There’s a nice interview today on the Massachusetts Lawyers Weekly website with the general counsel of Boston’s Beth Israel Deaconess Medical Center, Patricia McGovern. While the story is interesting enough in and of itself on the subject of the structure of a major hospital law department, I took particular note of Ms. McGovern’s comment that the hospital will be impacted by the Massachusetts Health Care Reform Act because of its expected effect on the state’s subsidized care pool. I have generally focused on that statute from the point of view of its impact on the business community and in particular on multi-state employers, and this was an excellent reminder that the statute is of concern to other affected parties for reasons unique to them.

I’m really veering off topic here on today’s post, although I have in the past managed to post about the billable hour system and link it to the question of how policyholders should pay their lawyers in insurance coverage disputes. Today, though, I won’t even rely on that fig leaf, preferring instead to just pass along an excellent article on an issue that both every lawyer and every client who reads this blog has given at least some thought to – the inherent problems of the billable hour. I have talked before on occasion about issues related to the billable hour, such as in this post, and this is a very common subject of discussion for legal bloggers – to the point where one even has a law firm whose business model rests primarily on its abolishment. Scott Turow, who has been the most successful of an entire generation of lawyer/fiction writers at combining practicing law at a high level with writing at the same level (I’m not going to debate here the literary values of John Grisham’s novels in comparison, but will note only that he gave up practicing for all intents and purposes when the book sales took off) has this excellent piece in the ABA Journal about the billable hour and his discomfort with it.

One thing I liked in particular about it was that, despite laying out – as all critics of the system do – his criticisms of the billable hour system, he notes that marketplace forces place some checks on its possible abuse. To me this goes directly to an important point that I think, as a regular reader of critical analyses of client billing, gets overlooked in many articles complaining about the billable hour: namely, that clients are more interested in whether they receive value for their dollar than they are in the particularities of how they are billed, whether by the hour or in an alternative method. Like all of us, they want to pay the right price for the right services, something pointed out in the anecdotes in this companion piece right here from the same issue of the ABA Journal. There’s nothing inherent in the billable hour model that prevents that, and that, combined with the fact that most lawyers do actually manage to bring about fair pricing despite the use of that billing system, is, more than any other reason, why it is still here with us.

Want to learn more about insurance bad faith litigation? Well, you could retain me, but if you want something more off the rack, here is a nice looking seminar, with a well credentialed faculty, on the subject. Of course, for local readers, it is important to note that the seminar looks to provide a general overview, as most seminars do, concerning overall principles related to insurance bad faith litigation. Here in Massachusetts, the issues would be a little different and have their own peculiar twists and turns, because we are one of the few jurisdictions with a unique bad faith statute actually granting a bad faith cause of action to policyholders and injured parties; litigating a bad faith case here requires a deep understanding of years of court rulings applying that statute.

Roy Harmon over at his excellent Health Plan Law blog has the story of the decision last week by the United States District Court for the Eastern District of New York in Retail Industry Leaders Association v. Suffolk County, in which the court ruled that the Suffolk County Fair Share for Health Care Act (basically yet another local initiative directed at forcing Wal-Mart to provide greater health care coverage for its employees) is preempted by ERISA. The court’s opinion makes much of the fact that any attempt by a multi-state employer to comply with the statute would require the employer to create a different and separate administrative structure for that lone jurisdiction covered by the act, and that ERISA preemption applies as a result. The court’s approach drives home two points that I have commented on earlier in other posts on this blog.

First, with each local or state ordinance that is struck down as preempted, despite the attempt of each locality to insist that its statute is so fair or unintrusive that it should be left standing and it is alright if an employer has to do something different just with respect to that particular jurisdiction, it becomes apparent- or should, anyway, to anyone thinking through the issue – that, whatever the intentions of proponents of state laws altering health insurance on a state wide level, problems with the availability of health care and health insurance simply cannot be solved currently by a balkanized, state by state approach. Only addressing the problem at the federal level can possibly succeed; any other approach will result in employers facing the type of multiple and diverse administrative regimes that was rejected by the court in this most recent decision and that can only result in preemption.

