Murphy et al v. United States of America

Filing 276

MEMORANDUM OPINION AND ORDER by District Judge Richard K. Eaton that the Plaintiffs total damages awarded in Murphy I be offset by $600,000.00 to prevent double recovery of non-medical damages; and that Plaintiffs award for future medical expenses shall be placed in trust in amanner consistent with instructions of the Court contained herein. (bap)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
DENNIS MURPHY, Guardian Ad Litem
for N.E.D., an incapacitated minor; JACOB DOTSON;
DOMINIQUE BILLY, individually and as next friend
of I.C. and S.D., minors,
Plaintiffs,

No. 1:17-cv-00384 JAP/JHR

vs.
THE UNITED STATES OF AMERICA,
Defendant.
MEMORANDUM OPINION AND ORDER ***
In its July 27, 2020 Findings of Fact and Conclusions of Law (Doc. 267) (“Murphy I”), this
Court awarded damages for injuries to N.E.D., a minor child, resulting from Defendant’s
negligence. The Court’s award, in substance, was $1,137,840.00 for past medical expenses, 1

*

Defendant filed the release by Plaintiffs of PlayPower Inc. (Confidential Doc.
219-1) and its brief in support of an offset (Confidential Doc. 256) under seal. The Court afforded
the parties fourteen days to propose redactions to protect confidential information. See Sealed
Memorandum Opinion and Order, filed January 27, 2021 (Confidential Doc. 275). On February 8,
2021, Plaintiffs’ counsel asked that the dollar amount of Plaintiffs’ settlement with PlayPower be
redacted. In this public version, the Court has redacted all references to the dollar amount.
**

Richard K. Eaton, Judge of the United States Court of International Trade, sitting
by designation.
1

This included $500,000.00 for past medical expenses, stipulated to by the parties
prior to trial. (Doc. 216.)

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$14,219,657.00 for future medical expenses, and $600,000.00 for non-medical damages. 2 Murphy
I at 15. Before the Court are two remaining issues concerning this award.
First, Defendant contends that it is entitled to an offset of the full amount of a settlement
between Plaintiffs and PlayPower, Inc., a former defendant in a parallel state proceeding. For the
reasons set forth below, the Court finds that Defendant is entitled to an offset of $600,000.00,
which represents double recovery of non-medical damages covered by Plaintiffs’ settlement with
PlayPower.
Second, the parties disagree as to whether the trust protecting the award for future medical
expenses should be reversionary in nature. That is, Defendant argues that, following N.E.D.’s
death, any remaining principal should revert to the United States, rather than to N.E.D.’s estate.
Subject to its instructions below, the Court directs that the award of future medical expenses,
$14,219,657.00, be placed in a reversionary trust for the benefit of N.E.D., with any remaining
principal after her death reverting to the United States.

BACKGROUND 3
On October 20, 2020, the Court held a closed oral argument on the issues of the potential
offset and the type of trust in which the award for future medical expenses would be held.

2

The New Mexico Medical Malpractice Act caps recovery of damages for nonmedical expenses at $600,000.00. See N.M. STAT. ANN. § 41-5-6(A), (B) (1978), amended by 1992
N.M. Laws ch. 33.
3

This opinion presumes familiarity with the facts and holdings set out in Murphy I.

No. 1:17-cv-00384
I.

Page 3

Settlement with Former State Court Defendant PlayPower
In February 2016, N.E.D. fell from playground equipment manufactured by PlayPower.

Her father, Plaintiff Jacob Dotson, took her to the Gallup Indian Medical Center, where
Defendant’s negligence caused her to suffer an anoxic brain injury resulting in permanent and
profound disability. On behalf of N.E.D., Plaintiffs brought suit in federal court against the United
States under the Federal Tort Claims Act (“FTCA”), and in state court against PlayPower and the
City of Gallup for common law tort claims of negligence, negligence per se, willfulness or
recklessness of suppliers, and strict product liability. (Doc. 99-1.) Thereafter, Plaintiffs and
PlayPower reached a confidential settlement. The amount of the PlayPower settlement was
.
The release by Plaintiffs of PlayPower (the “Release”) (Confidential Doc. 219-1), provides
that it is only for non-medical damages. 4 See Pls.’ Post-Trial Mem. Opp. Gov’t’s Offset Claim
(Doc. 252) (Jan. 31, 2020) (“Pls.’ Br. Re: Offset”) 7.
At the close of trial, the Court ordered that Plaintiffs’ settlement with PlayPower, the
accompanying release, and the Guardian Ad Litem report, be placed under seal on the record.
(Doc. 266.) The parties submitted post-trial briefing regarding the United States’ claimed offset of
the total settlement amount against Plaintiffs’ recovery.

