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Hager v. DBG Partners, Inc.

United States District Court, N.D. Texas, Fort Worth Division

August 1, 2019

DAVID L. HAGER, Plaintiff,
v.
DBG PARTNERS, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          JOHN McBRYDE UNITED STATES DISTRICT JUDGE.

         I.

         Current Posture of the Case

         On January 28, 2019, the court conducted a bench trial on the issues the Fifth Circuit expected to be resolved when it reversed certain rulings made by this court on August 28, 2017, and remanded the action to this court, Hager v. DBG Partners, Inc., 903 F.3d 460, 471 (5th Cir. 2018). Those issues are (1) whether plaintiff, David L. Hager ("Hager"), should receive statutory penalties from defendant, DBG Partners, Inc., by reason of defendant's alleged failure to notify Hager of termination of the healthcare plan carried by defendant for its employees, and, if so, the nature and extent of such penalties, id. at 470-71, (2) whether, in fact, defendant failed to notify Hager of such termination, (3) whether Hager should recover attorney's fees from defendant, as Hager has requested in his complaint, and, if so, the amount, id. at 471, and (4) whether Hager should recover from defendant costs of court incurred in this action, id.

         The Fifth Circuit affirmed this court's judgment of dismissal as to all claims pleaded by Hager other than his claims for recovery of attorney's fees and costs of court.[1] It upheld this court's denial of Hager's claim for compensatory damages for violations of COBRA notice requirements. Id. at 469-70.[2]Because Hager acknowledged before this court that he had received notice of his right to continue his healthcare coverage under COBRA, and failed to explain on appeal why that notice was inadequate, the Fifth Circuit considered that issue forfeited. Id. at 466-67. Thus, this court's dismissal of that pleaded claim was upheld. Similarly, the Fifth Circuit upheld this court's dismissal of Hager's pleaded claim of fraudulent conversion of insurance premium payments he had provided to defendant with the intent that defendant would forward the payments on to the health insurance carrier providing Hager COBRA coverage. Id. at 464.

         As the Fifth Circuit held, Hager adequately alleged that defendant did not fulfill its notice obligations under COBRA. See Doc. 1 at 7, ¶ 23 & at 8, ¶ 25 (there are two paragraphs 25 on pages .7-8 of the complaint) .[3] However, the court has a concern with the Fifth Circuit's statement, having reference to a penalty based on a failure, if any, of defendant to notify him of termination of its health plan for its employees that had the effect of terminating Hager's COBRA insurance coverage, that "Hager maintained in the district court that he was entitled to such a penalty." Hager, 903 F.3d at 470. While the record of this court substantiates that Hager attempted to inject that issue into the case before this court dismissed all his COBRA claims, an overall view of the record discloses that there is no way this court reasonably could have known when it dismissed all of Hager's claims that he was actually making such a claim.

         The court does not intend by anything stated in this opinion to be critical of the handling by the Fifth Circuit of Hager's appeal from this court's dismissal order. The opinion of the Fifth Circuit discloses that the Fifth Circuit' conscientiously studied the record before it and applicable legal authorities, and made certain rulings in favor of defendant based on the contents of the record and those legal authorities even though defendant was unrepresented on the appeal and did not provide the Fifth Circuit any assistance in evaluating accuracy or completeness of the appellate record, nor did the Fifth Circuit have the benefit of a defense counsel's assistance in bringing to the Fifth Circuit's attention inferences beneficial to defendant that might be drawn from the contents of the incomplete record that had been provided to the Fifth Circuit for its consideration in deciding the appeal.

         As the Fifth Circuit noted in its opinion, defendant failed to file a brief on appeal. Consequently, the Fifth Circuit was without any assistance in evaluating the integrity, from the standpoint of the presentation of Hager's claims before this court, of contentions Hager made before the Fifth Circuit. That was a subject of an exchange between this court and defendant's counsel at the January 2019 bench trial, that went as follows:

THE COURT: Well, one of the problems I think that developed in this case, Mr. Richerson, is your client was not represented in the Fifth Circuit. No. brief was filed on behalf of DBG, and no lawyer appeared on behalf of DBG, so the plaintiff had a free run to tell the Fifth Circuit anything they wanted to tell the Fifth Circuit, and they didn't have anybody answering that.
Why did you not represent DBG in the Fifth Circuit?
MR, RICHERSON: Well, Your Honor, that had nothing to do with DBG. I was actually sick. I closed my practice.
THE COURT: You were what?
MR. RICHERSON: I was sick and I closed my practice, and I reopened it and I closed it again, and during the time when my brief was due, it was basically I was closing the practice and I just couldn't do it, and that was really the only reason why.
I didn't want the client to suffer for it, but that was the truth, and it was unexpected. Only two or three cases were affected, but that was the absolute reason. I just couldn't do it physically.

