Stathis v. United States

Decision Date01 April 2015
Docket NumberNo. 14-61C,14-61C
PartiesPAULINE M. STATHIS, et al., Plaintiffs, v. UNITED STATES, Defendant.
CourtU.S. Claims Court

Partial Summary Judgment; Settlement Agreement; Contract Interpretation.

Patrick James Attridge, King & Attridge, Rockville, MD, for plaintiffs.

Ryan M. Majerus, Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, D.C., for defendant. With him were Robert E. Kirschman, Jr., Director, Commercial Litigation Branch and Benjamin C. Mizer, Acting Assistant Attorney General, Civil Division.

OPINION

Plaintiffs1 filed a complaint in this court, and subsequently filed an amended complaint, alleging breach of contract of a settlement agreement entered into with the United States to settle a medical malpractice claim. Plaintiffs allege that the United States breached a settlement agreement it had entered into with Pauline M. Stathis and Gus J. Stathis, individually, and as parents for Christina Stathis, which included in its award to plaintiffs a $90,000.00 yearly payment to be provided through an annuity purchased to "result in a distribution on behalf of the United States." Plaintiffs allege that "[t]he United States promised that as of January 2014 (i.e., more than twenty-six (26) years after the purchase of the annuity), yearly payments in the amount of $90,000 'will be paid to' Plaintiffs for the remainder of the natural life of Christina Stathis." According to the complaint, defendant breached its contract when the 2014 payment was reduced to $38,151.00. Defendant argues that "the undisputed material facts show that the United States under the settlement agreement only agreed to purchase the annuity . . . [and] didnot agree to guarantee all future payments to be made by that annuity." Neither party denies that a binding contract was entered into by plaintiffs and defendant; the dispute is about the terms of the agreement. The parties each filed a motion for partial summary judgment. Plaintiffs ask the court to find the defendant in breach of the settlement agreement. Defendant asks the court to dismiss plaintiffs' complaint.

FINDINGS OF FACT

In 1981, plaintiff Christina Stathis suffered severe injuries during her birth at Walter Reed Army Medical Center. In 1984, Christina's parents, Gus and Pauline Stathis, filed a complaint in the United States District Court for the District of Columbia underthe Federal Tort Claims Act (FTCA), 28 U.S.C. §§ 1346, 2671-80 (1982), alleging medical malpractice. According to the complaint, on or about December 13, 1985, the United States government entered into a settlement agreement with plaintiffs, "wherein in exchange for a release and discharge of the United States, the Stathises accepted monetary awards from the United States." In addition to paying a sum of $245,000.00, the government agreed to purchase an annuity from an insurance company, having an A+ financial rating in Class XI or higher, according to the A.M. Best Company, through JMW Settlements, Inc. The government drafted the settlement agreement, which provides that "[t]he annuity will be owned solely and exclusively by the UNITED STATES, and will result in a distribution on behalf of the UNITED STATES according to the following specified plan." (capitalization in original). The payment plan included in the settlement agreement provides that the following amounts "will be paid": five yearly payments of $40,000.00 commencing one year after purchase of the annuity; five yearly payments of $50,000.00 commencing six years after purchase; five yearly payments of $60,000.00 commencing eleven years after purchase; five yearly payments of $70,000.00 commencing sixteen years after purchase; five yearly payments of $80,000.00 commencing twenty-one years after purchase; and "[c]ommencing twenty-six (26) years after the purchase of the annuity, yearly payments in the amount of ninety thousand and 00/100 Dollars ($90,000.00) per year will be paid . . . for the remainder of the natural life of Christina Stathis." The settlement agreement reads:

In consideration of the purchase of the annuity, and payment of the lump sum . . . , Claimants hereby release and forever discharge the UNITED STATES, its officers, agents, and employees from all liability, claims, and demands of whatsoever nature arising from the care and treatment of Pauline M. Stathis and Christina Stathis at Walter Reed Army Medical Center, and claimants agree to indemnify and save harmless the UNITED STATES from any and all other claims, actions, or proceedings which may hereafter be asserted or brought by or on behalf of Claimants, their heirs, executors, administrators, assigns or successors in interest, or any other person or organization, to recover for personal injuries or death, or for contribution or indemnity, arising out of or related to the care and treatment of Pauline M. Stathis and Christina Stathis at Walter Reed Army Medical Center.