4

“[N]o portion of [the settlement] represent[s] payments for past medical damages,
future medical damages, any medical related expenses, prejudgment interest, post judgment
interest, exemplary damages or punitive damages.” Release at 3.

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II.

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Reversionary Trust
The parties agree that the damages award for future medical expenses should be placed in

trust for the benefit of N.E.D. The parties further agree that a New Mexico trust company, such as
the New Mexico Bank & Trust, may act as trustee.
The parties disagree, however, as to what type of trust is appropriate. Plaintiffs argue that
any unused trust principal should revert to N.E.D.’s estate in the event of her death. Defendant
contends that a “reversionary trust” is warranted, where any unused principal reverts to the United
States upon N.E.D.’s death. In support of its position, Defendant provided a sample trust
instrument with its pre-trial briefing, outlining a reversionary trust by the terms of which the New
Mexico Bank & Trust would act as trustee, and MediBill, Inc., a California company, would act
as “administrator.” (Doc. 159-1.)

LEGAL FRAMEWORK
Settlement agreements are contracts, and New Mexico courts interpret them according to
contract principles. “A court is bound by the unambiguous language of a settlement agreement.”
Russell v. Russell, 1990-NMCA-080, ¶ 8, 111 N.M. 23, 26, 801 P.2d 93, 96.
In cases involving two successive tortfeasors, New Mexico law accounts for the possibility
that a plaintiff may settle with one tortfeasor but not the other and, in so doing, recover damages
for a portion of its injuries that may not later be recovered a second time. See Lujan v. Healthsouth
Rehab. Corp., 1995-NMSC-057 ¶¶ 26-27, 120 N.M. 422, 429, 902 P.2d 1025, 1032 (emphasis
added) (“[The plaintiff has] the burden to show what portion of the . . . settlement obtained from
[one tortfeasor] reasonably is attributable to the original injury. Absent evidence affirmatively
establishing such an amount, the entire [settlement] must be set off against any judgment obtained

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against [the successive tortfeasor].”). That is, if the settlement or accompanying release does not
specify what damages the plaintiff has foregone in exchange for the settling tortfeasor’s payment,
the plaintiff bears the burden of showing that any damages it may obtain against the non-settling
tortfeasor have not already been recovered. See id. (citing Sanchez v. Clayton, 117 N.M. 761, 768,
877 P.2d 567, 574 (N.M. 1994)).
In the context of the FTCA, tort plaintiffs suing the United States are barred from
repeatedly seeking payment of damages from the United States for the same injury. See, e.g., Hull
by Hull v. United States, 971 F.2d 1499, 1505 (10th Cir. 1992) (“[C]ourts cannot subject the
government to ongoing obligations like . . . continuing payments . . . .”). The New Mexico Medical
Malpractice Act bars the payment of a lump sum for future medical expenses. See N.M. STAT.
ANN. § 41-5-7(D) (1978), amended by 1992 N.M. Laws ch. 33 (emphasis added) (“Payment for
medical care and related benefits shall be made as expenses are incurred.”). In circumstances such
as these, the Tenth Circuit authorizes district courts in FTCA cases to fashion remedies, including
reversionary trusts, by which periodic payments can be made to injured parties after the United
States has discharged its one-time obligation. See Hull, 971 F.2d at 1505.

DISCUSSION
I.

The United States Is Entitled to an Offset of $600,000.00 of the Award for NonMedical Damages
The issue of whether Defendant is entitled to an offset depends on what damages were

covered by the Court’s award (set out in Murphy I), and by the settlement between Plaintiffs and
PlayPower.
Plaintiffs characterize the settlement with PlayPower as one that covers only non-medical
damages, whether caused by PlayPower’s allegedly tortious conduct or by Defendant’s

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malpractice in this case. See Pls.’ Br. Re: Offset 7 (“Recognizing that Plaintiffs would be entitled
to pursue their claims against the Government for a full recovery for medical and related expenses
from the anoxic injury, Plaintiffs and PlayPower agreed to limit the PlayPower Settlement to nonmedical damages.”). In other words, Plaintiffs contend that there is no double recovery because
the damages recovered from the United States are primarily medical damages, 5 and the
recovered from PlayPower is only for non-medical damages.
Plaintiffs base this argument on the language of the Release itself. 6 See Release at 3; Pls.’
Br. Re: Offset 7-8. Plaintiffs also argue that there is no reason to question the settlement, outside
the language of the Release, because

is reasonable compensation “for the non-

medical damages resulting from the permanent and irreversible catastrophic brain injury suffered
by [N.E.D.].” Pls.’ Br. Re: Offset 9-10. 7

