Hepatitis case has escalating side battle

By Jeff German

Thursday, Oct. 22, 2009 | 2 a.m.

In court battles over huge amounts of money, all sides go to the mat every step of the way.

That’s what’s taking place behind the scenes in the massive litigation over last year’s hepatitis C outbreak.

A nasty fight has erupted between Nevada Mutual Insurance — which holds the comprehensive malpractice insurance policy for Dr. Dipak Desai, his three clinics and the other medical defendants in the case — and the bankruptcy trustee trying to gather the clinics’ assets to pay off creditors. Former clinic patients alleging they were infected with the hepatitis C virus are at the top of the creditors list.

The trustee, Brian Shapiro, and Nevada Mutual are battling for control of both the insurance policy, which is said to be worth $54 million to $60 million, and separate funds the insurance company is obligated to set aside to defend the clinics in the endoscopy lawsuits.

Shapiro contends the insurance proceeds are the biggest assets of the bankrupt clinics, which have a combined $100,000 in cash.

Robert Cottle, a lead plaintiffs attorney, boils it down this way: “All of this is about lawyers and companies covering their behinds so they don’t get sued when the cases are over. Because of the limited amount of money available for settlements, no one wants to be sued for not distributing the money fairly and appropriately.”

But the bitter fight between Shapiro and Nevada Mutual is further complicating the complex endoscopy litigation and making it tougher on the thousands of former patients who have sued the clinics.

Neither party, for example, wants to foot the bill for storing and organizing hundreds of thousands of pages of patient records, many of which are crucial to the litigation. And no one has been hired to sort through the extensive computer records kept by the clinics. As a result, the plaintiffs can’t even obtain their own files to see exactly who treated them and what medications they were given during their medical procedures. The records and the computers are sitting unattended in a warehouse.

“We’re being denied access to basic evidence,” said Will Kemp, another lead plaintiffs attorney. “It makes it difficult to identify witnesses and take depositions.”

As the fight became more tooth and nail, Nevada Mutual accused Shapiro of failing to provide clinic records and witnesses to help the company defend malpractice claims against Desai and company. Shapiro in turn accused Nevada Mutual of trying to disburse insurance money in a way that is unfair to all of the clinics’ creditors.

Shapiro aggressively opposed what turned out to be an unsuccessful bid by Nevada Mutual to settle with one of the creditors, Michael Washington, a former Desai patient who alleges he was infected with the hepatitis C virus in 2007. Shapiro complained that Nevada Mutual wouldn’t even tell him the amount of the settlement. Nevada Mutual said it was confidential.

Then Shapiro decided to go mano a mano, obtaining an order from a bankruptcy judge to grill top Nevada Mutual executives under oath about the insurance policy. Nevada Mutual counterpunched by asking the same judge for permission to take Shapiro’s sworn deposition.

Bankruptcy lawyers said such a move against a bankruptcy trustee is very rare.

“I don’t know what their motivation is, but maybe they’re saying two can play this game,” longtime bankruptcy lawyer James Patrick Shea said.

Nevada Mutual won’t comment during the litigation, but Walter “Skip” Scott, a Dallas attorney Shapiro hired to help him with the bankruptcy proceedings, acknowledged a “fundamental rift” between the two parties — one that will likely worsen before it improves.

One way it will get worse is if Nevada Mutual follows through with threats to cancel the insurance policy and not pay legal claims against the clinics. The company is alleging Shapiro breached the policy’s terms by not cooperating with the company’s defense in the endoscopy litigation. Shapiro denies the accusation.

Nevada Mutual’s strategy is sure to lead to open warfare in separate legal proceedings in Bankruptcy Court that will put up still more obstacles for the lawyers suing Desai and the clinics.

“These skirmishes are all sideshows to the main event, which is getting the cases to trial,” said Kemp, the plaintiffs lawyer. “If we can do that, we’ll be on the golden path to a global resolution.”

The first trial, however, isn’t expected to get under way until April. That, of course, would be the absolute earliest because there’s still plenty of time for the battle playing out between Shapiro and Nevada Mutual to steer everyone further off that golden path.

Jeff German is the Sun’s senior investigative reporter.