Doc. 120 at 190.

         One of the adverse effects of the non-representation of defendant in the appeal was noted by the Fifth Circuit in its opinion when it discussed an August 16 meeting for a settlement conference, which was followed by a proceeding in the courtroom. Hager, 903 F.3d at 464. The Fifth Circuit noted in its opinion that "[a]fter the conference, the parties reported to the courtroom; the proceeding that followed is not in the record." Id. (emphasis added). This court has discovered that three district court proceedings had not been transcribed and put of record prior to Hager's appeal to the Fifth Circuit, with the consequence that the Fifth Circuit did not have a complete record of the proceedings of this court. Those transcripts have been prepared, are now of record, and appear as Docs. 79, 80, and 81 on this court's docket in this action. If defendant had been properly represented on the appeal, those absences from the appellate record undoubtedly would have been called to the Fifth Circuit's attention inasmuch as information important to the defense was contained in two of those transcripts. Particularly pertinent were exchanges between the court and counsel for Hager that are found in the transcript the Fifth Circuit referred to when it said "the proceeding that followed is not in the record." Hager, 903 F.3d at 464. During that proceeding, the court and counsel for Hager had the following exchange that defined the issues that were before this court for decision:

THE COURT: Let's see. As I recall, we're down to the back end, that is, whether your client got proper notice of termination of the coverage of the group policy?
MR. O'KELLY: Correct, Your Honor.
THE COURT: And then if he did get notice -- if he didn't get notice, did they make a reasonable effort to give him notice. That would be an issue.
MR. O'KELLY: That would be the issue, yes, Your Honor.
THE COURT: And then even if they didn't give him notice, does he have any right to recover damages because of that.
MR. O' KELLY: We have made --
THE COURT: Is that kind of where we are?
MR. O'KELLY: You're right, Your Honor. I won't respond, but you're right. You've identified the issues correctly. Your Honor.

Doc. 80 at 4-5 (emphasis added). This court's order of dismissal was, according to the Fifth Circuit's rulings, correct as to the third issue. Because of this court's decision on the third issue, it had no reason to decide the first two; however, the court has now found, based on the record as it now exists, that defendant in good faith tried to give Hager notice[4]

         The exchange quoted above occurred on August 16, 2017, the last occasion for the parties to be before the court prior to the August 21, 2017 proceeding that led to the court's announcement that the case was being dismissed. That exchange was consistent with the following reasons that were stated on the record at the time the dismissal was announced when the parties were before the court on August 21, 2017:

THE COURT: I'm telling you now that I'm satisfied that your client does not have any right to recover compensatory damages based on any alleged failure of the defendant to notify your client that the policy had been terminated.
Is that what you want a record of?
MR. O'KELLY; Well, if that's your finding, then I need a record of that so I have something to --
THE COURT: Okay. That's what my finding is.
That hearing we had on August 8th of this year clearly reflects what happened to the part of the claim that had to do with failure to give him notice of his entitlement to COBRA coverage. That's behind us.
And I'm telling you now that there's no point in going to trial on the other one, that is, the alleged failure to give proper notice of termination of the plan. That's not going to get you any money, and there's not much point in going to trial if you're not going to win, if I don't have anything for the jury to decide.

Doc. 74 at 28-29.

         Of similar importance is information contained in the transcript that is now of record as Doc. 81, which is a transcript of a pretrial conference that was conducted in this action on July 3, 2017. Even though Hager had been ordered to put in the joint pretrial order the parties to were to submit to the court "a full and complete statement of plaintiff's claims, with specificity," doc. 19, attach. Special Pretrial Instructions at 1, ¶ 4(c), the joint pretrial order the parties presented to the court in advance of the July 3, 2017 pretrial conference said nothing about any claim by Hager for recovery of any penalties; rather, the only description of any claims Hager had under COBRA was stated by Hager as follows:

         1- Violation of 29 U.S.C. SI1611166 (COBRA) as follows:

a. Failing to provide Plaintiff with timely notifications of his right to elect COBRA coverage within 30 days of Plaintiff's termination of employment;
b. Failing to notify Plaintiff or any covered employee of cancellation of Plaintiff's health insurance coverage at the time of termination of coverage;
c. Failing to notify or otherwise keep Plaintiff properly informed of his COBRA coverage under Defendant's group medical insurance plan.

