![The Insurance Coverage Law Information Center
The following article is from National Underwriter’s latest online resource,
FC&S Legal: The Insurance Coverage Law Information Center.
JUDGE POSNER DISMISSES “FRIVOLOUS” APPEAL OF CONTEMPT
ORDER IN SUBROGATION CASE AND ORDERS DISTRICT COURT TO
CONSIDER WHETHER LAWYER AND CLIENT SHOULD BE JAILED
March 17, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal
Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit has written the opinion for a panel of three
judges dismissing a “frivolous” appeal by a lawyer and his client from a district court order holding them in contempt in
a subrogation case.
The Case
As Judge Posner explained, Beverly Lewis was injured in an automobile accident in Georgia and her health plan paid
approximately $180,000 for the cost of her medical treatment. Represented by Georgia lawyer David T. Lashgari, Ms.
Lewis brought a tort suit in Georgia state court against the driver of the car involved in the accident (her son-in-law), and
obtained a $500,000 settlement. The health plan had, and, Judge Posner wrote, Mr. Lashgari “knew it had,” a subrogation
lien that granted it the right to offset the cost that the plan had incurred as a result of the accident against any money that
Ms. Lewis obtained in a suit arising out of the accident.
As Judge Posner observed, the lien was a secured claim against the proceeds of the settlement. However, Judge Posner
continued, when Mr. Lashgari received the settlement proceeds, instead of giving $180,000 of the $500,000 to the plan,
he split the proceeds between himself and his client. Judge Posner said that the attorney claimed that the plan was
owed nothing because the settlement had been intended solely to compensate Ms. Lewis for the driver’s “post-accident
tortious conduct” against her. Judge Posner rejected that contention, declaring, “[t]hat’s nonsense” and pointing out
that the settlement agreement stated that it:
encompass[ed] all claims and demands whatsoever that were or could have been asserted … [for] damages, loss,
or injury … which may be traced either directly or indirectly to the occurrences set forth in the aforesaid civil action
[the personal injury suit arising from the accident] … no matter how remotely they may be related to the aforesaid
occurrences.
Judge Posner also pointed out that “[e]ven the check that [Mr.] Lashgari wrote to [Ms.] Lewis for her share of the
proceeds” stated that it was “for settlement of all 10/08/08 claims” – and October 8, 2008 was the date of the accident.
Judge Posner noted that Mr. Lashgari’s “refusal to honor the subrogation lien” precipitated a lawsuit brought by the
health plan against Ms. Lewis and Mr. Lashgari under ERISA to enforce its lien.
The defendants argued in the district court that because the settlement funds had been dissipated, the health plan’s suit
was a suit for damages – that is, a suit at law rather than in equity – and therefore not authorized by 29 U.S.C. § 1132(a)(3).
Judge Posner also rejected that argument, declaring that, “the defendants are wrong. The plan wasn’t required to trace
the settlement proceeds” because its equitable lien “automatically gave rise to a constructive trust” of the defendants’
assets.
The health plan moved the district court for entry of a preliminary injunction against the defendants’ disposing of the
settlement proceeds until the plan received its $180,000 share. The district court judge granted the motion and also
ordered the defendants to place at least $180,000 in Mr. Lashgari’s client trust fund account pending final judgment
in the case.
Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com](https://image.slidesharecdn.com/judgeposnerdismissesfrivolousappealofcontemptorderinsubrogati-140504170033-phpapp02/85/Judge-Posner-Dismisses-Frivolous-Appeal-of-Contempt-Order-in-Subrogation-Case-and-Orders-District-Court-to-Consider-Whether-Lawyer-and-Client-Should-Be-Jailed-1-320.jpg)
![As Judge Posner noted, however, the defendants complied with neither order and, a year later, with the defendants
having neither placed any part of the $180,000 in a trust account as ordered nor produced any evidence of their inability
to pay, the district court judge held them in civil contempt, ordered them to produce records that would establish their
financial situations, and ordered Mr. Lashgari to submit a variety of documents relating to the contempt to the general
counsel of the State Bar of Georgia for possible disciplinary proceedings against him.
