California Insurance Litigation Blog

Robert J. McKennon Recognized as 2012 "Super Lawyer"

Reid Winthrop — Fri, 27 Jan 2012 13:28:19 -0800

McKennon Law Group PC is proud to announce that its founding partner Robert J. McKennon has been recognized as one of Southern California’s "Super Lawyers" and he will appear in the upcoming 2012 edition of Southern California Super Lawyers magazine, as well as the upcoming edition of Orange Coast Magazine.

Each year, Super Lawyers magazine, which is published in all 50 states and reaches more than 13 million readers, names attorneys in each state who attain a high degree of peer recognition and professional achievement. The Super Lawyer designation is given to less than 5% of lawyers nationally after being nominated and voted on by their peers.

Insurance Commissioner Jones Highlights 2011 Important Achievements

Robert McKennon — Fri, 27 Jan 2012 13:18:55 -0800

Insurance Commissioner Dave Jones marked his first full year in office this week by looking back on the California Department of Insurance’s (CDI) major accomplishments during 2011. Some of these achievements were very important for insurance consumers. Here’s what his press release said:

“A little over a year ago, I took my oath as Insurance Commissioner and pledged to make my Administration one of action,” Commissioner Jones said. “I can confidently and proudly say that the Department has fully lived up to that pledge. We have achieved a number of critical successes on behalf of California’s consumers consistent with our vision to be the most effective consumer protection agency in the nation.”

Major Accomplishments of 2011:

Implementing Health Care Reform

The Patient Protection and Affordable Care Act (PPACA) signaled a new day for health care in America. Commissioner Jones has made it a priority of his Administration to implement health care reform.

Literally minutes after being sworn in, Commissioner Jones issued new regulations that require health insurers in the individual market to use a larger percentage of the premiums they collect from Californians to deliver actual medical care, instead of overhead and profit. Then Commissioner Jones successfully sponsored Senate Bill 51 (Alquist), holding health insurers selling to small and large businesses to a similar standard.

Commissioner Jones also issued regulations requiring health insurers to cover children with pre-existing conditions. These regulations will help thousands of California children get the care they deserve without sending their families into financial ruin.

Jones issued regulations preventing “medical rescissions” and establishing a notice and hearing process for consumers. He also oversaw CDI’s review of health insurance policies for conformance with health care reforms such as the elimination of lifetime limits on benefits and eliminating co-payments and co-insurance requirements for preventative services.

Fighting Excessive Health Insurance Premium Increases

The battle to prevent excessive health insurance rates escalated early in 2011 when health insurers proposed new rates that would have saddled consumers with annual cumulative premium increases of up to 87 percent. Although the Insurance Commissioner does not have the authority to reject excessive rate increases, Commissioner Jones was able to reduce health insurance premiums by $107 million this year by using existing, though limited, review authority.

Commissioner Jones continued the fight to obtain legal authority to protect consumers from excessive health insurance rate increases. He sponsored AB 52 (Feuer) which would give the Insurance Commissioner real authority to reject excessive health insurance rate increases. This authority currently exists for other lines of insurance including auto, homeowners, property, and casualty, and it is imperative to secure the same authority over health insurance. The bill cleared the Assembly and has made it through all Senate committees and is now eligible for a vote on the Senate floor in January.

Protecting seniors

Seniors, among the most vulnerable members of communities, often fall victim to predatory scams. Commissioner Jones succeeded in establishing some new protections for them. The Governor signed two important CDI-sponsored consumer protection bills that became law in January. AB 793 (Eng) is designed to stop insurance agents and brokers from exploiting those seniors who recently acquired a reverse mortgage, by inappropriately inducing them to tie up those same funds in unsuitable annuities or other products.

The second law, AB 689 (Blumenfield), more broadly protects seniors and others from the sale of unsuitable annuities.

Premium Rate Savings for Consumers

CDI received more than 7,000 rate, rule, and form filings for property and casualty lines of insurance through December 31, 2011. CDI rejected $50 million in rate increases sought by property and casualty insurers and on top of this obtained close to $398 million in rate decreases using the authority of Proposition 103, for a total annual savings going forward of $448 million for California ratepayers.