Second, this decision points out that those who do not think that Massachusetts’ Health Care Reform Act is probably preempted are likely just whistling past the graveyard. Massachusetts’ statute is a fairly written and broadly applicable statute, and not the type of statute, like the one found preempted by the Eastern District of New York in this most recent preemption decision, that is simply a punitive statute, masquerading as a piece of broad based health care reform, directed at essentially one employer or one small class of employers (think big box retailers). Nonetheless, the exact same structural burdens and case law analyzed in the Eastern District’s decision likewise lead to the exact same conclusion – that ERISA preempts the act – when applied to the Massachusetts Health Care Reform Act. In truth, all you really need to do is globally replace the references in the Eastern District’s decision to the Suffolk County act with references to the Massachusetts statute, and you have the future ruling finding that the Massachusetts act is preempted.

Having recently tried a patent infringement case to a jury, I was amused by this article in IP Law & Business pointing out that patent cases are almost never tried and few patent lawyers have actually tried a case to a jury. The key statistic is here, in this line in the article: “there were only 102 jury trials about patent disputes in 2006, out of 2,830 such cases filed, according to the Administrative Office of the U.S. Courts.” I had a lot of fun trying the case, and am circulating an article for publication based on lessons learned from it, but given these numbers, I can only wonder how soon it will be before I get another one past the hurdles of settlement and summary judgment, and into trial.

On a more substantive note, this article here recounts the research of James Bessen, a lecturer at Boston University Law School, who has found that the costs of patent infringement litigation actually exceed the economic value across all industries of patenting inventions. That’s a lot of legal fees, for a field of litigation that almost never gives rise to a trial. More interestingly, Bessen has gathered statistics suggesting that for many industries and many business people, pursuing patents may not be a profitable, or even useful, business strategy. His data points towards something we already know, which is that for those industries, such as the pharmaceutical industry, where holding exclusive rights on a product is crucial, the patent system drives both innovation and large profits, but that for decision makers in other industries, seeking a patent may not always be the best way to proceed with regard to a given product. Certainly though, for the individual inventor, it is probably the necessary first step to ever being able to successfully maintain marketplace control and exploitation of an invention, no matter if, across the economic universe as a whole, businesses may spend more money litigating patent disputes than they earn off of patents.

Been away from the desk for a few days, but not away from my reading, and there’s been a whole series of things in the media that may be of interest to those who read this blog that I have meant to pass along and comment on. I am going to try to post frequent but shorter notes for the next day or three until I cover them all, starting with one that most clearly and directly falls within the jurisdiction of this blog, concerning the payment of fees to a quasi-retirement plan sponsor. Many of you may have already seen the story, from the New York Times, which concerns payments received by the National Education Association from financial firms whose investment products it recommended to members. As the article explains:

A lawsuit filed last week in federal court in Washington State contends that the National Education Association breached its duty to members by accepting millions of dollars in payments from two financial firms whose high-cost investments it recommended to members in an association-sponsored retirement plan. The case was filed on behalf of two N.E.A. members who had invested in annuities sold by Nationwide Life Insurance Company and the Security Benefit Group. It contends that by actively endorsing these products, which carry high fees, the N.E.A., through its N.E.A. Member Benefits subsidiary, took on the role of a retirement plan sponsor, which must put its members’ interests ahead of its own. By taking fees from the two companies whose annuities N.E.A. Member Benefits recommended to its members, the N.E.A. breached its duty to them, the suit contends.

The article goes on to explain some tricks and twists that the plaintiffs face in trying to press their suit against the N.E.A. related to the payments and the high cost products, namely that the plaintiffs need to shoehorn the case into ERISA by arguing that “because the N.E.A. actively promoted the annuity products to its members, it essentially stepped in as a plan sponsor [thereby making] it subject to Erisa’s fiduciary duty requirements.”

With regard to this problem, concerning the plaintiffs’ need to figure out the best manner to structure their lawsuit, what you are really seeing is the problem of forcing a square peg into a round hole. I have argued in other posts that, as we move decisively from a defined benefit plan world to a defined contribution world, and thereby make plan participants the bearers of all the risks of their retirement investments, we need to simultaneously provide those plan participants with the legal protections and tools to manage those risks, including the types of risks alleged in this case, of misleading investment recommendations, undisclosed payments, and excessive costs.

