What is New Jersey's Tort Threshold?

ras@njlawfirm.com (Richard A. Schnoll) — Wed, 20 May 2009 20:32:17 GMT

In an attempt to control ever increasing automobile insurance premiums, the NJ Legislature has passed a series of so-called tort reform measures over the years. The most recent, the Automobile Insurance Cost Reduction Act (AICRA) was passed in 1998. Amongst many things, it enable purchasers of automobile insurance policies to choose either the Threshold or No Threshold option.

The Threshold option limits your right to sue for pain and suffering in exchange for a reduced premium. Consumers who choose the Threshold option agree that they and their spouses and children in the household will generally not be able to sue for pain and suffering arsing from a motor vehicle accident unless they suffer an injury in one of six categories: Death; Dismemberment: Loss of a fetus; Significant disfigurement or scarring; Displaced fractures; a permanent injury - defined as an injury that has not healed to function normally and will not heal to function normally with further medical treatment.

In most circumstances, if you do not suffer an injury in one of those categories, you will not be able to recover for you pain and suffering although you will generally receive PIP benefits to pay for your medical expenses and some loss of earnings. Of particular note is the fracture category. A simple fracture will not qualify UNLESS you can prove by competent medical evidence that the fracture produces a permanent injury, a relatively high bar for many simple fractures.

As with all things legal, there are exceptions to this rule. For instance, if you involved in an accident with a commercial vehicle which is not required to carry PIP coverage, the threshold does not apply to you.

The Threshold of Concentration: Anti-monopoly Notification in China

zhanhao@grandall.com.cn (Dr. Zhan Hao) — Tue, 24 Feb 2009 11:29:58 GMT

During the drafting of the Chinese Anti-monopoly Law (AML), the level at which the threshold of concentration notification was to be set, aroused fierce debate. In the end however, AML did not specifically stipulate the notification criteria in detail.Article 21 of AML states:

Business operators shall declare in advance the concentration reaching the threshold of declaration prescribed by the State Council to the Anti-monopoly Law Enforcement Agency, otherwise, they shall not implement the concentration.

Such a vaguely worded clause has caused confusion within the legal profession. It certainly begs the question: Why did AML not explicitly stipulate the threshold of notification? Examining both the lawmaking process prior to the creation of AML as well as the drafting of AML itself may prove to be helpful.

Lawmaking Before AML: ?

Provisions on Acquisition of Domestic Enterprises by Foreign Investors is regarded as the first Chinese regulation that addressed anti-monopoly issues.Article 51 of Provisions states:

When a foreign investor's acquisition of a domestic enterprise involves any of the following circumstances, the investors shall report the same information to Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC):

1. during the current fiscal year any of the parties involved in the acquisition has a turnover in the Chinese market exceeding RMB1.5 billion (US$218.3 million);

2. the foreign investor acquires more than ten enterprises in related industries in China in one year;

3. any of the parties involved in the acquisition already controls not less than 20 per cent of the Chinese market; or

4. the acquisition will cause the Chinese market share of any of the parties involved to reach 25 per cent.

At the request of a competing domestic enterprise or the relevant functional authority or trade association, or if MOFCOM or the SAIC is of the opinion that the acquisition by the foreign investor would materially affect market competition, authorities may nevertheless require the foreign investor to file a report, even though the criteria laid out in the preceding paragraph have not been met. The aforementioned “any of the parties to the acquisition” includes affiliates of the foreign investor.

Article 52 states that if the proposed M&A falls under any of the above criteria, a hearing will be held to approve or disapprove of the transaction. It can be concluded from the above-stated regulation that the criteria of notification includes turnover amount, the number of enterprises involved in the takeover, market share of those enterprises, and value of assets involved.

Drafting of the AML

In the early drafts of the AML, the language used regulated the standard of notification, particularly the criteria of declaration regarding turnover in a single fiscal year. The Office of Legislative Affairs stated that the draft took into consideration the economic situation, market competition, and, in particular, the difference between various sectors.

The draft also regulated the criteria of declaration regarding the following three aspects:

First, it made clear the declaration criteria for the ordinary sector: global turnover of the previous fiscal year for all business operators involved exceeds RMB12billion; domestic turnover of the previous fiscal year for one operator involved exceeds RMB800 million. (Section 1, Article 17).
Second, it affirmed that the State Council is authorized to stipulate the declaration criteria for the banking sector, insurance sector and any other sector in order to insure that any policy designed towards a specific industry and/or area could be implemented accordingly (Section 3, Article 17).
Third, the adjustment mechanism of the declaration criteria was designed for easier reporting to the State Council for approval and implementation. However, the specific regulations regarding a declaration of concentration were taken out in the final edition of the AML.