The defendants appealed.
The Seventh Circuit’s Decision
The circuit court dismissed the appeal.
Judge Posner found that the defendants’ appeal brief was “a gaunt, pathetic document.” He wrote that the supporting
documents submitted by the defendants on appeal demonstrated that Ms. Lewis and Mr. Lashgari had “willfully ignored
the plan’s lien against the settlement proceeds.”
Judge Posner said that the defendants “may think that a mere assertion of inability to pay made in an affidavit (and thus
under oath) preclude[d] a finding of contempt,” but declared that that was “[n]ot so.”
Judge Posner then ruled that the appeal was “frivolous,” and, noting that the health plan had asked the circuit court not
only to dismiss the appeal but also to award, as “just damages” authorized by Fed. R. App. P. 38, the attorneys’ fees that
the plan has incurred in defending against the appeal, ordered the defendants to show cause why they should not be
sanctioned under Rule 38 for filing a frivolous appeal. Judge Posner concluded:
The defendants’ conduct has been outrageous. After resolving the merits of the underlying suit, the district court
should give serious consideration to transmitting copies of this opinion and the record to the Department of Justice
and to the General Counsel of the Georgia Bar. In the meantime, we direct the district court to determine whether the
defendants should be jailed (a standard remedy for civil contempt…) until they comply with the order to deposit the
settlement proceeds in a trust account.
The case is Central States, Southeast and Southwest Areas Health and Welfare Fund v. Lewis, No. 13-2214
(7th Cir. March 12, 2014).
Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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Judge Posner Dismisses "Frivolous" Appeal of Contempt Order in Subrogation Case and Orders District Court to Consider Whether Lawyer and Client Should Be Jailed
- 1. The Insurance Coverage Law Information Center The following article is from National Underwriter’s latest online resource, FC&S Legal: The Insurance Coverage Law Information Center. JUDGE POSNER DISMISSES “FRIVOLOUS” APPEAL OF CONTEMPT ORDER IN SUBROGATION CASE AND ORDERS DISTRICT COURT TO CONSIDER WHETHER LAWYER AND CLIENT SHOULD BE JAILED March 17, 2014 Steven A. Meyerowitz, Esq., Director, FC&S Legal Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit has written the opinion for a panel of three judges dismissing a “frivolous” appeal by a lawyer and his client from a district court order holding them in contempt in a subrogation case. The Case As Judge Posner explained, Beverly Lewis was injured in an automobile accident in Georgia and her health plan paid approximately $180,000 for the cost of her medical treatment. Represented by Georgia lawyer David T. Lashgari, Ms. Lewis brought a tort suit in Georgia state court against the driver of the car involved in the accident (her son-in-law), and obtained a $500,000 settlement. The health plan had, and, Judge Posner wrote, Mr. Lashgari “knew it had,” a subrogation lien that granted it the right to offset the cost that the plan had incurred as a result of the accident against any money that Ms. Lewis obtained in a suit arising out of the accident. As Judge Posner observed, the lien was a secured claim against the proceeds of the settlement. However, Judge Posner continued, when Mr. Lashgari received the settlement proceeds, instead of giving $180,000 of the $500,000 to the plan, he split the proceeds between himself and his client. Judge Posner said that the attorney claimed that the plan was owed nothing because the settlement had been intended solely to compensate Ms. Lewis for the driver’s “post-accident tortious conduct” against her. Judge Posner rejected that contention, declaring, “[t]hat’s nonsense” and pointing out that the settlement agreement stated that it: encompass[ed] all claims and demands whatsoever that were or could have been asserted … [for] damages, loss, or injury … which may be traced either directly or indirectly to the occurrences set forth in the aforesaid civil action [the personal injury suit arising from the accident] … no matter how remotely they may be related to the aforesaid occurrences. Judge Posner also pointed out that “[e]ven the check that [Mr.] Lashgari wrote to [Ms.] Lewis for her share of the proceeds” stated that it was “for settlement of all 10/08/08 claims” – and October 8, 2008 was