acted intentionally and with malice.172 In Moore v. Subaru of America, 173 the 10th Circuit held that absent presentation of such evidence, the court may properly refuse to instruct on the issue of punitive damages.

TORT REFORM, NEW OKLAHOMA PRODUCT LIABILITY LAWS AND THE EFFECT ON PRODUCT LIABILITY ACTIONS

In 2009, the Oklahoma Legislature passed “tort reform” legislation by enacting a number of laws vastly changing the landscape of tort law in Oklahoma. The original Oklahoma “Tort Reform Act” was passed in 2009, but was subsequently followed by a 2011 statute amending many parts of the 2009 act. Several of these provisions have a direct impact on Oklahoma product liability actions. These provisions include capping noneconomic damages in cases of bodily injury to $350,000 (this does not apply to wrongful death actions or Governmental Tort Claims and there are other limitations),174 doing away with joint and several liability,175 no longer allowing a separate tort action for breaching the UCC duty of good faith,176 providing immunity against product liability actions for manufacturers and distributors for products that are inherently unsafe and known to be unsafe by an ordinary consumer (creates an affirmative defense that must be pled like any other affirmative defense),177 and requiring plaintiffs claiming physical or mental injuries to provide the defendants with releases for medical records, employment records and scholastic records.178 These statutes were enforceable law until the Oklahoma Supreme Court addressed them in two separate opinions.

In 2013, the Oklahoma Supreme Court struck down the 2009 Oklahoma Tort Reform Bill, H.B. 2818, as being unconstitutional. See generally Douglas v. Cox Retirement Props., 2013 OK 37, 302 P.3d 789 (striking down H.B. 2818 for violating the “single subject” rule); see also Wall v. Marouk, 2013 OK 36, ¶27, 302 P.3d 775, 787 (finding that requiring an “affidavit of merit” for professional negligence cases “creates a monetary barrier to access the court system, and then applies that barrier only to a specific subclass of potential tort victims”). In response to Douglas v. Cox and Wall v. Marouk, the Oklahoma Legislature, through a September 2013 special session, revived essentially all of the laws struck down by the Oklahoma Supreme Court, including the notorious “affidavit of merit” in cases where “plaintiffs shall be required to present the testimony of an expert witness to establish breach of the relevant standard of care . . . .”179 The special session laws, coupled with the Oklahoma Supreme Court rulings, leave Oklahoma attorneys attempting to look at the tea leaves to determine the future of Oklahoma tort law.

In addition to Oklahoma’s tort reform statutes, the Oklahoma Legislature enacted legislation on May 2, 2014, providing greater protection to product sellers. The legislation expressly states that “[n]o product liability action may be asserted against a product seller other than a manufacturer unless . . .” the statute then sets forth six separate bases upon which a plaintiff can establish to bring a claim against a product seller.180 These include showing that the seller had “substantial control” over the product design, testing or manufacturing,181 demonstrating that the seller altered or modified the product and that alteration or modification was a “substantial factor” in causing harm to the plaintiff,182 bringing a claim against the seller where after a good faith exercise of due diligence, the plaintiff is unable to locate the manufacturer,183 asserting a claim against a seller is limited in its discovery to information related to these bases,184 and a seller is only liable to a plaintiff for negligence if the plaintiff can establish the following: the seller actually sold the product involved, the seller did not exercise reasonable care in assembling, maintaining, inspecting, and passing on the warnings and instructions, and the seller’s failure to exercise reasonable care was the proximate cause of the plaintiff’s injuries.185 Because this statute did not become effective until Nov. 1, 2014,186 Oklahoma courts have not yet applied it to product liability actions. Although this statute has not yet been applied, it is clear the statute will have a substantial impact on plaintiffs’ product liability claims against product sellers by affording sellers stronger defenses against product liability actions.

