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Clearing the way for large payments to be mailed to the injured plaintiffs in the fen-phen diet drug settlement, a federal judge ruled Wednesday that the U.S. government cannot stall the settlement from going forward simply by asserting a vague “interest” in funds it may be entitled to under the Medical Care Recovery Act or the Medicare Secondary Payer Act. But the judge ordered that $7 million be set aside to cover any actual, valid, concrete claims that the government may one day assert. “The government’s unconditional demand that the [settlement] trust delay distribution until the government has determined its interest in the settlement proceeds cannot be honored,” Senior U.S. District Judge Louis C. Bechtle wrote. “To do so would not only force the trustees to breach their fiduciary obligations to the class, but would also result in a material breach of the terms of the settlement agreement that is the basis of this court’s entry of judgment … and was followed by a change in position by thousands of litigants and class members thereafter.” Government lawyers said in court papers that they intended to hold the trust responsible for any “wrongful” payments made from the $3.75 billion settlement fund established by American Home Products. But plaintiffs’ lawyers and AHP’s lawyers joined forces to ask for Bechtle’s help, saying the government’s strategy — and its threats — were jeopardizing the settlement and delaying payments. Bechtle found that since the government was not promising to adhere to “any reasonable timetable” in identifying its claimed interests in the funds, that requiring the settlement trust to withhold distribution of settlement proceeds until the government did so, “threatens the viability of a nationwide settlement that seeks to adjudicate the claims of hundreds of thousands of persons.” He also found that a delay in the distribution of the settlement benefits “may prompt class members to seek recission of the settlement agreement.” And if the settlement agreement were rescinded or the class were decertified, Bechtle said, “much of the enormous amount of time, expense and effort expended by all parties involved … to efficiently resolve the hundreds of thousands of diet drug claims will have been wasted.” Tackling the request as though it was a motion for a preliminary injunction, Bechtle also looked to the public interest and found there was a significant interest in “efficient resolution of this mass tort litigation.” “Further delay in payment of settlement proceeds will not only cast doubt on the viability of the judicial system for efficiently resolving mass tort litigation, but failure of the settlement would result in redundant and wasteful litigation of hundreds of thousands of claims that would otherwise have been finally resolved by the settlement,” Bechtle wrote. “The court finds that any further delay in the distribution of settlement proceeds will cause immediate and irreparable injury to the class, and that equitable relief is in the public interest.” Under the settlement, Bechtle said, there are strict deadlines in the claims administration procedures. The process also provides subrogees with the ability to recover from the trust any valid and enforceable subrogation claims they have against AHP without having to prove that AHP is actually liable on the merits of those claims. But the settlement does not provide a separate mechanism for adjudication of claims made by the government besides the general subrogation provisions. Subrogees must meet four conditions: The claim must be asserted prior to distribution of so-called “Fund B” benefits to which the claim relates; the claim must be based on a positive provision of law or a valid enforceable contract; the third party asserting the subrogation claim must clearly establish that it actually made payments to or for the benefit of the class member which is of a type that the putative subrogee would be entitled to recover against AHP; and the third party is only entitled to Fund B proceeds to the extent of the actual payment made. In July 2000, the Justice Department — on behalf of the Departments of Health and Human Services, Defense, Veterans Affairs and the Indian Health Service — asserted that its agencies were entitled to reimbursement from the proceeds of the settlement for payments made to individual class members for medical treatment allegedly necessitated by the use of diet drugs. But lawyers on both sides of the case later complained to Bechtle that the government had refused to inform any of them of the specific individuals to whom the government’s claims relate and the amounts of those claims. Instead, the government has demanded that the parties provide it with the names, addresses, Social Security numbers and medical treatment history of class members so that the federal agencies can sweep these lists to determine the extent to which they have claims against those class members, if any. Bechtle found that the government also demanded information from the trust that is not even in the trust’s possession, such as claimants’ federal Health Care Identification Numbers or HCINs. “Furthermore, the government stated that if the trust distributes settlement proceeds to class members, as it is obligated to do under the trust indenture, without first satisfying the government’s claims against the recoveries of class member distributees, it will seek double damages against the trust and others responsible for the distribution,” Bechtle wrote. Under the settlement, AHP is committed to making payments to Fund B totaling as much as $2.5 billion to cover the potential range of benefits for injured plaintiffs and the associated costs of administering those benefits. As of Wednesday, the trust had sent out 62 claim tentative determination letters involving claims worth more than $28 million. Of those 62 tentative determinations, Bechtle said, 10 have become final determinations resulting in actual payments worth more than $4.8 million. And the trust is poised to make additional payments totaling more than $1.7 million on three other claims. The trust advised the court that it is also on the verge of sending out another 76 tentative determinations worth more than $27.6 million. As a result, Bechtle found that “payments … worth in excess of $50 million are imminent.” And the government’s demand that those payments be delayed, he said, “is an extremely disturbing prospect.” Bechtle said he found the legal issue “rather unique and troubling.” “On the one hand, because the government is not a party to the present litigation, the court cannot now make a final and absolute determination of its rights … . On the other hand, in order to resolve the current impasse in the administration of the nationwide settlement over which this court has continuing jurisdiction, and in order to protect the interests of the class and the funds held in trust for it, the court must assess to some degree the legal viability of the government’s claims in the absence of a motion to dismiss or motion for summary judgment,” he wrote. Weighing the arguments from both sides under the familiar injunction test, Bechtle found that both the plaintiffs and AHP would be irreparably harmed if the government’s efforts to stall the payments were not thwarted by the court. But he also said he recognized that the government may ultimately present valid claims. As a result, Bechtle ordered that the trust “shall forthwith commence distribution of the proceeds of settlement to eligible class members.” His order also said that “to the extent that they are in compliance with this order and the terms of the settlement agreement, all payments made by the trust (including the Trustees, administrators, attorneys, support staff and others fulfilling necessary tasks) pursuant to this order are declared by the court to be the result of a reasonable and proper exercise of the duties of the trustees of the trust and those other aforementioned persons and entities.” That provision in the order was apparently designed to ensure that the trust will never incur any duty to pay double on claims asserted by the government. Finally, Bechtle ordered the trust to establish a $7 million reserve fund to be available “in the event that the government ultimately establishes an interest in settlement proceeds relating to class members to whom Fund B distributions were previously made without making deduction for the government’s subsequently established interest.”

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