Hospitals Say Lawyers’ Errors & Cover Up|Exposed Them to Millions in Damages

PHOENIX (CN) – Phoenix Children’s Hospital and the Mayo Clinic Arizona claim their attorneys exposed them to “hundreds of millions of dollars of damages and investigations” from the state and federal government. The hospitals claim the law firms failed to advise them that participating in temporary nursing registries would violate antitrust laws, and then “engaged in a cover-up to conceal their mistakes and protect the millions of dollars they had charged and were charging the plaintiffs and other health-care clients.”

     The hospitals sued Coppersmith, Gordon, Schermer, Owens & Nelson; and Coppersmith, Schermer & Brockelman; and four attorneys. Both law offices operated under different names during the relevant period, according to the complaint in Maricopa County Court.
     The individual defendants are attorneys Beth Schermer, Joel Wakefield, Andrew Gordon and Kristen Rosati, and all of their spouses. It is not clear from the complaint whether defendant Sam Coppersmith, Beth Schermer’s husband, is also an attorney. He is named as a defendant only as part of Schermer’s marital community.
     The hospitals claim that “having built their reputations as being among the finest healthcare attorneys in Arizona, defendant-attorneys made a series of mistakes exposing the plaintiffs to hundreds of millions of dollars of damages and investigations by the attorney general of the state of Arizona and the United States Department of Justice. Once these investigations commenced, defendant-attorneys made misrepresentations to the plaintiffs and engaged in a cover-up to conceal their mistakes and protect the millions of dollars they had charged and were charging the plaintiffs and other healthcare clients.
     “As part of the defendant-attorneys wrongful conduct, they filed spurious legal notices that harmed two of the plaintiffs while benefiting defendant-attorneys’ more-favored clients in a clear conflict of interest.
     “Had the defendant-attorneys not made misrepresentations to their clients, not engaged in the cover-up, breached ethical duties and filed spurious attack papers, plaintiffs would have not had suffered [sic] millions of dollars in losses.”
     Mayo says the defendant-attorneys represented it from 1998 until 2007.
     Phoenix Children’s Hospital says the defendant-attorneys represented it from 2001 until 2009.
     The plaintiffs, together, say they paid the defendant-attorneys more than $1 million in legal fees.
     They add that each of the defendant-attorneys also provided legal advice to the Arizona Hospital & Healthcare Association and the AzHHA Service Corporation “(collectively ‘AzHHA’),” since the early 1990s, “when AzHHA started operating temporary nurse registries.” The plaintiffs add: “Defendant-attorneys treated AzHHA more favorably than they treated plaintiffs,” and that the defendant-attorneys charged the AzHHA “more than $2 million in legal fees.”
     The plaintiffs say that beginning in 1997, the law firm and AzHHA “operated and marketed temporary nurse registries to plaintiffs and other hospitals in Arizona.”
     “Beginning in about 2000, along with AzHHA management, defendant-attorneys marketed their registries to hospitals in other states as a for-profit enterprise. Defendant-attorneys marketed and sold proprietary compliance materials and marketed their own legal services to these out-of-state hospitals as part of this effort to sell the defendant-attorneys’ nurse registry program to groups of hospitals in other states,” according to the complaint.
     The plaintiffs say the law firm advised them “that the temporary nurse registries were legitimate group purchasing organizations that complied with federal and state antitrust laws.”
     They also claim that the law firm “advised and participated with AzHHA in modifying the registries by adding three components to the registries: the setting of maximum wages; a requirement of exclusivity; and the allowance of almost 100 percent participation of Arizona hospitals.”
     The law firm never advised the plaintiff hospitals “that each of these three components substantially increased the risk that the federal and state antitrust authorities would consider the registries, and plaintiffs’ participation therein, to violate the antitrust laws,” the plaintiffs say.
     The plaintiffs claim the defendant-attorneys knew of a similar temporary nursing registry in Palm Beach County, Fla., and that in the 1990s “several of the temporary nursing agencies had [been] charged with violating the antitrust laws,” even though that registry “was significantly different than defendant-attorneys’ registries in a manner that made it less likely to violate state and federal antitrust laws.”
     “Unlike the defendant-attorneys registries that involved every (or nearly every) hospital in the state, the Palm Beach registry only involved a small number of hospitals in one small county in a metropolitan area of many counties and many hospitals,” allowed each temporary nursing agency to bid a price, and “did not require a set percentage as a minimum purchase requirement,” the complaint states. (Parentheses in complaint.)
     In 2007, two classes of temporary nurses filed a class action against almost all of the Arizona hospitals “alleging that its involvement in the defendant-attorneys’ registries violated the antitrust laws,” but did not sue the plaintiff hospitals “until they were sacrificed by the defendant-attorneys in violation of their ethical duties to the plaintiffs,” according to the complaint.
     The plaintiffs say the law firm “conspired with some of their more-favored clients and counsel for the two classes of temporary nurses to add plaintiffs Phoenix Children’s Hospital and Mayo Clinic Arizona as defendants in the class action – despite the fact that defendant-attorneys represented plaintiffs at the time.”
     The firm filed notices of non-parties at fault, naming the plaintiff hospitals, and was “hopeful that there would be a judgment sharing agreement and that by filing the notices of non-parties at fault their other more-favored clients would reduce their overall liability and exposure,” according to the complaint.
     The plaintiff hospitals say their “exposure to the two classes of temporary nurses was in the hundreds of millions of dollars, forcing both plaintiffs to enter into joint defense and judgment sharing agreements with defendant-attorneys’ more favored clients.”
     They also claim, “Specifically, defendant-attorneys falsely stated that they had done an antitrust and market analysis of the defendant-attorney’s registries – when no such analysis was done.” (Emphasis in complaint.)
     The plaintiffs say they have paid more than $1 million to settle antitrust claims filed by the temporary nursing agencies and temporary nurses, and more than $1 million in legal fees, expert fees, and costs in defending their involvement in the registries. The hospitals also claim that they paid substantial fees to AzHHA “because of defendant-attorneys’ breaches and wrongful conduct.”
     The plaintiffs seek disgorgement of fees and punitive damages for fraud, attorney negligence, negligent misrepresentation, unjust enrichment and breach of fiduciary duty.
     They are represented by Dan Goldfine and Barry Halpern with Snell & Wilmer.

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