In March of 2008 the State Council issued the Provisions of the State Council on the Declaration of Concentration of Business Operators (Exposure Draft) in order to collect comments from the legal community. It states the following concerning when a concentration must be declared.Article 3:

1. the worldwide business volume of all operators involved in the concentration exceeds RMB9billion in the last accounting year, and the business volume in China of at least two operators exceeds RMB300 million in the last accounting year;

2. business volume in China of all operators involved in the concentration exceeds RMB1.7 billion in the last accounting year, and the business volume in China of at least two operators exceeds RMB300 million in the last accounting year; or

3. the concentration would cause the market share of all operators involved in the concentration to reach 25 per cent or more in the relevant market within the territory of China.

If left undeclared, the concentration is not allowed. The Exposure Draft has not been ratified by the State Council. It appears that the specific regulations on the declaration of concentration of business operators will instead be determined by the enforcement regulation of the AML.

Judge Says Bill 198 Meant to “Tighten Up” IA Threshold

Fri, 16 Jan 2009 21:03:42 GMT

Sherman v. Guckelsberger was released on December 29, but Ontario auto insurers can be forgiven for thinking that it was meant to have arrived four days earlier. In this case, Madam Justice Jane A. Milanetti had to decide whether or not a plaintiff’s claim satisfied the “threshold” contained in s. 267.5(5) of the Insurance Act, as [...]

Sherman v. Guckelsberger was released on December 29, but Ontario auto insurers can be forgiven for thinking that it was meant to have arrived four days earlier.

In this case, Madam Justice Jane A. Milanetti had to decide whether or not a plaintiff’s claim satisfied the “threshold” contained in s. 267.5(5) of the Insurance Act, as clarified by O. Reg. 461/96 (”Court Proceedings For Automobile Accidents That Occur On Or After November 1, 1996″). (The current version of the threshold is often referred to as “Bill 198″.)

The threshold itself has not changed but 2003 amendments to O.Reg. 461/96 created a number of requirements that are supposed to be met in order for an injury to satisfy the threshold. Justice Milanetti held that the plaintiff in this case did not meet the threshold and in doing so, she expressed the view that legislature had meant to “tighten up” the present (Bill 198) version of the threshold from the former (Bill 59) one.

To date, the only analysis of the Bill 198 version of the threshold was that undertaken last year by Madam Justice Joanne Morrisette in Nissan v. McNamee. (We are aware of one other case in which Mr. Justice Hugh R. McLean followed the reasoning of Justice Morrisette. That was a jury case and we have not seen Justice McLean’s reasons on the threshold motion, but we understand that the case is under appeal to the Court of Appeal.) Speaking of Justice Morrisette’s decision in Nissan, Justice Milanetti said: “She concludes, in my view, that the Bill 198 legislative changes do little to change the Bill 59 legislation that predated it. Respectfully, I have a different view of the changes and their ramifications.” Her Honour added, “It is my view, that if the legislators saw fit to amend the legislation yet again-increasing the deductible for claims under $100,000 and making it so much more specific, they did so with a view to tightening it up from the former version“.

In this case, Justice Milanetti held that the plaintiff’s soft tissue injuries did not satisfy the criteria in O.Reg. 461/96. Of the three requirements of “permanence”, “seriousness” and “importance”, she was most troubled by the lack of evidence to establish the last one: “importance”.

In Sherman, liability had been admitted for the 2004 rear-end collision in which the plaintiff was injured. Thus, the only issues were threshold and the quantum of damages. The plaintiff had various soft tissue complaints: headache, neck, shoulder and back pain and some tingling in her fingers.

The plaintiff worked in the office of a family doctor. After being off work for one week after the accident, the plaintiff returned to work on a part-time basis for two weeks and then resumed full-time employment. (For her, that meant four days a week, as her employer did not work on Wednesdays.) In addition, she held a second job, doing bookkeeping out of her home. About two and a half years after the accident, the plaintiff reduced her work hours by about eight hours per week. Still, her income for the years after the accident was higher than it had been before the accident.

Justice Milanetti summarized in detail the evidence of the lay witnesses, who described the plaintiff’s limitation in function both at home and at work. She also reviewed the testimony of a number of a number of medical expert witnesses.

The plaintiff’s main expert diagnosed the plaintiff as suffering from a WAD ["Whiplash Associated Disorder"] level III injury. Other examiners assessed her at a WAD II level.

Justice Milanetti criticized the plaintiff’s own family physician for having become “an advocate for Ms. Sherman [and whose] testimony lacked objectivity and was ultimately less helpful to me than it might otherwise have been”.

At the end of the medical evidence, Justice Milanetti was left to conclude that the plaintiff’s decision to reduce her hours of work had been taken “virtually unilaterally” and that this step had not been recommended to her by any of her treating or assessing doctors.

Counsel for the plaintiffs had conceded that the only way in which the plaintiff could meet the Bill 198 threshold was on the basis of diminished work capacity. She had maintained a relatively high level of function in her day to day life, such that she would admittedly not meet the threshold under the “daily life activities” criteria.

In her analysis of the various threshold requirements now found in O.Reg. 461/96, Justice Milanetti noted that the evidentiary criteria are mandatory. She held that the evidence in this case did not measure up. For instance, there was no evidence of “reasonable accommodations to allow [the plaintiff] to continue her employment”. Justice Milanetti said that “I have difficulty accepting that Ms. Sherman has suffered a substantial interference in her ability to continue her usual employment despite reasonable accommodation efforts.”