New Workers’ Compensation Pure Premium Benchmark

Recognizing the importance of providing timely and meaningful information to employers about workers’ compensation insurance cost trends, Commissioner Jones directed a revamping of the “pure premium” benchmark process. Pure premium is the portion of the workers’ compensation premium needed to cover the cost of claims. While the Commissioner does not set workers’ compensation insurance rates, each year the Commissioner is asked to recommend a pure premium benchmark which helps employers and insurers better understand cost trends in the market. Thanks to the new process established by Commissioner Jones, a pure premium benchmark was approved for the first time in three years, one which is tied to what is actually happening in the market.

Protecting Homeowners from Underinsurance

With natural disasters like wildfires an unfortunate fact of life in California, Commissioner Jones issued new regulations to protect homeowners from being underinsured. The regulations include setting appropriate disclosure standards for agents and brokers who sell homeowners’ insurance and estimate replacement costs.

Rooting Out Fraud

From January through December 2011, CDI’s Enforcement Branch racked up more than 784 arrests for crimes that included auto insurance fraud, fiduciary theft, embezzlement and workers’ compensation fraud. As a result, the courts ordered $13.2 million in restitution due to the investigative actions we took against brokers, agents and producers.

CDI also filed lawsuits against pharmaceutical company Bristol-Myers Squibb for showering doctors with illegal kickbacks to get them to write more prescriptions and against Sutter Hospitals for bogus anesthesia billings. Both of these proceedings show CDI’s deep commitment to go after fraud that causes undue financial strain on California’s health care delivery system.

Making Sure Life Insurance Benefits Are Paid to Beneficiaries

Commissioner Jones held a joint investigative hearing with Controller John Chiang into life insurer death benefit payment practices. The hearing revealed that life insurers with access to the Social Security Administration’s “Death Master File” are not using information about deaths to trigger payments to life insurance beneficiaries. Jones has opened, with other insurance regulators, an investigation of the 10 largest life insurance companies to determine whether they engaged in unfair practices in the payment of death benefits under life insurance policies and annuities.

Other Notable Achievements

•    Nine CDI-sponsored consumer protection bills were enacted, including bills to protect consumers from being unwittingly enrolled in life insurance “retained asset accounts” and to protect California businesses from being dragged at their cost to other states to resolve disputes with insurers;

•    The Commissioner approved a 12 percent average decrease in residential earthquake insurance rates; and a new component of earthquake insurance that allows homeowners to insure their personal property up to $2,500 without having to first meet the larger deductible requirements of the structure itself;

•    Jones initiated an enforcement action against Blue Shield of California for failing to comply with the California Mental Health Parity Act, and supported legislation, signed by the Governor, to require health insurers and HMOs to cover a proven form of treatment for Autism;

•    CDI issued guidance requiring health insurers to provide all financial documentation related to health insurance rate increases for review by CDI;

•    Commissioner Jones initiated review of medical malpractice rates paid by doctors, nurses, hospitals and clinics;

•    The Commissioner hosted two consumer summit meetings to solicit input from leading consumer organizations;

•    CDI initiated a pilot project in cooperation with the California Department of Child Services, encouraging California insurers to help make a significant difference in the lives of children by voluntarily agreeing to offset insurance benefit payments against delinquent child support payments;

•    The Commissioner initiated actions that can make progress on improving the environment by approving an auto insurer’s application for Pay-As-You-Drive auto insurance; conducting a Green Insurance Summit; and leading efforts at the National Association of Insurance Commissioners (NAIC) to measure the extent to which insurance companies are responding to climate change and global warming;

•    Commissioner Jones also sponsored legislation signed into law to extend the sunset date on the California Organized Investment Network’s (COIN) Tax Credit Program to January 1, 2015. This program encourages investment in underserved communities;

•    CDI successfully took over a troubled workers’ compensation company (Majestic Insurance), developed a rehabilitation plan, and transferred the financially troubled company and its business to a healthy insurance company, with no interruptions in coverage for policyholders.

“We have made significant progress for consumers this year,” Jones said. “I look forward to another successful year in protecting consumers and making sure that we have healthy insurance markets.”

In an ERISA Case, What Actions Will Reduce the Level of Discretion Afforded the Claims Administrator/Insurer?

Scott Calvert — Tue, 24 Jan 2012 13:14:31 -0800

This article continues our series of articles answering basic questions about insurance law and the Employee Retirement Income Security Act of 1974 (commonly referred to as “ERISA”). This one addresses: In a lawsuit governed by ERISA, what actions taken by the claims administrator (usually an insurance company such as Blue Cross/Blue Shield or CIGNA) will reduce the level of discretion the court gives the insurance company’s decision when reviewing the decision for an abuse of discretion?

