1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 I. PEREZ, a minor, by and through his Case No.: 16cv01911 JAH-MDD Guardian ad Litem, Israel Perez; and 12 NORMA PEREZ, ORDER 13 Plaintiff, 14 v. 15 UNITED STATES OF AMERICA, et. al., 16 Defendant. 17 18 19 On September 15, 2020, the Court issued Findings of Fact and Conclusions of Law 20 and Order which included a payment of future damages and noted Defendant invoked 21 California’s periodic payment statute, California Civil Procedure Code section 667.7. The 22 Court directed the parties to meet and confer on the payment of damages including future 23 damages by periodic payments and the schedule for such payments. In response, the parties 24 filed a joint statement regarding damages that presented the items on which the parties 25 reached agreement, their positions on payment of fees and a summary of their positions on 26 how the Court should order the United States to satisfy the periodic payment portion of the 27 judgment. In addition, the parties filed separate briefs addressing their positions on how 28 the United States should satisfy the periodic payment portion of the judgment. 1 II. The Parties’ Agreement 2 The parties agree that the present value of damages awarded by the Court, using the 3 net discount rates determined by the Court, are: 4 1. To Norma Perez for non-economic damages: $250,000. 5 2. To Norma Perez for past extraordinary parental care: $237,120. 6 3. To I. Perez for non-economic damages: $250,000. 7 4. To I. Perez for lost earning capacity (after offset): $3,437,205. 8 5. To I. Perez for future care: $20,631,055 9 Plaintiffs identified a preliminary Medi-Cal lien of $32,086 and costs of $320,000 10 for which Plaintiffs are responsible. The parties agree, to satisfy any final Medi-Cal lien, 11 the United States should pay to Plaintiffs’ counsel’s client trust account $60,000 and 12 counsel will escrow that amount until it obtains full and final satisfaction of the Medi-Cal 13 lien. If any balance remains after full and final satisfaction of the Medi-Cal lien, Plaintiffs’ 14 counsel will pay the balance to an account in the name of, or for the benefit of, I. Perez, 15 but not the periodic payment judgment account created by the Court. To satisfy costs, the 16 parties agree that the United States should pay to Plaintiffs’ counsel’s client trust account 17 $320,000. Plaintiffs’ counsel will reimburse Norma Perez any amount recovered as taxable 18 costs. The parties further agree that both amounts will come from future care payments for 19 I. Perez for years after the age of 18. 20 The parties agree that Plaintiffs’ counsel’s fees, capped at 25%, are $6,201,345, 21 present value. 22 II. Attorneys’ Fees 23 As noted above, the parties agree on the amount of attorneys’ fees. However, they 24 do not agree how fees should be satisfied. The preferable approach is an immediate 25 payment from any cash payment received by the client. Nguyen v. Los Angeles Cty. 26 Harbor/UCLA Med. Ctr., 40 Cal. App. 4th 1433, 1444 (1995). However, this approach 27 may not be in the best interest of the client when, like here, the cash payment is insufficient 28 to cover fees. Additionally, deferring payment of fees to pay out from periodic payments 1 puts counsel at risk of not recovering the full amount of fees in the event of the client’s 2 death. See id. at 1445. There are, however, approaches which would allow the full amount 3 of attorney fees to be paid immediately and the parties suggest two alternatives. 4 To satisfy fees, Plaintiffs propose that funds be appropriated as follows: (1) $250,000 5 from I. Perez’s non-economic damages; (2) from the damages awarded for I. Perez’s future 6 loss of earnings capacity, and (3) from the damages awarded for I. Perez’s future care costs 7 beginning at age 18. Plaintiffs contend the proposed appropriations from I. Perez’ future 8 loss of earnings capacity and damages for future care costs are pro rata based on the 9 respective percentages that each of these elements of damages comprises of the total in 10 present value dollars. 11 Defendant proposes that the Court order the United States to satisfy attorneys’ fees 12 from the following sources, in seriatim, until exhausted: I. Perez’s non-economic damages; 13 I. Perez’s lost earning capacity award; then I. Perez’s future care damages for ages 18 14 through the end of life. Defendant maintains this is consistent with California law and cites 15 Nguyen and Horvitz & Levy, MICRA Manual (2012) in support. 16 Plaintiffs maintain Defendant’s proposed method of satisfying attorneys’ fees by 17 exhausting damages for future loss of earnings capacity before appropriating funds from 18 damages for future care costs, rather than simply allocating funds from each based on their 19 relative proportions of the present value judgment, results in a significant shortfall to I. 20 Perez with regard to the future payment stream.1 Plaintiffs argue this is contrary to the 21 legislative intent of section 667.7. They further argue the Nguyen decision did not 22 distinguish between damages for future lost earning capacity and those for future care costs 23 and maintain the Horvitz & Levy MICRA Manual (2012), does not cite any legal authority 24 to support its conclusory statement that, in satisfying attorneys’ fees from future damages, 25 26