FOOTNOTES

  1. 1974 OK 52, 521 P.2d 1353.
  2. Kirkland, 521 P.2d at 1356.
  3. Id.
  4. Id.
  5. Id. at 1357.
  6. Id.
  7. 1974 OK 53, 522 P.2d 622.
  8. Id. at 624.
  9. Id. at 626.
  10. Id.
  11. Kraszewski v. Baptist Medical Ctr. of Okla. Inc., 1996 OK 141, 916 P.2d 241.
  12. See Okla. Stat. Title 12, §§1051-55.
  13. See McKee v. Moore, 1982 OK 71, 648 P.2d 21, 23.
  14. Woods v. Fruehauf Trailer Corp., 1988 OK 105, 765 P.2d 770, 774.
  15. 965 F.2d 844 (10th Cir. 1992), aff’d following remand, 53 F.3d 1181 (10th Cir. 1995).
  16. Id. at 846.
  17. Kirkland, 521 P.2d at 1361. The same test was later restated by the court in Fields v. Volkswagen of America Inc., 1976 OK 106, 555 P.2d 48, 53.
  18. Robinson v. Volkswagen of America Inc., 803 F.2d 572, 574-75 (10th Cir. 1986); Braden v. Hendricks, 1985 OK 14, 695 P.2d 1343, 1350; Moss v. Polyco Inc., 1974 OK 53, 522 P.2d 622, 626. The liability of the manufacturer and distributor/retailer is coextensive, even though the latter is not responsible for the presence of the defect. Braden, 695 P.2d at 1350. Where the defect is attributable solely to the manufacturing process, the distributor/retailer may seek indemnification from the manufacturer. Shuman v. Lavern Farmers Cooperative, 1991 OK CIV APP 2, 809 P.2d 76, 77-78; Friend v. Eaton Corp., 1989 OK CIV APP 74, 787 P.2d 474, 476-77; Braden, 695 P.2d at 1349. Conversely, a verdict for the manufacturer in such a case absolves the distributor/retailer from liability on a product liability theory.
  19. Dewberry v. La Follette, 1979 OK 113, 598 P.2d 241, 242 (action available against commercial lessors of a mobile home that supplied allegedly defective steps); Coleman v. Hertz Corp., 1975 OK CIV APP 5, 534 P.2d 940, 945 (action available against company that leased truck to plaintiff).
  20. This is implicit in the decision of Mayberry v. Akron Rubber Mach. Corp., 483 F.Supp. 407 (N.D. Okla. 1979); c.f., Scott v. Thunderbird Indus. Inc., 1982 OK CIV APP 31, 651 P.2d 1346, 1349.
  21. Kating v. ONEOK Inc., 1997 OK CIV APP 88, 953 P.2d 66, 68; Dewberry v. La Follette, 1979 OK 113, 598 P.2d 241, 242. A hospital has been held to be primarily in the business of rendering health care, not selling implants, and thus was not a member of the manufacturer’s marketing chain. Van Downum v. Synthes, 908 F. Supp. 2d 1179 (N.D. Okla. 2012). For additional information, see infra “Tort Reform” discussion in Section 7 and accompanying endnotes.
  22. Edwards v. Pepsico Inc., 268 Fed. App’x 756 (10th Cir. 2008) (“There is no legal support, however, for Mr. Edwards’ attempt to extend this principle and make all defendants within the chain of distribution automatically liable for a defective product. Rather, responsibility for the defect must still be traced to the proper defendant. Thus, which defendant is responsible for an alleged defect [is] determined in the trial court.”) (quotations and citations omitted).
  23. Gosner v. Decker, 1991 OK CIV APP 64, 814 P.2d 1056, 1057-58. In Gosner, the defendant was neither a seller nor lessor, but merely used and allowed the use of its own equipment in providing a service.
  24. 1987 OK 79, 743 P.2d 1062.
  25. Case, 1987 OK 79, 743 P.2d at 1067; see also, Blair v. Eagle-Picher Industries Inc., 962 F2d 1492, 1496 (10th Cir. 1992); Dillon v. Fiberboard Corp., 919 F.2d 1488, 1491 (10th Cir. 1990).
  26. Case, 743 P.2d at 1067. The court’s opinion was in response to certified questions regarding an “asbestos related injury” case where the plaintiff is unable to identify specific tortfeasors. Id. A similar conclusion was reached by the court in Wood v. Eli Lilly & Co., 38 F.3d 510 (10th Cir. 1994), a case involving diethylslilbestrobol (DES). But see infra note 45.
  27. 519 F. Supp. 487 (W.D. Okla. 1981).
  28. Id. at 488. “The defendant neither manufactured the battery, nor did it process the battery…. Rather, [the defendant] stands in the shoes of an ultimate consumer….” Id. at 489.
  29. 2001 OK 22, 22 P.3d 223.
  30. Id. at 224-25.
  31. Spence v. Brown-Minneapolis Tank Co., 2008 OK CIV APP 90, 198 P.3d 395.
  32. Allenburg, 22 P.3d at 224.
  33. 1977 OK 36, 561 P.2d 68.
  34. Id. at 69.
  35. Green v. Oilwell, 1989 OK 7, 767 P.2d 1348. This is known as the “equitable trust fund doctrine.”
  36. Kirkland, 521 P.2d at 1363.
  37. See e.g., Wheeler v. HO Sports Inc., 232 F.3d 754, 756 (10th Cir. 2000); Gaines-Tabb v. ICI Explosives, USA Inc., 160 F.3d 613, 624 (10th Cir. 1998); Holt v. Deere & Co., 24 F.3d 1289, 1292 (10th Cir. 1994); McMurray v. Deere & Co., 858 F.2d 1436, 1439 (10th Cir. 1988); Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir. 1984); Sterner Aero AB v. Page Airmotive Inc., 449 F.2d 709, 713 (10th Cir. 1974); Woulfe v. Eli Lilly & Co., 965 F. Supp. 178, 1482 (E.D. Okla. 1997); Dutsch v. Sea Ray Boats Inc., 1992 OK 155, 845 P.2d 187, 190; Lamke v. Futorian Corp., 1985 OK 47, 709 P.2d 684, 688 (Doolin, J. dissenting); Lee v. Volkswagen of America Inc., 1984 OK 48, 688 P.2d 1283, 1285; Stuckey v. Young Exploration Co., 1978 OK 128, 586 P.2d 726, 730; Bohnstedt v. Robscon Leasing L.L.C., 1999 OK CIV APP 115, 993 P.2d 135, 136; Attocknie v. Carpenter Mfg., 1995 OK CIV APP 54, 901 P.2d 221, 227; Tigert v. Admiral Corp., 1979 OK CIV APP 41, 612 P.2d 1381, 1383.
  38. Dutsch v. Sea Ray Boats Inc., 1992 OK 155, 845 P.2d 187; Waggoner v. Town & Country Mobile Homes Inc., 1990 OK 139, 808 P.2d 649.
  39. See e.g., Blair v. Eagle-Picher Industries Inc., 962 F.2d 1492, 1495 (10th Cir. 1992), cert denied, 506 U.S. 974, 113 S. Ct. 464 (1992) (“The mere possibility that the product caused the injury is not enough.”); Dillon v. Fiberboard Corp., 919 F.2d 1488, 1491 (10th Cir. 1990); McMurray v. Deere & Co., 858 F.2d 1436, 1439 (10th Cir. 1988); Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir. 1984); Cunningham v. Charles Pfizer & Co., 1974 OK 146, 532 P.2d 1377, 1379; Messler v. Simmons Gun Specialities Inc., 1984 OK 35, 687 P.2d 121, 125; Kaye v. Ronson Consumer Products Corp., 1996 OK CIV APP 57, 921 P.2d 1300, 1302.
  40. Freeman Family Ranch, Ltd. v. Maupin Truck Sales Inc., 2010 WL 908665 (W.D. Okla. 2010); Dutsch v. Sea Ray Boats Inc., 1992 OK 155, 845 P.2d 187, 191.
  41. Minter v. Prime Equip. Co., 356 F. App’x 154, 159-61 (10th Cir. 2009).
  42. Kirkland, 521 P.2d at 1367 (plaintiff’s intoxication as misuse if the intoxication caused the injury); see also Black v. M&W Gear Co., 269 F.3d 1220, 1236 (10th Cir. 2001) (“in a product liability case in which contributory negligence is not a defense and misuse is not an issue, the only relevant causation issue is whether a defect in the defendant’s product was the cause of the injury.”); Saupitty v. Yazoo Mfg., 726 F.2d 657, 659 (10th Cir. 1984); Stuckey v. Young Exploration Inc., 1978 OK 128, 586 P.2d 726, 730; Fields v. Volkswagen of America Inc., 1976 OK 106, 555 P.2d 48, 56; Stewart v. Scott-Kitz Miller Co., 1981 OK CIV APP 3, 626 P.2d 329, 331.
  43. Messler v. Simmons Gun Specialties Inc., 1984 OK 35, 687 P.2d 121, 125; Prince v. B. F. Ascher Co., 2004 OK CIV APP 39, 90 P. 3d 1020 (Okla. Civ. App. 2004).
  44. See Hinds v. General Motors Corp., 988 F.2d 1039, 1049 (10th Cir. 1993).
  45. Dutsch v. Sea Ray Boats Inc.,1992 OK 155, 845 P.2d 187, 191 (Okla. 1992); see also Abercrombie & Fitch Stores Inc. v. Broan-Nutone LLC, 2012 U.S. Dist. LEXIS 166947, 3-4, 2012 WL 5906552 (W.D. Okla. Nov. 26, 2012). In asbestos related cases, however, the causation standard is heightened and Oklahoma courts require “[t]his causative link [] be established through ‘circumstances which would insure that there was a significant probability that [the defendant’s] acts were related to the [plaintiff’s] injury.’” Dillon v. Fibreboard Corp., 919 F.2d 1488, 1491 (10th Cir. 1990) (quoting Case v. Fibreboard Corp., 1987 OK 79, 743 P.2d 1062, 1067).
  46. 46.Wood v. Eli Lilly & Co., 38 F.3d 510, 512-13 (10th Cir. 1994).
  47. Id. at 513-14.
  48. Id. at 512-13; Case v. Fiberboard Corp., 1987 OK 79, 743 P.2d 1062, 1067.
  49. 1985 OK 14, 695 P.2d 1343.
  50. Id. at 1350.
  51. Id.; see Robinson v. Volkswagen of America Inc., 803 F.2d 572, 574-75 (10th Cir. 1986) (verdict in favor of manufacturer absolves distributor where alleged defect is attributable solely to manufacturing process). See supra note 18. For additional information, see infra “Tort Reform” discussion in Section 7 and accompanying endnotes.
  52. Holt v. Deere & Co., 24 F.3d 1289, 1292 (10th Cir. 1994); McMurray v. Deere & Co., 858 F.2d 1436, 1439 (10th Cir. 1988); Lamke v. Futorian Corp., 1985 OK 47, 709 P.2d 684, 688 (Doolin, J., dissenting); Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir. 1984); Barber v. General Electric Co., 648 F.2d 1272, 1276 (10th Cir. 1981); Scott v. Thunderbird Indus., 1982 OK CIV APP 31, 651 P.2d 1346, 1348; Kirkland, 521 P.2d at 1363; Bohnstedt v. Robsco Leasing, L.L.C., 1999 OK CIV APP 115, 993 P.2d 135.
  53. Mayberry v. Akron Rubber Mach. Corp., 483 F. Supp. 407, 412 (N.D. Okla. 1979); Kirkland, 521 P.2d at 1363; Hawkins v. Larrance Tank Corp., 555 P.2d 91, 94 (Okla. Ct. App. 1976).
  54. 483 F. Supp. 407 (N.D. Okla. 1979).
  55. Id. at 412; see e.g., Wheeler v. HO Sports Inc., 232 F.3d 754, 757 (10th Cir. 2000); Messler v. Simmons Gun Specialties Inc., 1984 OK 35, 687 P.2d 121.
  56. Mayberry v. Akron Rubber Mach. Corp., 483 F. Supp. 407 (N.D. Okla. 1979).
  57. Id. at 412. See e.g., Wheeler v. HO Sports Inc., 232 F.3d 754, 757 (10th Cir. 2000); Rohrbaugh v. Owens-Corning Fiberglass Corp., 965 F.2d 844 (10th Cir. 1992); McMurray v. Deere & Co., 858 F.2d 1436 (10th Cir. 1988); Saupitty v. Yazoo Mfg., 726 F.2d 657 (10th Cir. 1984); Blood v. R&R Engineering Inc., 1989 OK 10, 769 P.2d 144; Messler v. Simmons Gun Specialties Inc., 1984 OK 35, 687 P.2d 121. In the automotive context, design defects may be alleged in the context of crashworthiness. See e.g., Hinds v. General Motors Corp., 988 F.2d 1039, 1049 (10th Cir. 1993); Lee v. Volkswagen of America Inc., 1984 OK 48, 688 P.2d 1283.
  58. See e.g., McPhail v. Deere & Co., 529 F. 3d 947 (10th Cir. 2008); Wheeler v. HO Sports Inc., 232 F.3d at 757 (10th Cir. 2000); Daniel v. Ben E. Keith Co., 97 F.3d 1329, 1332 (10th Cir. 1996); McMurray v. Deere & Co., 858 F.2d 1436 (10th Cir. 1988); Rohrbaugh v. Owens-Corning Fiberglass Corp., 965 F.2d 844 (10th Cir. 1992); Smith v. FMC Corp., 754 F.2d 873 (10th Cir. 1985); Woulfe v. Eli Lilly & Co., 965 F. Supp. 1478, 1482 (E.D. Okla. 1997); Mayberry v. Akron Rubber Mach. Corp., 483 F.Supp. 407 (N.D. Okla. 1979); Barber v. General Electric Co., 648 F.2d 1272 (10th Cir. 1981); Smith v. United States Gypsum Co., 1980 OK 33, 612 P.2d 251; Bohnstedt v. Robscon Leasing, L.L.C., 1999 OK CIV APP 115, 993 P.2d 135; Shuman v Lavern Farmers Cooperative, 1991 OK CIV APP 2, 809 P.2d 76; Spencer v. Nelson Sales Co. Inc., 1980 OK CIV APP 58, 620 P.2d 477. The court noted in Smith v. FMC Corp., 754 F.2d 873, 877 (10th Cir. 1985), “a manufacturer has a responsibility to warn of a defective product at any time after it is manufactured and sold if the manufacturer becomes aware of the defect.” The duty to warn arises only when the manufacturer “knows or should know that the use of the product is hazardous ….” Rohrbaugh v. Owens-Corning Fiberglass Corp., 965 F.2d 844, 847 (10th Cir. 1992). However, plaintiff has the burden of proving that the lack of adequate warnings caused his or her injuries. Black v. M&W Gear Co., 269 F.3d 1220, 1231 (10th Cir. 23001). A rebuttable presumption exists that an adequate warning would have been heeded. For a discussion of the inference and its rebuttal, see Eck v. Parke, Davis & Co., 256 F.3d 1013 (10th Cir. 2001); Daniel v. Ben E. Keith Co., 97 F.3d 1329, 1332-33 (10th Cir. 1996); Woulfe v. Eli Lilly & Co., 965 F. Supp. 1478, 1483-86 (E.D. Okla. 1997).
  59. Harrington v. Biomet Inc., 2008 WL 2329132 (W.D. Okla. 2008) (“[T] he Court will assume that the plaintiff herein can prove the existence of a defect without identifying what the defect is and exclusively by circumstantial evidence, even though the product – the prosthetic hip – was not destroyed and/or there are numerous prosthetic hips of the same type and size available. However, the court observes that there is obvious tension between the principle that a plaintiff may prove the existence of a defect, without identifying it, by circumstantial evidence and the principle recognized by the Oklahoma Supreme Court in Kirkland and its progeny, adhered to by the 10th Circuit, that ‘we do not infer that the injury is itself proof of the defect, or that proof of injury shifts the burden to the defendant.’”).
  60. 509 U.S. 579 (1993).
  61. 526 U.S. 137, 147 (1999).
  62. See generally 2003 OK 10, 65 P.3d 591.
  63. The following factors are among those to be considered to determine the reliability of scientific or engineering evidence: 1) whether the expert’s theory or technique has been subject to peer review; 2) whether there is a known or potential rate of error; 3) whether the scientific methodology has been generally accepted in its field; and 4) whether it can be tested. Christian, 2003 OK 10, ¶8, 65 P.3d at 597-98; Daubert, 509 U.S. at 592-593; Hollander v. Sandoz Pharm. Corp., 95 F. Supp. 1230, 1234 (W.D. Okla. 2000); see also, Tyler v. Sterling Drug Inc., 19 F. Supp.1239 (N.D. Okla. 1998).
  64. Christian, 2003 OK 10, ¶9, 65 P.3d at 598; Daubert, 509 U.S. at 592- 593.
  65. Alfred v. Caterpillar Inc., 262 F. 3d 1983 (10th Cir. 2001).
  66. Gen. Elec. Co. v. Joiner, 522 U.S. 136 (1997); Black v. M&W Gear Co., 269 F.3d 1220, 1227 (10th Cir. 2001).
  67. Kirkland, 521 P.2d at 1363.
  68. See e.g., Smith v. Cent. Mine Equip. Co., 876 F. Supp. 2d 1261 (W.D. Okla. 2012); McMurray v. Deere & Co., 858 F.2d 1436, 1439 (10th Cir. 1988); Brown v. McGraw-Edison Co., 736 F.2d 609, 613 (10th Cir. 1984); Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 500 (10th Cir. 1984); Bruce v. Martin-Marietta Corp., 544 F.2d 442, 447 (10th Cir. 1976); Lamke v. Futorian Corp., 1985 OK 47, 709 P.2d 684, 686; Smith v. United States Gypsum Co., 1980 OK 33, 612 P.2d 251, 253; Attocknie v. Carpenter Mfg., 1995 OK CIV APP 54, 901 P.2d 221.
  69. Estate of Wicker v. Ford Motor Co., 393 F. Supp. 2d 1229 (W.D. Okla. 2005).
  70. 1985 OK 47, 709 P.2d 684.
  71. Id. at 686; see also Gaines-Tabb v. ICI Explosives, USA Inc., 160 F.3d 613, 624 (10th Cir. 1998).
  72. 1990 OK 139, 808 P.2d 649.