But it was the “seriousness” requirement that caused Her Honour the greatest concern. She noted that the plaintiff had been able to continue a relatively active lifestyle and even though counsel for the plaintiff asked the court not to penalize his client for her work ethic, but Her Honour was left to wonder “what function of Ms. Sherman is impaired…she did not tell me of anything she could not do in her work. Rather, I was presented with general description of ongoing pain symptoms the [sic] effectively wore her down.” This, said Her Honour, was at odds with the mandatory requirements of the legislation, that at least one physician explain “the specific function impaired” and “the importance of that function to person”. Such evidence was lacking here and Her Honour’s decision indicates that the omission can be fatal to a threshold claim.

Finally, Justice Milanetti also held that the plaintiff had not satisfied the “permanence” part of the threshold requirements, as amplified by O.Reg. 461/96. She noted that all of these requirements must be satisfied. Even if the plaintiff’s symptoms could be considered “continuous”, she had failed to satisfy other aspects of the regulation (such as participation in recommended treatment).

Thus, even though the trial judge said of that plaintiff that “she is not a fraud. I, in fact, quite liked both she [sic] and her husband”, the plaintiff’s action was dismissed.

The decision strongly suggests that the Bill 198 version of the threshold is substantially higher than Bill 59, contrary to the decision of Morrisette J. last year.

It will be interesting to see the direction taken by future decisions.

Can Defendants Ever Make Effective Rule 49 Offers in MVA Cases?

Fri, 28 Nov 2008 21:07:28 GMT

We are indebted to Mark (”Billy Idol”) Charron of Williams McEnery for alerting us to the recent decision in Peterson v. Phillips. This is another case that deals with the relationship between offers to settle in MVA claims and the $30,000 deductible imposed by the Insurance Act. The ruling was made by Mr. Justice Douglas Gray, [...]

We are indebted to Mark (”Billy Idol”) Charron of Williams McEnery for alerting us to the recent decision in Peterson v. Phillips. This is another case that deals with the relationship between offers to settle in MVA claims and the $30,000 deductible imposed by the Insurance Act.

The ruling was made by Mr. Justice Douglas Gray, who had tried the case with a jury. This was quite an uncomplicated claim: liability had been admitted and only non-pecuniary general damages were sought. The plaintiff was an 81-year old woman.

Following a five-day trial, counsel argued the issue of whether or not the plaintiff’s injuries met the Bill 198 threshold (as expanded upon in Regulation 461/96). The lawyers had just about completed their submissions when the jury returned with its verdict: non-pecuniary damages of $10,000 (gross of the deductible). After applying the $30,000 deductible, the plaintiff ended up with an award of zero.

Two questions then arose. First, should the judge proceed to rule on the issue of threshold?

The second question had to do with costs. The defence had offered to settle for $30,000 gross (which, after the deductible, was an offer of zero). What effect should that offer have on the disposition of costs?

With respect to the first question, Justice Gray ruled that there was no need for him to decide the issue of threshold because that issue had been rendered moot by the jury’s verdict. However, it seems to us that Justice Gray was in error. If the case were appealed and the Court of Appeal were to increase the damages to, say, $50,000, the threshold issue would become quite significant. In fact, there is an Ottawa case on appeal to the Court of Appeal right now, in which the jury found no liability on the basis of inevitable accident. However, the trial judge went ahead and ruled on the threshold issue so the record in the Court of Appeal will be complete.

On the second question, Justice Gray decided to award no costs. He cited the Court of Appeal’s decision in Rider v. Dydyk and then went on to say this:

[I]t seems to me that to a large extent the positions of both parties display a high degree of artificiality. The defendant made an offer to settle for zero dollars, dressed up as an offer of $30,000, subject to a deductible of $30,000. The plaintiff obtained an award of $10,000 which, because of the deductible, results in a judgment for zero dollars. Thus, an offer for zero dollars has resulted in a trial, which has then resulted in a judgment for zero dollars….The Court cannot be blinded by the somewhat artificial characterizations of both the offer to settle and the result of the trial. In reality, an offer to settle for zero dollars was made and rejected, a trial was held, and the result is a judgment for zero dollars. The fairest disposition, in my view, is that each party bear her own costs.

This criticism seems a little harsh to us. To the extent that there is “artificiality” in an offer of $30,000, it is because of the way that the auto insurance part of the Insurance Act is structured, with a $30,000 deductible for claims having a value of $100,000 or less. Here, the defendant’s solicitor assessed the case with perfect accuracy, so we don’t really see why she should be faulted for the offer she made, nor why costs should not follow the event.

