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A federal appeals court on Friday upheld a jury’s award of more than $1.8 million against Blue Bell, Penn.-based U.S. Healthcare and one of its executives in a suit brought by Brokerage Concepts Inc., a competing insurance administrator that said the health-care giant tortiously interfered with its contracts by using pressure tactics to steal away a big client. Significantly, the court also found that the trial judge, Senior U.S. District Judge Clarence C. Newcomer, did not abuse his discretion when he refused to step down from the case after defense lawyers argued that he was potentially biased against USHC’s new corporate parent, Aetna Inc. Attorney John M. Elliott of Pennsylvania law firm Elliott Reihner Siedzikowski & Egan, who represented former USHC executive Richard Wolfson, argued that Newcomer was unable to be fair in the case because Aetna was the insurer for Newcomer’s daughter when she died of cancer and had denied some of her claims. In a brief filed on the eve of trial, Elliott wrote: “Any reasonable person, knowing the relevant facts, would harbor serious doubts about Judge Newcomer’s ability to be impartial.” But the 3rd U.S. Circuit Court of Appeals found that Newcomer did not err in declining to recuse himself. “Recusal becomes necessary only if a reasonable person knowing the circumstances would expect the judge to know the facts leading to the appearance of bias. Denial of a medical claim by an insurance company is hardly such an unusual event as to permanently traumatize the insured’s family members living in a different household,” visiting 8th Circuit Senior U.S. Circuit Judge John R. Gibson wrote in a 23-page unpublished opinion in Brokerage Concepts v. U.S. Healthcare. Gibson, who was joined by 3rd Circuit Judges Richard L. Nygaard and Samuel A. Alito, also rejected Elliott’s argument that Newcomer had shown a bias against him during the trial and especially in a heated exchange on the first day when Newcomer denied Elliott’s recusal motion. Instead, Gibson rebuked Elliott for his conduct. “We have reviewed the excerpts … and, far from demonstrating bias, they show that the district judge appropriately discharged his duty to administer the trial fairly and efficiently,” Gibson wrote. “On the contrary, it was Wolfson’s counsel, Elliott, not the judge, who behaved inappropriately, making it necessary for the judge to speak sternly and, at one point, summon the marshals,” Gibson wrote. Gibson quoted the U.S. Supreme Court’s 1994 decision in Liteky v. United States in which the high court said: “Judicial remarks during the course of a trial that are critical or disapproving of, or even hostile to, counsel, the parties or their cases, ordinarily do not support a bias or partiality challenge.” Elliott could not be reached for comment Friday. Two other lawyers at the Elliott firm who also worked on the case, Mark J. Schwemler and Frederick P. Santarelli, also could not be reached for comment. In the suit, King of Prussia-based BCI claimed that USHC used its economic clout to steal away one of BCI’s major clients. BCI’s lawyers — Richard E. Bazelon and A. Richard Feldman of Bazelon Less & Feldman — told the jury that BCI had landed a contract to administer self-insurance for the 90-employee pharmacy chain I Got It At Gary’s. But the fledgling company lost the client, they said, when USHC retaliated by threatening to cut the pharmacy chain off from the constant flow of customers with USHC prescription plans. Evidence in the trial showed that USHC put a freeze on giving any new plan members to Gary’s while it investigated its high percentage of non-generic drug sales. It also delayed approval to take plan members to a new Gary’s and allegedly told the chain’s owner, Gary Wolf, that “we like doing business with people who do business with us.” BCI argued that Gary’s ultimately switched back to a USHC-related company but had suffered financially during the retaliation. In May 1996, Wolf sold the chain to Drug Emporium. In the first trial, a jury awarded BCI a total of $1.2 million, but that verdict was overturned when the 3rd Circuit found that it was based on flawed antitrust theories. Ironically, the second verdict was larger. The jury cleared two executives and one corporate entity that were found liable in the first trial but handed down larger verdicts against those it held responsible. The first jury had concluded USHC and two of its subsidiaries used their market power to coerce the Gary’s chain into enrolling their employees in its health plans. The May 1996 verdict hit each of the defendants. The jury specifically found that two top executives — Richard Wolfson and Scott Murphy — had engaged in commercial bribery, extortion and mail fraud. It awarded $400,000 in punitive damages against USHC; $300,000 against the two subsidiaries; $200,000 against Wolfson, $75,000 against Murphy, and $25,000 against William Brownstein. The second verdict was much simpler. The jury found that only three of the six defendants — USHC, HMO PA and Wolfson — had tortiously interfered with BCI’s existing and prospective contractual relations. But CHA, Murphy and Brownstein were cleared. BCI was awarded $105,000 in compensatory damages for its lost profits and a total of $1.75 million in punitive damages — $1.25 million against USHC and $500,000 against Wolfson. After the verdict, Bazelon said the case illustrated the value and flexibility of state law claims. Although BCI lost the first verdict on appeal due to rejection of its antitrust theories, Bazelon said the decision by Chief Circuit Judge Edward R. Becker was also a major victory because it approved of BCI’s novel state tort claim — a theory that had not yet been endorsed by the Pennsylvania Supreme Court. Specifically, Becker predicted that Pennsylvania would ultimately adopt comment (e) of Section 768 of the Restatement (Second) of Torts. Generally, Section 768 lays out the “competitor’s privilege” and explains that as a rule, competitors should not be allowed to sue one another for interfering with each other’s contracts. But comment (e) explains that a competitor loses that privilege when it engages in wrongful means, such as using market power it enjoys in one area to win a contract in another area. Bazelon said the ruling was significant because it showed that “even if you don’t meet the strict requirements of antitrust laws, you may very well have a remedy under state law.” While the evidence against USHC didn’t meet the antitrust test for the level of market power needed to sustain liability, Feldman said that the state law claim is much more flexible and allows a jury to look at the entire picture in deciding whether “market power was used to coerce.” APPELLATE ISSUES In the appeal, USHC and Wolfson argued that the federal courts lacked jurisdiction to hold the second trial since the federal claims were all dismissed. But Gibson said federal law requires a federal judge to exercise supplemental jurisdiction over “pendant” state claims brought in the same suit with federal claims. And when the federal claims are dismissed or dropped, he said, the law says the judge “may” decline to exercise jurisdiction. Newcomer said he would keep the case because, after years of litigation, dismissal of the remaining state law claim would be “grossly unfair” and “a gross waste of judicial resources, both state and federal.” Elliott also complained on appeal that Newcomer erred in limiting his cross-examination of Gary Wolf, the owner of I Got It at Gary’s, on the issue of Wolf’s having been paid more than $3,000 by Bazelon for his work in locating and copying documents. But Gibson found that the trial record showed that Elliott was “freely permitted” to cross-examine Wolf and that Newcomer stopped his questioning “to control what appeared to the court to be misleading, abusive questioning mischaracterizing a payment for document expenses as a payment for testimony.” Gibson also flatly rejected Elliott’s argument that Newcomer erred in instructing the jury on the issue of punitive damages, saying it was clear that Newcomer began and ended that portion of the jury charge by emphasizing that there must be a finding of “outrageous” conduct before punitive damages can be awarded.

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