5

Plaintiffs recovered $600,000.00 in non-medical damages from the United States.
However, the primary award of $15,357,497.00 is for past and future medical expenses.
Specifically, the Court awarded $14,219,657.00 for “future medical expenses.” Prior to trial, the
parties stipulated to past medical damages (Doc. 216) in the amount of $500,000.00, and Plaintiff
Dominique Billy was additionally compensated for her medically related care of N.E.D. in the
amount of $637,840.00. See Murphy I at 15.
6

“[N]o portion of [the settlement] represent[s] payments for past medical damages,
future medical damages, any medical related expenses, prejudgment interest, post judgment
interest, exemplary damages or punitive damages.” Release at 3.
7

Although the Murphy I award for non-medical damages against Defendant in this
case was capped at $600,000.00 under the New Mexico Medical Malpractice Act, that cap has no
bearing on what Plaintiffs could have recovered for medical or non-medical damages in a personal
injury suit against PlayPower, because Plaintiffs sued PlayPower for negligence and strict liability,
(Doc. 99-1), not medical malpractice. See N.M. STAT. ANN. § 41-5-6(A), (B).

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In addition, in the Release, PlayPower agreed to assign certain rights of indemnity to
Plaintiff. 8 See Release at 4. In their briefing and at oral argument, Plaintiffs have stated that they
intend to pursue an indemnification claim against the United States, only if an offset is granted by
the Court. See Pls.’ Br. Re: Offset 8 (“[I]f the Government were successful in its claim for a full
offset against the total amount of the PlayPower Settlement, PlayPower would have a viable claim
for indemnity. Plaintiffs recognized the potential value of such an indemnity claim and,
consequently, included the assignment of PlayPower’s right to indemnity in the Release as
additional protection for Plaintiffs.”).
Defendant claims that an offset is warranted on two primary grounds. 9 See Def.’s Sealed
Br. Support Offset (Confidential Doc. 256) (Jan. 31, 2020) (“Def.’s Br. Re: Offset”) 7-10. First,
Defendant argues that, in accordance with Lujan, Plaintiffs have not adequately carried their
burden of showing how much, if any, of the settlement amount is attributable to the injury allegedly
caused by PlayPower, as distinct from the injuries proven against the United States. See Def.’s Br.
Re: Offset 11 (citations omitted) (“In Lujan, the only contemplated apportionment of a settlement
is between the original injury and the enhanced injury. . . . The subject Settlement Agreement made
no such apportionment. . . . Absent evidence affirmatively establishing the amount attributable to

8

PlayPower agreed to “assign to the Plaintiffs all claims for indemnification and/or
contribution they may have against the City of Gallup or the United States government, as
concurrent or joint tortfeasors.” Release at 4.
9

Additionally, Defendant appears to take issue with Plaintiffs’ “characterization” of
the PlayPower settlement as covering only non-medical damages because (1) the proceeds have
been used for medically-related expenses, and (2) because the PlayPower defendants were released
from all liability, both for medical and non-medical damages. Defendant does not support this
argument with any legal authority, however. Def.’s Br. Re: Offset 10. It bears noting that neither
the eventual use of the settlement money, nor the consideration PlayPower received for settling,
bears on the nature of damages covered by the settlement.

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the original injury, the entire settlement amount must be set off against any judgment obtained
against the successive tortfeasor.”).
Second, Defendant argues that the settlement does not effectively protect the United States
from double recovery. Defendant specifically points to the “assignment” by PlayPower to
Plaintiffs of PlayPower’s right to seek indemnification against the United States:
There is nothing that stops the PlayPower Defendants (or Plaintiffs, if the
assignment is valid) from seeking recoupment of the Settlement Amount from the
United States. Both the PlayPower Defendants, by filing a notice of claim, and,
after receiving the assignment, Plaintiffs have threatened the United States that they
intend to seek indemnification for the full Settlement Amount. Indeed, Plaintiffs
acknowledge the United States’ double exposure by taking an assignment of the
indemnification claim. If Plaintiffs believed that neither Plaintiffs nor the
PlayPower Defendants could recover for the Settlement Amount against the United
States purportedly because the Settlement Amount covered only medical expenses,
they would have negotiated a full release of the indemnification claim. Instead, they
took an assignment for it.
Def.’s Br. Re: Offset 11.
A.