I hope to keep an eye on this case going forward, as it may provide an excellent window on the question of whether, and if so how, the law can evolve to deal with these changes in the real world environment in which people now must prepare for retirement.

A couple of loyal blog readers have commented that I have veered off a good bit on digressions this past couple weeks, and I can’t deny it – maybe it’s a lawyer’s version of a summer fling. Anyway, today I return to a central focus of this blog, ERISA and, in particular today, investment advisors and their potential liability as fiduciaries. This law firm newsletter, passed on by the Workplace Prof, has a nice discussion of the question of when a broker or other investment advisor to a defined contribution plan (and I suppose a defined benefit plan as well) crosses the line, by rendering professional services to the plan, into the dangerous realm of being deemed a fiduciary. The Prof highlights the following discussion from the newsletter:  

[T]here are lawsuits and NASD arbitrations claiming that brokers have become ERISA fiduciaries. They are, in the main, based on allegations that the brokers gave investment advice. The cases are usually filed by the plan sponsor or its fiduciaries (e.g., the responsible officers, the committee or the trustee) to recover investment losses. Some of those cases are won by the plans and others are won by the brokers. The legal issue is whether the broker made investment recommendations that rose to the level of ERISA-defined “investment advice,” which is different than either the securities law definition or the conversational meaning of those words. Stated slightly differently, ERISA did not make every broker a fiduciary, nor did it turn every investment recommendation into fiduciary advice. Instead, ERISA and the DOL regulations crafted a specific and limited definition of fiduciary investment advice.

This is a nice summary of the point addressed in the newsletter, but as one of my law school professors liked to say whenever someone stopped after the first part of a holding, you need to read on. When you go the newsletter itself, you find that the summary really reflects simply the holding under a particular, and detailed, set of facts from one particular case. And that is exactly as it should be. The determination of whether a particular broker or other financial advisor to a plan became a fiduciary as a result of investment advice rendered to the plan is highly fact specific, and should turn on exactly what events occurred in any one particular case. As a result, one neither can nor should jump to any particular conclusion about the fiduciary status – and accompanying potential exposure – of any particular broker or advisor (or of brokers or advisors as a class) from the newsletter, the case discussed in the newsletter, or the Prof’s post. Instead, it is important to analyze the status of a particular broker on the basis of the exact role played by that particular broker or advisor with regard to a particular plan.

Wow, don’t think Massachusetts’ health care reform law doesn’t dictate to employers what type of health insurance to provide, only in a more subtle way than the state of Maryland did with its Fair Share Act based – but unsuccessful, thanks to ERISA preemption- attempted bludgeoning of Wal-Mart? At the risk of picking a fight, which isn’t the reason I write this blog (trust me, with my practice, I have enough fights going on at any given time, without looking for one more), this seems to be what Brian King, over at his ERISA Law Blog, thinks. But it is hard to square that view with this article right here, from the Boston Globe today, explaining how the state’s largest health insurer has abandoned plans to offer employers the opportunity to provide employees with a healthcare plan involving only a 33% contribution by the employer, because of pressure from the state government, which wants higher contribution limits so as to better implement the state’s health care reform act.

Now I am not saying that a one third contribution by employers is what we should want, but there may well be businesses for whom that type of plan makes sense, and for whose employees it is a better option than whatever else the employer could afford. And there is little doubt, as you see in this article, that this is a choice that is being taken away from employers by state action, as a result of the health care reform act. In essence, the state is dictating higher employer contribution limits, apparently wanting them to be at 50% or better.

Now Brian’s post is about preemption, and whether the state act imposes the types of restrictions on employers that could render the act preempted. Requiring these higher levels of contribution by employers doesn’t necessarily mean the act is subject to ERISA preemption, but it is the kind of action that defeats the argument that the state’s health care reform act only minimally infringes on employers’ operation of their benefit plans and thus is not invasive enough to warrant preemption, an argument that I seem to see more and more when it comes to the Massachusetts health reform act.

