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June, 2016
Release wars – get ready for them in medical malpractice settlements
by Andrew Bergh

I’m the first to admit my crystal ball is often fuzzy. But after reading Hawkins v. EmPres Healthcare Mgmt., LLC, 193 Wn. App. 84 (2016), I will be very surprised if defense counsel and/or claims representatives in future medical malpractice settlements don’t substantially revise their standard release documents in a self-serving effort to make them even broader and more all-encompassing.

Hawkins involves a trilogy of lawsuits with their origin dating back to mid-June 2007. That’s when Jeanne Hawkins underwent an unspecified surgery at Valley Medical Center (“VMC”) in Renton followed by postsurgical complications. On July 9, she was diagnosed with a bacterial infection and discharged directly to the Talbot Center for Rehabilitation and Healthcare (“Talbot”), a skilled nursing facility also located in Renton. At time of discharge, her attending physician at VMC prescribed two medications – Gentamycin and Vancomycin – for her infection.

Instead of improving, Hawkins only got worse. On July 13, her lab work at Talbot read, “Vancomycin trough critically high at 18.7. Called MD.” The next day (i.e., July 14) additional lab work once again showed abnormal results. Even though the lab work collectively indicated that Hawkins was receiving an overdose of antibiotics, Talbot nonetheless kept administering both medications. Approximately two weeks later, after experiencing a burning sensation in her throat, a dry cough, and difficulty breathing, Hawkins asked to be taken to VMC – and Dr. Chen, her attending physician at Talbot, approved her request.

Significantly, Dr. Chen did not maintain any separate charts or notes on his patients at Talbot. Instead, all medical charts and patient care records for his patients were maintained by the facility’s staff.

Following her return to VMC, Hawkins was diagnosed with kidney failure resulting from an overdose of antibiotics. Although her symptoms were treated for 18 months, she is permanently impaired.

Talbot later gave a copy of Hawkins’s records to her daughter, Julie Wilson. This occurred in August 2007 prior to any litigation.

The first lawsuit was filed in King County Superior Court in 2008. In her complaint against Talbot, Hawkins alleged, among other things, that the skilled nursing facility had negligently administered the antibiotics for longer than her attending doctor at VMC had prescribed or recommended. Her pleading also included allegations relating to Dr. Chen and some of her medical records. First, that Dr. Chen had failed to respond to the “alarming” July 14 report. And second, that after receiving “alarming lab work results” on yet another day (July 23), the physician had only responded in writing, “O.K. John Chen.” Notwithstanding these allegations about her attending physician at Talbot, Hawkins apparently did not name Dr. Chen as a defendant.

In the course of discovery, Hawkins requested a complete copy of her medical records and chart. Talbot provided no records, instead responding that a complete and accurate copy had previously been given to her daughter. Hawkins relied on this representation during the pendency of the lawsuit.

Hawkins and Talbot settled for an undisclosed sum in late July 2010. The release included the following language:

[Plaintiff releases Talbot] from all claims and causes of action. . . .whether such claims or causes of action are presently known or unknown, which in any way arise out of the facts stated in the Amended Complaint. . ., or which in any way involve the diagnoses, care and treatment of Jeanne Hawkins during her stay at Talbot Center for Rehabilitation and Healthcare from July 2, 2007 to July 30, 2007.

This release is intended to cover any and all future injuries, damages or losses not known to the parties to this agreement, but which may later develop, or be discovered in connection with the above referenced diagnoses, care and treatment, or failure to diagnose or treat. (Court of Appeals’ emphasis.)

In addition, the release contained a so-called “no-reliance” clause which warranted that Hawkins had relied on no representation by Talbot “concerning the nature and extent of the injuries, and/or damages, and/or legal liability therefor.”

In negotiating and accepting her settlement with Talbot, Hawkins had assessed the comparative fault of Talbot and Dr. Chen on the basis of her copy of the medical records, which strongly suggested that Dr. Chen had failed to monitor her test results properly and stop her antibiotics. Reinforcing this conclusion was Talbot’s defense that its staff at all times had only been following Dr. Chen’s orders.

After settling with Talbot, Hawkins filed a separate King County action against Dr. Chen, who, in the course of discovery, requested and received a copy of Hawkins’s medical records from Talbot. It’s unclear whether this discovery occurred with Hawkins’s knowledge and consent, or, if it did, whether Hawkins also received a copy of the same records given to Dr. Chen.

At a mediation in November 2011, the parties made a startling discovery: The medical records they had independently obtained from Talbot weren’t the same. The critical difference pertained to the July 23 lab report. As already mentioned, the copy that Talbot gave to Hawkins had the “O.K. John Chen” notation. The copy that Talbot gave to Dr. Chen, on the other hand, had his handwritten note directing Talbot to stop administering the antibiotics, to “push fluids,” and to recheck Hawkins’s blood levels after three days. Dr. Chen vehemently denied making the “O.K.” notation and said he didn’t know how or why it was made.