  73. Id. at 653; see also Okla. Gas & Electric Co. v. McGraw-Edison Co., 1992 OK 108, 834 P.2d 980, 982. See also United Golf LLC v. Westlake Chem. Corp., 05-CV-0495-CVE-PJC, 2006 WL 2807342 (N. D. Okla. August 15, 2006).
  74. Waggoner, 1990 OK 139, 808 P.2d at 652; Dutsch v. Sea Ray Boats Inc., 1992 OK 155, 845 P.2d 187, 193-94. See also Agape Flights Inc. v. Covington Aircraft Engines Inc., No. CIV-09-492-FHS, 2012 WL 2792452 (E.D. Okla. 2012).
  75. O’Neal v. Black & Decker Mgf. Co., 1974 OK 55, 523 P.2d 614, 615; Mittapalli v. Ford Motor Co., Inc., No. 06-CV-61-GKF-SAJ, 2007 WI. 2292697, at *2 (N.D. Okka, Aug. 7, 2007.
  76. Black & Decker Mfg. Co., 1974 OK 55, 523 P.2d at 615.
  77. Kirkland, 521 P.2d at 1361; see Okla. Stat. Title 12, §95.
  78. Okla. Stat. Title 12, §100.
  79. 1991 OK 83, 825 P.2d 1273.
  80. Id. at 1276-79.
  81. See e.g., Huff v. Fiberboard Corp., 836 F.2d 473 (10th Cir. 1987); Williams v. Borden Inc., 637 F.2d 731 (10th Cir. 1980); Daugherty v. Farmers Cooperative Ass’n., 1984 OK 72, 689 P.2d 947.
  82. 1984 OK 72, 689 P.2d 947.
  83. Id. at 951; see also Huff v. Fiberboard Corp., 836 F.2d 473, 479 (10th Cir. 1987).
  84. 836 F.2d 473 (10th Cir. 1987).
  85. Okla. Stat. Title 12, §1053.
  86. Huff, 836 F.2d at 475-480.
  87. Okla. Stat. Title 12, §109-113.
  88. Loyal Order Of Moose, Lodge 1785 v. Cavaness, 1978 OK 70, 563 P.2d 143, 147.
  89. 1994 OK 65, 877 P.2d 45, 50.
  90. 911 F. Supp. 490 (W.D. Okla. 1995).
  91. Id. at 493-94; but see Durham v. Herbert Olbrich GMBH & Co., 404 F.3d 1249 (10th Cir. 2005) (holding manufacturing machinery was not an “improvement of real property” and therefore the defendant could not escape a claim for product liability by claiming the action was barred by Okla. Stat. Title 12, §109).
  92. Kirkland, 521 P.2d at 1366.
  93. “Defense” here is used in the broad sense of the word, indicating matters of proof that either serve as affirmative defenses or serve to rebut the plaintiff’s prima facie case.
  94. See supra note 42 (cases cited therein).
  95. See supra note 43 (cases cited therein).
  96. 1976 OK 106, 555 P.2d 48.
  97. Id. at 56.
  98. Id. The court, perhaps realizing the inconsistency with Kirkland, noted that while drunkenness could be misuse of a product, the facts in the present case did not establish such misuse. See also, Black v. M&W Gear Co., 269 F.3d 1220, 1235 (10th Cir. 2001) (holding that evidence that plaintiff’s alcohol consumption might have caused the accident is irrelevant because it did not rebut plaintiff’s evidence that a defective product caused plaintiff’s injuries); Prince v. B.F. Asher Co. Inc., 2004 OK CIV APP 39, 90 P.3d 1020 (summary judgment for defendant on wrongful death claim where medical inhaler only became dangerous after extracting and ingesting an ingredient therefrom).
  99. Id.; see also, McMurray v. Deere & Co., 858 F.2d 1436 (10th Cir. 1988) (party injured when bypassing a neutral start switch was carelessly using product for a proper purpose).
  100. See e.g., Farrell v. Klein Tools Inc., 866 F.2d 1294, 1296 (10th Cir. 1989); Stuckey v. Young Exploration Co., 586 P.2d 726, 730 (Okla. 1978); Stewart v. Scott-Kitz Miller Co., 1981 OK CIV APP 3, 626 P.2d 329; Basford v. Gray Manufacturing Co., 2000 OK CIV APP 106, 11 P.3d 1281, 1293.
  101. Okla. Stat. Title 47, §12-420 (“[T]he use or nonuse of seat belts shall be submitted into evidence in any civil suit in Oklahoma unless the plaintiff in such suit is a child under sixteen (16) years of age.”).
  102. Okla. Stat. Title 23, §§12, 13, 14. Okla. Stat. Title 23, §11 has since been repealed and now Okla. Stat. Title 23, §§12, 13, 14 govern contributory negligence and comparative negligence.
  103. Kirkland, 521 P.2d at 1367. The court noted that the referenced statute applies to “negligent actions” and not product liability actions.
  104. Black v. M&W Gear Co., 269 F.3d 1220, 1234 (10th Cir. 2001) (“In Oklahoma, use of a product `for a proper purpose, but in a careless manner’ is merely contributory negligence, which is not a defense to a products liability suit.”); McMurray, 858 F.2d at 1439; Saupitty v. Yazoo Mfg., 726 F.2d 657, 660 (10th Cir. 1984); Bingham v. Hollingsworth Mfg., 695 F.2d 445, 454 (10th Cir. 1982); Hogue v. A.B. Chance Co., 1979 OK 2, 592 P.2d 973, 975; Fields v. Volkswagen of America Inc., 1976 OK 106, 555 P.2d 48, 55.
  105. Holt v. Deere & Co., 24 F.3d 1289, 1295 (10th Cir. 1994).
  106. Hogue, 592 P.2d at 975.
  107. Smith v. FMC Corp., 754 F.2d 873, 876 (10th Cir. 1985). See also, Holt v. Deere & Co., 24 F.3d 1289, 1292 (10th Cir. 1994); Bingham v. Hollingsworth Mfg., 695 F.2d 445, 452 (10th Cir. 1972); Barber v. General Electric Co., 648 F.2d 1272, 1277 (10th Cir. 1981).
  108. 754 F.2d 873 (10th Cir. 1985).
  109. Id. at 877; McMurray v. Deere & Co., 858 F.2d 1436, 1440 (10th Cir. 1988).
  110. Holt, 24 F.3d at 1293.
  111. Id.
  112. 555 P.2d 91 (Okla. Ct. App. 1976).
  113. Id. at 94. In Hawkins, there was a three year lapse from the time of sale to the date of injury. See also Hurd v. American Hoist & Derrick Co., 734 F.2d 495 (10th Cir. 1984) (30 year lapse of time does not preclude finding of defectiveness at time of sale).
  114. See e.g., Sterner Aero AB v. Page Airmotive Inc., 449 F.2d 709, 714 (10th Cir. 1974); Hawkins v. Larrance Tank Corp., 555 P.2d 91, 94-95 (Okla. Ct. App. 1976).
  115. Sterner Aero AB v. Page Airmotive Inc., 449 F.2d 709, 714 (10th Cir. 1974).
  116. Hawkins, 555 P.2d at 94-95.
  117. Braden v. Hendricks, 1985 OK 14, 695 P.2d 1343, 1350.
  118. O’Banion v. Owens-Corning Fiberglass Corp., 968 F.2d 1011, 1016 (10th Cir. 1992). See also, Smith v. FMC Corp., 754 F.2d 873, 877 (10th Cir. 1985); Robinson v. Audi NSU Auto Union Aktiengesellschaft, 739 F.2d 1481, 1485 (10th Cir. 1984); Smith v. Minster Mach. Co., 669 F.2d 628, 633 (10th Cir. 1982).
  119. Attocknie v. Carpenter Mfg., 1995 OK CIV APP 54, 901 P.2d 221, 228; Edwards v. Basel Pharm., 933 P.2d 298, 301 (Okla. 1997). Issues concerning federal preemption as affecting a state common law product liability claim are discussed in Johnson v. G.M. Corp., 889 F.Supp. 451 (W.D. Okla. 1995) and Bokis v. American Medical Systems Inc., 875 F.Supp. 748 (W.D. Okla. 1995).
  120. 544 F.2d 442 (10th Cir. 1976).
  121. Id. at 447.
  122. Obanion at 968 F.2d 1011, 1016 (10th Cir. 1992); Smith, 669 F.2d at 634.
  123. See infra “Tort Reform” discussion in Section 7 and accompanying endnotes.
  124. Saupitty v. Yazoo Mfg., 726 F.2d 657, 659 (10th Cir. 1984).
  125. McClaran v. Union Carbide Corp, 26 Fed. App’x 869 (10th Cir. 2002); Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 499 (10th Cir. 1984); Mayberry v. Akron Rubber Mach. Corp., 483 F.Supp. 407, 412 (N.D. Okla. 1979); Dutsch v. Sea Ray Boats Inc., 1992 OK 155, 845 P.2d 187, 191- 92; Manora v. Watts Regulator Co., 1989 OK 152, 784 P.2d 1056, 1059; Messler v. Simmons Gun Specialities Inc., 1984 OK 35, 687 P.2d 121, 125; Stuckey v. Young Exploration Co., 1978 OK 128, 586 P.2d 726, 730; Cunningham v. Charles Pfizer & Co., 1974 OK 146, 532 P.2d 1377, 1379; Hawkins v. Larrance Tank Corp., 555 P.2d 91, 94 (Okla. Ct. App. 1976).
  126. 726 F.2d 657, 659 (10th Cir. 1984).
  127. Id. at 659.
  128. Akin v. Ashland Chemical Co., 156 F.3d 1030, 1037 (10th Cir. 1998); see also Ingram v. Novartis Pharms. Corp., 888 F. Supp. 2d. 1241 (W.D. Okla. 2012).
  129. 1992 OK 97, 833 P.2d 284.
  130. Id. at 287.
  131. 1993 OK 70, 881 P.2d 64, 67.
  132. Id.
  133. Woulfe v. Eli Lilly Co., 965 F. Supp. 1478, 1482 (E.D. Okla 1997). Exceptions to the rule are discussed in Edwards v. Basel Pharmaceuticals, 933 P.2d 298, 300-03 (Okla. 1997); Tansy v. Dacomed Corp., 1994 OK 146, 890 P.2d 881, 886.
  134. Duane, 1992 OK 97, 833 P.2d at 287.
  135. Stafford v. Wyeth, 411 F. Supp. 2d 1318, 1320-21 (W.D. Okla. 2006).
  136. Id.
  137. Id.
  138. Mayberry v. Akron Rubber Machinery Corp., 483 F. Supp. 407,413 (N.D. Okla. 1979); Graves v. Superior Welding Inc., 1995 OK 14, 893 P.2d 500, 503-04; Travelers Indemnity Co. v. Hans Lingl Anlagenbau Und Verfahrenstechnik GMBH & Co. KG, 189 Fed. App’x 782 (10th Cir. 2006).
  139. See infra “Tort Reform” discussion in Section 7 and accompanying endnotes.
  140. 1994 OK 146, 890 P.2d 881.
  141. Id. at 885.
  142. Id. at 886; Littlebear v. Advanced Bionics LLC, 896 F. Supp. 2d 1085 (N.D. Okla. 2012); Reed v. Smith & Nephew Inc., 527 F. Supp. 2d 1136 (W.D. Okla. 2007).
  143. Okla. Stat. Title 76, §57.1 (this statute does not provide a defense for manufacturer’s defect or breach of warranty suits).
  144. 487 U.S. 500, 507-508 (1988).
  145. 936 F. Supp. 821 (W.D. Okla. 1996).
  146. Id. at 830.
  147. 552 U.S. 312 (2008).
  148. 552 U.S. at 330.
  149. Compare Riegel v. Medtronic, 552 U.S. 312 (2008) (preemption of state common law claims for certain medical devices) with Moody v. Ford Motor Co., 506 F. Supp. 2d 823, 830-31 (N.D. Okla. 2007) (finding compliance with a governmental standard for the minimum strength of a roof was insufficient to establish an absolute defense to a claim of products liability).
  150. Moody v. Ford Motor Co., 506 F. Supp. 2d 823, 830-31 (N.D. Okla. 2007) (finding compliance with a governmental standard for the minimum strength of a roof was insufficient to establish an absolute defense to a claim of products liability).
  151. Wyeth v. Levine, 555 U.S. 555, 570-571 (2009).
  152. Id. at 570-71.
  153. Id. at 581.
  154. 2013 OK H.B. 3365(1)(A) and (C).
  155. Id.
  156. Id. at (1)(D).
  157. This principle is codified in Okla. Stat. Title 23, §61.
  158. The elements that may be considered by the jury in fixing an amount to be awarded to an adult for personal injuries are enumerated in OUJI – Civ. No. 4.1.
  159. The elements that may be considered by the jury in fixing an amount to be awarded to a minor child for personal injuries are the same as set out in endnote 142 above, except for loss of earnings, which are not considered. OUJI – Civ. No. 4.2.
  160. In a derivative action brought by the parent or guardian of a minor child who has suffered personal injuries, the jury is allowed to consider the elements set out in OUJI – Civ. 4.3.
  161. In order for a plaintiff to recover on a claim of loss of spousal consortium, the jury must make findings as set out in OUJI – Civ. 4.5. The measure of damages for loss of spousal consortium is the amount of money which will reasonably and fairly compensate the plaintiff for the value of the loss of consortium he or she has sustained, and for the value of the loss of consortium he or she is reasonably certain to sustain in the future. Any award to the plaintiff will be reduced by the court in proportion to the percentage of negligence the jury attaches to the injured spouse. OUJI – Civ. 4.6. Children may also have a cause of action for loss of parental consortium, which is defined as the love, care, companionship and guidance given by a parent to a minor child. For a child to recover on a loss of parental consortium claim, the jury must make findings set out in OUJI – Civ. No. 4.7. The measure of damages for loss of parental consortium is based upon the amount of money which will reasonably and fairly compensate the child for the loss of the value of the parental consortium that he or she has lost, and for the value of the loss of parental consortium he or she is reasonably certain to sustain until he or she reaches the age of eighteen. Any award to the child will be reduced by the court in proportion to the percentage of negligence the jury attaches to the injured parent. OUJI – Civ. No. 4.8.
  162. An action for wrongful death is derivative, brought in the name of the decedent. Elements that may be considered by the jury in determining the amount of damages are described in OUJI – Civ. No. 8.1. Damage items which may be considered as a result of the wrongful death of a minor child are enumerated in OUJI –Civ. No. 8.2.
  163. Okla. Stat. Title 12, §§1053-1055; Okla. Stat. Title 84, §213.
  164. The personal representative may recover damages the decedent might have otherwise sustained had he or she lived. Okla. Stat. Title 12, §1053(a).
  165. See infra “Tort Reform” discussion in Section 7 and accompanying endnotes.
  166. 1983 OK 28, 661 P.2d 515.
  167. Okla. Stat. Title 23, §9.1.
  168. Thiry, 661 P.2d at 518.
  169. Id. at 517-18; see also, Johnson v. General Motors Corp., 889 F. Supp. 451, 454 (W.D. Okla. 1995).
  170. Okla. Stat. Title 23, §9.1.
  171. Okla. Stat. Title 23, §9.1.
  172. Id. For an absence of such a finding on the record, the court in Shuman v. Laverne Farmers Cooperative, 1991 OK CIV APP 2, 809 P.2d 76, 79 reduced the punitive damage award to equal the compensatory damages awarded.
  173. 891 F.2d 1445 (10th Cir. 1989). The court rejected the argument that a defendant’s resistance in producing material in discovery constitutes an implied admission of punitive guilt, and reasoned that such evidence, if admissible, is relevant to liability, not damages.
  174. Okla. Stat. Title 23, §61.2 (there is no limit on economic loss and the “cap” is lifted if the judge and jury find by clear and convincing evidence that the defendant’s acts or failures to act were in reckless disregard for the rights of others; grossly negligent; fraudulent; or intentional or with malice).
  175. Okla. Stat. Title. 23, §15.
  176. Okla. Stat. Title 12A, §1-304.
  177. Okla. Stat. Title 76, §57.1 (does not provide a defense for manufacturer’s defect or breach of warranty suits).
  178. 2013 OK H.B. 3375. This bill was enacted on April 28, 2014, and amends Okla. Stat. Title 12, §3226(A)(2)(a) by adding the following language: “Subject to subsection B of this section, in any action in which physical or mental injury is claimed, the party making the claim shall provide to the other parties a release or authorization allowing the parties to obtain relevant medical records and bills, and, when relevant, a release or authorization for employment and scholastic records.”
  179. The Legislature revived the “affidavit of merit” requirement that was struck down in Wall, but provided an exemption for indigent plaintiffs. See Okla. Stat. Title 12, §19.1. The future application of this statute remains uncertain.
  180. Okla. Stat. Title 76, §57.2(E)(1-6).
  181. Okla. Stat. Title 76, §57.2(E)(1).
  182. Okla. Stat. Title 76, §57.2(E)(2).
  183. Okla. Stat. Title 76, §57.2(E)(4).
  184. Okla. Stat. Title 76, §57.2(F).
  185. Okla. Stat. Title 76, §57.2(G).
  186. 2013 OK H.B. 3365(2).