We have not undertaken a scientific study, but our impression, based on anecdotal evidence, is that insurers and their lawyers have pretty much given up on the idea of making Rule 49 offers to settle in MVA cases. The combined effect of Rider, Dennie v. Hamilton, and Ksiazek v. Newport Leasing is that it is virtually impossible for an insurer to make a settlement offer that will ever trigger favourable costs consequences. Outright dismissal of a plaintiff’s action does not engage Rule 49, so the costs outcome in such cases is a separate issue that has been dealt with in such decisions as Dunstan v. Flying J and Davies v. The Corporation of the Municipality of Clarington. But in true Rule 49 situations, it seems that MVA defendants really can’t bring themselves within the Rule unless they are prepared to offer far more than the amount at which they have assessed the claim. The decision in Peterson certainly does nothing to dispel such cynicism.

New Nebraska I-765 EAD Expedited Procedures

Mon, 24 Nov 2008 15:13:47 GMT

The Nebraska Service Center (NSC) announced updated I-765 expedite policy pursuant to which NSC will accept requests to expedite processing of Form I-765, Application for Employment Authorization, if the application has been pending for 75 days or more. NSC had previously announced that it would accept an expedite request for an I-765 that was pending [...]

The fax number for submitting these requests to NSC has changed – the new fax number is 402-219-6344. The fax should include a cover sheet identifying the case and the filing date and requesting expedited processing; it will be helpful to attach a copy of the I-765 receipt notice. NOTE: This fax number is limited to expedites for I-765 pending for 75 days or more, and should not be used for any other purpose. Other letters, requests or documentation sent to the NSC via this fax number are more likely to be discarded than routed to the proper file.

Please contact us if you would like our assistance in expediting your pending Form I-765 with the Nebraska Service Center.

Limitation Period for MVA Pecuniary Claims Follows That of Non-pecuniary Claims Says Superior Court

Wed, 15 Oct 2008 17:59:02 GMT

Hard on the heels of the Court of Appeal’s decision in Grewal v. Ivany, released last Friday, Mr. Justice Paul Perell has delivered reasons in Ng v. Beline that address one of the issues considered in Grewal: in personal injury claims arising out of motor vehicle accidents, are claims for pecuniary damages prescribed if not brought [...]

Hard on the heels of the Court of Appeal’s decision in Grewal v. Ivany, released last Friday, Mr. Justice Paul Perell has delivered reasons in Ng v. Beline that address one of the issues considered in Grewal: in personal injury claims arising out of motor vehicle accidents, are claims for pecuniary damages prescribed if not brought within two years?

In Grewal, the Court of Appeal said that “the issue whether [the plaintiff's] pecuniary damages claim is statute-barred is best resolved on a full record. This will ensure that any consideration of this important issue by this court will be informed by a reasoned analysis in the courts below.” We posted a commentary about that decision yesterday.

Today, Justice Perell released his decision in Ng, apparently without being aware of the ruling in Grewal. He also sent his case on to trial. But in doing so, he decided the legal issue that had been left open by the Court of Appeal in Grewal: whether a claim for pecuniary damages can be prescribed, even though a claim for non-pecuniary damages arising out of the same accident is not, by reason of the discoverability principle.

Ng was a claim that arose under the Bill 198 regime of the Insurance Act. The defendant moved for summary judgment, raising the following question:

When a person is injured in an automobile accident and suffers both (a) pecuniary (special) damages, which are not subject to any statutory threshold and also (b) non-pecuniary damages, which are subject to a statutory threshold, is a claim for pecuniary damages statute-barred if the person’s action is commenced more than two years after the discoverability of the claim for pecuniary damages?

Justice Perell referred to an earlier Court of Appeal decision, Chenderovitch v. Doe, which had also been cited in Grewal. In particular, he cited Moldaver J.A.’s conclusion, that in enacting s. 267.5 in the Bill 59 version of the Insurance Act, the legislature had intended to create separate causes of action for pecuniary and non-pecuniary damages claims (para. 23 of Chenderovitch). (Section 267.5 of the Insurance Act deals with the treatment of claims for damages for income loss, health care expenses and non-pecuniary damages. It sets out the “threshold” and deductibles in relation to the latter.)

Justice Perell felt that, applying common law principles, the plaintiff’s claim for pecuniary damages was certainly statute-barred, because the plaintiff had known, within days of the accident, that she had suffered economic loss but she did not sue until about 28 months after her accident.

But His Honour went on to hold that because of the legislative creation of more than one cause of action in motor vehicle cases, a conventional common-law analysis was inappropriate. Rather, injured plaintiffs should, he said, have the benefit of the most favourable treatment possible:

In my opinion, the spirit and thrust of the Chenderovitch judgment is that with respect to the operation of limitation provisions, a plaintiff with an automobile accident claim should receive the most favourable treatment possible, and this means that the measure of whether he or she has a claim is governed by the discoverability of the claim for non-pecuniary damages, which is the claim that is subject to the threshold test. This approach, in effect, continues the approach from Peixeiro. In practical terms, the pecuniary claims may shelter under the limitation period for the non-pecuniary claims if those claims are not statute-barred.

