Suit raps Lynch, AG in bid to divert $110m
Alleges court was misled:
Lawyer says effort to use JUA reserves for the budget an “abuse of power.”
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By NANCY WEST
New Hampshire Sunday News
A lawsuit against the state claims Gov. John Lynch and Attorney General Michael Delaney deliberately misled the court, lawmakers and the public as they tried unsuccessfully to divert $110 million in reserves from a medical malpractice insurance plan to the state’s general fund.
Lynch and Delaney strongly denied the allegations. But ongoing litigation makes it clear Lynch’s two-year battle to take excess reserves from the New Hampshire Medical Malpractice Joint Underwriting Association to help balance the state budget is not over.
JUA policyholders allege Lynch and Delaney misled by suppressing a legal opinion obtained by the JUA board of directors early on — and continue to keep it secret — that disagreed with the state’s position that it was legal to seize JUA excess reserves.
Kevin Fitzgerald, one of the Nixon Peabody lawyers representing Dr. Georgia Tuttle and about 300 other JUA policyholders in two related lawsuits, believes the state behaved unethically and possibly illegally in trying to confiscate JUA funds.
“What has shocked me the most is the systemic abuse of power and public trust by government officials that in my view is unprecedented in New Hampshire history,” Fitzgerald said.
Jeff Meyers, Lynch’s legal counsel, said the governor wouldn’t comment personally because of the pending lawsuits. “Those allegations are irresponsible and absurd,” Meyers said. “They are really coming from people who are financially motivated to obtain JUA funds for themselves.”
Delaney said there was no attempt to deceive anyone. His office took a position that the JUA is a state entity. And despite a superior court decision stating otherwise, it continues to take that position today, Delaney said.
The contrary legal opinion — obtained by the JUA board of directors, who were also concerned at the outset that Lynch’s plan was possibly illegal — was kept confidential because it was protected as attorney/ client communication, Delaney said.
While hiding the contrary legal opinion, Lynch and Delaney publicly touted a legal opinion by Senior Assistant Attorney General Glenn Perlow saying the state had a right to the JUA money, according to a right-to-know lawsuit JUA policyholders filed against the state last October. The suit in Merrimack Superior Court names Lynch, Delaney and Insurance Commissioner Roger Sevigny.
“Indeed, neither the Legislature, the public nor the court in the ‘Tuttle’ litigation were told of its existence,” Fitzgerald wrote in a recent court filing.
Fitzgerald said he was shocked to learn in January that there had been a contrary legal opinion all along. Fitzgerald was taking sworn testimony Jan. 13 in a deposition from Dr. Merwyn Bagan, of the JUA board of directors, during which Bagan revealed its existence.
That opinion, which remains confidential, was written by the JUA’s Boston attorney, Michael Aylward, Bagan testifed. He was cautioned by his lawyer that day against revealing further details of its content.
“(Aylward) had an opinion that was contrary in some respects to the opinion rendered by the Attorney General’s Office,” Bagan testified.
The deposition was taken in preparation for a trial slated for August in the second lawsuit in which Dr. Tuttle and other JUA policyholders claim the board of directors failed its duty to protect the reserve funds. That suit was filed last May.
They want the board to disburse any excess reserves to them as policyholders who have paid the insurance premiums. But Delaney said if the JUA is not a state entity, much of those reserves could be claimed by the IRS because it would lose its tax-exempt status.
The breach-of-duty lawsuit alleges the JUA board failed to do what was reasonable to protect the JUA’s fund and the contractual interests of the policyholders. “Instead they abandoned their duty and capitulated to the demands of the governor and insurance department,” Fitzgerald said.
“They were willing to allow the property of policyholders to be stolen and didn’t raise their hands in any effective way to prevent it,” Fitzgerald said.
Attorney Daniel Mullen, who represents the JUA board, did not return calls seeking comment.
The state Supreme Court ultimately backed a lower court ruling and said it was unconstitutional for the state to take JUA reserves. A second attempt to seize the reserves by legislatively changing Insurance Department rules also failed.
But Delaney said the Supreme Court left open the question of whether the JUA is a state or private entity.
The JUA was formed by the Insurance Department in 1975 to insure health care providers who were having trouble at the time finding affordable malpractice insurance. It insures about 900 doctors, hospitals, nursing homes and other allied providers.
Bagan testified in January that after the board sent Aylward’s legal opinion to the state, it was told to fire Aylward and accept legal representation by the Attorney General’s Office.
Delaney said Bagan was correct. The board was told the Attorney General’s Office would be its only counsel. Delaney said later in the proceedings Aylward spent more than a year representing the JUA.
The JUA board did not cooperate with the state, Bagan said in the deposition, adding it was simply following the orders of the governor. “We were told what to do,” Bagan said. Bagan also testifed about a letter Insurance Commissioner Sevigny sent to the board saying he had concerns board members might not be indemnified by the state if they didn’t do what Sevigny expected.
“It was an implied threat,” said Bagan.
Sevigny declined to comment.
State Sen. Sylvia Larsen, D-Concord, who backed Lynch’s plan to seize the $110 million when she was Senate president, said Lynch and Delaney wouldn’t try to mislead anyone. Larsen said she never heard about a contrary legal opinion during the legislative and court hearings, but said she respects that it was confidential under the attorney/client privilege.
“You can have an issue with six different opinions from six different lawyers. That’s not surprising,” Larsen said.
Superior Court Judge Kathleen McGuire ruled the JUA was a quasi-private entity and the state was therefore not entitled to its reserves.
“I think a negotiated settlement is needed and let’s move on,” Larsen said, adding she has great faith in the integrity of Delaney and Lynch. “You can have an honest difference of opinion,” Larsen said.
Senate President Peter Bragdon, R-Milford, said he only learned earlier last week of the JUA board’s opinion questioning the legality of Lynch’s plan.
“These are some troubling allegations,” Bragdon said. “Our concern has always been that this was an attempt by the state to take the private property of the doctors and medical practitioners,” said Bragdon.
The fund is supposed to pay dividends to its policyholders, he said. “The state hasn’t taken their money, but it has not released it, either,” Bragdon said. Fitzgerald said he plans to take sworn testimony from Lynch and Delaney in the breach-of-duty lawsuit.
Fitzgerald argued in court records that Lynch, Delaney and Sevigny have refused to turn over public records, calling it “a knowing violation of (the rightto- know law).”
“They weren’t candid and complete and transparent. People were misled into believing it was completely legal,” Fitzgerald said.
But Meyers, Lynch’s attorney, said the court would ultimately decide which documents the state should make public.
“The governor has always approached the JUA matter in an open and transparent way. There have been many public legislative and court hearings,” Meyers said.
