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Tuesday, April 21, 2009

In the Matter of the Complaint of Communication Options, Inc. v. ValTech Communications LLC, Case no. 2008-0873
Public Utilities Commission of Ohio

West Broad Chiropractic v. American Family Insurance, Case nos. 2008-1396 and 2008-1489
10th District Court of Appeals (Franklin County)

State of Ohio v. James Lester, Case no. 2008-1725
1st District Court of Appeals (Hamilton County)

Phone Service Provider Disputes Penalties Imposed by PUCO for ‘Slamming’ Competitor’s Customers

In the Matter of the Complaint of Communication Options, Inc. v. ValTech Communications LLC, Case no. 2008-0873
Public Utilities Commission of Ohio

ISSUE: Did the Public Utilities Commission of Ohio (PUCO) act contrary to state law or state and federal regulations when it prosecuted a complaint filed by a competitor of a phone service provider, found that the defendant provider had engaged in “slamming” (switching a customer’s phone service from one provider to another without the customer’s verified authorization), and imposed financial penalties prescribed for slamming?

BACKGROUND:  In 2005, Communications Options, Inc. (COI), a local telephone exchange company serving the Mansfield area, filed a complaint with the PUCO alleging that a competitor, ValTech Communications LLC, had engaged in deceptive marketing tactics that resulted in a number of COI’s customers’ switching  their phone service to ValTech under the mistaken impression that COI was going out of business and/or being reorganized and that ValTech was the same business entity from whom those customers had previously been obtaining their phone service. The complaint asserted that ValTech’s conduct constituted “slamming,” a practice for which state regulations provide more severe sanctions than for other types of  “deceptive or unconscionable” business practices. 

Following a three-day hearing before an administrative hearing officer, the PUCO adopted the hearing officer’s findings that ValTech had used false, confusing and deceptive statements to induce COI customers to switch their phone service to ValTech; and had not obtained proper verification of those customers’ intent to change providers because the authorization forms ValTech provided to the COI customers did not  comply with state and federal specifications for such forms.  Based on those findings, the PUCO concluded that ValTech had engaged in multiple acts of “slamming,” and imposed a $25,000 financial forfeiture (fine) as the penalty for those violations. ValTech moved for reconsideration based on multiple claims of legal and procedural error by the hearing officer and the commission. The PUCO declined to rehear the case.  ValTech has exercised its right to appeal the PUCO’s ruling to the Supreme Court.

Among multiple allegations of error, attorneys for ValTech assert as a threshold matter that the PUCO should not have accepted or prosecuted COI’s complaint because the state law authorizing the commission to address complaints about alleged slamming requires: a) that such complaints be initiated by a consumer who believes it has been slammed by a regulated service provider; and b) the law also requires that when a phone company learns that a former customer was a victim of slamming, it is required to advise the customer that it may pursue informal resolution of the problem with the alleged slammer.  In this case, they say,  COI did not have legal standing to bring the slamming complaint that resulted in the PUCO’s  ruling because COI was not a consumer whose service had been switched, and the commission acted without jurisdiction because COI did not inform its customers that they could seek informal resolution of their problem by making contact with ValTech before filing a formal complaint with the PUCO.

ValTech also asserts that the commission erred in finding that the conduct of ValTech’s employees in inducing COI’s customers to switch their phone service constituted slamming, as opposed to the less-severe offense of using a “deceptive sales practice.”

Attorneys for the PUCO argue that the statutory provision cited by ValTech describes a process by which customers who have been slammed may filed complaints, but does not prohibit the filing of slamming complaints by other parties.  They argue that statutory language discussing possible informal resolution of a customer’s slamming complaint with an offending company is intended as helpful information for consumers, and is not intended to impose a procedural requirement that informal resolution must be pursued before an official complaint may be filed with the PUCO.  They also point out that under state public utility laws, the factual findings and decisions of the PUCO are entitled to a strong presumption of validity, and should be affirmed by the Court if there is any credible evidence in the record supporting the commission’s action. In this case, they say, the commission conducted three days of hearings and reviewed extensive witness testimony and other evidence presented by COI and ValTech before arriving at its decision that ValTech was guilty of slamming, and that decision is entitled to deference by the Court.

Contacts
Rex H. Elliott, 614.481.6000, for ValTech Communications LLC.

William L. Wright, 614.466.4396, for the Public Utilities Commission of Ohio.

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Is Injured Person’s Assignment of Future Lawsuit Proceeds to Doctor Valid, Enforceable Against Insurer?

West Broad Chiropractic v. American Family Insurance, Case nos. 2008-1396 and 2008-1489
10th District Court of Appeals (Franklin County)

ISSUES: 

BACKGROUND:  Under Ohio case law dating back to the 1820s that has been affirmed as recently as 2003, a third party (such as an attorney or a private investor) may not pay the expenses or make pre-judgment payments to the plaintiff in a pending civil lawsuit in exchange for an “ownership interest” in the plaintiff’s legal action that gives the third party influence over the conduct or resolution of the suit.