Chris Pearson is a partner at the Law Firm of Germer, Beaman & Brown in Austin, Texas. He is licensed in Oklahoma and Texas and regularly defends automobile and heavy truck manufacturers in product liability litigation.

Tom Wolfe is a trial attorney at the firm of Phillips Murrah P.C. whose practice is focused on complex business cases, including product liability, oil and gas, mass tort and class action defense. He served on the board of directors and as chair of the Trial Practice Section of the Oklahoma Association of Defense Counsel. He is Master of the William J. Holloway, Jr. American Inn of Court. He co-authored the OBJ articles, “Kirkland v. General Motors Co. and Beyond: An Overview of Twenty Years of Oklahoma Product Liability Law” and “An Overview of Oklahoma Product Liability Law,” the latter of which won the Oklahoma Bar Association Golden Quill Award.

Lyndon Whitmire is a trial attorney and Litigation Practice Group Leader at the firm of Phillips Murrah P.C. He represents clients in a wide range of complex litigation matters, including product liability, commercial litigation, class actions, various UCC and consumer protection related disputes, first and third party insurance disputes, general tort and personal injury claims, intellectual property and appellate advocacy. He co-authored the OBJ article, “An Overview of Oklahoma Product Liability Law,” which won the Oklahoma Bar Association Golden Quill Award. Other distinctions include recipient of the International Academy of Trial Lawyers Award.

Cody J. Cooper is a litigation associate at the firm of Phillips Murrah P.C. He represents clients in a wide range of civil complex litigation matters. His practice concentrates on intellectual property, product liability and commercial litigation. He graduated from OU College of Law with honors. While in law school, he served as the managing editor of the American Indian Law Review. He has published articles on both “E-Discovery” and “Bring Your Own Device Policies” in the workplace.

With the correct tools, financially stressed firms can avoid bankruptcy

From NewsOK / by Paula Burkes
Published: May 19, 2015
Click to see full story – With the correct tools, financially stressed firms can avoid bankruptcy

Click to see Stephen W. Elliott’s attorney profile

Oklahoma bankruptcy litigator Stephen Elliott, an attorney with Phillips Murrah, talks about dealing with market vulnerability and how to avoid bankruptcy.


Stephen W. Elliott is a director and shareholder of the firm. He represents creditors and debtors in out-of court workouts, litigation and bankruptcy in addition to representing clients in general litigation matters.

Stephen W. Elliott, a director at Phillips Murrah, represents creditors and debtors in out-of court workouts, litigation and bankruptcy in addition to representing clients in general litigation matters.

Q: There’s a lot of talk about low oil prices and how it may affect the business community in Oklahoma. Do you foresee trouble?

A: While Oklahoma’s economy is more diversified than it was during past downturns in the oil and gas industry, it’s hard to imagine current prices won’t adversely impact the Oklahoma business community. Oil and gas is still the dominant industry driving the Oklahoma economy. When the oil and gas industry suffers, we all suffer. For example, some oil and gas companies have reportedly reduced their capital expenditure budgets, reported substantial losses, and are selling off assets. Service and drilling companies have announced major layoffs. Among other things, with increased unemployment, mortgage foreclosures are likely to increase. With a materially increased number of foreclosures, real estate values typically drop. If oil prices don’t rebound soon, fallout seems inevitable. How bad the fallout may be depends largely on how debtors and creditors choose to address the current circumstances. In many instances, working together is likely to yield better results for both groups.

Q: If a company is experiencing financial stress, how can they avoid bankruptcy, and what is a “workout?”

A: In my experience, candid communication is often the key to avoiding bankruptcy and resolving financial issues through a workout. If a company is having trouble meeting its obligations, creditors want to know why, what is being done to address the situation and, ultimately, what their overall prospects for recovery are, both outside and through bankruptcy. A workout is an out-of-court process through which the parties try to reach an agreement to modify the terms of their original transaction. Workouts may involve debt forgiveness, and frequently involve changes in amortization, changes in interest rate, and changes in principal or interest payment due dates. The ultimate goal of the workout is to reach an agreement that puts the relationship on a footing consistent with existing financial conditions without the costs, delays and potential uncertainties frequently inherent in bankruptcy. If the workout would be as or more beneficial to both parties than a bankruptcy would be, bankruptcy can often be avoided.

Q: What is the best course of action when considering restructuring?

A: Accept the reality of the situation quickly and address it rapidly. To do so, the company must know its current revenue and expenses, be able to credibly project future revenue and expenses, and reasonably quantify the current and estimated future value of its assets. Once the company has that information, a pragmatic approach to dealing with its liabilities can be formulated. Denial or inaction can result in a needless loss of value and potentially impair the reorganization alternatives that may have otherwise been available. Communication is also very important, and generally the earlier the better. The failure to communicate will often result in creditors assuming the worst and taking collections actions they might not have taken if the debtor had simply communicated appropriately. Once those collection actions have begun, the prospects of avoiding bankruptcy are frequently reduced.

Q: Under what circumstances is bankruptcy preferable?

A: The potential benefits of bankruptcy are wide-ranging. For example, the debtor and its assets are protected by the automatic stay, which stops collection efforts outside of bankruptcy court, and keeps a debtor and its assets from being picked apart piecemeal. Bankruptcy also provides the possibility of being able to rapidly sell assets free and clear of liens and over creditors’ objections, which under some circumstances may be the only way to realize fair value of certain types of assets. Bankruptcy also provides the opportunity to bind creditors involuntarily to reorganization plans through which obligations are restructured and debt is discharged. This can be critical if efforts to put a workout together failed because some creditors refused or because there are too many creditors to deal with through a workout. Court supervision of the debtor, its property, and its actions, and ready access to a judge, also tends to be viewed by most as a benefit of bankruptcy.

Read the Q&A at NewsOK here.

Technology: E-Discovery Under Rule 26

Published 3/16/2013 in The Oklahoma Bar Journal, Vol. 84, No. 8
By Cody Cooper

Cody J. Cooper is an attorney in the Litigation Department of Phillips Murrah P.C. His primary practice areas are commercial litigation, class actions, complex torts and intellectual property. A Norman native, he graduated with honors from OU College of Law in 2012 and received his bachelor’s degree in management information systems and finance. He served as the managing editor of the OU American Indian Law Review.