The Settlement Amount Is Reasonable Because of the Extent of N.E.D.’s NonMedical Damages

As a threshold matter, the Court finds that, for purposes of deciding the issue of offset, the
amount of the settlement—

—is not so great as to compel a finding that it was

intended to cover medical as well as non-medical damages. In other words, the settlement amount
is reasonable, given the severity of N.E.D.’s injuries and the non-medical damages she and her
parents suffered as a result. See Murphy I at 7. The award for non-medical damages against
Defendant in this case was capped at $600,000.00 under the New Mexico Medical Malpractice
Act, but the application of the cap has no bearing on what Plaintiffs could potentially recover for
medical or non-medical damages in a personal injury suit outside the medical malpractice context.
N.M. STAT. ANN. § 41-5-6(A). Thus, the $600,000.00 cap would not have applied to any award

No. 1:17-cv-00384

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obtained against PlayPower, because Plaintiffs sued PlayPower for negligence and strict liability,
not medical malpractice. (Doc. 99-1.)
The Court has previously found that N.E.D. and her parents suffered extensive noneconomic loss. First, it found that N.E.D.’s injury has severely impaired her cognitive, emotional,
social, and physical abilities. See Murphy I at 5. It also found that N.E.D.’s parents suffered
significant and permanent losses in their relationship with N.E.D. as a consequence of her injuries.
Id. at 7. Finally, contrary to Defendant’s position at trial that N.E.D.’s expected lifespan was 53
years, the Court found that N.E.D.’s expected lifespan was 81 years, which necessarily increased
the duration of medical and non-medical damages. Id. at 8.
Moreover, as Plaintiffs point out in their brief, PlayPower may well have considered that
recent New Mexico personal injury cases have resulted in jury awards for non-medical damages
far exceeding the amount,

, it paid here. See, e.g., Morga v. Fedex Ground Package

Sys., Inc., 2018-NMCA-039 ¶¶ 18, 26, 420 P.3d 586, 594-96, cert. granted, June 4, 2018
(upholding a jury award of $32,000,000 in damages to a child who suffered numerous traumatic
injuries in a vehicle accent, even though the evidence showed that his medical treatment amounted
to less than $500,000, because “a jury is given wide latitude in fixing the amount of . . . awards
[for non-economic damages such as pain and suffering]”). Thus, there is no reason to believe that
Plaintiffs’ settlement with PlayPower was for anything other than it purports to be—i.e., a
settlement with respect to non-medical damages only.
B.

Plaintiffs Have Carried Their Burden as to Double Recovery
1.

There Is No Double Recovery as to the Murphy I Award for Medical
Damages

The New Mexico Supreme Court has held, in Lujan and Sanchez, that a plaintiff who settles
with the intent of obtaining an additional award of damages through litigation “has an obligation

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to establish what compensatory damages he is foregoing in the settlement.” See Lujan, 1995NMSC-0571 ¶ 27, 120 N.M. at 429, 902 P.2d at 1032 (quoting Sanchez, 117 N.M. at 768, 877
P.2d at 574). In Lujan, which involved a settlement with the first but not the successive tortfeasor,
the Court held that an offset was warranted where the plaintiff had failed, in the language of the
release or otherwise, to indicate what portion of the damages compensated by settlement were
attributable to the original versus the enhanced injury. See Lujan, 1995-NMSC-0571 ¶ 27, 120
N.M. at 429, 902 P.2d at 1032 (“There is no specification in the Lujan release as to how the
consideration paid by [the first tortfeasor] is to be divided between the original injury . . . and the
enhanced injury.”). Sanchez, on which Lujan relied, held that the “[p]roportion of compensatory
damages not paid in settlement may be recovered.” Sanchez, 117 N.M. at 768, 877 P.2d at 574.
Neither Lujan nor Sanchez, however, address Plaintiffs’ precise situation, where damages
were allocated according to type: “medical” (sought only against the United States) and “nonmedical” (covered by the PlayPower settlement). Rather, the cases involved apportionment
between the “original injury” and a later injury, in Lujan, and of compensatory damages generally,
in Sanchez. See Lujan, 1995-NMSC-0571 ¶ 27, 120 N.M. at 429, 902 P.2d at 1032; Sanchez, 117
N.M. at 768, 877 P.2d at 574. Here, the Court must determine whether a release that explicitly
stated the type of damages that were covered and what type of damages were excluded, sufficiently
demonstrates that there has been no double recovery by Plaintiffs, and thus there is no entitlement
to an offset.
Settlement agreements are contracts, and New Mexico courts construe them in accordance
with contract principles. “A court is bound by the unambiguous language of a settlement
agreement.” Russell, 1990-NMCA-080, ¶ 8, 111 N.M. at 26, 801 P.2d at 96; see also In re Otero
Cnty. Hosp. Ass’n, Inc., 571 B.R. 854, 861 (Bankr. D.N.M. 2017), on reconsideration in part, 585