27 1 Plaintiffs point to the difference between their proposed future payout with the Defendants’ proposed 28 1 future loss of earnings capacity damages should be exhausted before appropriating funds 2 from future care costs. 3 Nguyen, a medical malpractice action, involved an appeal of the trial courts’ denial 4 of Plaintiff’s counsel’s motion to amend the judgment to determine the amount of 5 attorneys’ fees, and for an order directing payment of the fees attributable to future periodic 6 payments in a lump sum with a credit for that payment to be applied to future periodic 7 payments to the plaintiff. 40 Cal.App.4th 1444. Finding the court lacked jurisdiction to 8 amend the periodic payment final judgment, the California Court of Appeal affirmed the 9 trial court’s decision. Id. at 1447. In its decision, the court discussed what it described as 10 the “pay and recoup” approach for payment of attorneys’ fees, reducing all or a part of the 11 periodic payments by an amount sufficient to cover the balance of attorney fees and add 12 that sum to the up-front cash payment under the judgment. The court, however, did not 13 discuss whether future loss of earnings capacity should be exhausted as part of the “pay 14 and recoup” method. See id. at 1446. As such, it does not support Defendant’s proposed 15 plan for payment of attorneys’ fees. 16 Additionally, the Court is not persuaded by the unsupported suggestion in the 17 Horvitz & Levy MICRA Manual that future lost earnings capacity should be exhausted for 18 payment of attorneys’ fees in light of the resulting shortfall to Plaintiff I. Perez. 19 Accordingly, the Court finds Plaintiffs’ proposal for payment of attorneys’ fees is 20 the appropriate approach. 21 III. Periodic Payment Award 22 Defendant invokes California’s periodic payment statute, California Civil Procedure 23 Code section 667.7 which reads, in relevant part: 24 (a) In any action for injury or damages against a provider of health care services, a superior court shall, at the request of either party, enter a judgment ordering that 25 money damages or its equivalent for future damages of the judgment creditor be paid 26 in whole or in part by periodic payments rather than by a lump-sum payment if the award equals or exceeds fifty thousand dollars ($50,000) in future damages.
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 I. PEREZ, a minor, by and through his Case No.: 16cv01911 JAH-MDD Guardian ad Litem, Israel Perez; and 12 NORMA PEREZ, ORDER 13 Plaintiff, 14 v. 15 UNITED STATES OF AMERICA, et. al., 16 Defendant. 17 18 19 On September 15, 2020, the Court issued Findings of Fact and Conclusions of Law 20 and Order which included a payment of future damages and noted Defendant invoked 21 California’s periodic payment statute, California Civil Procedure Code section 667.7. The 22 Court directed the parties to meet and confer on the payment of damages including future 23 damages by periodic payments and the schedule for such payments. In response, the parties 24 filed a joint statement regarding damages that presented the items on which the parties 25 reached agreement, their positions on payment of fees and a summary of their positions on 26 how the Court should order the United States to satisfy the periodic payment portion of the 27 judgment. In addition, the parties filed separate briefs addressing their positions on how 28 the United States should satisfy the periodic payment portion of the judgment. 1 II. The Parties’ Agreement 2 The parties agree that the present value of damages awarded by the Court, using the 3 net discount rates determined by the Court, are: 4 1. To Norma Perez for non-economic damages: $250,000. 5 2. To Norma Perez for past extraordinary parental care: $237,120. 6 3. To I. Perez for non-economic damages: $250,000. 7 4. To I. Perez for lost earning capacity (after offset): $3,437,205. 8 5. To I. Perez for future care: $20,631,055 9 Plaintiffs identified a preliminary Medi-Cal lien of $32,086 and costs of $320,000 10 for which Plaintiffs are responsible. The parties agree, to satisfy any final Medi-Cal lien, 11 the United States should pay to Plaintiffs’ counsel’s client trust account $60,000 and 12 counsel will escrow that amount until it obtains full and final satisfaction of the Medi-Cal 13 lien. If any balance remains after full and final satisfaction of the Medi-Cal lien, Plaintiffs’ 14 counsel will pay the balance to an account in the name of, or for the benefit of, I. Perez, 15 but not the periodic payment judgment account created by the Court. To satisfy costs, the 16 parties agree that the United States should pay to Plaintiffs’ counsel’s client trust account 17 $320,000. Plaintiffs’ counsel will reimburse Norma Perez any amount recovered as taxable 18 costs. The parties further agree that both amounts will come from future care payments for 19 I. Perez for years after the age of 18. 20 The parties agree that Plaintiffs’ counsel’s fees, capped at 25%, are $6,201,345, 21 present value. 