Cody J. Cooper is an attorney in the Litigation Department of Phillips Murrah P.C. His primary practice areas are commercial litigation, class actions, complex torts and intellectual property. A Norman native, he graduated with honors from OU College of Law in 2012 and received his bachelor’s degree in management information systems and finance. He served as the managing editor of the OU American Indian Law Review.

Under Rule 26(f) of the Federal Rules of Civil Procedure (FRCP), opposing parties must now discuss e-discovery at least 21 days before a scheduling conference is heard or a scheduling order is due under Rule 16.1 Rule 26(f) also applies to “all sorts of discoverable information, but can be particularly important with regard to electronically stored information.”2 This varies greatly from the current Oklahoma requirement under 3226(f), which states that “[a]t any time after commencement of an action, the court may direct the attorneys for the parties to appear for a conference on the subject of discovery.”3 While Oklahoma statutes state that a discovery conference is discretionary, it is mandatory under the federal rules. Additionally, both sides are required to discuss the form or forms in which discovery will take place, what information will be within the scope of the suit, issues about claims of privilege, and e-discovery.

The advisory committee notes for the 2006 amendment to FRCP 26 state, “[w]hen a case involves discovery of electronically stored information, the issues to be addressed during the Rule 26(f) conference depend on the nature and extent of the contemplated discovery and of the parties’ information systems. It may be important for the parties to discuss those systems, and accordingly important for counsel to become familiar with those systems before the conference. With that information, the parties can develop a discovery plan that takes into account the capabilities of their computer systems. In appropriate cases identification of, and early discovery from, individuals with special knowledge of a party’s computer systems may be helpful.”5 The practical implications of this note are clear. The committee expects both sides’ counsel to cooperate with each other and have a full understanding of their respective client’s data when they go to the conference.

As the advisory committee notes make clear, it is each attorney’s job to become familiar with their client’s information systems. Indeed, in the discovery conference, counsel is often required to exercise this working knowledge by discussing what data is in each system and the respective retention policy for that system. This means that counsel must become intimately familiar with a client’s data creation and storage and be able to be conversant in the same. This could require looking at a map of each client’s database for his or her company or going through each application your client is using and discussing where the data is stored for each application.

Furthermore, the volume and dynamic nature of electronically stored information may further complicate preservation obligations. “The ordinary operation of computers involves both the automatic creation and the automatic deletion or overwriting of certain information. Failure to address preservation issues early in the litigation increases uncertainty and raises a risk of disputes.”6 Again, this means that attorneys must be forthright in the information they possess, and both sides need to cooperate in the discovery conference or risk potential adverse actions (sanctions, etc.). The discussion between attorneys needs to be open and honest, and both sides need to focus on “the balance between the competing needs to preserve relevant evidence and to continue routine operations critical to ongoing activities.”7

Additionally, courts should be hesitant to provide one side an overly burdensome or broad preservation order for fear that “[a] blanket preservation order may be prohibitively expensive and unduly burdensome for parties dependent on computer systems for their day-to-day operations.”8 In fact, the advisory committee for the Federal Rules of Civil Procedure states that “[a] preservation order entered over objections should be narrowly tailored. Ex parte preservation orders should issue only in exceptional circumstances.”9 Ultimately, the parties need to take all of these considerations into account and try to reach a reasonable agreement.

ESI AND E-DISCOVERY

Before delving into a brief overview of what I believe are some of the most important aspects of e-discovery, remember that parties to litigation can always agree to produce discovery in paper format, not electronic. However, this doesn’t mean you can avoid electronic discovery (e-discovery). As any attorney knows, discovery is a critical process of litigation that is often tedious, time-consuming and incredibly expensive. While traditional document discovery requires combing through thousands upon thousands of pages of paper (many times much more), e-discovery could exponentially increase that amount to stratospheric numbers in the millions, tens of millions, or even hundreds of millions. Breaking it down to its most rudimentary thought, e-discovery is simply the discovery of electronically stored information. While seemingly simple, the actual process of e-discovery, as well as the potential adverse effects, is far from it.

For as long as computers have been around, data has been stored. Whether in the form of a paper punch card, a floppy disk, a zip disk, a hard drive, or in the ever-present cloud, people have been storing computer-generated data. Since its invention, the entrepreneurial race has been creating larger and faster electronic storage in paradoxically smaller packages. Some industry experts believe Moore’s law equally applies to the development of electronic storage as it does to processors. Moore’s law, in an over-simplified nutshell, is the idea that every 18 months the number of transistors on an integrated circuit doubles. This is thought to be equally true of the amount of storage space that can fit in an identical space, meaning more storage in a smaller area. With the exponential increase in storage availability comes a number of hidden costs and dangers, particularly when it comes to e-discovery.10

WHAT IS ESI?

ESI is an acronym used to describe “Electronically Stored Information.” ESI encompasses all data that is stored electronically. I emphasize these words not for dramatic effect, but to call your attention to the broad scope of ESI. Say, for instance, you have a contract that your client and another party have signed. Clearly this physical paper copy isn’t ESI. But, if you decide to scan that document and send it to yourself in an email, voilà, you’ve got ESI. Some of the types of ESI most people are probably aware of are application data (Word documents, Excel sheets, PowerPoint projects), messaging systems (emails, instant messages, voice mail, electronic calendaring) and databases. But ESI also includes things that you might not be aware of. For example, your computer and most applications generate data every time you perform an action like clicking on specific data, making revisions to a document, searching for a specific website, watching a YouTube video or listening to a song. These examples, however, are far from an exhaustive list. Since attorneys are responsible for producing and requesting discovery, it is critical that any attorney dealing with e-discovery have a general knowledge of the types of information that could potentially be subject to discovery.

It is equally important that attorneys have a working understanding of the types of electronic information you might want to request or you may need to produce because of the possible ramifications for failing to do so. Your clients will rely on you to know what to request, and it is incumbent on each attorney to recognize the different types of data to adequately draft and respond to discovery.

Now that we have a working understanding of what ESI is, we need to look at one of the most important things about ESI and that is how ESI is stored. Other than knowing what ESI to look for, the second most important thing an attorney needs to know is where to look for ESI. While ESI storage may seem common sense, it’s helpful, nonetheless, to provide a refresher (or introduction depending on the reader) to the places information can be stored.

There are three primary ways ESI can be stored: online, nearline, or offline.11 First, ESI can be stored online. This simply means that information is stored at a readily accessible location and requires no human intervention (think hard drive on your computer or a cloud accessible to anyone upon immediate request). Near-line storage can be summed up as direct access removable storage (think flash drives, portable hard drives or CDs/DVDs). Offline storage is most commonly backup tapes. These are just magnetic tapes, similar to cassette tapes, or for those of you young enough to have no idea what a cassette tape is, just imagine a spool of plastic ribbon encased in a plastic casing that is capable of storing information on it. Storage location can be incredibly important because, while producing data from readily accessible records like the hard drive from a computer or a USB drive is relatively simple, the costs and difficulty can potentially increase exponentially when backup tapes are involved. The difficulty can increase because of the amount of information that can be stored on backup tapes. Because the information is historical, those working with it are likely unfamiliar with what is stored on the tapes. This increase in costs can lead to fights between the sides as to who should bear the burden of producing the requested data.

PRESERVATION OF DATA

Aside from combing through the data you plan to produce or receive from the opposing side, preserving the right data and eventually producing it is likely the most onerous part of e-discovery. Preservation of data has many important questions that are too technical to be discussed in their entirety within this article, but this should provide a brief overview. However, it is important to recognize that there are many more complex questions that will arise throughout the ongoing preservation of data for purposes of litigation. The first thing to think about when you are faced with the question of preserving data for ongoing or pending litigation is, when does your obligation to preserve begin? Typically your obligation begins when you reasonably anticipate the evidence will be relevant to future litigation.12 If you are the requesting party, you can avoid a potential dispute as to when your opponent should have anticipated the data being relevant to litigation by drafting a litigation hold letter and sending it to your opponent. At its most rudimentary level, this letter tells your opponent the locations and types of data you might request so that they are put on notice to not destroy the information.13 Second, you should determine what is your client’s data retention policy? A retention policy is a set of official guidelines or rules governing storage and destruction of documents or ESI.14 In Arthur Anderson LLP v. United States, the United States Supreme Court recognized there is nothing wrong with data retention policies that call for destruction of documents so long as the destruction does not occur at a time when a legal duty to preserve that evidence has arisen.15 The burden to preserve is not unilateral to defendants, “plaintiffs also have a duty to suspend regular destruction under records-retention policies once they plan to file suit.”16 Understanding your client’s data retention policy is important because it is the duty of each attorney to ensure that their client preserves all relevant data throughout litigation.

“The obligation to preserve evidence arises when a party has notice that the evidence is relevant to litigation or when a party should have known that the evidence may be relevant to future litigation.”17 The duty to preserve evidence is one that is placed on counsel.18 In addition to implementing a “litigation hold” on the destruction of relevant information, counsel is responsible for ensuring that a client actually does implement such hold and continues to implement the hold throughout litigation.19 “To do this, counsel must become fully familiar with the client’s document retention policies, as well as the client’s data retention architecture.”20 This means that counsel is required to become intimately familiar with her client’s data and procedures. After you have an understanding of what data your client has and their retention policy, it is counsel’s responsibility to locate relevant data and ensure the client preserves that data. This means you have to preserve data that could potentially be subject to discovery, even if it is not specifically requested.21

PRODUCING AND REVIEWING DATA

Once data has been preserved, the big question then becomes how to review and eventually produce the data. Reviewing data for privilege presents a potentially massive undertaking for counsel, depending on the volume and sensitivity of the information being produced. For particularly large cases, counsel will likely have to request large extensions in production deadlines and may even have to increase the number of attorneys reviewing the data. Parties have the ability to stipulate that any production of privileged data to the other is deemed to not be a waiver of any such privilege; but again, this topic is more detailed than this article intends to cover. Under the FRCP (Rule 34), the requesting party can request a specific format, and the producing party can respond by complying or objecting. But if they object, they must provide an alternative format.

The Oklahoma statutes, however, do not address production of data in specific formats, and the parties are left to decide and then ask the court to referee when they can’t agree. Much of the data production argument will involve production in native or non-native format. Native format means the format in which the information is naturally kept. Native format is important because it contains metadata, which means that native format contains “hidden” information such as, among other things, who created the data, when the data was created, and what application created the data. Metadata can best be understood as “data about data” that can’t be seen just by looking at an individual record. Think of it as looking in your iTunes music library at your favorite song: you can see the artist and album, but you can’t see what year it was created or the producer of the music. Metadata would allow you to see those things. Producing documents with metadata also raises a number of issues.

When a party receives a request for electronic data, the party and counsel “are under a duty to make a reasonable search for all relevant, non-privileged documents and ESI within the scope of the particular request (assuming the request is well-framed).”22 Finding this data can present difficulty depending on the number of records available. Keyword searches are primarily how data is chosen, and they “work best when the legal inquiry is focused on finding particular documents and when the use of language is relatively predictable.”23 Fashioning too broad of a keyword search will likely result in a dispute between the parties as well as the potential to return significantly more documents than desired. Too narrow, and the potentially helpful documents could be left out. Too broad and a party could be buried in information. The difference between a good search and a bad search can be the difference of finding (or disclosing) the smoking gun and being lost in a forest of useless information.