Under ERISA, the court does not necessarily review the claims decision by simply attempting to determine whether the insurance company made the “correct” decision. Instead, the court first looks to see whether the plan documents unambiguously confer discretion for determining eligibility on the claim administrator. If discretionary language is present, the abuse of discretion standard of review applies, and the court is required to give some level of deference to the claim administrator’s decision. However, even if such discretionary language is present, the discretion given the claim administrator’s decision is not absolute. Specifically, courts have ruled that the following acts will reduce the level of discretion give to the claims administrator’s decision:

Rendering a decision without explanation, construing a plan provision in a way that conflicts with the plain language of the plan or relying on clearly erroneous findings of fact.
“Hiding the ball” by failing to advise claimants of documents needed to obtain approval of claim and an explanation of why such material or information is necessary, and failing to submit forms to claimant or his doctors that would have elicited the information needed.
Overstatement of and excessive reliance upon claimant’s activities in the surveillance videos and conducting a paper review rather than an “in-person medical evaluation.”
Encouraging participant to file for Social Security Disability Insurance and, when benefits are awarded by Social Security Administration, failing to deal with and distinguish the contrary disability decision.
Failing to obtain a physician's recommendation and relying on medical reports that are not credible.
“Tainting” medical file reviewer in the medical review process by giving the reviewer inaccurate negative information regarding the claimant.
Failing to consult with a health care professional who has appropriate training and experience in the applicable field of medicine.
Emphasizing a report that favored a denial of benefits while deemphasizing other reports suggesting a contrary conclusion, and failing to provide its independent experts with all of the relevant evidence.
Failing to provide all bases for its denial and suggesting alternate reasons for denial after the fact, thereby precluding the claimant from responding to that rationale for denial at the administrative level.
Adding new terms to the Plan, particularly when those terms are both imprecise and impose a higher evidentiary burden on a claimant, such as requiring that disability be proved by “compelling objective” evidence.

These are just a select few of the acts that courts have ruled require that the insurer’s decision not be afforded full discretion. Numerous other actions will also cause a court to review a claim decision with something less than full discretion. For additional information on this and other insurance matters you can visit the FAQ section of our website: www.mslawllp.com.

If you need to consult with an attorney about a possible ERISA or insurance bad faith matter, please contact our office.

Insurer Claims Practices Attacked In Revealing Huffington Post Article

Robert McKennon — Wed, 21 Dec 2011 17:32:24 -0800

The insurance industry is unique in California and in most states: unlike other industries, it is required to act in good faith (known as the covenant of good faith and fair dealing) with its insured customers. The California courts have long held that insurers have a special relationship, in the nature of a fiduciary relationship, that requires them to act with regards to their interests in a manner equal to the interests of their policyholders.

The Huffington Post, in a very interesting article entitled, “Insurance Claim Delays Deliver Massive Profits To Industry By Shorting Customers” reports that since the mid-1990s, “a new profit-hungry model, combined with weak regulation, has upended that ancient social contract” between insurers and claimants.

“Claims has been converted into a money-making process,” the article quotes Russ Roberts, a New Mexico-based management consultant and former business professor at Northwestern University who has studied the insurance industry’s evolution from a service business to what is described in the article as a profit-driven machine.

The change started, according to the article, when consulting giant McKinsey & Company sold Allstate and other leading insurance companies on a “new system to boost the bottom line.” The article states that rather than adjusting claims the traditional way, which gave claims managers wide latitude to serve customers, insurers embraced a computer-driven method that produced purposefully low offers to claimants.

The article explains that this strategy “put profits above all” and insurers like Allstate have certainly gained: Allstate made $4.6 billion in profits in 2007, double its earnings in the 1990s. The stunning increase, the article quotes Russ Roberts as stating, came through "driving down loss values to an average of 30 percent below the actual market cost" -- that is, paying dramatically less on claims. Roberts told the Huffington Post that, by his estimate, the companies that take in 70 percent of total insurance profits in the United States “now abuse their obligations to their policyholders.”

According to NAIC data[https://eapps.naic.org/documents/cis_aggregate_complaints_by_reason_codes.pdf], claim delays have long been the most frequent cause of policyholder complaints. As of Nov. 28, 2011, the NAIC had received 11,053 delay-related complaints this year alone, comprising almost a quarter of the year's total complaints. This data only reflects confirmed complaints -- the ones that the state insurance commission has investigated -- so the actual number of delayed claims is likely much higher.

