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Bambi v. O

Decided: July 10, 1984.

BAMBI, AN INFANT, AND JOHN AND MARSHA, HER PARENTS, PLAINTIFFS,
v.
DR. O, AN OBSTETRICIAN, AND G, A GENERAL HOSPITAL, DEFENDANTS



Simpson, A.j.s.c.

Simpson

[196 NJSuper Page 350] This is an uncontested application under R. 1:21-7(f), prior to the January 16, 1984 amendments to R. 1:21-7 as to contingent fees, for an increased attorney's fee in excess of the amount allowable under a contingent-fee agreement or R. 1:21-7(c). The real names of the parties are not used -- to protect the

parents and child and because the settlement was on a "no publicity" basis.

Bambi was born July 29, 1978, is severely mentally retarded, and suffers from convulsions secondary to brain damage. While the child may live a normal life span, she will never develop capabilities beyond that of a six-month old baby. Although presently at home, it is expected that she will have to be institutionalized in about two years. The malpractice alleged was failure to use available electronic fetal heart monitoring during labor, but proximate causation of injury to the child was seriously disputed. There was extensive preparation for trial and a structured settlement reached just before the jury was to be drawn.

John and Marsha have waived their personal claims and the entire net aggregate recovery will be for the care and maintenance of Bambi for the rest of her life. Plaintiffs' counsel wisely engaged a structured settlement specialist, Richard G. Halpern, to help negotiate an improved package over the original offer by defendants -- with excellent results. The total settlement was $775,000, with $155,000 "up front" cash to cover requested counsel fees and disbursements and the balance used to purchase a single premium deferred annuity. If any of the $155,000 cash is not needed for counsel fees and disbursements, such excess will be deposited in the Bergen County Surrogate's intermingled account*fn1 for the benefit of Bambi.

The structured settlement cost $619,233 and the payouts are shown on exhibits I, II, and III. Because the child is otherwise presently provided for -- and to increase the future payments for her benefit -- the monthly annuity payments will begin July 15, 1986 and continue for her lifetime or 40 years, whichever is

longer. To provide a hedge against inflation, these payments increase by 5% compounded annually. Beginning with the third year, there are lump sum payments every five years -- starting at $30,000 and ending in year 50 at $1,500,000. These "balloon" payments are all guaranteed, so that the minimum guaranteed payout*fn2 is $9,707,544. The total through year 50 would be $12,598,914 as shown on exhibit III and the increasing monthly annuity payments would also continue thereafter as long as Bambi survives.

Although there was little likelihood of liability on the part of the hospital, G contributed $25,000 towards the settlement. The doctor's insurance carrier paid $750,000 out of its one million dollar policy. Pursuant to I.R.C. § 104(a)(2) and N.J.S.A. 54A:6-6(b) the interest income portion of the annuity payments will be free of federal and New Jersey income taxes. A tax expert, Edward J. Trawinski, certified a minimum estimated tax saving over 50 years of $997,750. The internal rate of return, locked-in for the longer of 40 years or the child's lifetime is 11.5%. Since the defendant doctor and his insurance carrier wanted an absolute release from any future liability, advantage was taken of I.R.C. § 130*fn3 and liability transferred to Metropolitan Life Insurance Company (annuity underwriter) and Metropolitan Reinsurance Company (assignee and policy owner). These companies are rated A or A (the highest) by A.M. Best Company. The settlement achieved in this case benefited the plaintiffs, defendants, liability carrier, and the public. All trial risks and cost thereof to the public were avoided. The child will receive the finest possible care for life and never become a public charge. The insurance industry presumably benefits by the differential between external and

internal rates of return, at the same time that the annuitant benefits by favorable tax treatment assuring a better net rate of return than probably otherwise available.

The amount of the fee application is $148,900.66. Counsel does not seek application of the higher percentages allowable under R. 1:21-7(c) as to agreements entered into after January 15, 1984 -- since the contingent fee agreement was signed July 25, 1980. What is sought is an increase from 10% to about 18.1% of recovery over $250,000 under R. 1:21-7(c)(6) of the scale in effect from November 1, 1976 to January 15, 1984. Actually, counsel's secretary had typed on the contract the pre-November 1, 1976 scale,*fn4 but this court as well as plaintiffs Marsha and John accepted the explanation of the typographical error. In any event, the application is under R. 1:21-7(f) for a reasonable fee in light of all the circumstances. Bambi's parents concurred in the requested fee, and this is entitled to consideration but is not controlling. Murphy v. Mooresville Mills, 132 N.J. Super. 197 (App.Div.1975); Landgraf v. Glasser, 186 N.J. Super. 381 (Law Div.1982). Disbursements totalled $6,699.30 and the R. 1:21-7(d) net aggregate recovery was therefore $768,300.70.*fn5 The calculations under R. 1:21-7(c) and the request are as follows:

R. 1:21-7(c) % On Allowable Requested

(1) through (4) 25 100,000.00 25,000.00 25,000.00

(5) 20 150,000.00 30,000.00 30,000.00

(6) 10 518,300.70 51,830.07*fn* 93,900.66

$768,300.70 $106,830.07 $148,900.66

Overall, the requested fee of $148,900.66 amounts to 19.38% of the net aggregate recovery of $768,300.70. Under

the new R. 1:21-7(c) effective January 16, 1984 the maximum allowable fee would have been 25% up to $500,000 and 20% on the remaining $268,300.70 or a total of $178,660.14. Using this comparison, the request is not unreasonable, since recoveries and settlements have presumably increased with inflation from 1980 (when the fee arrangement was signed) to 1984 (when the case was settled), while the R. 1:21-7(c) scale did not. Iskander v. Columbia Cement Co., 192 N.J. Super. 114, 126-127 (Law Div.1983). The sought increase also compares favorably with a number of other cases wherein this court has allowed an increase in the 10% multiplier to 20%. Merendino v. FMC Corp., supra, n. 1 and cases cited in Burd v. Hackensack Hospital Assoc., 195 N.J. Super. 35 (Law Div.1984). Although accurate time records were not kept, counsel's certification detailed four years of extraordinary efforts in fully preparing the case for trial -- which led directly to the most favorable settlement. In sum, the claim of inadequacy of the fee allowable under the rule was "thoroughly substantial and documented."*fn6

For all of these reasons, the submitted order has been completed to allow a counsel fee of $148,900.66 plus disbursements of $6,699.30, and counsel should file copies of all papers on this application with the Administrative Office of the Courts as required by R. 1:21-7(f).

EXHIBIT I

THE

PENSION

COMPANY

May 29, 1984

Harold Ritvo, Esquire

GRUEN & RITVO

15 Main Street

Hackensack, NJ 07601

RE: BAMBI -- SETTLEMENT ANNUITY

Dear Mr. Ritvo:

As you have requested, below please find confirmation of the benefits used in the settlement of the captioned party's case.

DESCRIPTION OF BENEFIT

Life Annuity with 40 years payments guaranteed to heirs in the event of premature death, providing $3,000 per month, increasing by 5% compounded annually, with first ...


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