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B.R. 161 (Bankr. D.N.M. 2018) (citing Walters v. Wal-Mart Stores, Inc., 703 F.3d 1167, 1172
(10th Cir. 2013)) (“Because a settlement agreement is a form of contract, the Court applies general
principles of contract interpretation under state law to determine the meaning of a settlement
agreement.”).
Here, as a threshold matter, the Court finds the language of the Release to be unambiguous.
See Release at 3 (“[N]o portion of [the settlement] represent[s] payments for past medical damages,
future medical damages, any medical related expenses, prejudgment interest, post judgment
interest, exemplary damages or punitive damages.”). Because the settlement agreement provides
that it covered only a type of injury not found (for the most part) in the case against Defendant,
Lujan’s prohibition against double recovery is inapplicable. Lujan does not work to prevent
Plaintiffs from fully recovering both medical and non-medical damages. Accordingly, it is possible
to effectuate the settling parties’ intent without violating Lujan, and Defendant is not entitled to an
offset as to the $15,357,497.00 award in Murphy I for medical damages, because the PlayPower
settlement clearly excluded medical damages.
This finding is consistent with other New Mexico precedents where both state and federal
courts have considered the types of damages or other compensation unambiguously covered by a
settlement, when determining whether an offset is warranted against future recovery. See, e.g.,
Sanchez, 117 N.M. at 768, 877 P.2d at 574; Summit Properties, Inc. v. Pub. Serv. Co. of New
Mexico, 2005-NMCA-090, ¶ 50, 138 N.M. 208, 223, 118 P.3d 716, 731 (finding, in a contract
case, that an offset or “credit” was warranted because the settlement at issue had been characterized
as for “attorney fees” where there was, in fact, “no legal right to those fees”); see also Otero, 571
B.R. at 862 (“[T]he intended meaning of the language used in the Settlement Agreement . . . is
clear: claims are released if not covered by and to the extent damages are not payable under any

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available insurance; unreleased claims are claims that are covered by available insurance to the
extent the type of damages that may be awarded on the claims are the type of damages payable
under insurance.”). Moreover, as has been noted, the evidence at the trial demonstrated that the
amount of the settlement was consistent with the amount of non-medical injury.
Thus, with one limited exception, this Court finds that the settlement agreement and the
Court’s award in Murphy I compensate Plaintiffs for distinct types of damages, and no double
recovery has occurred. Unlike the release at issue in Lujan, Plaintiffs’ Release of PlayPower
specifically divided these damages so that there would be no ambiguity about what the settlement
covered and what it did not. The settlement covered non-medical damages up to

.

The Court’s award set forth in Murphy I, covered medical and medically-related damages in the
total amount of $15,357,497.00, with an additional $600,000.00 award for non-medical damages.
Nothing prevents Plaintiffs from using settlement and litigation to maximize their potential
recovery. See, e.g., Rummel v. Lexington Ins. Co., 1997-NMSC-041, ¶ 47, 123 N.M. 752, 764, 945
P.2d 970, 982 (“Nothing prevents the allocation of damages so as to provide maximum protection
for the insured.”). Here, Plaintiffs could only recover $600,000.00 in non-medical damages from
Defendant because of the state statutory cap, and thus they settled for an amount that reflected a
reasonable approximation of their non-medical losses. Because no cap applied to their suit for
medical damages against Defendant, Plaintiffs chose to forgo those damages in their settlement,
and instead bring their medical malpractice claims to trial.
2.

