Blind Pension Update

October 7, 2010

MCB News Wire

by MCB

Here is an update regarding the present status of the appeal in the case Gerken v. Sherman, Case No. 06AC-CC00123-01, which is pending before the Missouri Court of Appeals, Western District.

This case, as you know, was appealed by the Department of Social Services, Family Support Division, State of Missouri, in May 2010, after the Court-appointed Special Master, Dr. James LePage, PhD., CPA, determined that the State owed the class approximately $19 million plus prejudgment interest of approximately $11 million and after the Circuit Court adopted Dr. LePage's report and findings as the Court's judgment against the State of Missouri.

The total due the class, according to the Order of the Court, is approximately $22 million. This leaves about $7.4 million for repayment to MCB, payment to Saint Louis University, and payment to our attorney. The judgment is earning interest at a rate equal to about $2.7 million per year or over $220,000 per month.

The State's brief on appeal was due on October 4, 2010, but the Attorney General asked for a 15-day extension, to which our attorney did not object knowing that the Court of Appeals would grant a first extension.

Accordingly, the State's brief is now due October 19, 2010, which is really just around the corner.

While we will not know with absolute certainty all the issues that the State might raise on appeal until we see its brief, we have anticipated issues and have begun preparations accordingly. Our brief will be due on November 18, 2010. The State will have 15 days after our attorney file our brief to file a reply brief. Sometime thereafter, the Court of Appeals will set the matter for oral argument. After oral argument, the Court of Appeals will issue its decision.

Neither the parties nor their attorneys have any control over when the Court of Appeals might set cases for oral argument or issue a decision in an appeal. We think that the Court acted pretty quickly last time when they reversed the decision of the Circuit Court and sent the matter back to the Cole County Circuit Court.

We am hopeful that the Court of Appeals will act as quickly this time, and we am very optimistic about our position.

We are going into Court as the winners: 1) the Court of Appeals already decided that the State administered the Blind Pension Fund in an illegal manner; 2) the Court of Appeals already sent the case back to the Circuit Court so that Judge Joyce could determine how much is owed to the class of blind pensioners; and, 3) Judge Joyce hand-picked Dr. LePage to do the accounting and figure out the dollar amounts owed to the class.

The State cannot now argue that the Court of Appeals was wrong in its decision that the State mismanaged the Blind Pension Fund, and, furthermore, the State finds itself in the unenviable position of arguing that Dr. LePage figured the damages incorrectly. Bear in mind that Dr. LePage has been the auditor for Cole County for over 19 years, is the former Director of Revenue for the State of Missouri, and is a professor of accounting and finance. And, bear in mind that the State agreed with us and with the Court that Dr. LePage was well-qualified to do the accounting.

In late July of this year, our attorney prepared a memorandum regarding the procedural history of this case, the appellate process generally, and included her assessment as to what she thought we could fairly expect in this case.

I. Procedural History

1. As you know this case has had an extremely protracted and frustrating history. We were engaged in very lengthy and demanding pretrial discovery and motions, and eventually we went to trial before the Circuit Court of Cole County where we lost on all counts; however, I believed, as did MCB's Litigation Committee, the Board, and the class representatives, that we should have won.

2. We appealed and were successful. The Court of Appeals reversed and remanded the most significant issues raised and found other issues raised moot in view of the Court's decision in favor of the class. The Court of Appeals remanded the case to the Circuit Court of Cole County so that the Circuit Court could determine whether we had established the elements for an accounting and, if the Circuit Court determined that we had done so, it was to order an accounting.

3. While you understand what is involved in an accounting as that term is used in the law, it might be helpful to others if I explained it here: Under Missouri law, a party to litigation may have the right to an equitable accounting if the party has shown the following: a) there is a need for discovery of information or data; b) the information or data is in the hands of or controlled by the opposite party; c) the accounts at issue are complicated; d) the opposing party occupied a fiduciary or trust relationship to the party seeking the accounting; and, e) the party seeking the accounting has no adequate remedy at law and seeks an equitable accounting by the Court.

4. The Circuit Court of Cole County found that we had established the elements of an accounting and appointed Dr. James LePage, CPA and Ph.D., as its "Special Master" to conduct the accounting. Dr. LePage has been the Auditor for Cole County for 19 years and presently holds that position. Dr. LePage was a Director of Revenue for the State of Missouri; he has been in private practice as a CPA and auditor; he has worked in various capacities in state government; and, he has been a professor of accounting.