Doc. 78, Ex. A at 2.

         The court pointed out to Hager's counsel at the pretrial conference the inadequacy of the pretrial order. Doc. 81 at 2, 4-5, 15-16. His counsel explained to the court what Hager expected to recover based on the failure of defendant to notify him of termination of his COBRA coverage, saying:

MR. O'KELLY: Well, under Cobra, if my client is not getting coverage and incurs medical bills that should have been covered but for the omissions of the employer or the plan administrator, then the law is pretty clear that he gets, not only his premiums, but, also, the medical expenses he's incurred.

Doc. 81 at 15, No. mention was made of a claim for penalties.

         The court ordered at the pretrial conference that the parties prepare and file a revised joint pretrial order, and directed that it "will have a detailed listing of plaintiff's claims where the Court can read that and understand what plaintiff's claims are." Id. at 21-22.

         The revised joint pretrial order (titled "Amended Joint Pre-Trial Order") that the parties provided to the court in response to that directive described Hager's claims in some detail. Doc. 78, Ex. B at 2-4, § 4, ¶¶ 1-16. Hager's only claims pertaining to liability by defendant to Hager for violations of COBRA were stated as follows:

15. Defendant is liable for Plaintiff's medical expenses incurred between June 1, 2015 and July 31, 2015.
16. Defendant is also liable for Plaintiff's attorneys fees and costs that Plaintiff has incurred in the pursuit of this action.

Id. at 3-4, ¶¶ 15-16. Not once did Hager mention in his description of his claims that he was seeking penalties from defendant based on any set of facts or circumstances. No. mention was made of penalties in any other section of the amended pretrial order.

         Nor was the Fifth Circuit provided for its consideration of Hager's appeal copies of either the original or the first amended proposed pretrial orders that failed to mention any claim for penalties. Doc. 78, Exs. A & B. They were not in the case file when the case was dismissed.

         If defendant had been represented by an attorney in the appeal to the Fifth Circuit, the attorney undoubtedly would have called the foregoing matters to the attention of the Fifth Circuit, which could well have caused the Fifth Circuit to conclude that it did not have a complete record on appeal, and to require Hager to produce transcripts of the proceedings and to cause them to become parts of the appellate record. Once the Fifth Circuit had the complete record, it might well have concluded, with the help of defense counsel if there had been one, that Hager had not sufficiently informed this court that Hager was making a claim for penalties based on defendant's failure to notify Hager that it was terminating its health insurance plan. If the Fifth Circuit had reached such a conclusion, it could have affirmed this court's dismissal.[5]

         If defendant had been properly represented by counsel on appeal, its counsel would have called to the Fifth Circuit's attention the same things this court called to the attention of the parties by the order this court issued on November 20, 2018, for the purpose of explaining to the parties in advance of a proposed hearing that the court was unaware when the court dismissed all of Hager's claims that Hager was making a claim for penalties based on the alleged failure of defendant to notify Hager of termination of the health insurance plan. See Doc. 86. The sequential discussion of pertinent events in this action that are provided this court's November 20, 2018 order, as the action pended in the district court before the court's August 2 017 dismissal, demonstrates without any serious question that this court had no reason to be aware at the time of the court's August 2017 order of dismissal that Hager was asserting a claim for penalties based on a failure of defendant to notify Hager of termination of the health insurance plan.

         Hager made no such claim in the complaint by which he initiated this action in February 2016. Doc. 86 at 3-4. And, there is persuasive basis for a contention that such a claim would constitute a claim for Special Damages, as contemplated by Rule 9(g) of the Federal Rules of Civil Procedure, which provides that "[i]f an item of Special Damage is claimed, it must be specifically stated." See Doc. 86 at 15.

         Rather than to reiterate what the court put in the November 20, 2018 order on the subject of the unique circumstances in this action that caused the court not to have knowledge when the court dismissed all of Hager's COBRA claims that Hager was making a claim of entitlement to penalties based on defendant's alleged failure to notify him of termination of the health plan, the court is inviting the reader of this opinion to refer to and read the text under the heading "Unique Circumstances in This Action" at pages 18-29 of the November 20, 2018 order. Doc. 86 at 18-29. Near the end of the November 20, 2018 order, the court explained, and directed, as follows:

This court agrees with the statement by the Fifth Circuit that "Hager maintained in the district court that he was entitled to such a penalty." Supra at 1-2. However, the techniques used by plaintiff to maintain that he had such an entitlement were so tenuous that this court did not consider, or realize, that such an issue was actually before this court for decision.
The court tentatively has concluded that those techniques were such that they could form the basis for a denial by the court of any penalties and attorneys' fees, bearing in mind that a plaintiff has an obligation to make known to the court in an appropriate manner the claims on which he is asking the court to make a ruling.
However, the court is directing plaintiff to respond to the contents of this order if he disagrees with, or wishes to comment on, any of the facts recited, or conclusions expressed, by the court in the order.