(capitalization in original). In a Stipulation of Dismissal agreed to by the parties and entered by the United States District Court for the District of Columbia, the parties "adopt[ed] all of the terms of the Settlement Agreement."

Defendant purchased an annuity from Executive Life Insurance Company of New York (ELNY) on or about January 14, 1986 by issuing a check for $675,851.00, payable to JMW Settlements, Inc.2 As required by the settlement agreement, ELNY had an A+ rating at the time of purchase. The United States District Court for the District of Columbia filed a "RECEIPT," (capitalization in original) signed by JMW Settlements, Inc., acknowledging receipt of a check from the government in the amount of $675,851.00, "which, pursuant to the Court's Order and Settlement Agreement filed December 16, 1985, fully discharges the defendant's obligation to plaintiffs for payment of money in consideration of the Order and the Agreement." Plaintiffs received the annual payments as outlined in the settlement agreement from January 15, 1987 until January 15, 2013.

The settlement agreement was amended on May 7, 2000 to provide for payments to be made to the Christina M. Stathis Special Needs Trust, instead of directly to Gus and Pauline Stathis, and was signed by plaintiffs and defendant. This "AMENDMENT TO ORIGINAL SETTLEMENT AGREEMENT" (capitalization in original) stated:

IT IS HEREBY STIPULATED AND AGREED that the United States of America, as owner of the annuity contract under which the requisite periodic payments will be made, shall cause the future periodic payments to be redirected to the Christina M. Stathis Special Needs Trust . . .
IT IS FURTHER AGREED AND UNDERSTOOD that this Amended Settlement Agreement does not alter the parties' obligations or overall payment amounts as reflected in the original Settlement Agreement, and does not replace the original Settlement Agreement.
Provider [sic] further, that as consideration for the amended terms reflected herein, Pauline M. Stathis will indemnify and hold harmless the United States of America, its authorized agents and employees, for any claims that may arise out of, or on account of, the redirection of the payments to the Christina M. Stathis Special Needs Trust.

(capitalization in original).

On April 16, 2012, ELNY was found to be insolvent by the Supreme Court of the State of New York (Nassau County), which issued a Memorandum Decision and Order of Liquidation and Approval of the ELNY Restructuring Agreement. A letter from the New York Liquidation Bureau, sent to Christina Stathis on May 18, 2012, enclosed the court documents and stated:

[t]he Court has directed the New York Superintendent of Financial Services to liquidate ELNY's business and affairs in substantially the manner provided in the Restructuring Agreement, about which you were previously informed. At such time as the Superintendent implements the Restructuring Agreement, the obligation to pay benefits under your ELNY annuity contract at the benefit level described in the December 7, 2011 letter will be transferred from ELNY to Guaranty Association Benefits Company.

The letter also informed Christina of her eligibility "to apply for financial assistance from the $100 million ELNY Hardship Fund ("Fund"), a voluntary initiative of the life insurance industry created to assist ELNY payees who will experience a reduction in benefit payments upon implementation of the Restructuring Agreement."

A December 10, 2013 letter from the Guaranty Association Benefits Company (GABC) to Pauline Stathis, on behalf of Christina Stathis, informed the Stathis family of a change in benefits under the settlement agreement. They would "receive the following payment annually: $38,151.00 with benefit due on 01/15/2013 [sic] and then on the 15th of each January for your lifetime."3 Plaintiffs sent defendant letters through counsel dated December 6, 2013 and December 17, 2013, alerting the government to the anticipated $51,849.00 shortfall. In a December 30, 2013 letter to plaintiffs' counsel from Larry Eiser, Senior Trial Counsel with the United States Department of Justice, Civil Division, Torts Branch, the United States denied any obligation to make up the shortfall. On or about January 15, 2014, plaintiffs received a $38,151.00 payment from GABC. Thereafter, plaintiffs filed suit against defendant in this court, claiming breach of contract, and requesting relief in the amount of $51,849.00, to compensate for the 2014 payment shortfall, plus a lump sum amount equal to the present value of the future annuity shortfalls. Plaintiffs and defendant each filed a motion for partial summary judgment. Plaintiffs argue that the government should be found liable for breach of contract. Defendant asks the court to dismiss plaintiffs' complaint and enter judgment in favor of the government.

DISCUSSION

Rule 56 of the Rules of the United States Court of Federal Claims (RCFC) (2014) is similar to Rule 56 of the Federal Rules of Civil Procedure in language and effect....

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