The result of Justice Perell’s analysis was to transform the limitation period issue. The question became one of discoverability: when had the threshold nature of the plaintiff’s claim for non-pecuniary damages been discoverable? If that date was more than two years prior to the commencement of the action, then the claims for both pecuniary and non-pecuniary damages would be statute-barred. But if the commencement of the limitation period for the non-pecuniary damages claims was postponed by discoverability, to a point less than two years prior to the date of issuance of the claim, then the pecuniary damages claims would be rescued as well. A trial will be required to decide the fact-based discoverability issue.

The legal principle decided by Justice Perell was exactly the one that the Court of Appeal declined to deal with in Grewal, saying that it required a “full record” before doing so. In our commentary, we questioned whether a factual background was really necessary in order for this legal issue to be decided. Justice Perell seems to have held a similar view.

C.A. Opens Door to Multiple Limitation Periods in MVA Cases

Tue, 14 Oct 2008 12:36:08 GMT

In Grewal v. Ivany, released last week, the Court of Appeal left open the possibility that a claim for pecuniary damages in an MVA action might be prescribed at the end of two years, even though the discoverability principle has postponed the commencement of the same limitation period for a non-pecuniary damages claim. The Court did [...]

In Grewal v. Ivany, released last week, the Court of Appeal left open the possibility that a claim for pecuniary damages in an MVA action might be prescribed at the end of two years, even though the discoverability principle has postponed the commencement of the same limitation period for a non-pecuniary damages claim.

The Court did not decide the issue though, because the appeal before it related to a motion for summary judgment. It held that the issues on the motion had to be decided on a “full record”.

The motions judge (E. MacDonald J.) had dismissed the plaintiffs’ action (arising out of an accident that occurred under the Bill 59 regime of the Insurance Act) on the basis that the threshold nature of the injuries had been known more than two years before the action was commenced. The Court of Appeal said that the judge had been wrong (on the facts of this case) to make such a ruling on a motion and ruled that there was a genuine issue for trial.

The defendant made a separate argument, that the claim for pecuniary damages was prescribed. (Of course, there is no threshold requirement for pecuniary damages claims, and therefore, nothing to which the discoverability principle would ordinarily apply.) Counsel for the defendant relied upon a 2004 decision of the Court of Appeal in Chenderovitch v. Doe, but the Court distinguished that case, noting that the plaintiff there had abandoned a claim for pecuniary damages, “[t]hus, it was unnecessary for this court to determine whether her pecuniary damages claim was foreclosed by the expiry of a limitation period”.

But the Court then went on to say, “[w]e conclude that the issue whether Gurcharn’s pecuniary damages claim is statute-barred is best resolved on a full record. This will ensure that any consideration of this important issue by this court will be informed by a reasoned analysis in the courts below.” [Emphasis added]

It strikes us as odd that the Court of Appeal could not or would not decide this issue, which seems to be entirely a legal one. Surely the question is whether, as a matter of law, the expiry of the limitation period for claims that are not subject to the discoverability principle is superseded by the postponement of the limitation period that can occur in relation to claims for non-pecuniary damages.

There have been several Superior Court decisions that have considered whether or not a claim for pecuniary damages can be statute-barred independently of a claim for non-pecuniary damages: Burke-Smith v. Sun, Fuller v. McCartney and Richmond v. Hope. Although there has not been, to our knowledge, a definitive pronouncement, the Superior Court judges have consistently refused to find that pecuniary damages claims were prescribed when there was doubt as to whether the claims for non-pecuniary damages had been saved by the discoverability principle. For some reason, none of these decisions was referred to in the reasons of either the Court of Appeal or Madam Justice MacDonald in Grewal.

Now, all bets may be off while we wait for a “full record” on this issue to make its way back to an appellate court.

Partner Cost And Client Profitability, (Part IV)

Tue, 20 May 2008 05:00:39 GMT

This is the fourth in a series on partner compensation and client profitability written by Ron Paquette, consultant with Redwood Analytics, now part of LexisNexis. The first article, titled Client Profitability: What Is The Cost Of Partner Time?, was an introduction to the concept of allocating partner cost in calculating client profitability. The second article, titled Partner Cost And [...]

This is the fourth in a series on partner compensation and client profitability written by Ron Paquette, consultant with Redwood Analytics, now part of LexisNexis. The first article, titled Client Profitability: What Is The Cost Of Partner Time?, was an introduction to the concept of allocating partner cost in calculating client profitability. The second article, titled Partner Cost And Client Profitability, (Part II), is focused on pitfalls of some firms' methodology in allocating costs to partners. The third article, titled Partner Cost And Client Profitability, (Part III) , is focused on basing a partner's direct cost on a "minimum margin percentage". This article is focused on a related methodology: using a "minimum margin dollar amount" to allocate partner direct cost.

Thus far, we have evaluated a number of methods of allocating partner direct costs (compensation) to a client. Since firms have differing long and short term goals, levels of partner compensation, and thought processes about client profitability, we have concluded that there is not one perfect solution for this question, but instead a handful of recommended options.