Id. at 29-30.

         Hager did respond on December 30, 2018. Doc, 96. In that response, Hager was critical of the court for preparing and issuing the November 20, 2018 order; and he disagreed with this court's conclusions. However, he did not call the court's attention in his response to any specific factual statement in the order with which he disagreed. Instead, he chose to use the court's issuance of the November 20 order as a basis for a motion for recusal under 28 U.S.C. § 455(a), in which he attacked this court for its preparation and issuance of the order. Doc. 97. The motion for recusal was filed shortly before the first setting of the post-appeal trial of this action. The court rescheduled the trial to give it an opportunity to fully consider and rule on the motion, doc. 99, which the court denied by order issued January 11, 2019, doc. 102.

         At the January 28, 2019 trial, the court gave Hager's attorney an opportunity while he was testifying to put of record any complaint he had relative to accuracy of the things this court said in the November 20, 2018 order. Doc. 120 at 186-87.

         The following exchange occurred:

THE COURT: ....
Well, is there anything in the order I issued on November 20, 2018 that I did not accurately describe what happened in that order?
MR. O'KELLY: I don't believe so. I don't have the order in front of me, . I have not read it recently, but I don't believe you have mischaracterized anything, except the suggestion that I had failed to preserve the issue of penalties, which I thought 1 had done by asking for general relief in the original complaint and then proceeding with the amendment to the joint pretrial order so that that was preserved. That's --that's what I did.

Id. at 186.

         The court anticipated, and dealt with, in the November 20, 2018 order the contention that the request in Hager's complaint for "general relief" was sufficient to alert the court that he was seeking penalties under COBRA. Doc. 86 at 15-18; see also supra at 12-13 .

         Of interest is the testimony counsel for Hager gave at the January 28, 2019 trial concerning the events that led to the inclusion in the second amended pretrial order of the mention by Hager of a legal issue of penalties related to the alleged failure of defendant to provide Hager notice of termination of the health insurance. The court's description of those and related events is found at pages 7-11 of the November 20, 2018 order. Doc. 86 at 7-11, ¶¶ 5-7. As the court inferred from the information the court had available at the time of that order, the inclusion of the penalty language in the second amended pretrial order came about through violations by Hager's counsel of a court order. Id. at 10-11. Hager's attorney confirmed during his testimony on January 28, 2019, the inferences the court expressed in the November 20, 2018 order. Doc. 120 at 178-86. Hager's counsel acknowledged by his testimony that he was aware that the court had issued an order in response to his motion for leave to add penalty language to the pretrial order informing the parties that the language could be added if the parties reached an agreement on that subject, but if they could not reach an agreement, then Hager could reurge his motion for leave. Id. at 181. He admitted that he put the penalty language in the second amended pretrial order without conferring with defendant's counsel because he was "trying to protect [his] client to make sure [he] preserved all issues." Id. at 182. He recognized that he had sought leave of court to put that in the pretrial order, and said that he thought he had received leave of court to do so. Id. at 182-183. The fact is that he had not received leave. In the course of the questioning, counsel again explained his conduct by saying that "I was trying to preserve the issues for the plaintiff." Id. at 183-186. Needless to say, if, as Hager has contended, a general prayer for relief in Hager's complaint had done the job, his attorney did not, in violation of an order, have to sneak the claim into the wording of a pretrial order to preserve it.

         The mention of penalties by Hager's counsel in the second amended pretrial order could well be what caused the Fifth Circuit to say in its opinion that "Hager maintained in the district court that he was entitled to such a penalty," Hager, 903 P.3d at 4 70. Had defendant been properly represented before the Fifth Circuit on the appeal, defense counsel could have informed the Court of the irregularities that resulted in the inclusion of the penalty language in the second amended pretrial order, and the Fifth Circuit panel presiding over the case could have taken that into account in its evaluation as to whether Hager properly advised the district court of the existence of his claim for penalties before the order of dismissal was issued.

