By Donna M. MacKenzie (Olsman MacKenzie & Wallace) and Robert F. Riley (Riley & Hurley)

What do you do with 43 claimants represented by 11 different lawyers, and over a dozen defendants with an equal number of defense attorneys? For matters involving this level of complexity, it is necessary to think outside the box, which is exactly what occurred in the civil cases against Farid Fata, M.D.

Although considerable interest exists relative to the subject matter of this article, the Michigan Court Rules preserve the confidentiality of mediation communications. Apart from matters of public record, the scope of this article is limited and the communications of parties and their counsel during this process have been preserved as confidential except for that which is permitted by the parties’ settlement agreement.1

On August 6, 2013, federal agents arrested Fata. He was charged with operating a healthcare fraud scheme involving $35 million in insurance billings.2 Federal prosecutors alleged that Fata, an oncologist, treated patients with chemotherapy who did not have cancer and that he excessively used expensive supportive care medications. In total, it was reported that Fata prescribed over 9,000 unnecessary injections and infusions to at least 553 patients over a six-year span.3

Fata pled guilty in September 2014 to thirteen counts of health care fraud, one count of conspiracy to pay and receive kickbacks and two counts of money laundering.4 In July 2015, Fata was sentenced to 45 years in federal prison.5

Civil remedies for these patients were sought. Although over 550 patients were affected by Fata’s actions, significant hurdles impacted access to the court system for these patients, such as the statutes of limitations and repose.6 However, some of those who had viable claims began to retain legal counsel and issue Notices of Intent and file civil lawsuits against Fata,7 multiple other physicians in his practice, the hospitals where Fata practiced and treated patients, and some physicians employed by those hospitals.8 Ultimately, 11 plaintiff’s attorneys were retained to represent 43 Fata patients (hereinafter “claimants”).

Although much consideration was given to filing these matters as a class action, there was a concern that the facts and circumstances of each case would not satisfy the commonality or typicality requirements of MCR 3.501.9 Accordingly, the claims were filed individually in the Oakland County Circuit Court.

The claimants were up against multiple physicians and three large hospital systems who were represented by 12 different defense attorneys.

As the litigation process began, attempts were made by the claimants to depose Fata who was incarcerated. However, only one attorney, Jeff Stewart, was successful at conducting the deposition. Fata, however, chose to assert his constitutional right to remain silent.10

In a very short period of time, litigation costs began to mount for both claimants and defendants. The multiple defendants filed motions in each case, ranging from motions for qualified protective orders to meet with treating physicians, to motions for a stay of proceeding, to motions for summary dismissal of claims. In addition, interlocutory appeals of the decisions on some of these motions were also filed.

On the other side, claimants were preparing to advance discovery and to amend their complaints to add additional counts against the defendants, including Racketeer Influenced and Corrupt Organizations Act (RICO) violations.

As a result, although Michigan’s court rules do not allow for a formal consolidation of these cases, claimants and defendants began to have conversations about informal consolidation and voluntary facilitation.

In order to have meaningful conversations, the group of patients and their attorneys joined forces to work toward the common goal of a global resolution. Decisions had to be made about which defendants should remain in the litigation, what the process would look like, who would act as facilitator, and who would lead the effort toward a resolution.

The claimants agreed to a stay of the civil court proceedings in exchange for an agreement by the remaining defendants to enter into good faith facilitation. For those claimants who mailed a Notice of Intent, but had not yet filed a Complaint, the parties entered into an agreement to toll the statute of limitations throughout the duration of the facilitation.

Borrowing from some of the procedures utilized to resolve the medical malpractice cases against the North Oakland Medical Center (NOMC) when it entered bankruptcy in 2008,11 a two-step process was formulated.

First, the parties agreed to facilitate in order to determine the amount of money that each defendant would contribute toward a global settlement fund. The parties agreed that Robert Riley would act as the facilitator.12

Because of the number of attorneys involved, the plaintiffs’ attorneys entered into an agreement whereby Donna MacKenzie, Jules Olsman, Brian McKeen and Douglas Young were given full authority to negotiate on behalf of all the claimants collectively at facilitation.13 The defendants who remained in the litigation during the facilitation were represented by attorneys John Toth, Randy Juip, Bruce Bigler, Lee Wulfmeier and Eric Tucciarone.

In the event that step one was successful, step two would involve an arbitration of the individual claims, with participation by the claimants and their attorneys, only. The claimants selected Richard Boothman to serve as the sole arbitrator.14 Boothman would designate a judgment amount for each claim submitted based on a determination of liability, causation, damages, and statute of limitations. All determinations by the arbitrator were to be final and not subject to appeal.