POTENTIAL ADVERSE EFFECT

Under both FRCP 37 and 12 O.S. 3037, the court has broad discretion to punish parties for failing to comply with discovery. Default judgment or dismissal, sanctions, and adverse inferences are the primary concerns with failing to cooperate with e-discovery. In one of the five Zubulake cases, UBS failed to comply with preservation instructions and repeated orders by the court. The court then threatened them with an adverse inference at trial.24 The court followed through with its threat and permitted the jury to make an adverse inference with respect to emails deleted and irretrievably lost when UBS’s backup tapes were recycled.25 In the end, the Zubulake jury rendered a judgment against UBS for more than $29 million.26 In Coleman (Parent) Holdings, Inc. v. Morgan Stanley & Co. Inc., a Florida court issued an adverse inference against Morgan Stanley for “overwriting emails, failing to timely process hundreds of backup tapes, and failing to produce relevant emails and their attachments.”27 Morgan Stanley had judgment entered against it for $1.45 billion based largely on the instruction given, but that judgment was subsequently successfully appealed.28

These two cases are a subset of cases imposing harsh penalties on parties that purposefully fail to comply with courts and opposing counsel during e-discovery. Sometimes there is little an attorney can do to ensure a client complies with what is expected of them, but it is important that counsel communicate the potential weighty risks a client, and their counsel, could be faced with in the event that they aren’t complicit.

CONCLUSION

E-discovery is an ever-increasing and necessary part of litigation. Society’s increasing reliance upon computers for both personal and business activities means that electronic data will continue to increase every day. This presents a challenging problem for lawyers and their clients. While this mountain of data can be used both as a sword and as a shield, even the most experienced lawyer needs to tread the waters carefully. It is important to keep in mind your ethical obligations to your clients, courts and opposing parties, and focus on a fair and reasonable resolution for all discovery disputes. Depending on the nature of your case, often times it is cheaper to agree with opposing counsel to simply conduct discovery in paper form rather than incurring the excess expense of producing massive amounts of data; but regardless, you will likely be required to deal with esi and e-discovery in some form or fashion. Ultimately, this decision will have to be something each attorney will decide based on their belief of what is best for their client.

FOOTNOTES

  1. Fed. R. Civ. P. 26(f) (2012).
  2. Fed. R. Civ. P. 26(f) (2006 committee notes).
  3. 12 O.S. 3236(f) (2012).
  4. Fed. R. Civ. P. 26(f) (2006 committee notes).
  5. Id.
  6. Id.
  7. Id.
  8. Id.
  9. Id.
  10. Much of this paper is derived from secondary sources discussing e-discovery and its seminal cases. With that said, any attorney looking to educate themselves on e-discovery and digital evidence would be best served by obtaining a copy of West’s Nutshell Series for Electronic Discovery and Digital Evidence written by Shira A. Scheindlin and Daniel J. Carpa. The commentary for the 2006 amendments to the Federal Rules of Civil Procedure is also helpful when reviewing Rule 26(f).
  11. Shira A. Scheindlin & Daniel J. Capra, Electronic Discovery and Digital Evidence 14-16 (West 2009).
  12. See Andrew R. Lee, Keep or Toss? Document Retention Policies in the Digital Era, 55 La. B.J. 240, 244 (2008).
  13. See generally Bradley C. Nahrstadt, What’s the Deal with Litigation Hold Letters? (With Forms): Hold on a minute: How do these things really work?, 18 No. 6 Prac. Litigator 23 (2007); Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003); Zubulake v. UBS Warburg LLC, 229 F.R.D. 422 (S.D.N.Y. 2004).
  14. Id. at 33.
  15. See Arthur Anderson LLP v. United States, 544 U.S. 696, 704 (2005).
  16. Scheindlin & Capra, supra note 11, at 35.
  17. Id. at 36.
  18. Zubulake v. UBS Warburg LLC, 229 F.R.D. 422, 431-32 (S.D.N.Y. 2004).
  19. See id. at 432.
  20. Id.
  21. Lee, Supra Note 3, at 240.
  22. Scheindlin & Capra, supra note 11, at 137.
  23. Id. at 137-38.
  24. See generally Zubulake, 229 F.R.D. 422.
  25. Id. at 437.
  26. Nahrstadt, 18 No. 6 Prac. Litigator at 24.
  27. Id. at 25
  28. Id.

 

NewsOK Q&A: Laptop losses, misdirected faxes and phishing scams can lead to health information breaches

From NewsOK / by Paula Burkes
Published: May 1, 2015
Click to see full story – Laptop losses, misdirected faxes and phishing scams can lead to health information breaches

Click to see Mary Holloway Richard’s attorney profile

Phillips Murrah’s Mary Holloway Richard provides medical providers tips for minimizing risk and damages related to health information breaches.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Q: What do you recommend to hospitals, physicians and other providers to minimize the risk of a breach of confidential patient information and to lessen the degree of harm in the event of a breach?

A: I recommend creation in advance of a response process to enable a rapid, sensible response. The goals in such a plan (“Incident Response Plan” or “IRP”) are to demonstrate compliance with HIPAA (Health Insurance Portability and Accountability Act) and HITECH (Health Information Technology for Economic and Clinical Health) regulations and to mitigate any harm that may result from the breach.

Q: What specific steps should be taken to prepare for a breach?

A: The first step is to create an IRP that includes all appropriate parties and to appoint someone in the practice or facility who is knowledgeable about HIPAA and HITECH requirements. The second step is to make certain that the process created is a quick, sensible one. In addition, information technology (IT) components, such as encryption throughout the process, are imperative. The safe harbor provision of the breach notification rule establishes a certain standard of encryption and relieves the provider from breach notification responsibilities if the protected patient information has been properly encrypted. Most breaches result from lost IT assets such as phones, laptops and iPads. Fourth, the IRP must be supported by sufficient employee and staff training. I also recommend that you adequately document that this training took place. Finally, insurance should be in place to provide for risk transfer as needed. Cyberliability is a continually developing area along with a range of products that foresee types of breaches and predict costs that may be incurred.

Q: How do such losses occur?

A: Along with loss of IT assets, misdirected faxes, disposal of nonshredded records, inappropriate disposal or destruction of paper, such as placing material in a dumpster without shredding and mailing patient information to incorrect address. Intentional loss or compromise of data can occur through a combination of IT and social engineering, such as where a person is tricked into clicking on a hyperlink or revealing a password. This occurs with Spear phishing or false emails inserting malware in a system and is very difficult to control. In the case of Cryptolocker, the perpetrator makes a threat and requires payment to restore prevention. This also is called ransomware and can make the system and information completely inaccessible to everyone in your organization, effectively stymieing patient care and business operations.

Affordable Care Act changes affect physicians

Gavel to Gavel, appears in The Journal Record.
Originally published in The Journal Record on Apr. 22, 2015.
View G. Calvin Sharpe’s attorney profile here.


GCS 300w_web

G. Calvin Sharpe is a trial attorney who represents a diverse list of business clients in matters relating to medical malpractice, medical devices, medical licensure boards,products liability, insurance and commercial litigation.

The Affordable Care Act brought fundamental changes to the American health care system.

One called evidenced-based care significantly affects how physicians are paid. I’ve represented many providers in malpractice actions and before professional licensure boards, but now I must also be as proficient in regulatory law.

The ACA’s value-based care replaces traditional fee for service. In the traditional model, a patient visit is followed by a bill paid by the patient or insurer, and providers are rewarded for a higher-volume practice. One of the stated goals of the ACA is to eliminate care and decision making that could be financially motivated.

The value-based pay-for-performance compensation model that reimburses physicians based upon achievement of measurable objectives or metrics is replacing that traditional model. Evidenced-based guidelines focus on outcomes and will seek to eliminate unnecessary procedures, and compensation will be based upon performance.

Examples would be patient readmission following hospital discharge and so-called never events, defined by the National Quality Form’s list of Serious Reportable Events as events that should never have happened.

Changes in evidenced-based care practice guidelines and how medical malpractice claims are brought generally attempt to measure a provider’s performance against a legal standard. This means the performance is evaluated according to that of a prudent professional in the same or similar circumstances.

Read the entire column here.

Possible summer effect on gas prices

Jim Roth’s Friday column, Earth Business, appears in The Journal Record.
Originally published in The Journal Record on Apr. 17, 2015.
View Jim Roth’s attorney profile here.


Jim Roth is a Director and Chair of the firm’s Clean Energy Practice.

Most consumers have assumed for years that gasoline prices will increase in the summer. New research from the Center for Economic Analysis suggests that this perception is false, and that Midwestern gasoline prices do not tend to increase in the summertime when motorist hit the highways.

The center has studied weekly gas prices since 1995 to isolate summertime gasoline prices. They utilized data for two gasoline formulations, including the price of conventional regular unleaded and reformulated regular unleaded.

In the late summer of 2014 gasoline prices started to drop, and they kept dropping, to lows not seen since early 2009. Economists now expect these suppressed prices to remain through 2015.

Both AAA ad GasBuddy.com recently released statements saying the national average price for a gallon of gas is expected to be $2.35 from Memorial Day through Labor Day, during the summer driving season. The Energy Information Administration projection put summer gasoline prices at $2.45 per gallon.

The latest AAA Fuel Gauge Report indicated the national average price for regular unleaded gasoline has fallen for 24 of the past 30 days, after reaching a peak-to-date price for 2015 of $2.46 per gallon on March 7.

See the rest of the column here:

Resolution of the “sustainable growth rate” issue

By Mary Holloway Richard.  View her attorney profile here.


medicare

Senate Passes the bill repealing Medicare’s sustainable growth rate (“SGR”) formula just in time to avoid the looming cuts (21%) to physician payments.

(See HERE our ongoing coverage leading up to this.)

Congressional members are purportedly patting themselves on the back as the bill goes to the President who has given assurances that he will sign it.

In the past weeks we have discussed possible amendments, but none of the amendments are included in the final legislation approved by the Senate.  The bill extends the Children’s Health Insurance Program (“CHIP”) for two years.  The bill also provides physician incentives sure to impact both reimbursement and physician contracting include incentives to shift more patients to risk-based payment models.  For physicians who are successful in this effort, as interpreted by CMS, the reimbursement will increase in 2019.

Approximately one-third of the cost of this package is offset by financial cuts to providers and increased costs to wealthier Medicare patients.  The bill also includes additional funding for community health centers and a six-month delay in the enforcement of the payment policy for short inpatient stays known as the “two midnights” rule.

Mary Holloway Richard is recognized as one of the pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Director and bankruptcy leader Tim Kline featured in The Oklahoman Q&A

kline paper

Click to see this on NewsOK.com

Although Phillips Murrah Director Tim Kline will recoil at the use of this descriptor, I (Marketing Director, Dave Rhea) am going to be so bold and reckless as to say he is legendary. As I listened to him review some of the highlights of his personal history, I felt like I was in the room with a great Oklahoma oral historian.

I found myself thinking on a couple of occasions, “too bad Tim doesn’t have a radio show.” But I guess he’s a little busy being one of the state’s preeminent bankruptcy attorneys. Oh well, I think he could have given Paul Harvey a run for him money.

Business reporter Paula Burkes, from The Oklahoman, was kind enough to stop by the firm recently to talk to Tim for one of the newspaper’s Executive Q&A features. It published Sunday, April 12 and gave people a glimpse into the storied life of a lawyer who has been practicing bankruptcy law since those infamous Penn Square days:


 

The morning of the 1982 Penn Square Bank collapse, Phillips Murrah Director Tim Kline — then a young general litigation attorney — was asked by his firm to call on Oklahoma City oilman Carl Swan, who was a director of the bank.

“It was the Monday following the July 4th weekend, and I was supposed to be off,” said Kline, who remembers he wasn’t too happy about the assignment.