This article is interesting reading for all consumers who buy insurance.

Avoiding the Potholes on the Road to Retirement: Understanding Annuity Risks

Robert McKennon — Tue, 20 Dec 2011 16:00:48 -0800

Saving for one’s own retirement is something everyone needs to consider. There are many financial vehicles that can be used when traveling along the road to retirement. One of these financial vehicles is an annuity. However, annuities are often not suitable for consumers, especially more elderly consumers, because of excessive “hidden” fees and large surrender charges that apply when annuities are surrendered/terminated before a certain time. This is due in part to large commissions paid to agents who sell them, who often act in their own best interest, rather than in the interest of consumers. John Waggoner of USA Today provides some sound advice in his recent article entitled “Annuities are a Retirement Option, But Be Wary of Fees:”

In an article posted on this blog in September entitled, “New California Law Requires That Insurers and Agents Verify that an Annuity is Suitable for the Consumer,” McKennon│Schindler LLP explained that California Governor Jerry Brown recently signed a new law that provided increased protection to seniors and other consumers who are interested in purchasing an annuity. AB 689, which was sponsored by the California Department of Insurance and authored by Assembly Budget Committee Chair Bob Blumenfield (D-San Fernando Valley), requires that insurers verify that an annuity purchase is suitable and appropriate for the consumer based on an evaluation of his or her age, income, financial objectives and ten other factors.

Knowing the fundamental basics about how an annuity works, the options available and the pitfalls is essential in understanding whether an annuity should be purchased.

Buying Disability Insurance: What You Should Be Looking For

Robert McKennon — Wed, 14 Dec 2011 16:29:46 -0800

What Are the Advantages of Buying Disability Insurance? What Should You Be Looking for in a Disability Policy? McKennon│Schindler LLP partner Robert J. McKennon has been litigating disability insurance claims for over twenty-five years and gives his advice on buying disability insurance.

What are some advantages to private disability insurance?

Benefits you receive if you become disabled will be tax-free, as long as you paid the insurance premiums with after-tax money;
Own occupation policies ensure you for your inability to perform the substantial and material duties of your own occupation in the usual and customary manner and with reasonable continuity. This California law standard is very favorable for consumers when insurance companies determine when you are disabled;
The policy is not tied to your current occupation. This means you can move around to different occupations and still maintain your policy;
Once you obtain it, as long as you timely pay your premiums, most policies do not allow insurers to cancel disability policies, no matter your change in health;
If you buy disability insurance when you are earning a high income, most policies provide that the benefits at the time you apply for a disability policy are based on a percentage of your income and your benefits will be locked in even if your income substantially diminishes;
If you buy a policy with lifetime benefits and if you are permanently disabled, you now have a nice “annuitized” income for the remainder of your life;
Your greatest asset is your earning capacity and disability insurance insures that asset – it should be an important part of your financial planning.

What are some important things to look for when considering disability insurance?

Be sure the policy is “guaranteed renewable” and “non-cancellable." This guarantees that policy premiums cannot be changed as long as you pay them and your policy must be renewed every year no matter your health condition;
Be sure the policy provides benefits to age 65 or lifetime;
Look for disability policies that have "accident” or “injury” definitions that pay benefits for your lifetime;
Although more expensive, always buy “own occupation” policies (with an occupational specialty rider if applicable);
"Residual benefits" are available as an optional rider. This benefit essentially allows you to collect partial disability benefits while you work if you can only work part-time or I can work full-time but can perform some, but not all, of your occupational duties. I recommend against buying this rider because it is expensive and, under California law, it is mostly likely not necessary. In addition, such a rider/provision can be interpreted to disallow total disability benefits when a residual rider is in place (insurers often make this argument);
If you can afford it, a cost-of-living rider will protect your future benefits from inflation;
Buy a policy with a right elimination period (time when you are disabled but you not entitled to receive benefits) – the longer this period, the less expensive your policy.

Once you become disabled, it is vitally important that you fully understand all provisions of your policy and that you obtain necessary counsel if your claim is denied. If you have any questions about your disability coverage, your individual disability claim or ERISA disability claim, please contact us.