Step One began when initial discussions commenced with Riley on May 21, 2015. These discussions involved both individuals and small groups of attorneys and parties. Because the number of claimants was not precisely defined, considerable effort was made to identify the claimants subject to these negotiations. Confirming agreements were reached and 43 claimants were acknowledged as those who would be subject to the final outcome of these negotiations.

In addition to claimant identification, the individual and small group sessions focused on a broad range of issues presented by these lawsuits. Claimants advanced liability theories ranging from medical malpractice, ordinary negligence, fraud, RICO and other claims. Significant questions involving insurance coverage were discussed. Correspondingly, the defendants denied liability, challenged proximate causation and damages and asserted a wide variety of procedural, legal and factual defenses. Finally, the scope of future negotiation sessions was reviewed at length and agreed upon.

The first joint facilitation session involving all plaintiff and defense attorneys occurred on July 27, 2015. As anticipated, the differences between the parties on a myriad of issues and claims were substantial. These were reflected in the positions of the parties relative to the potential financial terms of any proposed settlement.

Over the course of the following year, counsel met regularly to shape and define potential settlement parameters. Apart from a standard “offer and counter offer” methodology, a variety of negotiation techniques were utilized in the course of these discussions. Hypothetical outcomes were discussed and explored. In addition, the mediator advanced proposals to the parties for their analysis and consideration. Multiple revisions occurred in these proposals and differences were more precisely defined and narrowed. Because of the unique nature of this negotiation, the parties recognized that any final agreement would require a pooling of settlement dollars into a single fund. Once the total amount of the pool was determined, it would then be necessary to establish an orderly means of determining how the fund would be maintained, managed and ultimately distributed. It was agreed that all funds would be placed in escrow and held pending the arbitrator’s decision as to an appropriate division among all of the claimants. Thereafter, pre-negotiated release and settlement agreements were prepared to bring each individual case to a close. Upon receipt of the executed release and settlement agreements, the funds in escrow would be released.

All of the foregoing was addressed and the parties agreed to an $8,000,000 settlement pool.15 On May 25, 2016, a Memorandum of Understanding (MOU) was executed by counsel bringing the facilitation process to a close. In addition, the parties agreed on the language of standard releases and dismissal orders that would be utilized in all cases at the conclusion of the arbitration.

By its terms, the settlement amount was not subject to the confidentiality provisions otherwise governing this settlement.

Shortly after the MOU was executed, the parties scheduled a court hearing with Judge Hala Jarbou, who approved the amount of the settlement, and entered an order that all of these cases be submitted to binding arbitration.

Step Two – the individual arbitration hearings with Boothman – took place over two days in September 2016. Individual awards were allocated as to each of the claimants based on the unique facts and circumstances of their particular claims, liens, etc. Following the issuances of these awards, the pre-negotiated release and settlement agreements were forwarded to all claimants for execution.

All parties agreed that Riley would serve as the escrow agent, to hold the settlement funds in an escrow account until the completion of the arbitration proceedings. After the arbitration awards were rendered, the funds were released by Riley upon receipt of executed releases, and in cases of wrongful death, court orders approving the distribution.

As is common in most medical malpractice cases, the liens for medical care and treatment were lurking in the background throughout the case. When rendering his decision, however, Boothman determined that none of the settlement funds should be allocated for medical expenses because the money available for compensation was inadequate to encompass the financial claims, the liens included reimbursement for the negligent treatment rendered by Fata, and the insurers had an obligation to act in the best interests of their insureds to monitor ongoing care, but failed to intercept the inappropriate treatment.

A significant obstacle in this matter was Medicare’s claimed lien for reimbursement which, although common in medical malpractice cases generally, was extremely unusual in a case where Medicare was also contending that it was a “victim” of Fata’s malfeasance and fraud. Multiple attempts to resolve the matter with the U.S. Attorney for the Eastern District of Michigan and the claimants failed. Claimants then petitioned Judge Paul D. Borman in the United States District Court for declaratory judgment claiming that Medicare itself was a victim of Fata and that under the Crime Victims Compensation Act, 18 USC 3771(10)(d)(3), it could not assert rights greater than the injured victims.

This was a matter of first impression. Never before had the Medicare Secondary Payer Act, 42 USC 1395y(B), and the Crime Victims Compensation Act been in direct opposition to one another.

The matter was extensively briefed and argued before Judge Borman on August 19, 2016. The Court ruled in favor of Medicare.16 Claimants appealed to the Sixth Circuit Court of Appeals, which denied the application for leave.17

On the basis of Boothman’s decision, Medicare agreed to withdraw its liens in the Fata cases and elected to waive its claims for reimbursement.18 As of the date of this article, Blue Cross Blue Shield and other private insurers, have not yet withdrawn their liens and this dispute may require court intervention. If, however, these insurers receive any funds under the criminal restitution plan of the United States Attorney’s Office, then this issue will be moot.19 Therefore, the lien issues cannot be resolved until the criminal restitution matter is resolved.