A forensic document examiner subsequently reviewed both copies of the lab report. The conclusion? That the “O.K. John Chen” notation was “mechanically or electronically cut from a [common] source document and pasted onto the intended documents.”

Like I said, a startling development. Although Hawkins’s case isn’t the first instance of falsified medical records in a medical malpractice case and undoubtedly won’t be the last, it is still disconcerting to hear that it happens at all.

So how was the second lawsuit against Dr.  Chen resolved? Fair question – but unfortunately, the Court of Appeals’ s decision doesn’t say. What I can tell you, however, is that Talbot refused Hawkins’s request for another mediation, disingenuously calling the discrepancies in the medical records “innocent and immaterial,” and that Hawkins responded by filing a third King County action. In this lawsuit against Talbot, she asked the trial court – based on the fraud and misrepresentation relating to the falsified medical records – to rescind the release and vacate the order of dismissal in the underlying suit. Alternatively, Hawkins sought a declaration that the release didn’t apply to any independent causes of action based solely on the falsified records.

Talbot eventually moved under CR 12(b)(6) to dismiss Hawkins’s complaint on the following grounds:

The prior release barred all of her claims.

Res judicata barred her declaratory judgment claim.

Hawkins had failed to sufficiently plead her claims for fraud and misrepresentation.

Hawkins couldn’t seek rescission because she didn’t first return the funds paid in settlement.

The trial court sided with Talbot on two of its grounds, partly addressed a third ground without ruling on it, and didn’t address the fourth ground at all.

More specifically, the trial court agreed that Hawkins’s claims were prohibited by the prior release and res judicata, and that her complaint should be dismissed. Although this rendered moot the third ground relating to the alleged pleading insufficiencies, the trial court said it was “questionable whether, as a matter of law, [Hawkins] had the right to rely on the alleged falsifications and misrepresentations.” As for Talbot’s final ground that Hawkins had to return the settlement funds before seeking rescission, this is the argument the trial court never even addressed.

Hawkins timely appealed. By way of quick preview, the dismissal of her claim for rescission – but not her declaratory judgment claim – was ultimately reversed by Division One.

The primary issue addressed by the Court of Appeals was whether the release in the underlying suit barred Hawkins’ claims in her subsequent suit against Talbot. According to Talbot, the release language was broad enough to cover any claim based on alleged fraud or misrepresentation. Hawkins countered that the trial court had “misread” the release and “erroneously applied it” to her later suit against Talbot.

As Division One observed, although Washington recognizes that a release may be voided where it was procured by fraud, misrepresentation, or overreaching, or where it arose from a mutual mistake, there are few Washington decisions interpreting releases in this context. Consequently, the parties mainly relied on case law from outside jurisdictions.

For its part, Talbot emphasized two decisions, one by a Michigan appeals court and another by the Eleventh Circuit applying Georgia law.

The Michigan case – Dresden v. Detroit Macomb Hospital Corp., 553 N.W.2d 387 (1996) – involved a medical malpractice suit in which a chest x-ray was allegedly misinterpreted. After the defendant hospital responded in the course of discovery that the x-ray couldn’t be found, the plaintiff settled the lawsuit and signed a release. Under its terms, the defendants were “released from liability for any and all claims that could have either been based upon or arisen out of the medical care rendered to [plaintiff] or in any manner related to [plaintiff].” The Michigan appeals court said this “broad language” barred a subsequent fraud claim brought by the plaintiff, who had learned after the settlement that the x-ray may have been destroyed to protect the doctor who misread it.

The Georgia case – Kobatake v. E.I. DuPont De Nemours & Co., 162 F.3d 619 (11th Cir. 1998) – involved a products liability action brought by several nursery owners whose plants were damaged by defendant manufacturers’ products. In conjunction with a post-trial settlement, the plaintiffs released defendants from, among other things, “any and all liability, claims, demands, damages or rights of action . . . of any kind or character” and “arising from the beginning of time to the present.” The Eleventh Circuit concluded that this (and other) release language barred a fraud claim later brought by the plaintiffs, who had since learned that defendants had destroyed harmful evidence and offered perjured testimony in defense of the first suit.

But the Hawkins court was unswayed by both Dresden and Kobatake. Instead, Division One concluded that a Ninth Circuit case applying Delaware law – Matsuuara v. Alston & Bird, 166 F.3d 1006 (9th Cir. 1999) – was “more persuasive.” There, the plaintiff nursery owners suffered property damage from defendant manufacturers’ fungicide. After settling their claims and signing general releases, the plaintiffs then sued defendants for fraudulently inducing the settlements. (The factual basis of the fraudulent inducement claim is unclear.)

