After a two-year federal court fight that involved a trip to bankruptcy court, a Virginia rehabilitation center earlier this month was finally paid $2.1 million for providing five years of care to an Arkansan injured when a surgeon operated on the wrong side of his brain in 2004.
The Neurological Rehabilitation Living Center of Virginia Beach argued in U.S. District Court in Little Rock that its lawsuit should have been a straightforward contract and lien enforcement case to collect money for the care provided to Cody Metheny of Mabelvale between 2008 and 2013.
The case, however, has been anything but straightforward. Instead, it has devolved into a legal thicket of finger-pointing between the rehab center, Metheny’s parents, Metheny’s lawyers and a trust set up for Metheny, who is now 26.
The center accused Cody’s parents, Kenneth and Pamela Metheny of Mabelvale, and attorneys who handled Cody’s malpractice cases of quietly routing the proceeds from $13 million worth of judgments into a special needs trust in “an artful scheme to divorce Cody of assets on which NRLC has a lien and to leave Cody judgment-proof.”
But the Methenys’ bankruptcy attorney said the parents couldn’t pay the bill because the malpractice attorneys set the trust up in a way that kept them from spending it — even on bills they agreed were owed.
The Methenys’ malpractice attorneys, Phillip Duncan of Little Rock and Thomas Jones of Kansas City, Missouri, weren’t named in the center’s lawsuit. They didn’t return calls and emails for comment.
“Though these types of shenanigans are not typical in Arkansas, they are nothing new,” Adrienne Baker of Wright Lindsey & Jennings LLP in Little Rock, an attorney for NRLC, said in a court filing.
A Cautionary Tale
The center’s case could serve as a cautionary tale for medical providers who provide care on credit with the expectation of getting paid at the completion of a malpractice lawsuit involving their patient — and for clients who may not understand the ramifications of setting up a trust.
“Had I or anyone else at NRLC had even the slightest suspicion that the Methenys and the Malpractice Attorneys were planning to divert the Proceeds to [the] Trustee rather than paying NRLC, NRLC would have immediately discontinued treatment and sought collection of the amount due on Cody’s account,” Robert Voogt, CEO of the NRLC, said in a June affidavit. The statement was filed as part of the center’s collection case. “NRLC had no opportunity to mitigate its losses, however, because the Methenys and their Malpractice Attorneys concealed their plan from NRLC for five years,” he said.
Jonesboro attorney Joel Hargis, who represented the Methenys in the bankruptcy and collection proceedings but not in the malpractice cases, denied that the parents tried to avoid paying the center. He said the Methenys agreed the bill should be paid and wanted it to be settled before the interest charges increased the size of the bill. But they didn’t have access to the money in the trust, and the trustee wouldn’t pay.
“The Methenys never had control of that money,” Hargis told Arkansas Business. “And they didn’t stiff” the rehabilitation center.
Hargis said he didn’t want to “point fingers” because Duncan continues to represent Cody in a pending claim in front of the Arkansas State Claims Commission. The case, which was filed in 2006, is against the University of Arkansas for Medical Sciences and UAMS has a motion pending for summary judgment scheduled for March. The surgeon who performed Cody’s surgery was a professor at UAMS.
“Kenny and Pamela Metheny — they have suffered; their son certainly has suffered,” Hargis said. “Unfortunately, when they should have had at least partial resolution back in 2012, they’ve been in a state of turmoil.”
Other Cases Cited
Baker, the rehab center’s attorney, said in her court filing that lawyers in other cases have been criticized by judges for taking steps similar to those taken by the Methenys’ malpractice attorneys.
In May 2013, the 5th U.S. Circuit Court of Appeals used the word “ruse” to describe one attorney’s creation of a special needs trust knowing there was a lien pending against the settlement money.
In a similar set of circumstances in a case in front of the 7th U.S. Circuit Court of Appeals, a judge ruled that the defendants and their attorneys should be referred to the state bar and Department of Justice because of their actions to avoid payment.
But Howard Brill, who is the Vincent Foster professor of legal ethics and professional responsibility at the University of Arkansas School of Law at Fayetteville, said that in general, lawyers don’t have an obligation to pay doctors or hospitals that they don’t hire. Pamela Metheny’s signature was the only one on the contract with the center.
And a center or hospital should place a lien on any possible judgment so it can recover money for the services it provided, Brill said. “There is a means by which hospitals and centers can protect themselves,” Brill said.
Typically, Brill said, an attorney will tell a medical provider to be patient and the bill will be paid when the lawsuit is completed. “And they do that out of good business” practice, Brill said.
Surgery Goes Wrong
Cody Metheny was 7 years old when doctors diagnosed him with a seizure disorder, according to a lawsuit his parents filed in 2009 against Medical Assurance Co. of Birmingham, Alabama, the insurance carrier for Arkansas Children’s Hospital of Little Rock.
Cody’s seizures were under control when he was on medication, Kenny Metheny said during a January 2014 bankruptcy proceeding. But Cody’s doctor wanted him off the medication.
In 2004, when Cody was 15, his doctor was eager to try a fairly new procedure and scheduled him for brain surgery at Arkansas Children’s Hospital. But something went wrong during the procedure.
“The doctor just started on the wrong side” of Cody’s brain, Pamela Metheny said in bankruptcy court, a transcript of which was included as an exhibit in the collection lawsuit.
When the surgical team discovered what happened, they operated on the correct side. But the damage had been done.
Pamela Metheny “doesn’t believe that her son will surpass the mental capacity of a 16-year-old,” Hargis said.
She said in the bankruptcy hearing that Cody was living with her and the trust established with malpractice awards was paying for items such as Cody’s medicine, clothes and food.