Although the process was lengthy, the time committed to this endeavor was necessary given the complexity of the issues that had to be addressed. Ultimately, the hybrid approach was the most successful way to resolve these cases in the most cost effective manner, while still giving all of the parties involved the opportunity to assert their positions and find closure in this matter.

1 MCR 2.412(C) provides: Mediation communications are confidential. They are not subject to discovery, are not admissible in a proceeding, and may not be disclosed to anyone other than mediation participants except as provided in subrule (D).

2 Feds arrest Dr. Farid Fata, accused of fraud & deliberately prolonging chemo for cancer patients, WXYZ Detroit (August 6, 2013) //www.wxyz.com/news/region/oakland-county/doctor-arrested-offices-raidedby-fbi-in-connection-to-healthcare-fraud-charges

3 Feds: Doc’s ‘patients poisoned for money’, The Detroit News (May 29, 2015) //www.detroitnews.com/story/news/local/oakland-county/2015/05/29/feds-docs-patients-poisonedmoney/28192149/.

4 United States Department of Justice, Office of the United States Attorneys, https://www.justice.gov/usao-edmi/us-v-farid-fata-court-docket-13-cr-20600.

5 Id. In February 2016, Fata filed an appeal of his conviction and sentence. The Sixth Circuit affirmed his conviction and sentence in May 2016. United States v. Fata, 650 F. App’x 260, 262 (6th Cir. 2016), cert. denied, 137 S. Ct. 2175 (2017).

6 MCL 600.5851, MCL 600.5358a(2), MCL 600.5855, and MCL 600.5839. The continuing wrong doctrine was also a potential obstacle. See Kincaid v. Cardwell, 300 Mich App 513, 528; 834 NW2d 122 (2013) (holding that “[i]n the context of a physician’s continued adherence to an initial diagnosis or treatment plan after the abrogation of the last-treatment rule, it is insufficient to merely allege that the defendant breached the standard of care by continuing to adhere to the original diagnosis or treatment plan.”) In addition to legal hurdles in these matters, there were also concerns about economic viability in some cases where supportive care medications – as opposed to chemotherapy – were improperly administered, given the fact that medical malpractice cases are very costly to pursue. See The Juice Isn’t Worth The Squeeze. Michigan’s Medical Malpractice Tort Reform – “The Juice Isn’t Worth the Squeeze”, by Norman D. Tucker, MAJ Journal (Spring 2014).

7 MCL 600.2912b.

8 The hospital systems named in the various lawsuits included Crittenton Hospital Medical Center, McLaren Regional Medical Center, and St. Joseph Mercy Oakland.

9 This is because the diagnoses and treatments plans of each claimant, although allegedly improper, were different.

10 Fata’s deposition was taken in the matter of Durst v. Fata, et al, Case No. 14-138650-NH (Circuit Court Judge Rudy M. Nichols), which was filed prior to Fata’s arrest. For various confidential reasons, this claimant was not joined in the global settlement.
11 When NOMC filed for bankruptcy in 2008, it had a number of medical malpractice lawsuits pending. It was discovered, however, that NOMC Insurance Co. Ltd. had an account in the Cayman Islands to provide insurance coverage to the hospital and its doctors. Because there was a fixed amount of money in the account available for the malpractice claims, facilitation was not necessary and the NOMC claimants went straight into arbitration, also with Richard Boothman.

12 Riley has been the managing partner of Riley & Hurley PC since 1994. Riley serves as an independent mediator, facilitator and arbitrator in civil matters.

13 Attorney Douglas Young was retained by Claimants to serve as coverage counsel during the facilitation.

14 Richard Boothman is the Chief Risk Officer at the University of Michigan Health System and Assistant Adjunct Professor in the Department of Surgery at the University of Michigan Medical School.

15 Ultimately, all physicians – with the exception of Fata – were dismissed from the litigation

16 In re Petition of Korff, Case No. 13-CR-20600, 2016 WL 4537815 (E.D. Mich. Aug. 31, 2016).

17 In re Tracy Korff, personal representative of the Estate of David Korff, et al., Case No. 16-2275 (6th Cir. Sept. 16, 2016).

18 It is Medicare’s policy that “[t]he only situation in which Medicare recognizes allocations of liability payments to nonmedical losses is when payment is based on a court order on the merits of the case.” Medicare Secondary Payer (MSP) Manual, Chapter 7, 50.4.4.

19 After Fata’s arrest, the federal government seized approximately $11.9 million in assets from Fata. Approximately $1 million will be paid to whistleblower, George Karadsheh. United States Attorneys Office Press Release, Last Week to File Restitution Claims in the case of U.S. v. Farid Fata (November 7, 2016). https://www.justice.gov/usao-edmi/page/file/925496/download