the date of the accident. Judge Posner noted that Mr. Lashgari’s “refusal to honor the subrogation lien” precipitated a lawsuit brought by the health plan against Ms. Lewis and Mr. Lashgari under ERISA to enforce its lien. The defendants argued in the district court that because the settlement funds had been dissipated, the health plan’s suit was a suit for damages – that is, a suit at law rather than in equity – and therefore not authorized by 29 U.S.C. § 1132(a)(3). Judge Posner also rejected that argument, declaring that, “the defendants are wrong. The plan wasn’t required to trace the settlement proceeds” because its equitable lien “automatically gave rise to a constructive trust” of the defendants’ assets. The health plan moved the district court for entry of a preliminary injunction against the defendants’ disposing of the settlement proceeds until the plan received its $180,000 share. The district court judge granted the motion and also ordered the defendants to place at least $180,000 in Mr. Lashgari’s client trust fund account pending final judgment in the case. Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com
- 2. As Judge Posner noted, however, the defendants complied with neither order and, a year later, with the defendants having neither placed any part of the $180,000 in a trust account as ordered nor produced any evidence of their inability to pay, the district court judge held them in civil contempt, ordered them to produce records that would establish their financial situations, and ordered Mr. Lashgari to submit a variety of documents relating to the contempt to the general counsel of the State Bar of Georgia for possible disciplinary proceedings against him. The defendants appealed. The Seventh Circuit’s Decision The circuit court dismissed the appeal. Judge Posner found that the defendants’ appeal brief was “a gaunt, pathetic document.” He wrote that the supporting documents submitted by the defendants on appeal demonstrated that Ms. Lewis and Mr. Lashgari had “willfully ignored the plan’s lien against the settlement proceeds.” Judge Posner said that the defendants “may think that a mere assertion of inability to pay made in an affidavit (and thus under oath) preclude[d] a finding of contempt,” but declared that that was “[n]ot so.” Judge Posner then ruled that the appeal was “frivolous,” and, noting that the health plan had asked the circuit court not only to dismiss the appeal but also to award, as “just damages” authorized by Fed. R. App. P. 38, the attorneys’ fees that the plan has incurred in defending against the appeal, ordered the defendants to show cause why they should not be sanctioned under Rule 38 for filing a frivolous appeal. Judge Posner concluded: The defendants’ conduct has been outrageous. After resolving the merits of the underlying suit, the district court should give serious consideration to transmitting copies of this opinion and the record to the Department of Justice and to the General Counsel of the Georgia Bar. In the meantime, we direct the district court to determine whether the defendants should be jailed (a standard remedy for civil contempt…) until they comply with the order to deposit the settlement proceeds in a trust account. The case is Central States, Southeast and Southwest Areas Health and Welfare Fund v. Lewis, No. 13-2214 (7th Cir. March 12, 2014). Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com
- 3. Call 1-800-543-0874 | Email customerservice@SummitProNets.com | www.fcandslegal.com Copyright © 2014 The National Underwriter Company. All Rights Reserved. NOTE: The content posted to this account from FC&S Legal: The Insurance Coverage Law Information Center is current to the date of its initial publication. There may have been further developments of the issues discussed since the original publication. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice is required, the services of a competent professional person should be sought. For more information, or to begin your free trial: • Call: 1-800-543-0874 • Email: customerservice@SummitProNets.com • Online: www.fcandslegal.com FC&S Legal guarantees you instant access to the most authoritative and comprehensive insurance coverage law information available today. This powerful, up-to-the-minute online resource enables you to stay apprised of the latest developments through your desktop, laptop, tablet, or smart phone —whenever and wherever you need it.