Chiropractor’s Lien Can Be Adjudicated by Court Without Obtaining Personal Jurisdiction Over Chiropractor

Illinois’ Healthcare Services Lien Act, 770 ILCS 23/1 (the Act), allows a health care provider to impress a lien on a patient’s claim for personal injuries up to the amount of the provider’s services.  So, if I give medical services to an injured patient worth $2,000, that patient doesn’t pay me, and he later settles a personal injury suit for $10,000, I will have a claim to $2,000 of that settlement amount.  I would then ask the court – through a written petition – to validate (or “adjudicate”) the lien.

Smith v. Hammel, 2014 IL App (5th) 130227, examines the elements of a statutory healthcare service lien and the court’s expansive jurisdictional power to assess the validity and amount of a lien in the context of a personal injury claim.

The defendant lien claimant was a chiropractor who rendered about $3,000 worth of services to a patient who was injured in a car crash.  The chiropractor served notice of his healthcare services lien under the Act.  That patient later settled with the other driver before filing a personal injury suit.  The patient’s attorney (who negotiated the settlement with the other driver) filed a petition to adjudicate the chiropractor’s lien and served it by certified mail on the chiropractor.  When the chiropractor failed to show up on the petition date, the Court entered a default against the chiropractor and deemed the lien “void and discharged.”  About 18 months later, the chiropractor moved to vacate the order nullifying his lien on the basis that he was never personally served and so the Court lacked personal jurisdiction over him.  The court denied his motion.

Result: Affirmed

Reasons:

To perfect a healthcare services lien, the medical provider must serve notice of his lien by certified mail or in person upon (a) the injured party  and (b) the person against whom the claim exists.  770 ILCS 23/10(b).  To have the lien adjudicated by the court, either the injured party or the lien claimant may file a petition to adjudicate the lien and serve the petition by personal service, substitute service, registered or certified mail.  770 ILCS 23/30.

The Court found that the plaintiff’s counsel’s certified mail service of his petition to adjudicate the lien was sufficient to confer jurisdiction over the settlement proceeds.  The chiropractor argued that the Court lacked jurisdiction over him since he wasn’t personally served with a summons or the petition to adjudicate.

Personal jurisdiction means a court’s authority to determine the rights and duties of a litigant.  Firmly entrenched alternatives to personal jurisdiction are in rem jurisdiction and quasi in rem (“power against a thing”) jurisdiction – which involve jurisdiction based on the relationship between the defendant and a state with respect to specific property in the state.  (So, if I live in Florida but have a bank account in IL, a lawsuit seeking control over my IL bank account would implicate in rem jurisdiction.)  In rem jurisdiction rests exclusively on the site of the res (or “thing”).  A state has jurisdiction over property located within its borders and the settlement funds – here, the “res” – don’t have to be deposited into court for the court to exercise jurisdiction over them.

Since the litigation involved the settlement proceeds (the “thing” or “res”) paid to the plaintiff, he didn’t have to serve a summons on the chiropractor and the court didn’t have to have personal jurisdiction over him in order to adjudicate his lien.  By serving notice of the petition to adjudicate by certified mail in compliance with the statute, the plaintiff satisfied the predicate for the court to exercise in rem jurisdiction over the settlement funds.  (¶¶ 26-27).

Take-aways:

If you receive a notice of a petition to adjudicate a healthcare services lien, you should show up – even  if you’re not personally served.  The case is also noteworthy for its illustration of a court’s expansive jurisdictional power over property – even where claimants to that property haven’t been personally served with summons.  To adjudicate a lien, all that’s required is the court to have jurisdiction over the settlement funds.  It doesn’t have to have personal jurisdiction over the individual parties claiming an interest in the funds.

Greeting Card Giant Wins $30M-Plus Jury Verdict in Trade Secrets Case (8th Cir.)

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In Hallmark Cards, Inc. v. Monitor Clipper Partners, LLC, 2014 WL 3408853 (8th Cir. 2014), the Eighth Circuit affirmed a $31.3M dollar jury verdict in favor of the greeting card giant against a private equity firm that used Hallmark’s confidential market research.

Hallmark hired a consultant to research consumer behavior as it relates to greeting cards.  Hallmark had the consultant sign non-disclosure agreements that strictly prohibited it from sharing the research findings.  The contracts also contained broad consequential damages disclaimers.

Hallmark sued under trade secrets law when it learned the consultant surreptitiously disclosed Hallmark’s data to the defendant who used the data to try to buy a Hallmark competitor.

 The jury awarded Hallmark a more than $30M judgment against the defendant equity firm including $10M in punitive damages.

Held: Verdict affirmed.

Reasons:

Missouri’s trade secrets statute (Mo.Rev.Stat. s. 417.450, 454) broadly defines a trade secret as (1) information, including (2) non-technical data, that’s (3) sufficiently secret to derive monetary value from not being known to competitors and (4) that’s subject to efforts to maintain the information’s secrecy. 

Misappropriation covers both acquisition of and subsequent use of a trade secret and occurs where a defendant (1) acquires a trade secret that defendant knows or has reason to know was obtained by improper means or (2) discloses or uses the trade secret without the secret’s owner’s express or implied consent. (*5).  

The court held that the PowerPoint slides qualified as trade secrets under the statute in view of the lack of market research available in the greeting cards market.  The scarcity of data on the subject led the appeals court to affirm the jury’s finding that the research data compiled for Hallmark met the elements of a protectable trade secret under Missouri law. 