In their meeting, Kline asked Swan if the bank was OK and Swan, in his notorious gruff manner, reported that it was; that the Federal Deposit Insurance Corporation agreed to capitalize millions more and give the bank more time, he said.

But when Kline arrived home and flipped on his TV, he learned the FDIC had pulled the plug on Penn Square Bank.

The infamous bankruptcy is what sparked a nearly 33-year career in bankruptcy law for Kline, whose late father and former Assistant U.S. Attorney David A. Kline Jr. served 14 years as a bankruptcy judge.

At the time of the collapse, Kline was helping his dad teach a bankruptcy law course at Oklahoma City University — largely on the 1978 Bankruptcy Reform Act, which the senior Kline had helped promote.

Tim Kline never intended to go into bankruptcy law but, following the oil bust, circumstances unfolded that way, he said. With so much demand for bankruptcy work, his dad left the bench and they formed Kline & Kline in February 1983, where they worked together for more than 25 years.

Kline in 2011 joined Phillips Murrah, where he continues to specialize in bankruptcy law.

From his offices on the 13th floor of the Corporate Tower, Kline, 65, sat down recently to talk about his life and career. This is an edited transcript:

Q: Tell us about your roots.

A: Of course, my father was an attorney and my mother was a homemaker. I’m the middle child of their three children. My brother is six years older and my sister is eight years younger. My father used to joke that he managed to raise three only children. But we were, and still are, close. In fact, we three and our mother, 94, all live within walking distance from one another on several hundred acres we bought in 1981 in the Jones Public Schools District in eastern Oklahoma County, 10 miles east of I-35, where we have dogs, chickens and horses. My brother-in-law raises cattle. When I was a bachelor, my home was like an overgrown cabin. But since Alyssa and I married, we’ve reinvented it three times. It’s three-storied and our second story overlooks a lake.

Q: Where did you go to school?

A: In elementary school, I was a Mayfair Chipmunk. We lived near 50th and May when Mayfair was a brand-new neighborhood. In the sixth- and seventh-grades, I attended Casady, after my brother was recruited there to play baseball. Once he graduated and went to OU on a baseball scholarship — and I lost my ride to school — I transferred to Putnam City, where I graduated. Growing up, I played baseball, football and basketball, but my siblings were far better athletes. My sister went to OCU on a tennis scholarship. I was into politics. At 7, I remember sitting up and crying when Adlai Stevenson lost; in 1960, I got to hear JFK speak in the municipal auditorium; and before I could vote, I was the Ward 1 campaign chairman for Eugene McCarthy. I also enjoyed speech, debate and plays. My favorite role was the lead my sophomore year in “Look Heavenward Angel.”

Q: What were some of your first jobs and first cars?

A: As a youth, I worked at the municipal ball park. My sophomore year in high school, I threw the first papers of the now-defunct Oklahoma Journal. By the summer of my senior year, I graduated to writing obits and writing some Friday night football stories. My freshman year of college, I was awarded a scholarship to UCO. My father told me if I took it, he’d get me a car, though it wasn’t a very nice car. It was a used light blue Ford Fairlane. When I was a junior, and doing well in school at OU, he bought me a purple Plymouth Road Runner.

Q: Did you always plan on being an attorney?

A: There was a time I considered becoming a philosophy teacher. At OU, I studied under the legendary J. Clayton Feaver and considered getting a Ph.D. in philosophy. I’d earned a graduate minor in it, along with a bachelor’s and master’s in polisci. But instead, I wound up taking the law school entrance exam. I like the problem solving in law, and helping people where they have a practical need. During law school, I interned with the U.S. Attorneys office and worked at the Redlands Racket Club and OKC Tennis Center. I got to play tennis with Colin Robertson. Before my father and I opened our own firm, I clerked for over three years for U.S. federal judge Luther Bohanon. He liked having me in the courtroom with him, so I got to see a lot of good lawyers at work in big trials. I worked the next three years for the firm of Jimmy Linn, a west Texas litigator who was a heavy hitter on the national level.

Q: What do you like about practicing bankruptcy law?

A: My work is really about avoiding bankruptcy as such. Whether I represent the debtor, creditor or a trustee, I try to bring together parties who are in financial stress and help them clarify what common interests are involved and how to maximize financial recovery. My goal is to do the most for the most people in the most efficient manner possible. Of course, like in all things in life, it takes two to tango. Sometimes, people aren’t cooperative and we have to go to a Plan B scenario and invoke legal remedies and be as confrontational as necessary. I’m as nice as the other side will allow.

Q: How did you meet your wife?

A: Alyssa is a native Canadian. We met at Christmastime 1976, when I went to British Columbia to visit relatives and friends, but then she was only a punk teenager. Her family and I kept in touch over the years and in the summer of ’85, she called to say she and her folks were going to Seattle and would I like to meet them there. She was 23; I was 36. I spent a couple days in Seattle, but had to fly back to Albuquerque for a big case. Three weeks later, I flew to British Columbia, where we wed and spent our honeymoon. She was shocked that it was 100 degrees in Oklahoma City, when our flight arrived home at 11 p.m. on Sept. 1. The next morning, she joked about getting an annulment. But this August, we will have been married 30 years. Alyssa earned an education degree at UCO and taught elementary school, before she had our daughters whom she home schools. After the girls were born, Alyssa’s parents moved to Oklahoma City. We’ve lost her mother, but her father lives in a retirement community. He’s 94 and was over for Easter.

You can view the whole story here: http://newsok.com/executive-qa-penn-square-bank-collapse-sparks-counselors-career-in-bankruptcy-law/article/5409410

 

(UPDATE) What does all of the talk in the media about the “SGR” mean for physicians?

By Mary Holloway Richard. View her attorney profile here.


Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

(Updated 4/14/15)

What does all of the talk in the media about the “SGR” mean for physicians?

One of the important issues identified in the health care industry “crisis” and reform is the cost of providing services.  Focus has been on shifting payment from charges for visits and procedures to reimbursement according to certain metrics such as outcome and quality.  In addition, a ceiling on physician reimbursement has been much debated.  The Affordable Care Act (“ACA”) included the Medicare sustainable growth rate (“SGR”) formula for doing just that, although the SGR was actually created as part of the 1997 deficit reduction law designed to contain federal spending  by tying physician payments to an economic metric or growth target.

On Tuesday, March 24, 2015, Democrats and Republicans revealed the result of their negotiation and cooperation to offer an alternative to Medicare’s SGR formula.  The proposal calls for repeal of the SGR formula.  House Speaker John Boehner (R-OH) and Minority Leader Nancy Pelosi (D-CA) have arrived at this compromise to strengthen the financial picture for Medicare and to end the continuing threat of payment cuts to physicians.  According to the Association of American Medical Colleges, although medical school applications are up slightly since 2011, the United States faces a physician shortage of between 46,000 and 90,000 by 2015.  www.aamc.org/newsroom/aamcstat/,a=427828.  The economic incentives to the professional are an integral component in stabilizing the health care system in this country.  The House overwhelmingly approved the proposal on Thursday, March 26, 2015.

What does the SGR mean to physicians?  There is still great divergence between the Boehner (repeal Washington’s most famous gimmick) and Pelosi (Medicare payments for doctor services to seniors facilitating continuation of physician-patient relationship) perspectives.

What does the bipartisan proposal mean to physicians?  This will halt the cut that was to be implemented on April 1, 2015.  When the ACA was signed five years ago, that seemed like a long time away but was nonetheless worrisome.  It puts in place a 21.2% reduction in Medicare payments making it virtually impossible for many providers to support the operations of their practices or clinics.

This proposal is very similar to the one proposed in 2014 , and it includes a system of rewarding physicians based upon quality standards rather than output or number of services provided and fosters a focus on coordination of care, prevention and quality and key cost containment strategies.  All of these elements are part of a new accountability that is the cornerstone for allowing payment increases for doctors for the next five years during this period of transition.  In addition, if approved by the Senate, the bipartisan proposal would extend the Children’s Health Insurance Program (“CHIP”) with full funding through September 30, 2017.  It also provides for $7.2 billion funding for community health centers.  The cost of the House package is $200 billion

On Friday, March 27, 2015, the Senate adjourned without approving the Doc fix.  It apparently will take up the issue upon its return in mid-April.  In the meantime, CMS is poised to delay processing provider claims as of April 1, 2015, when the 21.2% cut was to go into effect.  However, CMS is warning that the cut will go into effect if the Senate fails to pass an SGR fix by April 15.  One complication may exist in the form of legislation introduced by a bipartisan Senate team, Senators Cardin (D-MD) and Collins (R-ME), to permanently repeal the caps on how much the program spends on rehabilitation therapy.  This unresolved issue may arise as an amendment to the legislation to be considered after the break and provides a reminder of how single issues or senators can ultimately frustrate the passage of legislation that has support from both parties.  Others in the Senate are critical that spending cuts will offset only a portion of the costs.  Conservatives have characterized this element of the plan as irresponsible.  The AARP is focused on increased costs to Medicare beneficiaries and will continue to lobby for changes to lower these costs.

Democrats may want amendments to extend the CHIP program four years, to remove the Hyde Amendment (abortion-related language), and to repeal the Medicare therapy cap.  Any amendments would, of course, send the legislation back through the House, and this appears to be an unattractive alternative to all concerned because of the remarkable support for this resolution from both parties.  A perhaps more significant complication is presented by the report issued last week by the Office of the Actuary of the Centers for Medicare and Medicaid Services (CMS) indicating that physician payments in which the 0.5% increases in Medicare payments over the next four years would come to a halt in 2020.  In that year a two-tiered system is phased in which is designed to encourage physicians to shift greater numbers of patients into risk-based models.  For physicians continuing to work within the traditional payment system, but who are scoring well on the quality metrics, remuneration will be awarded from a separate appropriation.  After 2024, the alternative payment track would increase annually by 0.75% which will be three times greater than the rates of other physicians. CMS is predicting that 2024 is the time when there will be a shortfall and payments will lag behind inflation.

On the one hand, Congress is fed up with required annual intervention for the past seventeen years to avoid scheduled cuts to physicians.  On the other hand, Congress is forced to rely on estimates to predict costs which places the federal government at risk of future payments not keeping up with the either the chosen formulae or with inflation.

(UPDATE) A look at the controversial Affordable Care Act on its fifth anniversary

By Mary Holloway Richard. View her attorney profile here.


Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

Mary Richard is recognized as one of pioneers in health care law in Oklahoma. She has represented institutional and non-institutional providers of health services, as well as patients and their families. She also has significant experience in representing providers in regulatory matters.

(Updated 4/7/15)
President Obama has taken the occasion of the fifth anniversary of the signing of the Affordable Care Act (“ACA”) to characterize continued activities on the Hill to repeal it as renegade special interest activities. The ACA continues to be a subject of debate both in terms of its accomplishments—how many are newly covered and how much will be saved—and in terms of its public support.

While the Associated Press reported on March 23, 2015, that public support was down 5% since its passage, as one who daily writes and advises health care clients on matters related to the ACA, I can say with certainty that the depth and breadth of increased regulation spawned by the ACA are changing the nature of the system.

Those changes include responsive movement toward integrated health systems, mergers and affiliations; transition from quantity- to quality-based reimbursement; the relaxation of HIPAA standards in some respects and its tightening in others in the context of EHR transformation; and increased direct and indirect costs to employers as a result of new responsibilities.

Nearly fifty changes have been made to the ACA as of March 2, 2015, and this suggests a continuing need for providers, employers and business owners to remain informed and responsive to the moving regulatory compliance target.