5. Dr. LePage generated two reports. The latter of the two—developed in early March 2010—was approved and adopted by the Circuit Court as part of its Findings of Fact, Conclusions of Law, and Judgment. In that Report and in the Judgment of the Court, Dr. LePage and the Court concluded, among many other things, the following:

a) There was a historic underpayment to the class of eligible blind persons (persons eligible for and receiving for any portion of time from 1992 through 2009 Blind Pension Fund payments or Supplemental Aid to the Blind payments or AB-Conversion payments) in the amount of

$18, 832, 188.00.

b) There is prejudgment interest in the amount of $11, 297,500.00 due the class of eligible blind persons.

c) Class attorneys (Deborah Greider and Saint Louis University School of Law Legal Clinic attorneys John Ammann, Barbara Gilchrist, and Amy Sanders) are entitled to $7,532,422.00 as a percentage (25%) of the common fund recovery.

6. The Circuit Court entered Judgment in favor of the Class in the amount of

$30, 129, 688.00; from this total amount, the attorneys' fees are to be paid. The remainder— some $22,597,266.00—is the portion of the judgment total to be distributed to the eligible class members. The Court ordered the parties to develop a claims process. I worked on a proposal for one and submitted the proposal to the Defendants. They did not respond to this. [Clearly, their intention was to appeal—which they had been threatening to do for months.]

7. FYI: The plan and commitment that I have always had with MCB is that it would be reimbursed for what it had paid in support of litigation from the attorneys' fees portion, and then whatever amount remained thereafter from the attorneys' fees portion would be divided between St. Louis University School of Law and me.

8. The attorneys, the Court, and Special Master Dr. LePage had many discussions, meetings, conferences, and exchanges of correspondence, e-mails, pleadings, motions, documents, data, and reports prior to the Circuit Court entering its Judgment.

9. Following the Judgment, the Defendants asked the Court to reconsider and reverse its Judgment; it declined to do so.

10. The Defendants filed a timely notice of appeal in early May 2010.

11. The notice of appeal indicated that the issues on appeal were the judgment in favor of the class generally; the amount of the judgment; the findings and report of the Special Master; the issue of prejudgment interest; the issue of a common fund; the issue of attorneys' fees; the statute of limitations defense to cut short the damages period to 2001 instead of 1992; and, the propriety of and need for an accounting.

II. Appeals in General

12. A party to litigation may appeal the judgment of the Circuit Court to the Court of Appeals. A party filing an appeal is known as the "appellant." The non-appealing party is known as the "respondent." A respondent may also file a cross appeal on one or more issues. The respondent would then be known as "respondent-cross appellant" and the appellant would be known as "appellant-cross respondent." The appeals process is started by a party filing a notice of appeal within the statutory time period in the Circuit Court. The Circuit Court transfer the notice of appeal to the Court of Appeals and the appellate process begins.

13. The notice of appeal is not binding on the party seeking review by the Court of Appeals as to the issues that a party may raise, although it often gives a good preview of what might be under consideration.

14. That is to say that a respondent cannot know with certainty the specific issues on appeal until such time as the respondent receives the appellant's brief. It is in the brief that the issues on appeal are set forth and binding. When the respondent receives the appellant's brief, the respondent will see what the appellant is charging as appealable error and the relief and remedies sought. At that juncture, the respondent determines whether it will merely respond and defend the Judgment or whether it will do so in part and cross-appeal in part. What this means as a practical matter is that I will not know for sure what matters the Defendants are appealing until I see their brief. Nonetheless, I can reasonably anticipate some issues and do some work in advance of receipt of the brief.

15. Once a party files a notice of appeal, it must timely request the legal file and the transcript (assuming that there were transcribed hearings—which there were in the class action lawsuit). [FYI, CaseNet indicates that the Defendants did timely request the legal file and the transcript.] The appellant has the duty and responsibility for seeing to it that the legal file and transcripts get to the Court of Appeals within 90 days of filing the notice of appeal. By my calculations, the date for filing the transcript should be around August 11, 2010. The appellant may request a reasonable extension if there is good cause—like the court reporter just hasn't been able to complete the transcript.

16. Once the legal file and transcript are on file, the appellant has 60 days within which to file its brief; the respondent then has 30 days to file its brief. Thereafter, the appellant has 15 days to file a reply brief. Extensions sought for good cause are routinely granted once. After that, extensions become more difficult to obtain the absence of very compelling facts.

17. The Court of Appeals (for the Western District) then will schedule the matter for oral argument should it desire to hear argument. There is no timetable for oral argument which is under the control of attorneys. The judges set the dates and times. After oral argument (or if oral argument is not requested by the Court of Appeals), the Court of Appeals takes the matter under submission and eventually enters its decision. Again, the timetable for this is not something under the control of counsel—it is entirely up to the Court of Appeals.