Defendants Are Entitled to an Offset of $600,000.00

The Court next finds that Plaintiffs have not carried their burden with respect to the
$600,000.00 award for non-medical damages, also set forth in Murphy I. Plaintiffs argue in their
brief that the non-medical damages in this case exceed the

settlement with

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PlayPower, due to the severity of N.E.D.’s injuries. See Pls.’ Br. Re: Offset 11 (“N.E.D. must
suffer [profound difficulties] each and every day, . . . which will continue to plague her throughout
her life. . . . [H]er injuries [have also had a destructive impact] on her extremely limited capacity
in the future to enjoy life in any meaningful way. . . . Thus, N.E.D. faces not only a lifetime of
struggle ahead, but of ongoing losses – the loss of the enjoyment of life on a daily basis.”).
In their briefing and at oral argument, however, Plaintiffs failed to establish, based on the
evidence on the record, which non-medical damages were definitively covered by the settlement
and Release, and which were the subject of the suit against the United States. See Release at 3
(“All amounts received under the terms of this Release are for damages on account of personal
physical injuries or sickness . . . .”); see also Murphy I at 7 (awarding non-medical damages).
Under Lujan, “[a]bsent evidence affirmatively establishing [what damages are attributable to what
injury], the entire [settlement amount] must be set off against any judgment obtained against”
Defendant. Lujan, 1995-NMSC-0571 ¶ 27, 120 N.M. at 429, 902 P.2d at 1032. Plaintiffs cannot
recover for the same non-medical damages twice. Thus, to avoid double recovery against
Defendant in this case, the Court orders that $600,000.00 be offset against the judgment in
Murphy I.
C.

The “Assignment” of PlayPower’s Indemnification Rights to Plaintiffs Does
Not Direct a Different Result

Defendant argues that the settlement with PlayPower creates a risk of double recovery by
Plaintiffs no matter how they characterize the damages it covers. Defendant maintains that
Plaintiffs intend to treat the settlement in two ways: for non-medical damages only for the purposes
of preventing offset, while simultaneously asserting that PlayPower, through the settlement, has
paid medical damages attributable to the United States. Defendant argues:

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Plaintiffs’ characterization of the Settlement Amount is of no consequence. . . . The
United States remains subject to paying twice for the same injuries. There is nothing
that stops the PlayPower Defendants (or Plaintiffs, if the assignment is valid) from
seeking recoupment of the Settlement Amount from the United States. Both the
PlayPower Defendants, by filing a notice of claim, and, after receiving the
assignment, Plaintiffs have threatened the United States that they intend to seek
indemnification for the full Settlement Amount. Indeed, Plaintiffs acknowledge the
United States’ double exposure by taking an assignment of the indemnification
claim. If Plaintiffs believed that neither Plaintiffs nor the PlayPower Defendants
could recover for the Settlement Amount against the United States purportedly
because the Settlement Amount covered only [non-]medical expenses, they would
have negotiated a full release of the indemnification claim. Instead, they took an
assignment for it.
Def.’s Br. Re: Offset 10-11. In other words, Defendants believe that Plaintiffs will not be satisfied
with the settlement against PlayPower and the Court’s prior award, but that they will try to recoup
the settlement amount a second time by suing the United States for indemnification pursuant to
their assignment from PlayPower.
Plaintiffs, on the other hand, have represented that they will only seek to pursue
indemnification if the Court offsets the settlement against the prior award. See Pls.’ Resp. Gov’t’s
Br. Supp. Offset PlayPower Settlement (Doc. 260) (Feb. 28, 2020) 7 (“That assignment was
obtained only to protect Plaintiffs’ right to recover fully for both the medical and non-medical
damages they suffered. Therefore, if the Government is held responsible for all the medical
damages caused by its medical facility, that, together with the PlayPower settlement for the major
portion of the non-medical damages suffered by Plaintiffs, would obviate any need for invoking
that assignment.”).
The validity of the assignment to Plaintiffs is not presently before the Court—and nor is
any action for indemnification. The Court observes, however, that the New Mexico Court of
Appeals has invalidated assignments, such as the one at issue here, under the New Mexico Medical
Malpractice Act. Any action for indemnification by Plaintiffs would be governed by the New
Mexico Medical Malpractice Act, since the “gravamen” of such an action is necessarily