On Monday, March 30 the Supreme Court rejected a new challenge to the Affordable Care Act (“ACA”)  that targeted the Independent Payment Advisory Board (“IPAB”), a 15-member government panel which has been characterized as a “death panel” because of its intended role in cutting Medicare costs.   The IPAB was to convene when the target growth rate for Medicare (3.03%) is exceeded.  However, the growth rate is 1.15% according to CMS, and so the administration has not nominated any panel members.  In declining to take up the case, the Supreme Court left undisturbed the 9th US Circuit Court of Appeals in San Francisco dismissal of the lawsuit. The proponents of the ACA are calling this a win.  Coons v. Lew, No. 14-525.   Certiorari was denied by the United States Supreme Court on March 30, 2015.

Best, worst states to be a doctor

South Carolina tops the list, Rhode Island finishes lastshutterstock_156022646

WalletHub released its list of the best and worst states for physicians based on several metrics, including wages and job opportunities.

For the report, all of the states and Washington, D.C., were rated on 12 metrics sorted into two categories:

  • Environment, or risks of the job, such as state medical board penalties, malpractice payouts, and costs of malpractice insurance; and
  • Job opportunity and competition.

Data for the report were taken from Citizen.org, Diederich Healthcare, HHS, the Missouri Economic Research & Information Center, the U.S. Bureau of Labor Statistics, and the U.S. Census Bureau.

Based on those categories, WalletHub identified the five best states for doctors as:

      1. South Carolina
      2. Minnesota
      3. Texas
      4. Mississippi
      5. Kansas

Meanwhile, the five worst states for doctors were:

      1. Rhode Island
      2. New Jersey
      3. Oregon
      4. New York
      5. Maine

View on Advisory.com.

 

SCOTUS reverses lower court decision, Medicaid providers can’t bring injunction against Idaho officials

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United States Supreme Court Building

SCOTUS reverses a lower court decision in Armstrong v. Exceptional Child Center, Inc.:

Idaho residential care facilities sued the state for failure to implement higher reimbursement rates required by Medicaid which the Idaho legislature had not sufficiently funded.  The federal district court and the Ninth Circuit Court of Appeals sided with the facilities ruling that Idaho’s Medicaid rates were insufficient to support the federal requirements that payments had to be at such a level to provide for quality care and adequate access to services.  In Armstrong v. Exceptional Child Center Inc., the United States Supreme Court reversed the lower court ruling and held that the Supremacy Clause does not confer a private right of action and so Medicaid providers cannot sue for an injunction requiring the state to comply with the reimbursement rate provision of the federal Medicaid Act.  42 U.S.C. §1396a(a)(30)(A)

View on SCOTUSBLOG

Eminent domain raises questions when used on behalf of the private sector

Jennifer Berry Photo

Jennifer Ivester Berry is an attorney with a solid reputation in guiding real estate transactions with a focus on development, financing and energy. She represents individuals, and privately-held and public companies in connection with a wide range of commercial real property matters.

Q&A from NewsOK: Phillips Murrah attorney Jennifer Ivester Berry discusses the what, when, how and why of eminent domain.

View Jennifer Ivester Berry’s attorney profile page here.

By Paula Burkes – Published: March 25, 2015
View the article at NewsOK.com here.

Q: What is eminent domain?

A: Eminent domain, condemnation, taking power — these words sound ominous and forceful, as if the party on the receiving end has no choice but to succumb to the directive of the imposing party and give up something for nothing. However, stop for a moment and remember that with most constitutionally created powers come some series of checks and balances. Eminent domain, in its most simplistic form, is the power to acquire private property for a public use, provided that the property owner receives just compensation. Some of the most recognizable uses of the eminent domain power are for the establishment of roadways, hospitals, railroads and utilities. In more recent years, the use of eminent domain for purposes of economic development has sparked a public policy debate that will no doubt continue for years to come.

Q: When can eminent domain be used?

A: The power of eminent domain originates from the state’s constitution, and the Oklahoma Legislature enacts statutes that set out the manner, purpose and through whom such power may be exercised — a system of checks and balances. For example, municipalities are granted a general power of condemnation under the state statutes, so long as the taking is for a public use and the property owner is adequately compensated. There are certain circumstances and uses that the Legislature has identified as being for the benefit of the public and thus created specific statutes covering them, for example, the removal of dilapidated buildings, the improvement of water and sewer systems, and urban renewal. The Legislature also conferred the power of eminent domain on utility companies, public enterprises and common carriers. Private individuals or companies also may utilize the power of eminent domain for agricultural, mining and sanitary purposes, as well as for establishing private roadways where access in an issue.

Q: How does eminent domain work?

A: The party seeking to condemn property will usually have attempted to negotiate with the landowner to acquire the property. That said, if a municipality or utility company is dealing with numerous parcels of land with countless owners, using the condemnation proceeding can simplify the process and avoid negotiations that may or may not be successful. Once the condemnation proceeding is filed, the court appoints three individuals (commissioners) who will examine, evaluate and inspect the property. The commissioners are instructed to return an award to the court that reflects the fair market value of the property taken, as well as any injury to any part of the property not taken. The award is payable to the landowner even if the landowner owner contests the award. If, as a result of a contest, a jury finds the fair market value of the property to be an amount in excess of 10 percent of the commissioners’ award, the landowner may be entitled to reasonable attorneys and expert fees.

Q: Why do we need eminent domain?

A: Using eminent domain to obtain property for roadways and utilities is rarely a source of contention, even if ultimate ownership of such property is by a private party. The more controversial issue is whether the government can use its eminent domain power to aid a private party. The U.S. Supreme Court has blessed the use of eminent domain as a governmental incentive for economic development. However, numerous states, including Oklahoma, have taken a more narrow view and require that the use of eminent domain power for economic development must involve the removal, elimination or prevention of blight. Proponents of this power, whether the broader or more narrow application of it, argue that without it being available as an incentive for private development, economic development would be stifled significantly. Others, however, feel that failure to value individual property rights actually dissuades potential residents and business from moving into a community and as such cripples any potential for economic growth. One thing is clear, eminent domain will continue to be used for economic development and as such continue to be a debatable issue in the private sector.

 

Avoiding the b-word: The many faces of financial restructuring

Clay Ketter’s guest column, Gavel to Gavel, originally published in The Journal Record  on Mar. 11, 2015.
View Clay Ketter’s attorney profile here.


Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

Clayton D. Ketter is a litigator whose practice involves a wide range of business litigation in both federal and state court, including extensive experience in financial restructurings and bankruptcy matters.

The current price of crude oil is sure to make people use language that is inappropriate in polite conversation. As news of idled rigs, layoffs and credit defaults becomes a daily occurrence, the use of the b-word is sure to come up more and more. Of course, I’m referring to that nasty little 10-letter word, bankruptcy.

The stigma that once surrounded a bankruptcy filing has subsided as multiple high-profile companies such as American Airlines, General Motors and the Los Angeles Dodgers have entered the bankruptcy process and emerged as stronger, more viable businesses. Despite these successes, one group that has been gradually shunning the use of the b-word is, surprisingly, bankruptcy attorneys. Yes, the people most familiar with the ins and outs of the Bankruptcy Code, rather than announce themselves as bankruptcy experts, are instead asking to be referred to as financial restructuring specialists. This is particularly true for those attorneys that focus on businesses, as opposed to individuals, facing financial difficulties.

At first glance, it would appear that a rebranding effort is the motivation for this shift. Bankruptcy may suggest failure, death, layoffs and closings. Financial restructuring, comparatively, signifies repair and rebirth of a business. Although marketing has played a part, it fails to explain the whole story. The use of the phrase “financial restructuring” reflects the reality that debtors and creditors facing financial stress have many options at their disposal, not just bankruptcy.

Workouts, divestitures, mergers and asset sales are just some of the tools that a financial restructuring professional may utilize to assist debtors and creditors in resolving financial difficulties. Options also include a bankruptcy filing, whether it be a Chapter 11 reorganization or a Chapter 7 liquidation. However, a bankruptcy filing is not always the right choice. Depending on the circumstances, it often makes sense to avoid the time and expense of a formal proceeding, and instead resolve matters out of court. The title of financial restructuring attorney reflects the fact that multiple options are available to address and repair economic trouble, not just bankruptcy.

Should crude oil prices remain depressed, we are certain to see the b-word used more frequently. However, it’s important to remember that, depending on the circumstances, a more conservative approach may be better.

NewsOK Q&A: Healthcare data hacking likely to require new state laws

From NewsOK / by Paula Burkes
Published: March 9, 2015
Click to see full story – Across the U.S., more state laws are likely for mandated encryption of health data

Phillips Murrah’s Joshua Edwards discusses healthcare data hacking

Hacking may bring more state laws, encryption of health data

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Josh Edwards is a Director at Phillips Murrah law firm.

Q: How serious of a problem are healthcare data hacks for insurance companies, employer health plans and others in the healthcare industry?

A: Last month Anthem Inc., the second-largest health insurer in the U.S., announced hackers had stolen personal information, including names, dates of birth, member ID/Social Security numbers, addresses, phone numbers, email addresses and employment information of up to 80 million individuals covered under its health plans. The Anthem breach alone affects one out of every four Americans. This data can be sold on the black market and then used by identity thieves to commit financial crimes, as well as fraudulently obtain medical services and prescriptions. The FBI previously warned insurers and other companies in the healthcare industry that their data security systems lagged behind those of the financial and retail sectors and that they were particularly susceptible to cyberattacks given the value of such data to cybercriminals.

Q: What federal and state laws govern the security of healthcare data and a company’s obligations after discovery of a breach?

A: The primary federal law is the Health Insurance Portability and Accountability Act (HIPAA), which was amended in 2009 by the Health Information Technology for Economic and Clinical Health Act specifically to address electronic transmission and storage of protected health information (PHI). HIPAA governs the privacy and security of an individual’s PHI and requires certain kinds of technological safeguards to protect against unauthorized use and disclosure. In addition to HIPAA, earlier this year New Jersey passed a law requiring health insurers to encrypt all electronically-stored personally identifiable information of New Jersey residents, and it seems likely we will see similar laws passed by other states as well. HIPAA also requires a company to notify affected individuals after discovering a breach of PHI. Forty-seven states also have their own breach notification laws, each of which have their own unique content and timing requirements.

Q: How does an insurer’s data breach impact employers who use the insurer for their health plans?

A: Events such as the Anthem breach affect not only the insurer, but also companies that partner with the insurer to provide health coverage to their employees. For companies with a fully-insured health plan, the insurer will be a “covered entity” under HIPAA and have primary responsibility for protection of PHI and compliance with the breach notification requirements. However, for self-insured health plans, an insurer serving as a third-party administrator will be considered a “business associate” under HIPAA, meaning primary responsibility for protecting PHI and notifying affected individuals and government agencies would fall to the employer. Regardless, employers should have a plan to address such concerns and keep employees informed.

Q: What should insurers and employers do upon discovery of a breach of healthcare data?

A: After a breach, both insurers and employers should review their contracts, including any business associate agreements, to determine their relative responsibilities as well as any indemnification rights and obligations. It’s also essential for both parties to know their duties under HIPAA and state breach notification laws so that compliant and timely notifications can be crafted and delivered to affected individuals and applicable federal and state agencies. Finally, a plan should be implemented for keeping affected individuals informed of the ongoing investigation, as well as strategies for protecting against identity theft and credit monitoring options that may be available.