Insurance Commissioner Jones Advises Consumers on the Importance of Disability Insurance Policies

Robert McKennon — Wed, 14 Dec 2011 16:17:27 -0800

Very recently, California Insurance Commissioner Dave Jones issued a bulletin advising consumers about the importance of understanding their options when considering disability income insurance. Here is what he had to say:

"In a down economy many people may not think their most valuable asset is their ability to work," said Commissioner Jones. "But if illness or injury were to keep you from earning a living you would still need to pay your bills. Disability income insurance could be a viable option for people and their families, and that's why consumers need to take the time and evaluate their options closely."

According to the U.S. Census Bureau, one in four of today's 20-year-olds will become disabled before reaching retirement age; however, only 32 percent of U.S. private industry workers have long-term disability income insurance as part of their benefits package.

An individual may obtain disability income insurance coverage in two ways - either through a group-sponsored setting or purchased as an individual. Group insurance is available through an employer or an association, and these policies may offer short-term and long-term coverage. Short-term disability income insurance typically replaces a portion of the policyholder's salary up to a year following the disability, while long-term disability income insurance may begin six months after the disability and can last a few years or even until retirement.

Individual insurance is coverage that can be purchased from any insurance company that offers it. The terms of the policy, length and type of coverage are negotiated between the individual and the insurance company and are generally subject to underwriting requirements.

Comparing Disability Policies - When considering disability income insurance policy options there are definitions and benefits consumers should carefully compare.

Definition of disability - the definition varies from policy to policy. Some may pay benefits if you cannot perform the duties of your own occupation, while others may require that your disability keep you from performing tasks of any occupation you are reasonably expected to perform based on your age, education, training and experience.

Extent of disability - Some policies may require you be totally disabled before it pays benefits, while others may pay a limited amount or for a limited time if your injury limits you to performing only part of your job.

Disabilities Covered - The list of covered injuries or illnesses considered disabilities under the policy will vary. Coverage for pre-existing conditions may be limited or excluded.

Residual benefits - This coverage fills in a gap in come if you are partially disabled, you return to work, and your income is reduced because you can't perform all of the duties of your job.

Determining How Much Coverage You Need

Before purchasing disability income insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc. An easy way to do this is by adding up your monthly expenses and comparing them with the income from any existing disability coverage, plus any income from other sources, such as personal savings.

Becoming disabled can also bring with it increased or additional expenses like health care costs, assistance with daily activities, even home modifications. Keep this in mind while evaluating the amount and type of coverage you could need.

The amount of benefits you receive is based on a percentage of your pre-disability earned income. The benefit amount received can be reduced by other sources of disability support such as Social Security disability payments, employer long-term disability insurance, among others.

If the long-term disability income insurance coverage your employer offers is not enough to cover your needs, there are options for purchasing additional coverage".

As a corollary to this article, you may by wondering: what are the advantages of buying disability insurance? What should you be looking for in a disability policy? McKennon│Schindler LLP partner partner Robert J. McKennon has been litigating disability insurance claims for over twenty-five years and gives his advice on buying disability insurance in his article: Buying Disability Insurance: What You Should Be Looking For

If you have any questions about your disability coverage, your disability claim or ERISA disability claim, please contact us. Insurance consumers can learn more about insurance by visiting the California Department of insurance web site at www.insurance.ca.gov.

Cause of Action Asserted Against Blue Cross for Violation of Montana's Unfair Trade Practices Act is Not Preempted by ERISA

Scott Calvert — Wed, 09 Nov 2011 17:38:47 -0800

In a recent decision, the Ninth Circuit Court of Appeals ruled that ERISA does not preempt causes of action based on unfair insurance practice claims brought under Montana’s Unfair Trade Practices Act. However, the Court did find that Montana’s so-called “little HIPAA” was preempted by federal HIPAA, which is part of ERISA.

In Fossen v. Blue Cross and Blue Shield, __ F.3d __ (9th Cir. October 18, 2011), the Court considered an appeal from a District Court ruling that entered summary judgment in favor of Blue Cross on two causes of action. Plaintiffs – which consisted of three brothers, their corporations and a partnership of the three corporations – sued Blue Cross after the health insurer increased their premiums by over 40%. The lawsuit, filed in state court, alleged two causes of action: violation of Montana Code Annotated § 33-22-526(a) (also known as Montana’s “little HIPAA” statute) and violation of Montana Code Annotated § 33-18-101 (also known as Montana’s Unfair Trade Practices Act). Plaintiffs alleged that premium increase violated little HIPAA’s prohibition against imposing a “premium or contribution that is greater than the premium or contribution for a similarly situated individual” on account of "any health status-related factor of the individual” and the Unfair Trade Practices Act’s prohibition against “unfair discrimination between individuals of the same class and of essentially the same hazard in the amount of premium, policy fees, or rates charged.” The action, filed in state court, was removed to the District Court, which eventually granted Blue Cross’ motion for summary judgment as to all causes of action.