Minimum Margin $ (or fixed margin $ for firms with closed compensation):

Very similar to the Minimum Margin %, this methodology differs only in that the threshold is set as a dollar value instead of a % of standard rate. Some firms we interviewed think about partner profitability in dollars, stating as an example that each partner should have an annual margin (standard revenue less direct costs) of $100M on their bRate MinimumMargin Minimumillable time (hourly margin is an option as well).

In the example, again we have the same partners but now each is given a minimum annual margin of $100M (or $56 per hour based on 1800 std hours). Since the Rainmaker and the Dept. Manager have fully loaded margins much less than this amount, they are set to the minimum while the Jr. Partner remains at his full compensation level. Notice that with this methodology, while both the Rainmaker and the Dept. Manager are at the minimum threshold, they have different Direct Margin %. While the dollar margin is the same, the higher rate timekeeper has a lower margin %, thus encouraging a billing attorney to use the more junior (or lower cost lawyers) on their matters.

Role	Comp	Std Rate	Minimum Yearly Margin	Minimum Hourly Margin*	Cost Rate*	Direct Margin
Rainmaker	$1MM	$250	$100M	$56	($194)	22%
Dept. Manager	$500M	$200	$100M	$56	($144)	28%
Jr. Partner	$150M	$150	$100M	$56	($83)	44%

*Assumes 1800 standard billable hours expectation

Advantages of the methodology:

It ensures that every partner has a positive margin associated with his/her hours when valued at standard rate. While one may purposely choose to lose money on specific matters through discounting, there should be margin on every hour of time when valued at published rate.
It is simple. Firm leaders need only to decide on one variable that can be based on firm analytics and margins for other titles (e.g. income partners or senior associates).
It is based on the partner’s published rate. While total compensation can rise and fall with firm profits, this relative cost will not fluctuate and this method is in line with thinking about compensation for a partner’s work effort.
The most highly compensated partners will be forced to the minimum margin ensuring they appear less profitable than junior partners, therefore supporting a leverage model.
Multiple partners hitting the minimum margin level will have different margin % if they have different standard rates, further promoting a positive leverage model.

We have to address the weaknesses of this approach as well:

A firm will need to decide on the minimum margin. While strong arguments can be made for a certain threshold, there may still be dissenters.
Each partner who is affected by the minimum threshold will have the same margin (in dollars), leaving discounting as the only differentiator of profit on billable time

Like the Minimum Margin %, the strengths of this methodology prevail over the weaknesses and many firms have found this option easy to implement and easy to gain support for (due to minimal arbitrary decisions). In the final two entries, we will discuss some variations on the two minimum margin methodologies (% and $) and discuss a set of criteria to help a firm determine the pros and cons of each.

 This is the fourth in a series on partner compensation and client profitability written by Ron Paquette, consultant with Redwood Analytics, now part of LexisNexis.  The first article, titled Client Profitability: What Is The Cost Of Partner Time?, was an introduction to the concept of allocating partner cost in calculating client profitability.  The second article, titled Partner Cost And [...]

Partner Cost And Client Profitability, (Part III)

Tue, 13 May 2008 05:00:29 GMT

This is the third in a series on partner compensation and client profitability written by Ron Paquette, consultant with Redwood Analytics, now part of LexisNexis. The first article, titled Client Profitability: What Is The Cost Of Partner Time?, was an introduction to the concept of allocating partner cost in calculating client profitability. The second article, titled Partner Cost And [...]

This is the third in a series on partner compensation and client profitability written by Ron Paquette, consultant with Redwood Analytics, now part of LexisNexis. The first article, titled Client Profitability: What Is The Cost Of Partner Time?, was an introduction to the concept of allocating partner cost in calculating client profitability. The second article, titled Partner Cost And Client Profitability, (Part II), is focused on pitfalls of some firms' methodology in allocating costs to partners. This article is focused on basing a partner's direct cost on a "minimum margin percentage".

When it comes to allocating partner direct costs (compensation) to a client the answer, unfortunately, is not a simple one. After exploring options with various law firm leaders at a number of firms, we heard consensus on one key point — that “it depends.” “Depends on what?” you might ask. Well, it depends on the current state of affairs of the firm, the long and short term goals of the firm, the relative level of partner compensation, and maybe most importantly, how the firm thinks about client profitability. As a result, we have developed a handful of options to address the analytic needs while considering firm goals and philosophy. In my next several entries, I’ll explain some of those options, and their pros and cons. Today’s option is basing a partner’s direct cost on a minimum margin percentage for each partner.

Minimum Margin % (or fixed margin % for firms with closed compensation):

In this methodology, margins (Std Rate less Direct Cost Rate as a % of Std Rate) are kept at or above a minimum threshold (or equal to the threshold for firms with closed compensation cultures). In the example below, we have the same three timekeepers from previous examples, with the Rainmaker and Dept. Manager having compensation that exceeds their billable hours revenue. With the minimum margin % methodology, these two timekeepers’ direct costs are set so that the margin % is 40% (this variable is set by the firm) while the Jr. Partner maintains the 44% margin occurring ‘naturally.’