The other thing about electronic discovery and the federal rules that was on my mind yesterday, as I mentioned in yesterday’s post, is emails, with the thoughts provoked by this article here on discovering emails from opposing parties. Now one mistake people often make when they are first confronted with the federal e-discovery rules is thinking that they govern and are really about the production of emails, and this mistake is understandable, given that nothing has become more ubiquitous in business life than email. But there is, with one exception, nothing special about email when it comes to the production of documents. Instead, as this article points out, emails should be seen as nothing more than correspondence or other types of routine business documents that must be produced if they concern the case; the easiest way to think about it is to view them as though they were letters, and think about whether they must be produced in the same way one would analyze whether a collection of letters is relevant and must be produced.

The only difference is, and this is where the e-discovery rules come into play, is that correspondence can only be produced if it physically was saved somewhere in a file; for cases involving events from some time in the past, it may well be the case that many letters have been discarded or were never kept, and thus they cannot be produced. For purposes of the litigation, it is as if they never existed, except and to the extent you can get someone to testify about their contents, and even then only if that testimony about the contents would be admissible. Otherwise, those letters may as well never have existed, at least for purposes of litigation.

And this is where email differs, because while someone may have long ago deleted emails from their own in-boxes, they may still exist elsewhere in a network or may be stored in back up formats. And what the electronic discovery rules essentially require is that, in that case, a party to litigation not treat the deleted emails as though they were discarded written correspondence, but instead go back into the computer system and the back up storage and either locate and produce those emails, or document that it would be just too dang expensive to do so. And the way the decisions applying the federal electronic discovery rules are going, I would expect it to be the first option, and wouldn’t count on successfully invoking the second. This, in turn, is why electronic discovery vendors and e-discovery lawyers are routinely advising companies now to be proactive when it comes to retention of such computerized information as emails, so that they are saved and sorted even in the absence of litigation, in a manner allowing their – relatively – easy access and searching if a lawsuit ever is instituted.

A couple of thoughts that are on my mind today about electronic discovery, concerning a couple of articles related to the subject. The first, which I will talk about today (I will return to the other tomorrow, assuming no breaking news pushes me on to a different topic) has to do with some comments in this article here, which concerns continued disputes over the existence in Massachusetts of a court session dedicated to business disputes, or to so-called complex litigation. For those of you who don’t practice in Massachusetts, the state court system here has a judge rotation system that, at a minimum, it is fair to say tends to seem somewhat unusual, at best, to out of state lawyers litigating here. Under the system, rather than having one judge assigned to a case from beginning to end, the judges rotate from courtroom to courtroom and often from courthouse to courthouse, while the cases stay put in the same courtroom (known here as the cases staying in a particular “session”), with the result that different judges preside over the same case at different times. There are historical reasons for this, and people, including me, have lots of strong opinions, both pro and con, about this system, none of which I will delve into here. The business litigation session, among other things, mostly is a change from this rotation system; for cases deemed to qualify for the session, they stay with the same judge, who sits continually in the business litigation session.

Okay, with the history and context lesson done, on to my point. In the article, the suggestion is made that one potential benefit of litigating a business dispute in the state’s business litigation court is avoiding the electronic discovery rules of the federal courts, where most parties, as long as they can obtain jurisdiction, are likely to file complex business cases. I don’t really think that idea is quite right. In the first instance, avoiding the electronic discovery rules doesn’t change the fact that, in almost every complicated business dispute, you are going to have significant issues related to discovery of electronically stored information. You are not going to avoid this by being in state court, but are only going to avoid the now applicable federal rules governing disputes over such data. The federal courts have far more resources to deal with extensive discovery disputes over these issues than do the state courts in Massachusetts, including, among other things, lower case loads per judge and access to magistrate judges to assign discovery disputes to. So it may well be that a party that is anticipating electronic discovery and the discovery disputes that inevitably accompany it and chooses the state court system for that reason will simply be inadvertently shooting itself in the foot if it elects state court for that reason. It is not avoiding such discovery, only the federal rules that govern it, while putting the issue before a court with less resources to handle it. And second, if there is federal court jurisdiction over the case, the idea of preferring the state court’s business litigation session for purposes of avoiding the federal electronic discovery rules only makes sense if all parties to the case agree to doing so – otherwise, the case is simply going to get removed to the federal court by the defendant. So I don’t really think that the existence of the federal electronic discovery rules is really an argument for the existence or use of the state court’s business litigation session.