         Notwithstanding this court's belief that any claim by Hager for penalties related to the alleged failure by defendant to give Hager notice of termination of the health plan was not brought to this court's attention sufficiently for this court to be aware of it when this court dismissed Hager's COBRA claims, this court understands and respects that the Fifth Circuit, by its reversal and remand, has indicated its disagreement with this court's view of that matter, with the result that this court accepts, as it must, the decisions of the Fifth Circuit on that subject, However, the court notes that the Fifth Circuit gave this court discretion in deciding whether to award Hager penalties or attorney's fees, and, if it did, the amount to be awarded as to each. And, this court is taking into account all the information contained in this court's November 20, 2018 order and points made in this opinion in making those decisions.

         II.

         The Notice of Termination Issue

         The court now turns to the claim by defendant that it sent a letter to Hager, notifying him that defendant would be ending the Blue Cross health plan as of June 1, 2015, would no longer be providing health benefits to its employees, and that Hager's COBRA benefits could be affected. PL's Ex. 8; Def.'s Ex. 9. That letter is the only thing on which defendant relied as constituting notification to Hager that the continued insurance coverage he obtained through COBRA was being terminated. Defendant placed reliance on that letter in its post-hearing memorandum filed in this court as providing appropriate notification to Hager of his health insurance coverage. Doc. 122 at 2-4. Defendant did not provide any explanation as to why there are two versions of the letter, one showing a date of May 12, 2015, PL's Ex. 8, and the other showing a date of May 5, 2015.- Def . 's Ex. 9.

         While there is evidence that the person who ran defendant's business thought the letter was mailed, doc. 80 at 24-25, there was no direct evidence that the letter was actually put in the United States mail for delivery to Hager. The letter was addressed to Hager's address shown on the information sheet on the inside of the front cover of Hager's personnel file, which Hager had the obligation to maintain as CFO of defendant. Def.'s Ex. 18. In May 2 015, Hager no longer lived at that address, but lived at an address used in an earlier letter that defendant's attorneys had prepared for defendant's CEO to sign relative to the termination of Hager's employment. Doc. 120 at 155-56; Pi.'s Ex. 7. Hager denied that he received the May 12, 2015 version of the letter on the date shown on the letter.[6] Doc. 120 at 22. He was not asked about the May 5, 2015 version of the letter, but he did say that he did not receive during May, June, or July 2015 any notice from defendant that the insurance plan was to be, or had been, terminated. Id. at 29.

         A version of the letter that purports to be from defendant to Hager concerning termination of the health insurance coverage apparently is what the Fifth Circuit had in mind when it expressed the conclusion that, "alone, DBG's letter is insufficient to support dismissal of Hager's claim." Hager, 903 F, 3d at 468. Defendant's arguments to the contrary in its post-hearing memorandum are not persuasive. The court concludes that, while the record contains evidence of defendant's good-faith intent to inform Hager of its plan to terminate the health insurance coverage, the court is not persuaded by defendant's arguments that the termination-of-coverage letter is sufficient to establish that Hager received notice that the health insurance coverage was to be terminated. Indeed, the Fifth Circuit held that because of defendant's failure to file a brief, defendant forfeited its contention that it had fulfilled its notice obligations. Id. at 467.

         III.

         Defendant Acted in Good Faith

         The Fifth Circuit said in its opinion that Hager had pointed to evidence suggesting that defendant did not act in good faith on the matter of providing notice, and defined that evidence as follows:

(1) DBG sent Hager's employment termination notice, which was hand-delivered earlier than the health plan termination notice, to the correct address; (2) Hager exchanged text messages with Rowan about health insurance, during which Rowan failed to mention the plan's discontinuation; and (3) DBG deposited Hager's premiums when it received them, and refused to refund them for almost two years.

Id. at 468.

         The court is persuaded by the evidence now in the record that the evidence does not establish that defendant did not act in good faith on the notice requirement. Rather, it shows that defendant acted in good faith. Doc. 80 at 24-25; Doc. 120 at 157-58, 162-64.

         The only text exchange this court has found in the record shows that, by the time that exchange occurred, Hager already knew that the healthcare insurance coverage had been terminated. PL'S Ex. 1; Doc. 12 0 at 2 9-30.

         The witness who testified on the subject of the giving of notice by defendant to Hager of termination of the health insurance was Todd Rowan ("Rowan"), who is the responsible person at defendant, with the consequence that his motive and intent ...


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