In Settlement, Don't Promise What You Can't Control (and Beware of Limited-Choice Forms)

Filling out a form with limited-choice options that do not correspond to the answers you would like to provide is a frustrating experience that we have all encountered.  In a recent Maryland case, that problem arose with greater stakes than usual.

A hospital signed a settlement agreement with one of its doctors in which the hospital promised to use specific language in reporting to state authorities about the doctor’s actions.  The online reporting forms, however, forced the hospital to choose alphanumeric issue and event codes, which generated textual phrases that appeared on the completed reports.  So, although the hospital faithfully included the prescribed language from the settlement agreement in its reports, the reports also contained completely different phrases that the codes generated.

The settlement agreement prescribed that the hospital would report that the doctor’s clinical privileges were suspended, then reinstated “as full and unrestricted privileges,” and that the doctor then “voluntarily resigned” – and nothing more.  But the code-generated language in one report ended up stating, in all caps:  “SUMMARY OR EMERGENCY SUSPENSION OF CLINICAL PRIVILEGES”; “IMMEDIATE THREAT TO HEALTH OR SAFETY”; “SUBSTANDARD OR INADEQUATE CARE”; and so forth.

The Supreme Court of Maryland, affirming the Appellate Court of Maryland, concluded that the trial court should not have granted summary judgment to the hospital on the issue whether the hospital had violated the settlement agreement.  That was because the settlement agreement contained “specific, agreed upon language” that the hospital was required to “report to regulatory authorities,” and this language “precluded the Hospital from also reporting contradictory and materially inconsistent language in the same report, regardless of how that language was generated” (emphasis added).

This issue turned on how the courts viewed the limited-option, required codes that were part of the online forms – was the hospital off the hook, given that the codes were a required part of the process, or was the hospital in violation of the settlement agreement based on the plain terms of the completed forms? The Supreme Court cut the hospital no slack.

What is the lesson for parties negotiating settlements and other contracts? Although limited-choice forms will rarely be a factor, the case is a reminder that, when negotiating an agreement, counsel and client must carefully study and discuss the language describing the client’s obligations and determine whether it is appropriate and within the client’s control.  Crucial context – such as the reporting process in the hospital case discussed above – may be known only to the client, so a full discussion of how the settlement will actually be implemented is a must.