In 2005, Cody’s parents sued the neurosurgeon, Dr. Badih Adada, and that case was eventually settled for $1 million.
In the meantime, the office of lawyer Phillip Duncan, one of the Methenys’ attorneys hired to handle the malpractice case, arranged for Pamela Metheny to send Cody to the 12-room Neurological Rehabilitation Living Center at Virginia Beach. The center provides rehabilitation to people with brain injuries and other neurological impairments, according to its website.
Pamela Metheny enrolled Cody in the center on Feb. 1, 2008, according to the contract that she signed as Cody’s guardian; the contract was included as an exhibit in the center’s lawsuit.
The center’s fee was $950 a day. “Your obligation to pay our bills is not dependent on the outcome of the court case,” the contract said, with the word “not” underlined. “Whether you win or lose in court, the bill will be paid in full.”
The center, however, agreed not to start collecting fees until after Pamela Metheny received the proceeds from a lawsuit, according to the fee and lien agreement.
It’s unclear how the Methenys would have paid for the care if they had lost the lawsuit.
“I can’t imagine that I would advise my client, ‘Hey go out and spend $950 a day because we’re going to win this damn thing,’” Hargis said. “That would never come out of my mouth.”
The lawsuit against ACH’s insurance carrier was successful. The rehab center sent a number of expert witnesses to Arkansas in 2010 to testify at trial.
The malpractice attorneys “used NRLC’s witnesses and invoice to drive up Cody’s claims for damages,” Baker wrote in her filing. (The center wasn’t paid for its expenses tied to the trial until four years later, in June 2014.)
In 2010, Cody’s case resulted in an eye-popping $20 million judgment against the insurance carrier. But the insurance company asked Pulaski County Circuit Judge Ellen Brantley to reduce the amount to $11 million, which was the amount of its liability coverage for the hospital. Brantley agreed.
After the case made its way through the appeals process in December 2012, the Methenys in January 2013 asked in a probate court filing to put the proceeds from the judgment, which by this time had grown to $12 million, into Cody’s trust. Duncan prepared the probate petition.
The trust was funded with $5.4 million, which was what was left after the attorneys’ fees, trial costs and expenses were paid, Pamela Metheny said in the bankruptcy proceeding.
The center, however, wasn’t paid.
“As soon as the transfer [to the trust] was complete, the Methenys removed Cody from the NRLC facility and sent movers to collect Cody’s belongings,” Voogt, the CEO, said in a June 2014 affidavit. “Despite not having been paid, NRLC cooperated with the movers and permitted them to remove Cody’s personal belongings.”
NRLC didn’t know about the verdict or the transfer of the money to the trust until after it had occurred, Douglas Brown Jr., the chief operating officer and chief financial officer of the center, said in an affidavit.
The malpractice attorneys, Jones and Duncan, offered to pay “a very small portion of the debt and then the remainder if, and only if” the Methenys’ claim at the Arkansas Claims Commission was successful, Brown said.
The center rejected the offer and demanded full payment. As of Feb. 13, 2013, the center said it was owed $1.157 million for neurological rehabilitation services and room and board and $590,100 for finance charges. In addition, the center billed $17,500 in connection with the testimony it provided during the 2010 trial against the insurance company.
“The Malpractice Attorneys should have helped the Methenys comply with the Agreement by paying over the proceeds on which the NRLC had a lien,” Baker wrote in her court filing.
Instead, Jones and Duncan ignored the request for payment and shut down talks with the center, according to Baker’s filing.
“While we appreciate how you might conclude that Messrs. Duncan and Jones represent Mr. Cody Metheny, and/or his conservators, and/or his family and/or any related entities … with respect to all legal matters, such is not the case,” attorney John Lessel of Little Rock wrote in an April 10, 2013, letter to the center’s attorney. “Representation is currently limited to the prosecution of a claim before the Arkansas Claims Commission.”
The Methenys said in the January 2014 bankruptcy proceeding that they weren’t sure what the status of the bill was in 2013.
“Mr. Duncan had told us that that bill was under negotiation with Dr. Voogt,” Pamela Metheny said. “That’s all Phillip Duncan told us. We did not even have a copy of the bill.”
She said it was her understanding that Duncan was going to take care of the bill.
In June 2013, the center sued the Methenys as conservators of the estate and named the Argent Trust Co. of Memphis, as trustee of the Cody R. Mehteny Special Needs Trust, as a defendant.
Argent Trust, in its court filings, said that the lawsuit should be between the Methenys and the center.
“The only contract in this case is between [the center] and the Methenys,” said Argent’s attorney, Kevin Keech of North Little Rock, in his court filing. “Argent is neither a party to, nor guarantor of, that contract.”
Keech didn’t return a call for comment.
The Methenys were concerned when they received the summonses for the center’s lawsuit, Hargis said.
“They were confused to a great extent,” he said. “They’re named on the style of the case as conservators, but on the summonses they’re named individually. And they thought, ‘Good night. We don’t have $2 million to pay anybody.’”
So they filed for Chapter 7 bankruptcy protection in July 2013 on the same day their answer was due in federal court. They listed $16,320 in debts and $67,755 in assets. The bankruptcy case prevented the collection lawsuit from moving forward for several months.
In July, the center filed a motion for summary judgment against the Methenys and Argent Trust Co. as trustee of the Cody R. Metheny Special Needs Trust.
In December, U.S. District Judge James M. Moody Jr. agreed with the center and ordered it to be paid the $2.1 million.
Baker filed paperwork with the court on Jan. 6 that said the judgment had been paid.
“Senior management is thankful for the outcome of this case because the payment for their past services will enable them to provide services to other clients in the future,” Baker said in an email statement to Arkansas Business. “They also seem relieved and ready to put this behind them.”