22 II. Attorneys’ Fees 23 As noted above, the parties agree on the amount of attorneys’ fees. However, they 24 do not agree how fees should be satisfied. The preferable approach is an immediate 25 payment from any cash payment received by the client. Nguyen v. Los Angeles Cty. 26 Harbor/UCLA Med. Ctr., 40 Cal. App. 4th 1433, 1444 (1995). However, this approach 27 may not be in the best interest of the client when, like here, the cash payment is insufficient 28 to cover fees. Additionally, deferring payment of fees to pay out from periodic payments 1 puts counsel at risk of not recovering the full amount of fees in the event of the client’s 2 death. See id. at 1445. There are, however, approaches which would allow the full amount 3 of attorney fees to be paid immediately and the parties suggest two alternatives. 4 To satisfy fees, Plaintiffs propose that funds be appropriated as follows: (1) $250,000 5 from I. Perez’s non-economic damages; (2) from the damages awarded for I. Perez’s future 6 loss of earnings capacity, and (3) from the damages awarded for I. Perez’s future care costs 7 beginning at age 18. Plaintiffs contend the proposed appropriations from I. Perez’ future 8 loss of earnings capacity and damages for future care costs are pro rata based on the 9 respective percentages that each of these elements of damages comprises of the total in 10 present value dollars. 11 Defendant proposes that the Court order the United States to satisfy attorneys’ fees 12 from the following sources, in seriatim, until exhausted: I. Perez’s non-economic damages; 13 I. Perez’s lost earning capacity award; then I. Perez’s future care damages for ages 18 14 through the end of life. Defendant maintains this is consistent with California law and cites 15 Nguyen and Horvitz & Levy, MICRA Manual (2012) in support. 16 Plaintiffs maintain Defendant’s proposed method of satisfying attorneys’ fees by 17 exhausting damages for future loss of earnings capacity before appropriating funds from 18 damages for future care costs, rather than simply allocating funds from each based on their 19 relative proportions of the present value judgment, results in a significant shortfall to I. 20 Perez with regard to the future payment stream.1 Plaintiffs argue this is contrary to the 21 legislative intent of section 667.7. They further argue the Nguyen decision did not 22 distinguish between damages for future lost earning capacity and those for future care costs 23 and maintain the Horvitz & Levy MICRA Manual (2012), does not cite any legal authority 24 to support its conclusory statement that, in satisfying attorneys’ fees from future damages, 25 26
27 1 Plaintiffs point to the difference between their proposed future payout with the Defendants’ proposed 28 1 future loss of earnings capacity damages should be exhausted before appropriating funds 2 from future care costs. 3 Nguyen, a medical malpractice action, involved an appeal of the trial courts’ denial 4 of Plaintiff’s counsel’s motion to amend the judgment to determine the amount of 5 attorneys’ fees, and for an order directing payment of the fees attributable to future periodic 6 payments in a lump sum with a credit for that payment to be applied to future periodic 7 payments to the plaintiff. 40 Cal.App.4th 1444. Finding the court lacked jurisdiction to 8 amend the periodic payment final judgment, the California Court of Appeal affirmed the 9 trial court’s decision. Id. at 1447. In its decision, the court discussed what it described as 10 the “pay and recoup” approach for payment of attorneys’ fees, reducing all or a part of the 11 periodic payments by an amount sufficient to cover the balance of attorney fees and add 12 that sum to the up-front cash payment under the judgment. The court, however, did not 13 discuss whether future loss of earnings capacity should be exhausted as part of the “pay 14 and recoup” method. See id. at 1446. As such, it does not support Defendant’s proposed 15 plan for payment of attorneys’ fees. 16 Additionally, the Court is not persuaded by the unsupported suggestion in the 17 Horvitz & Levy MICRA Manual that future lost earnings capacity should be exhausted for 18 payment of attorneys’ fees in light of the resulting shortfall to Plaintiff I. Perez. 19 Accordingly, the Court finds Plaintiffs’ proposal for payment of attorneys’ fees is 20 the appropriate approach. 21 III. Periodic Payment Award 22 Defendant invokes California’s periodic payment statute, California Civil Procedure 23 Code section 667.7 which reads, in relevant part: 24 (a) In any action for injury or damages against a provider of health care services, a superior court shall, at the request of either party, enter a judgment ordering that 25 money damages or its equivalent for future damages of the judgment creditor be paid 26 in whole or in part by periodic payments rather than by a lump-sum payment if the award equals or exceeds fifty thousand dollars ($50,000) in future damages. In 27 entering a judgment ordering the payment of future damages by periodic payments, 28 1 the court shall make a specific finding as to the dollar amount of periodic payments which will compensate the judgment creditor for such future damages. 2