Role	Compensation	Std Rate*	Cost Rate*	Direct Margin %
Rainmaker	$1MM	$250	($150)	40%
Dept. Manager	$500M	$200	($120)	40%
Jr. Partner	$150M	$150	($83)	44%

*Assumes 1800 standard billable hours expectation

Advantages of this methodology:

It ensures that every partner has a positive margin associated with his/her hours when valued at standard rate. While one may purposely choose to lose money on specific matters through discounting, there should be margin on every hour of time when valued at published rate.
It is simple. Firm leaders need only to decide on one variable that can be based on firm analytics and margins for other titles (e.g. income partners or senior associates).
It is based on the partner’s published rate. While total compensation can rise and fall with firm profits, this relative cost will not fluctuate and this method is in line with thinking about compensation for a partner’s work effort.
The most highly compensated partners will be forced to the minimum margin ensuring they appear less profitable than junior partners, therefore supporting a leverage model.

There are some weaknesses to this approach:

A firm will need to decide on the minimum margin percentage. While strong arguments can be made for a certain threshold, there still may be dissenters.
For those who have the minimum margin %, the only profitability differentiator relative to how they affect client profitability is the realization on the hours worked. If too many partners are at the minimum, there is virtually no difference in leverage within the partner ranks.

Overall, the strengths of this methodology far outweigh its drawbacks. With this method, client profitability can be evaluated objectively with minimal explanation about the handling of partner compensation. In subsequent entries we will be evaluating additional methodologies vetted by Redwood Analytics and providing a checklist of criteria that your firm can use to select a methodology.

This is the third in a series on partner compensation and client profitability written by Ron Paquette, consultant with Redwood Analytics, now part of LexisNexis.  The first article, titled Client Profitability: What Is The Cost Of Partner Time?, was an introduction to the concept of allocating partner cost in calculating client profitability.  The second article, titled Partner Cost And [...]

First Bill 198 Decision Says Not Much Has Changed

Fri, 02 May 2008 14:05:56 GMT

Nissan v. McNamee is, so far as we know, the first decision to interpret the “gloss” on the Insurance Act threshold that was enacted by regulation O.Reg. 381/03 (the package of legislative changes commonly referred to as “Bill 198″). The regulation took effect on October 1, 2003. While the wording of the threshold in s. 267.5(5) of the Act [...]

Nissan v. McNamee is, so far as we know, the first decision to interpret the “gloss” on the Insurance Act threshold that was enacted by regulation O.Reg. 381/03 (the package of legislative changes commonly referred to as “Bill 198″). The regulation took effect on October 1, 2003. While the wording of the threshold in s. 267.5(5) of the Act did not change, the regulation spells out, in much greater detail than had formerly been the case, the meaning of the three elements of the threshold: “permanent”, “serious” and “important”.

Nissan was decided by Madam Justice Johanne Morissette.

The ruling came in the context of a threshold motion following a jury trial. The jury apparently determined that the plaintiff was not entitled to any general or special damages. After an analysis of the wording of Bill 198, Justice Morissette found that the plaintiff did not meet the threshold because her injuries had not produced a “serious” impairment of function.

In a nutshell, Justice Morissette was of the view that the Bill 198 gloss on the threshold wording did not represent much of a change from the way that the caselaw had already interpreted the previous incarnations of the threshold. She said that in her opinion, “efforts to reframe the broad approaches that have been applied since Meyer, should be resisted”.

There were two aspects of the new wording that, in the view of Justice Morissette, had changed the threshold. The first (and most important) was the use of the word, “most” to modify the phrase, “daily activities”. This appears in the portion of the “gloss” that deals with “seriousness”. In one of three types of situations in which an impairment will be considered to be “serious”, the regulation says that the impairment must “substantially interfere with most of the usual activities of daily living, considering the person’s age”. Justice Morissette thought that the introduction of this language might suggest that a “quantitative analysis” must now be undertaken by the court, as to what daily activities had been affected and the importance of those activities.

Her Honour also thought that the regulation had made “a slight change” in its introduction of “accommodation” as a factor to be considered in determining whether or not an impairment is “serious”. The regulation says this:

The impairment must,
i. substantially interfere with the person’s ability to continue his or her regular or usual employment, despite reasonable efforts to accommodate the person’s impairment and the person’s reasonable efforts to use the accommodation to allow the person to continue employment.

According to Morissette J., this provision:

raises the threshold for plaintiffs, but in my opinion, only does so modestly given the existence of prior decisions that have considered accommodation. It seems that this provision has added a positive obligation on plaintiffs to make reasonable efforts to use accommodation measures.

Justice Morissette summarized her conclusions about the effect of the regulation as follows:

In summary, most of the regulation does not appear to support any significant change in the interpretation of the threshold. In genera! terms, it suggests at best some clarification of the law regarding accommodation. The exception is the addition of the word “most,” which suggests a higher threshold where impairments affect daily living but not working.
[38] I would also note that I do not accept the defendant’s contention that the express requirements for proof suggest a higher standard as to the threshold itself. It seems to me that the requirements of s. 4.3 of O.Reg. 381/03 are for evidence that would be necessary to prove that the threshold is met in any case. The focus is on that evidence coming from a physician, and the source of the evidence should not change the standard on the threshold question.