On appeal, the Ninth Circuit first considered whether ERISA and federal HIPAA preempted state law causes of action based on Montana’s little HIPAA statute and conferred federal jurisdiction over the claim. Applying the two-part test detailed in Aetna Health Inc. v. Davila, 542 U.S. 200 (2004), the Ninth Circuit determined the little HIPAA claim was preempted because the same claim could have been brought under the federal HIPAA statute and there was no other independent duty implicated by Blue Cross’ actions. Specifically, the Ninth Circuit advised that:

Because the Fossens' state HIPAA cause of action could have been brought under ERISA § 502(a), and because that cause of action is identical to and expressly dependent upon ERISA, the district court properly denied the Fossens' motion to remand and exercised jurisdiction over this case.

Next, the Ninth Circuit evaluated whether ERISA preempts the plaintiffs’ statutory unfair insurance practice claim, considering both express preemption under ERISA § 514 (29 U.S.C. § 1144) and conflict preemption under ERISA § 502 (29 U.S.C. § 1132). With respect to express preemption, the court applied the two-part test detailed in Kentucky Association of Health Plans v. Miller, 538 U.S. 329 (2003) and determined that because statute is both “specifically directly toward entities engaged in insurance” and substantially affect[s] the risk pooling arrangement between the insurer and the insured” it is exempt from express preemption.

As to conflict preemption, the court again applied Davila, and determined that the unfair insurance practice claim was not preempted by ERISA because it sought relief (i.e., restitution) that was consistent with ERISA’s enforcement scheme, but that no provision of ERISA expressly guarantees the same rights as the statute.

Also, the unfair insurance practices statute creates a right that is separate from and could not possibly be remedied under ERISA. Whereas HIPAA (both the state and federal versions) prohibits plans and their insurers from charging different premiums on account of "health status-related factor[s]," 29 U.S.C. § 1182(b)(1); Mont. Code Ann. § 33-22-526(2)(a), the unfair insurance practices statute applies more broadly to bar "any unfair discrimination" with respect to premiums, Mont. Code Ann. § 33-18-206(2) (emphasis added); see, e.g., McCarter v. Glacier Gen. Assurance Co., 546 P.2d 249, 251 (Mont. 1976). Because these statutes are not identical in scope (as is the case with the state and federal HIPAA provisions), they are not conflict preempted.

Accordingly, the Ninth Circuit reversed the district court’s grant of summary judgment and remanded this claim for further consideration of the plaintiffs’ allegations that Blue Cross violated Montana’s Unfair Trade Practices Act.

MCKENNON |SCHINDLER LLP OBTAINS $3.93 MILLION DAMAGE AWARD FOR CLIENTS IN BUSINESS DISPUTE OVER INTELLECTUAL PROPERTY AND LICENSING RIGHTS

Robert McKennon — Wed, 09 Nov 2011 17:32:56 -0800

In January 2010, McKennon | Schindler was approached by weight loss supplement company TriPharma, LLC, about a dispute involving its exclusive rights to advertise, market and sell a revolutionary patented and clinically studied weight loss product that was manufactured by San Diego based company Imagenetix, Inc. TriPharma discovered Imagenetix’s multiple breaches of its exclusive license agreement with Imagenetix which had all but destroyed its ability to sell its weight loss product, destroyed much of the goodwill built up for the product, and was threatening to destroy the years of hard work put in developing TriPharma’s one-of-a-kind weight loss beverage, which was due to hit the stores in a few short months. Shortly thereafter, Imagenetix wrongfully terminated TriPharma’s exclusive license and began to sell product directly to TriPharma’s customers.