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Defendant’s medical malpractice. See Christus St. Vincent Reg’l Med. Ctr. v. Duarte-Afara, 2011NMCA-112, ¶ 15, 267 P.3d 70, 74 (“[Because] the gravamen of Medical Center’s equitable
indemnification claim is predicated upon the allegation that Doctors negligently caused, and were
partly liable for, [Plaintiff’s] injuries. . . . [W]e hold that Medical Center’s equitable
indemnification claim is a malpractice claim as that term is used in the [Medical Malpractice Act]
and is, therefore, subject to [the Act].”). That is, “[t]he controlling inquiry in determining whether
a claim [including an indemnification claim] constitutes a ‘malpractice claim’ under the [Act] is
merely whether the gravamen of the claim is predicated upon the allegation of professional
negligence.” Id. 2011-NMCA-112, ¶ 18, 267 P.3d at 74.
Where the gravamen of any action brought against Defendant would be for medical
malpractice (there could be no serious claim that Plaintiffs could argue for damages under any
other theory), then the Act applies, and would bar assignment of claims pursuant to it. See N.M.
STAT. ANN. § 41-5-12 (“A patient’s claim for compensation under the Medical Malpractice Act is
not assignable.”).
Thus, based on the “gravamen” rule, PlayPower’s assignment of its indemnification claim
to Plaintiffs would not result in Defendant being required to pay, because the PlayPower
assignment of any right to contribution would be based on Defendant’s medical malpractice. See
Leger v. Leger, 2019-NMCA-033, ¶ 40, 444 P.3d 1036, 1048, cert. granted Apr. 8, 2019 (emphasis
added) (citations omitted) (“[T]he Legislature intended the [Act’s] requirements and restrictions
to apply to all ‘malpractice claims’ covered by the [Act] (which the indemnification claim at issue
undisputedly is) and, accordingly, that Section 41-5-12 bars assignment of all ‘malpractice claims’
for compensation covered by the [Act].”). Therefore, it appears that the assignment and any later

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lawsuit for indemnification cannot accomplish what the statute forbids, and Defendant is not at
risk of being found liable for any amount of non-medical damages in excess of $600,000.00.
II.

The Damages for Future Medical Expenses Will Be Placed in a Reversionary Trust
The parties disagree as to whether the trust for the future medical expenses award

($14,219,657.00) should be reversionary in nature. That is, whether any principal remaining after
N.E.D.’s death should revert to Plaintiffs or to Defendant the United States. Both prior to and posttrial, the parties submitted briefing on this issue.
Plaintiffs argue that the applicable standard, under Tenth Circuit law, is whether a
reversionary trust is in N.E.D.’s “best interests.” See Pls.’ Mem. Opp. Establishment Reversionary
Tr. (Doc. 156) (Mar. 8, 2019) 2 (citing Hull by Hull v. United States, 53 F.3d 1125, 1128 (10th
Cir. 1995) for the proposition that “the district court [must] focus only on what is in the plaintiff’s
best interest”); see also Pls.’ Resp. Def.’s Br. Supp. Establishment Reversionary Tr. (Doc. 259)
(Feb. 28, 2020) 4 (“Defendant’s proposed reversionary trust is designed to benefit the Government,
not N.E.D., the injured party.”).
Defendant argues that the test is not the best interests of the injured party, but rather, that
the district court is obliged to fashion a remedy approximating the applicable state statute as closely
as possible. Defendants contend that by approximating the state statute, the United States is held
liable under the FTCA only “in the same manner and to the same extent as a private individual
under like circumstances” as required by 28 U.S.C. § 2674. See Def.’s Br. Supp. Establishment
Reversionary Tr. (Doc. 257) (Jan. 31, 2020) (“Def.’s Br. Re: Reversionary Tr.”) 7 (citations
omitted) (“The Tenth Circuit applied the ‘best interests’ standard only to situations where state
law did not require courts to structure certain damages in the form of periodic payments that would
cease upon the plaintiff’s death.”). Defendant further argues that even if the standard is the best

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interests of N.E.D., that a reversionary trust acts as a preventive measure to any mishandling of
the funds during her lifetime. Def.’s Br. Re: Reversionary Tr. 11 (“Placing the funds in a
reversionary trust removes any possibility that her parents or siblings would misuse the funds –
intentionally or unintentionally – for non-medical expenses.”).
For the reasons below, the Court finds that a reversionary trust is warranted.
A.

A Reversionary Trust Most Closely Approximates the New Mexico Medical
Malpractice Act

As a threshold matter, the Court finds that Plaintiffs’ representation of the “best interests”
rule is misplaced. It is true that the Tenth Circuit has applied a best interests standard in personal
injury and medical malpractice FTCA cases involving the potential for a reversionary trust. See,
e.g., Hull, 971 F.2d at 1505 (“[W]e hold that the district court has the inherent authority to order
that [the child’s] damages be paid in the form of a fully reversionary trust if it concludes that is in
[the child’s] best interest, so long as the government’s obligation . . . ceases when it pays a fixed
lump sum to fund that trust. In determining whether such a trust is appropriate on remand, the court
should consider what form or structure of damages best serves [the child’s] interests from [the
child’s] perspective only.”).
Two Tenth Circuit precedents interpreting the FTCA, however, guide this Court’s analysis
regarding the applicability of the “best interests” test when determining whether a reversionary
trust is appropriate: Hill v. United States and Stokes v. United States.
In Hill, the Tenth Circuit held that the district court could “create a reversionary trust that
would approximate the result contemplated by [the relevant state law, the Colorado Health Care
Availability Act].” Hill v. United States, 81 F.3d 118, 121 (10th Cir. 1996). There, although the
Court applied the best interests test to a portion of damages unrelated to medical expenses, it did
not apply the best interests test to “future medical expenses,” because, “[u]nder the HCAA, an