The court also found there was evidence of the defendant’s misappropriation of the trade secrets. (**3-5). 

Upholding the damage award, the court rejected defendant’s argument that Hallmark obtained improper double recovery.  In Missouri, a party can’t recover twice for the same injury.  

Here, the Court found there were two separate injuries: (1) the consultant’s transmission of the secret data to the defendant; and (2) defendant’s (own) use of the market data. (*4).  Since the injuries were separate, Hallmark could recover separate damage amounts for each injury.

Finally, the Court affirmed the $10M punitive damage award.  Punitive damages under Missouri law are allowed where conduct is outrageous, reprehensible and shows an evil motive or reckless indifference to others’ rights. 

Defendant exhibited reckless indifference by its stealthy campaign of document destruction to cover its tracks once Hallmark learned of the defendant’s plan to buy Hallmark’s rival. 

The court found the defendant’s conduct reckless and sufficiently reprehensible to support the punitive damage award.  The Court also noted that the punitive damage award was “only” one-half of the compensatory award and that this damage ratio met due process standards. (*8).

Afterwords:

Even something as nebulous and innocuous as consumer buying trends research in the greeting card market can qualify for trade secret protection (at least in Missouri). 

Hallmark Cards also shows that a trade secrets plaintiff can recover separately for both (1) disclosure of a trade secret and (2) subsequent use by a third party without violating contract law double-recovery restrictions. 

 

Non-Compete Signed 16 Years After Employment Start Date Is Too Late (To Be Enforced) – Says KY High Court

In prior articles, I’ve discussed how restrictive covenants (i.e., non-disclosure, non-solicitation and non-competition provisions) are staples of modern-day employment contracts and business sale agreements.  In Creech, Inc. v. Brown (http://law.justia.com/cases/kentucky/supreme-court/2014/2012-sc-000651-dg.html) the Supreme Court of Kentucky struck down a non-competition provision in a hay supplier’s written contract the supplier made a long-time employee sign several years after he started working there.

The defendant worked for the plaintiff in various capacities through the years.  Sixteen years into his tenure, plaintiff’s new management asked the defendant to sign a Conflict of Interest Agreement (the “Agreement”) that contained broad non-disclosure provisions and a non-competition clause.  The non-compete spanned three years and had no geographic boundaries.  Fearing job loss, defendant signed the Agreement.  The defendant continued to work for the plaintiff for a couple more years when he took a job with a rival supplier.  Plaintiff then sued to enforce the Agreement’s non-competition provision.  The trial court sided with the defendant and the appeals court reversed.  On remand, the trial court entered summary judgment for the plaintiff employer and found that the defendant violated the Agreement.  This time, the appeals court upheld the non-competition clause.  Both parties appealed to Kentucky’s Supreme Court.

Held: Reversed.  The non-competition provision is unenforceable because it lacks consideration.

Reasons:

The defendant worked for nearly two decades for the plaintiff hay supplier and wasn’t asked to sign a non-compete until more than sixteen years after his start date.  The plaintiff gave defendant nothing in exchange for defendant signing the Agreement.  It didn’t give the defendant a raise, didn’t change the defendant’s job duties and offered no training or other benefits.  There was no consideration flowing to the defendant to bind him to the non-competition provision’s three-year term.

Consideration means a benefit to the party making a promise and a loss to the party to whom the promise is made.  Each side gives and gets something.  Benefit means the promisor has gained something to which he is not otherwise entitled.  Detriment or loss means that the promisee has given up something in exchange for the promise.  (p. 12).

The Court rejected the plaintiff’s claim that the defendant’s continued employment was sufficient consideration.  The plaintiff didn’t give the defendant anything in exchange for him signing the Agreement.  The Agreement was silent on defendant’s job duties or rate of pay and as a result couldn’t be considered a “rehiring.”  Nor did the Agreement alter defendant’s employment terms.  He remained an at-will employee at the same pay rate. (p. 14).  The Agreement imposed a three-year restriction on defendant seeking alternative employment without giving him any corresponding benefit.  Since the Agreement didn’t require plaintiff to give up anything in exchange for the defendant signing the Agreement, the non-competition provision lacked consideration and wasn’t enforceable.  (p. 15).

Besides defendant’s job description and pay remaining static, the plaintiff hay supplier also didn’t offer any specialized training to the defendant after he signed the Agreement.  A contract law axiom posits that a promise devoid of a reciprocal flow of benefits and detriments can’t be enforced.  (pp. 15-17).  By not giving up anything in consideration for defendant executing the Agreement, the plaintiff’s offer of continued employment was illusory.

Afterword: I’ve never practiced in Kentucky but the case is relevant to Illinois restrictive covenant law since it’s congruent with Fifield’s (Fifield v. Premier Dealer Services, Inc., http://www.state.il.us/court/Opinions/AppellateCourt/2013/1stDistrict/1120327.pdf) two-year rule. (Two years of continued employment is required for a non-compete to have adequate consideration.)  

The result in Creech seems fair.  An employer shouldn’t be able to unilaterally foist a non-compete on a long-time employee without providing some additional benefit to him.  For employers, the lesson is clear: if you’re going to have an employee sign a restrictive covenant after he’s started working, you should pay the employee a bonus, give him a raise or provide some other tangible benefit so that there is sufficient consideration – loss or detriment –  flowing to the employee so that you can bind him to a non-competition provision.