In this case, Kristy Norregard of Columbus was injured in a traffic accident. The driver of the other vehicle, whom Norregard alleged was responsible for the accident, was insured by American Family Insurance Co.  Norregard sought treatment for her injuries from West Broad Chiropractic for which she was billed a total of $3,830. In lieu of pursuing immediate collection of those bills, West Broad entered into an agreement in which Norregard assigned to West Broad a specified amount of any future judgment or settlement for her injuries she might obtain from American Family. A notice regarding the assignment agreement, signed by Norregard, was sent to American Family. The notice conveyed Norregard’s directive that, if and when the insurer paid any claim based on her accident-related medical treatment, a specified amount of that payment should be sent directly to West Broad, and not to Norregard.

American Family later entered into a financial settlement with Norregard for all of her damages arising from the accident. Rather than complying with the directive in the assignment notice, the insurer sent a check for the full proceeds of the settlement, including the chiropractic treatments, directly to Norregard. Norregard did not forward any part of the settlement proceeds to West Broad to satisfy her unpaid bills. West Broad filed suit against American Family in the Franklin County Court of Common Pleas, seeking recovery of Norregard’s unpaid bills. The complaint asserted that because the assignment agreement was valid and enforceable, and American Family had been properly notified of the agreement, Ohio’s assignment laws required American Family to comply with the notice by paying the amount specified in the notice directly to West Broad.  The trial court granted summary judgment in favor of West Broad.

American Family appealed. On review, the 10th District Court of Appeals reversed and remanded the case to the trial court with a directive to issue summary judgment in favor of American Family. The court of appeals based its ruling on a 2003 decision by the 5th appellate district, Knop Chiropractic v. State Farm Insurance,  in which that court held that an injured person cannot assign all or part of her “interest” in a possible future recovery from a tortfeasor’s insurer until the plaintiff has first obtained a judgment establishing that the tortfeasor is, in fact, liable for the plaintiff’s injuries.  Applying Knop to the facts of this case, the 10th District held that Norregard’s assignment agreement with West Broad was invalid because, at the time Norregard signed that agreement, she had not filed suit against American Family’s policyholder and therefore had no “present interest” in any potential recovery from his insurance company that was assignable to a third party.

The 10th District certified, however, that its ruling was in conflict with decisions in four other Ohio appellate districts holding that pre-judgment assignment agreements like the one entered into by Norregard and West Broad in this case were valid and enforceable against a properly notified debtor.  The Supreme Court has agreed to review the case to resolve the conflict among appellate districts.

Attorneys for West Broad argue that the 10th District erred in ruling that Norregard did not have a “present interest” in the proceeds of a future insurance settlement at the time she entered into the assignment agreement.  They point to a line of previous court decisions in Ohio and other states holding that a plaintiff’s cause of action arises at the time of injury, and that even though the specific amount of damages to which that person is entitled is subject to future proof or negotiation, the plaintiff has an immediate or “present” interest in recovery for his or her damages, and that interest is legally assignable to a third party. They also assert that there is a clear difference between prohibited “champerty” agreements in which a plaintiff accepts advance payments from a third party in exchange for a specified percentage of whatever award the plaintiff ultimately recovers and the agreement in this case, which they say merely guaranteed that, if Norregard made any recovery from American Family, Norregard consented to having the insurer pay the first $3,830 of that settlement to West Broad as payment for medical services she had already received.

Attorneys for American Family urge the Court to affirm the 10th District’s ruling that Norregard did not have any enforceable “interest” in a speculative future insurance settlement at the time she signed the assignment agreement with West Broad, and therefore could not “assign” that interest to a third party.  They argue that assignment agreements like the one in this case are contrary to the public policy of the state favoring settlement rather than litigation of legal disputes, because they “lock in” a creditor’s entitlement to payment for its services at a pre-fixed amount – and therefore strongly discourage plaintiffs from accepting any lower settlement offer by an insurer who questions the necessity or reasonableness of some of the creditor’s charges.

Contacts
James F. McCarthy III, 513.721.4532, for West Broad Chiropractic.

Mark S. Maddox, 614.445.8888, for American Family Insurance Co.

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Must Indictment for Aggravated Robbery Allege That Defendant Displayed Weapon ‘Recklessly?’

State of Ohio v. James Lester, Case no. 2008-1725
1st District Court of Appeals (Hamilton County)

ISSUE:  In obtaining an indictment against a defendant who is charged with aggravated robbery where the charged aggravating factor is that he was in possession of a deadly weapon and “displayed, brandished, used or indicated that he possessed” that weapon during the commission of a theft offense, must the state merely show that the defendant showed or stated that he had a weapon, or must it show that he acted “recklessly” in showing or indicating possession of that weapon?

