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Lawyers for a girl who fell from a public housing staircase use a unique argument to obtain a 2 million dollar settlement By Mark A. Cohen (Massachusetts Lawyers Weekly: June 26, 1995) To Boston attorneys Christopher A. Milne and Robert K. Rainer, an 8-year-old child's fall off a stair-case in publicly assisted housing was no simple accident. The railing gave way while the child was leaning on it, causing her to plummet 28 feet and suffer substantial head injuries. The landlord initially refused to settle the case, arguing that it was not liable because it lacked prior notice that the railing was loose. But, during a Saturday morning brainstorming session, plaintiffs' attorneys Milne and Rainer developed a novel strategy that ultimately led to a $2 million settlement. The lawyers argued that the landlord had caused the child's injuries because it failed to spend federal HUD funds properly on preventative maintenance of the property. The Department of Housing and Urban Development had given the landlord $4 million to maintain the property. But receipts produced by the landlord accounted for the expenditure of only half of the money. Had the funds earmarked for repairs not been misused, the two attorneys argued, the loose railing would have been discovered and replaced before the child fell. Under this theory of liability, it did not matter whether or not the landlord knew the railing was loose. The landlord could be held responsible if properly using the funds would have led to the disclosure and repair of the problem. "This argument can be used in [premises-liability cases] whenever the landlord receives public funds for maintenance," Milne says. "Even if [a tenant] can't show notice of a particular defect, the landlord has duty to spend the funds on repairs and to take only a reasonable profit." There are "literally thousands of units" of publicly assisted housing in Massachusetts, Milne observes. The public-funds argument "probably tripled the [settlement] value of the case," Rainer estimates. Both Milne and Rainer work at Rainer & Rainer, a Boston law firm which concentrates its practice on so-called "torts of urban injustice." About 70 percent of the firm's work involves representing plaintiffs in lead-paint cases, Rainer estimates. The 12-unit apartment building that was home to the 8-year-old plaintiff and her mother was part of a housing project the landlord purchased from HUD as an investment in 1988. The landlord - whose name is confidential under the settlement agreement - periodically received HUD-guaranteed subsidies for 284 units of the project. After the July 1992 fall the child was hospitalized for two weeks and had to have surgery to relieve pressure on her brain. "The injuries to the child were quite severe," Rainer recalls. "She had been born premature and was already experiencing [developmental] problems before the fall. As a result of the fall, her pre-existing condition was aggravated." The child was eventually diagnosed with post-traumatic-stress disorder. After a year and a half of unsuccessful negotiations with the landlord's insurance company, Milne and Rainer sent a Chapter 93A letter late in 1993 demanding $2 million in damages. In January 1994, the plaintiff, along with her mother, filed suit. 'We gave [the landlord] plenty of time to settle the case before we filed suit,' Milne notes. "But no offer was made. Not until three months after we filed suit was the first offer made - and that was for only $75,000." 'The negotiations with [the insurance company] were fruitless,' Rainer agrees. 'We were faced with a recalcitrant insurer so we had little choice but to file suit.' Developing the theory of liability based on the 'misuse' of the $2 million in unaccounted for HUD funds proved to be the key to the settlement. The landlord "received millions [from HUD]," Milne observes. "It could have had a nice profit and a first-class building. ... [Instead, the landlord] only spent 50 cents of every dollar for maintenance. That means that 50 cents of every dollar was misspent." A property owner who accepts public funds has a duty "to put them to their intended use - especially when that use involves the safety and health of the tenants," according to Milne. Milne and Rainer say they documented their misuse-of-funds theory by reviewing 'thousands upon thousands' of pages of financial records, researching newspaper articles and examining the records of state agencies and HUD. Milne and Rainer also contended that the landlord had paid $29,000 to the 'pet charity' of a HUD official to ensure that HUD would not vigorously enforce building and sanitary code requirements. Since the landlord's lack of awareness was due to its own misconduct, the fact that the landlord may not have had notice of the particular problem was irrelevant, the lawyers argued. 'There was a cozy, insider relationship between [the landlord] and HUD officials,' Milne says. 'The contract was awarded and the building was inspected without much scrutiny and without the usual controls.' The landlord vigorously opposed the plaintiffs' arguments and moved to strike the allegations of fraud and bribery as irrelevant to the negligence suit. The trial judge denied the motion, ruling that it could not be said as a matter of law that the allegations were immaterial. Buoyed by the court ruling, Milne and Rainer retained the accounting firm of Coopers & Lybrand to do a complete audit of the landlord's books to determine how the HUD money was actually spent. In order to get a more complete look at the landlord's use of the money, the plaintiffs' original discovery requests were supplemented with demands for 'all kinds of additional financial records,' according to Milne. When the defendant failed to make a timely response to the supplemental request, the plaintiffs agreed not to file a motion to compel until after the case could be mediated. That mediation resulted in a structured settlement. Present value? Two million dollars - including $1 million to be paid immediately. 'All of a sudden [the landlord] was chomping at the bit to settle,' Rainer confides. 'The only fair inference is that [the landlord] did not want that audit'. Landlords who receive public funding do not often have their books scrutinized because HUD lacks adequate resources to do so, Rainer explains. The misuse-of-public-funds argument therefore has the added advantage of opening "a whole new area of inquiry and potential embarrassment for the landlord],' he says, noting this may give a plaintiff the leverage necessary to force a settlement ' The assertion of a Chapter 93A claim also had a hand in bringing about a settlement, according to the plaintiffs' lawyers. First of all, 93A provided an independent basis for allowing in evidence that HUD funds were not properly used, Milne observes. The 93A claim also "added tremendous value to the case by substantially increasing the defendant's exposure," Rainer says, noting the possibility of multiple damages in a case involving millions makes it much more 'risky.' "Doubling and trebling of damages under 93A is based on the egregiousness of the misconduct," he explains, adding that the landlord in this case misspent millions of federal dollars. Milne says the multi-million settlement is especially gratifying because the defendant's insurance company began 'by offering nothing.' "This case exemplifies what the tort system is all about," agrees Rainer. 'A little girl was injured because of a landlord's misuse of funds. And she wouldn't have gotten anything without the tort system." |