18. After the decision is rendered, the parties may request a rehearing (this is rarely granted).

19. After the decision is rendered, the parties may appeal for transfer to the Supreme Court of Missouri. It is up to the Supreme Court (in a case like this) as to whether it will take the case or not. If it takes the case, then there is a new round of procedures and briefing. If it does not take the case, the decision of the Court of Appeals stands as the final appellate decision. The Court of Appeals and the Supreme Court can affirm decisions, reverse decisions, remand with instructions for further action, or they can affirm in part, reverse in part and remand.

III. Expectations as to the Class Action Lawsuit

20. This has been a complicated and long case. However, we have won on every significant issue. The State of Missouri is now compelled as a matter of law to follow the statutory procedure for determining the Blind Pension payments as well as the SAB and AB-Conversion payments. It can no longer just award pension increases/decreases as it sees fit. The pensions increase as long as the property taxes increase and if the property taxes decrease, the pensions can decrease or remain stagnant. That is the law. Since the time we filed the lawsuit, the State has been paying the increases that it ought to have been paying and it is at the level of payment that the Special Master has determined is approximately correct.

In addition, we have been awarded an extremely large cash judgment—which is an extra that we did not originally contemplate receiving as part of the litigation. It is only through the appeal that we can protect the monetary Judgment and preserve the opportunity for MCB to recover its investment in the litigation and advocacy effort it so admirably embarked on to better the situation of all blind citizens in Missouri.

We are in a much better position than we were when we lost a trial. We are now the winning party and the issues on appeal are much more limited and precise than when we were at the trial stage and certainly when we were first appealing the Cole County Judgment against us.

The major questions now, I think, are, first, whether the Special Master calculated the damages correctly and, second, what period of time is implicated?

As to the first, I think that the Defendants will have a difficult time convincing the Court of Appeals that Special Master Dr. LePage did not carefully, prudently, and thoroughly consider the data, the applicable laws, the charge of the Court, the inconsistencies in the State's data, the gaps in the State's data, the accounting assumptions necessary to deal with those inconsistencies and gaps, and that he did not derive as reliable a set of findings as is possible. I find it hard to believe that the Court of Appeals is going to want to second guess Dr. LePage.

As to the second question, the State has consistently argued that a five year statute of limitations should apply and that damages should be determined going back only to 2001 (five years before the date of filing). I have argued otherwise. There are a number of extremely complex legal arguments about the limitations period.

The position that I have taken is that the statute of limitations is an affirmative defense. It needed to be proved at trial. If the Defendants believed that the Circuit Court was wrong at trial in finding that the three year limitations period applied and/or if the Defendants believed that the five year and/or the five year and three year limitations periods both applied, the Defendants should have cross appealed. They did not.

I argued the position, successfully thus far, that the specific remand by the Court of Appeals precludes consideration of the statute of limitations, and further that the issue was either abandoned by the Defendants or waived by the Defendants. In any event, I believe that law of the case precludes further consideration of this issue.

I expect a very hard fight on that issue. It will mean the difference between three to five million and 18 million dollars. The Defendants will not give up easily on this issue and neither will I.

21. I suspect that significant argument will be made by the Defendants as to prejudgment interest. It is a significant amount of money—11 million dollars. I believe that the class should be entitled to prejudgment interest because the damages are in the nature of liquidated damages. The amount of prejudgment interest will depend on the damages period—again the importance of limitations period defense.

22. I suspect that less argument will be given to the notion of a common fund to pay a judgment and attorneys' fees, but I have been surprised in the past and could be again.

While I expect that researching, thinking, considering, discussing, writing, revising, editing, etc.— the work that goes into the appellate process—will take considerable time, I expect that all the appellate work and the claims process legal fees can be done for $20,000 to $40,000 or less exclusive of unusual costs. I expect that this would take the case through an appeal to the Supreme Court if necessary. I suspect that if the Court of Appeals finds in our favor, the Supreme Court would decline to take the case. Just a guess. I think that the Supreme Court would have taken the case after the first appeal because the issues were so unique and implicated Missouri statutory law and the Missouri Constitution. I think the Supreme Court would view the present posture of the case as one it might not wish to consider—especially if it didn't want to turn 100 years of established precedent on its ear.

Obviously, if unforeseen circumstances arise, adjustments would have to be discussed and made. But, I believe that if you reserve $40,000 for the litigation legal fees it will take us through the appellate and claims process for your upcoming fiscal year and probably the next—if we can bring this to a close by that time. It appears to me that this is a wise investment of resources, as we discussed, since MCB will be the first to be paid out of any recovery of attorneys' fees. I realize that I may sound self-serving because Saint Louis University School of Law and I stand to recover a substantial fee as well. However, as I mentioned earlier, MCB stands to get its entire investment back before I am paid anything and before Saint Louis University is paid anything.

It is always possible that things will not go as one expects or hopes. But, I have both the expectation and hope of a good outcome for all concerned, and I work in that effort to the best of my ability.