BACKGROUND:  In order to convict a defendant of most criminal offenses, the state must show not only that the defendant acted in a manner prohibited by a statute, but that he or she acted with a specified “culpable mental state” set forth in that statute such as “recklessly,” “knowingly,” or “intentionally.”  However some criminal offenses or elements of offenses require only a showing by the state that the defendant committed a prohibited act, and do not require proof of any particular guilty mental state. These are referred to as “strict liability” offenses.

In this case, James Lester of Cincinnati was charged with aggravated robbery based on his possession and display of or indication that he had a deadly weapon during the commission of several theft offenses. In the bill of indictment that was submitted to a grand jury, and which formed the basis of the charges against Lester at trial, the Hamilton County prosecutor’s office did not assert that Lester acted with any specified guilty mental state with regard to the aggravating factor that he possessed, displayed or stated that he had a deadly weapon, and the indictment handed down by the grand jury  did not include a finding that he acted with any specified guilty mental state with regard to the deadly weapon element of the crime.

Lester was convicted of aggravated robbery and several other counts, and was sentenced to a total of 10 years in prison. He appealed his convictions and sentence. While his appeal was pending before the 1st District Court of Appeals, the Supreme Court of Ohio released its decision in State v. Colon (2008). In Colon, the Court held that an indictment for aggravated robbery based on a different aggravating factor (“inflicting, attempting to inflict or threatening to inflict physical harm”) was fatally defective because the state did not accuse the defendant of acting with at least the guilty mental state of “recklessly” with regard to the required element of causing or threatening physical harm, and the grand jury did not make a finding that Colon had acted with that mental state. Based on its finding that the defective indictment was a “structural error” that tainted all subsequent stages of Colon’s trial, the Court vacated his convictions and remanded the case for a new indictment and trial.

In light of the Colon decision, the 1st District directed Lester and the state to submit supplemental briefs on the issue of whether the indictment against Lester suffered from the same fatal defect as the indictment in Colon. The court of appeals subsequently overruled all of the other assignments of error that had been raised by Lester, but found the indictment obtained by the state was invalid because it did not assert and the grand jury did not find that Lester acted with the guilty mental state required for conviction on the aggravating factor of displaying a deadly weapon. Following Colon, the 1st District vacated Lester’s aggravated robbery conviction and sentence and remanded that count for a new trial. The 1st District certified that its holding was in conflict with rulings by several other Ohio courts of appeals on the same legal question. The Supreme Court has agreed to review the case to resolve the dispute among appellate districts.

Arguing on behalf of the state, attorneys from the Hamilton County prosecutor’s office assert that the 1st District failed to take note of a critical difference between this case and the facts in Colon. They contend that the Colon decision did not hold that any or all of the factors that can elevate robbery to aggravated robbery require proof of a guilty mental state of recklessness, but only that the specific finding that a defendant “inflicted or threatened physical harm” requires such a showing. They point to a 1999 Supreme Court decision, State v. Wharf, in which the Court held that the state is not required to prove any guilty mental state with regard to a defendant’s possession or control of a deadly weapon when that element is the basis for increasing a theft offense to the more serious crime of robbery.

They argue that since the Court has found legislative intent that simply possessing a weapon should be a “strict liability” element, there is no logical reason not to extend that same rationale to the additional element that the defendant actually shows or indicates possession of such a weapon while committing a theft. In each case, they say, an underlying theft offense is initially elevated to a more serious crime because a) mere possession of a deadly weapon, regardless of the thief’s mental state, greatly increases the danger to victims or bystanders; and b) a robbery offense is in turn elevated to aggravated robbery because the offender’s display or statement threatening to use the weapon, regardless of his mental state, creates an even higher degree of intimidation by the offender and danger to the victim and others.

Attorneys for Lester urge the Court to follow its ruling in Colon, which they say establishes that none of the aggravating factors that increase robbery to aggravated robbery is a “strict liability” element. They urge the Court to clearly state that Colon requires the state to include in every aggravated robbery indictment, and to prove to both a grand jury and at trial, that the defendant acted with the guilty mental state of recklessness with regard to any and all of the aggravating conduct set forth in the statute.

Contacts
Tanner McFall, 513.946.3029, for the state and Hamilton County prosecutor’s office.

Christine Y. Jones, 513.587.2897, for James Lester.

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These informal previews are prepared by the Supreme Court's Office of Public Information to provide the news media and other interested persons with a brief overview of the legal issues and arguments advanced by the parties in upcoming cases scheduled for oral argument. The previews are not part of the case record, and are not considered by the Court during its deliberations.

Parties interested in receiving additional information are encouraged to review the case file available in the Supreme Court Clerk's Office (614.387.9530), or to contact counsel of record.