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award for future medical expenses would not accrue to the plaintiff’s heirs upon his or her death.”
Id. Thus, because the relevant state law barred the continuation of medical payments following the
injured party’s death, the Court ruled that the United States “should receive a reversionary interest
in that part of [the] award which covers future medical expenses.” Id.
In Stokes, applying Oklahoma law, the Court again emphasized the need to “hold the
government liable for tort claims ‘in the same manner and to the same extent as a private individual
under like circumstances,’” specifically in the context of applying “periodic payment” state
statutes. See Stokes v. United States, 967 F.3d 1034, 1037-38 (10th Cir. 2020) (citations omitted).
The Stokes Court addressed the limitations of the “best interests” standard from Hull and Hill:
Thus, in Hull, the fact that future-care awards may be structured in the victim’s best
interest was not displaced by state law, like it is here. Hill similarly does not indicate
that the victim’s best interests supersedes the FTCA’s requirement to approximate
state statutes. True, in Hill, we considered the victim’s best interests in declining to
exercise our inherent authority to order the district court to grant the government a
reversionary interest in the victim’s future-earnings award. Hill, 81 F.3d at 121. But
the state periodic-payment statute at issue in Hill did not permit reversion of futureearnings awards, so there was no conflict between our decision and the FTCA’s
requirement to approximate state statutes. Id. Thus, like Hull, Hill does not give
courts permission to deviate from the FTCA’s approximation requirement, even if
doing so is in the best interests of the victim. Accordingly, we decline to deviate
from this requirement here
Id. at 1042 (emphasis added).
The relevant state law here—the New Mexico Medical Malpractice Act—mandates that
“[p]ayment for medical care and related benefits shall be made as expenses are incurred.” See
N.M. STAT. ANN. § 41-5-7(D) (emphasis added). As noted, the FTCA directs that the United States
can only pay damages in a lump sum. Hull, 971 F.2d at 1504-05 (citing 28 U.S.C. § 1346). In order
to reconcile the two legal requirements and the injunction to approximate state law, courts have
used reversionary trusts. See, e.g., Hill, 81 F.3d at 121. Applying the principle recently summarized
in Stokes, the Court finds that a reversionary trust is the most appropriate way to satisfy this state

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statute, while also conforming to the limited liability waiver contained in the FTCA, 28 U.S.C.
§ 2674. In other words, a reversionary trust is appropriate because it permits N.E.D. to obtain
coverage for her future medical needs as they arise, but does not extend the benefits of the trust
past the point of her death, after which no new expenses would be “incurred.” Moreover, a
reversionary trust will ensure that the United States meets its responsibilities, but is not required
to pay for more than the medical expenses paid for the benefit of N.E.D. during her lifetime.
B.

Modifications to Defendant’s Trust Are Appropriate

The Court directs that the award for future medical expenses be placed in trust with the
New Mexico Bank & Trust, or other mutually agreed-upon entity, acting as trustee. To this end,
the Court directs that the parties meet and confer as to the appropriate terms to be contained in the
trust.
The parties may, but need not, use the sample trust provided by Defendant in formulating
a trust that benefits N.E.D. by providing for her medical and medically-related expenses during
her lifetime. The parties’ trust need not contain any specific term from the sample trust.
Specifically, the Court does not mandate the appointment of an out-of-state administrator because
Defendant has provided no convincing reason for one. As is required by the New Mexico Medical
Malpractice Act, N.E.D.’s medical expenses should be paid only as incurred, and since no medical
expenses for N.E.D.’s benefit can be incurred after her death, any remaining principal shall then
revert to the United States.

CONCLUSION AND ORDER
It is therefore
ORDERED that the Plaintiffs’ total damages awarded in Murphy I be offset by
$600,000.00 to prevent double recovery of non-medical damages; and it is further

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ORDERED that Plaintiffs’ award for future medical expenses shall be placed in trust in a
manner consistent with instructions of the Court contained herein.

Dated: February 12, 2021

/s/ Richard K. Eaton
Richard K. Eaton, Judge