For several reasons, the Matsuuara court held that plaintiffs’ fraud claims weren’t barred by the general releases:

Delaware law precluded the broad reading asserted by defendants. Under Delaware law, when specific recitals precede general language in a release, the recitals serve to restrict the general language. In Matsuuara, the releases began with a recital that plaintiffs intended to end “claims related to [their] purchase and/or use of Benlate . . . and all claims incident thereto.” The Ninth Circuit thus reasoned that the only claims released were those “likely to arise or naturally arising from the [underlying] product liability claims or the litigation, which in common understanding would not encompass claims for fraud.”

Given analogous case law in Delaware, the Ninth Circuit predicted that Delaware courts would likely impose a “clear statement requirement” for the release of fraudulent inducement claims.

Delaware courts have repeatedly shown reluctance to enforce unintended releases of fraud claims. If a release of “any and all claims” could bar a fraud action, “the alleged perpetrator of the fraud would have successfully silenced its victims by fraudulently inducing them blindly to agree in advance not to complain.” Thus, said the Ninth Circuit, Delaware courts won’t interpret a release to bar a fraud claim unless “the parties clearly and affirmatively expressed their intent to do so.”

Enforcing a general release so as to bar a fraud claim would undermine the policy of encouraging voluntary settlement of claims. “[I]f litigants cannot assume the disclosures and representations of the opposing party are made in good faith, they will be reluctant to settle.”

The Court of Appeals essentially adopted most of the reasoning in Matsuuara.

First of all, similar to Delaware law, said Division One, Washington holds that special recitals accompanying a release of all claims limit the scope of the release. Here, the release signed by Hawkins only released claims that “ar[o]se out of” the facts in her underlying complaint or “involve[d]” her diagnoses, care, and treatment at Talbot in July 2007. The court continued:

The fraudulent alteration of medical records does not “arise out of” antibiotics overdose or the medical negligence that caused it. Nor does it “involve” the patient’s diagnoses, care, or treatment in any meaningful sense. To the extent the Release is ambiguous, applying “arise out of” and “involve” to simply mean “related to,” as Talbot suggested in oral argument, is “doomed to failure” because “everything is related to everything else.”

The Court of Appeals next observed how the parties had not “clearly and affirmatively expressed their intent” to release Talbot from the alleged fraudulent inducement. “At minimum,” said the court, “the release should include a specific statement of exculpatory language referencing the fraud.”

Division One also assailed Talbot’s argument that Hawkins wasn’t entitled to rely on the accurateness and completeness of the records produced by the facility.

We find Talbot’s claim . . . disturbing because it strikes at the heart of the integrity of a process intended to facilitate both fair evaluation of cases for settlement and fair trials.

Finally, since the no-reliance clause made no reference to inducing fraud, the Court of Appeals rejected any notion that it barred Talbot’s fraud claims.

Assuming the truth of the facts stated in the complaint, Talbot altered medical records to shift responsibility for negligent treatment onto a third party, Dr. Chen. Talbot falsely asserted, in a discovery response signed by counsel, that it previously provided [Wilson] with accurate and complete records. And it convinced the trial court to dismiss [Hawkins’s] suit for fraud by enforcing a settlement agreement that defendants’ very fraud induced [Hawkins] to sign. Because the Release is not so broad that it covers fraudulent inducement of the Release itself and because the no-reliance clause does not expressly cover fraudulent inducement, the Release does not bar Hawkins’s fraud claims.

Although the issue relating to Hawkins’s “right to rely” on Talbot’s representations wasn’t part of the appeal, Division One addressed it anyway to “guide the trial court on remand.” For specifics, please review this section of the opinion.

As for Hawkins’s declaratory judgment claim, the Court of Appeals noted how declaratory relief is a “rare, exceptional remedy” – one requiring the plaintiff to “show the absence of [an] alternative remedy.” Since rescission provided an adequate remedy for Hawkins, this claim was properly dismissed, said the court.

One huge unanswered question is whether Hawkins must return the settlement funds before she can seek rescission. The Hawkins court gave no indication about how that issue might be decided, so it looks like the parties may have to dust off their prior briefing on this issue. Since hope springs eternal, however, maybe the Court of Appeals’ decision will trigger a new round of settlement negotiations between the parties – one that properly takes the complete and accurate medical records into account.

As for the rest of us, my hunch is that defense counsel and/or claims representatives will revisit their standard releases in medical malpractice cases and draft language that reads as broadly as possible. For example, maybe fewer “special recitals” and more all-inclusive language like that used in Kobatake, supra, where the plaintiffs released defendants from “any and all liability, claims, demands, damages or rights of action . . . of any kind or character” and “arising from the beginning of time to the present.” Unless your client clearly receives full value for his or her claim, it probably makes sense to review proposed releases with even greater scrutiny than before.

Andrew Bergh, WSTLA EAGLE member, former prosecutor and insurance defense attorney, now limits his practice to plaintiff's personal injury cases, including professional liability and insurance bad faith.