The attorneys at McKennon | Schindler LLP took immediate action and filed lawsuits in federal court against the companies which were infringing on TriPharma’s exclusive license through product sales of their own, and filed claims in JAMS arbitration against Imagenetix for, among other things, fraud, breach of contract, and injunctive relief, seeking damages as well as reinstatement of the exclusive license agreement

After aggressive discovery and motion practice in the JAMS arbitration for over a year-and-a-half, and after a fourteen (14) day arbitration hearing, TriPharma prevailed and was awarded $2.1 million in compensatory damages, pre and post-judgment interest, and its attorneys’ fees and costs in both prosecuting TriPharma’s claims as well as successfully defending frivolous claims asserted against its CEO. The McKennon | Schindler LLP attorneys were also able to prove TriPharma’s claim of promissory fraud and obtained punitive damages in the amount of $250,000, as well as personal, and joint and several liability against Imagenetix CEO William Spencer. The total monetary award amounted to over $3.93 million.

Even more significantly, the McKennon | Schindler LLP attorneys were able to obtain the injunctive relief they fought for so vigorously on behalf of TriPharma. The arbitrator reinstated TriPharma’s exclusive license agreement, extended the term of the agreement, provided a six month abeyance of minimum obligations so that TriPharma could get its business back up and running, and enjoined Imagenetix from selling its weight loss product, or any other weight loss product based on the patent or clinical studies, to any other company. The award effectively won back the rights that TriPharma had bargained for and which had been stolen by Imagenetix through its various activities relating to the sales and distribution of the product.

The victory for TriPharma and the McKennon | Schindler LLP law firm was a complete success. Not only did TriPharma recoup the ability to conduct business, but TriPharma and its CEO were vindicated and awarded significant monetary compensation for the fraud perpetrated on him and his company. In issuing the award, the arbitrator gave particular mention to McKennon│Schindler LLP partner Robert J. McKennon:

McKennon l Schindler achieved substantial success in this litigation and its chief trial attorney Robert McKennon demonstrated exceptional skill in cross-examining [Imagenetix’s CEO and other employees]. Indeed, those examinations exposed the lack of credibility of those witnesses, which was a decisive factor in the Arbitrator’s findings and rulings.

Robert J. McKennon and Reid A. Winthrop tried the case on behalf of TriPharma.

McKENNON|SCHINDLER WINS DEFENSE VERDICT AGAINST $2 MILLION SUCCESSOR LIABLITY CLAIM

Eric Schindler — Mon, 07 Nov 2011 18:37:47 -0800

On October 12, 2011, the McKennon | Schindler law firm won a complete defense verdict on a $2 million successor liability claim against their client, Elephant Talk Communications Corp., in a case called Chong Hing Bank Limited v. Elephant Talk Communications, Inc., Orange County Superior Court Case No. 30-2009-00328467.

Chong Hing Bank Limited (Bank), a Hong Kong financial services company, began making loans to Elephant Talk Limited (ETL), a Hong Kong telecommunications company, beginning in 1996. In 2002 ETL reverse acquired a California public shell company called Staruni Corp. in a stock-for-stock exchange in which Staruni became the parent company and ETL became its wholly-owned subsidiary. Staruni changed its name to “Elephant Talk Communications, Inc.” (Elephant Talk) in connection with the reverse acquisition.

By 2004 ETL was in default on all of the loans. In 2005 a European investment group acquired control of Elephant Talk. In 2009 the Bank called the loans and filed suit against Elephant Talk (the parent company of the entity that took out the loans) in Orange County Superior Court on a theory of successor liability. The Bank did not proceed directly against ETL. The Bank contended that the reverse acquisition was a statutory merger, a de facto merger or an asset purchase resulting in Elephant Talk’s assumption of liability for the loans to ETL. Elephant Talk contended that the reverse acquisition was merely a stock exchange acquisition in which ETL became Elephant Talk’s wholly-owned foreign subsidiary, and maintained its separate existence as a Hong Kong company in order to do continue doing business in China. Elephant Talk denied any successor liability, denied otherwise assuming liability for the loans, and contended that California’s four-year statute of limitations had already run on the Bank’s claims.

Elephant Talk and the Bank stipulated to a bench trial on all issues. After a five-day bench trial, the court issued a decision in favor of Elephant Talk on the issue of successor liability, on the first cause of action for breach of contract, on the second cause of action for open book account, and on the Bank’s proposed amendments to add causes of action for intentional misrepresentation and negligent misrepresentation. The court entered judgment in favor of Elephant Talk on November 2, 2011.

Eric J. Schindler and Scott E. Calvert tried the case on behalf of Elephant Talk.