3 Although the FTCA prohibits imposing future obligations on the United States, it 4 “authorizes courts to craft remedies that approximate the results contemplated by state 5 statutes.” Dutra v. United States, 478 F.3d 1090, 1092 (9th Cir. 2007). 6 Defendant contends the Court may best approximate the results contemplated by 7 section 667.7 if it directs Defendant to pay the present value of the periodic payment 8 damages to a trustee bank and instructs the bank to prudently invest the funds and make 9 the periodic payments in the specified amounts on the specified dates. Defendant maintains 10 numerous courts applying California law to FTCA cases awarded future damages subject 11 to periodic payments in present value. 12 Plaintiffs contend Defendant’s proposal shifts the risk of a depletion of the funds 13 from bad investments, market downturn, financial institution failure, or malfeasance, to 14 Plaintiff I. Perez. Because there is no way to both provide I. Perez with the protections 15 afforded to a California plaintiff by section 667.7 and grant Defendant’s request for a 16 periodic payments judgment, in light of the prohibition of future obligations, they contend 17 an approximation of section 667.7 must include some kind of “workaround” that provides 18 a substantially equivalent protection to Plaintiff from an interruption in his payment stream. 19 Plaintiffs propose two alternatives to satisfy the judgment which, they maintain 20 reasonably approximates California law and relieves Plaintiff I. Perez of most of the risk 21 of investment loss. Their first proposed method involves the Court ordering (1) Defendant 22 deposit the full future value of all periodic payments with a trustee; (2) the trustee pay to 23 Plaintiff each scheduled periodic payment as ordered by the Court; and (3) the United 24 States retains a reversionary interest and all accrued interest and unmade payments upon I. 25 Perez’s death or satisfaction of all payments. The second method requires the Court order 26 (1) Defendant to purchase from an A++ Rated (by A.M. Best Insurance Guide), Class XV 27 Life Insurance Company a series of date certain annuities to be made on the dates 28 corresponding to each future payment ordered by the Court, pursuant to the judgment; (2) 1 that each such annuity contract be guaranteed, meaning that the payment would be made 2 whether or not I. Perez is living, and the contingent beneficiary would be the United States, 3 so that, if I. Perez is not living as of the date of any scheduled payment, the payment would 4 be made to the United States. 5 Defendant argues there is no basis for Plaintiffs’ proposed “workaround” to protect 6 I. Perez from the risk of insufficient funds being available to cover all future damages by 7 ordering Defendant to pay an amount equal to the total future value of all the periodic 8 payments. Defendant contends courts have determined an immediate large lump sum 9 present value payment approximates section 667.7 and provides a plaintiff the ability to 10 invest this large sum throughout the plaintiff’s life. Defendant also challenges Plaintiffs’ 11 alternative method. Defendant contends the Court has no authority to order the United 12 States to purchase annuity products because the FTCA does not provide courts authority to 13 order equitable or injunctive relief. 14 Defendant maintains section 667.7 has certain safeguards to minimize the possibility 15 of incomplete payments but it does not guarantee against incomplete payments. Here, 16 Defendant contends, any risk is negligible. 17 Courts applying section 667.7 have determined lump sum present value payments 18 sufficiently approximate California’s law. See Cibula v. United States, 664 F.3d 428, 436 19 (4th Cir. 2012). The court in Cibula recognized there was no guarantee that the lump sum 20 payment will cover all of the plaintiff’s future care costs but reasoned the district court had 21 the authority to fashion a reversionary trust that would allow the plaintiff flexibility in 22 paying the future care. Additionally, the court reasoned granting the Government a 23 reversionary interest in the future care award eliminates the potential for a windfall without 24 rendering the award less sufficient compensation, and therefore, it approximates section 25 667.7. 26 This Court finds the reasoning of Cibula persuasive in determining what approach 27 best approximates section 667.7 and best addresses the interests of the parties and 28 protections afforded by the California statute. 1 CONCLUSION AND ORDER 2 The Court finds it appropriate to hold a conference to discuss the form of the 3 || judgment based upon the determinations above. Accordingly, IT IS HEREBY ORDERED 4 ||a telephonic conference will be held before this Court on February 10, 2021 at 10:30 a.m. 5 ||Court staff will contact the parties in advance of the hearing to provide instructions to 6 || participate. 7 DATED: January 19, 2021 8 9 JOAN A. HOUSTON 10 United States District Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28