Applying her interpretation to the case at hand, Justice Morissette held that the plaintiff did not meet the requirement of a “serious” impairment. The plaintiff had evidently failed to seek accommodation or to take advantage of accommodation offered by her employer. Surveillance evidence proffered by the defence was also telling and found by Her Honour to be inconsistent with the reports of her symptoms made by the plaintiff to her doctors.

C.A. Says Trial Judge Applied Wrong Test in Determining Whether Injury “Serious” and “Permanent”

Thu, 24 Apr 2008 12:56:36 GMT

Brak v. Walsh is a short decision of the Court of Appeal (Justices Karen M. Weiler, Michael J. Moldaver and Russell G. Jurianz), on appeal from a ruling by Mr. Justice Gordon Killeen on a threshold motion brought at the end of trial. Justice Killeen had ruled in favour of the defence, that the plaintiff [...]

Brak v. Walsh is a short decision of the Court of Appeal (Justices Karen M. Weiler, Michael J. Moldaver and Russell G. Jurianz), on appeal from a ruling by Mr. Justice Gordon Killeen on a threshold motion brought at the end of trial. Justice Killeen had ruled in favour of the defence, that the plaintiff in this MVA action had not suffered a “permanent serious impairment of an important physical, mental or psychological function”.

The Court held that Justice Killeen had erred in finding that the plaintiff’s injuries were not permanent and not serious.

On the issue of permanence, Killeen J., following what the Court said was a “careful review of the medical evidence”, concluded that the plaintff’s low back pain would “clear up with time”.

Before the Court of Appeal, counsel for the respondent conceded that there had been no evidence that the plaintiff’s condition would “clear up”, only that her pain would diminish with time. The Court said that the caselaw had established that the requirement of permanency is met when a limitation in function is unlikely to improve for the indefinite future. As a result, Killeen J. was found to have applied the wrong standard on this element of the Insurance Act threshold.

With respect to the requirement that the impairment be “serious”, Justice Killeen had “focused on the appellant’s ability to resume ‘almost all’ of her domestic duties and the fact that she was able to hold gainful and steady employment.” Again, the Court of Appeal said that the trial judge had applied the wrong test:

So here, as well, the trial judge’s focus was too narrow in determining whether the appellant’s injury was serious. The requirement that the impairment be “serious” may be satisfied even although plaintiffs, through determination, resume the activities of employment and the responsibilities of household but continue to experience pain. In such cases it must also be considered whether the continuing pain seriously affects their enjoyment of life, their ability to socialize with others, have intimate relations, enjoy their children, and engage in recreational pursuits.

The appeal was allowed and the case was ordered to be “reconsidered by a different judge”. Somewhat cryptically, the Court then said:

We cannot finally decide this matter because of the credibility issues involved, however, given the amounts involved, the parties may see fit to resolve the matter without a rehearing.

Neither the reasons of the Court of Appeal nor those of Killeen J. say what amounts were involved. But we have ascertained that at trial, the jury apportioned liability 75-25 against the defendant. It assessed general non-pecuniary damages of $35,000, past income loss of $10,000 and FLA damages of $2,500, $15,000 and $5,000 for the husband, a 2-year old son and a 14-month old son, respectively.

Assuming that these assessments do not reflect the Insurance Act deductibles, that would mean that the non-pecuniary general damages awarded to the injured plaintiff would have a net value of $20,000, the FLA claims of the husband and the 14-month old son would be reduced to zero and the 2-year old’s claim would become $7,500. Thus, the total damages would be $37,500 or $28,125 after being reduced for contributory negligence.

It does not appear that Killeen J. factored the jury’s assessment of damages into his threshold ruling and so, this was not the subject of comment by the Court of Appeal (although the Court does seem to have been aware of what the assessment was). It would have been interesting to know what the views of the Court of Appeal would have been, had Killeen J. placed reliance on the jury’s assessments as part of his threshold ruling. A number of other trial judges have followed this approach: Dennie v. Hamilton, Bisier v. Thorimbert and Parks v. Peter, to name a few. It does seem rather illogical for a judge to conclude that a plaintiff’s injuries constitute a permanent serious impairment of an important function while, in the same proceeding, the trier of fact (the jury) values that injury at an amount that suggests only minor impairment. It would have been helpful to received some guidance from the Court of Appeal on the respective roles of judge and jury in these types of cases.

For now, perhaps the best defence strategy in these types of cases is to ask the jury to decide the issue of causation, as was done in Campbell v. Julta. There, the jury apparently assessed non-pecuniary damages of $45,000 but when asked to determine whether the accident had materially contributed to the plaintifif’s condition as of the time of trial, answered in the negative. Although the trial judge had found that the plaintiff’s injuries did meet the threshold, the Court of Appeal upheld the jury’s decision on the causation issue and leave to appeal to the Supreme Court of Canada was refused.

Recent Articles tagged threshold from LexMonitor