Shaw v. United States
131 Fed. Cl. 181
| Fed. Cl. | 2017Background
- In 1985 the Shaws settled an FTCA medical-malpractice suit with the United States: the Government would pay $4.8 million in lump sums and purchase four annuities (and create an irrevocable reversionary medical care trust) to provide future periodic payments to the Shaws and their son Richard.
- MLSS initially purchased the ELNY annuities and listed itself as owner; ownership was later changed to the United States.
- ELNY (the annuity issuer) entered rehabilitation and liquidation decades later, and the annuity payments were restructured downward beginning in 2013.
- Plaintiffs sued for breach, alleging the Government (1) failed to effect a qualified assignment; (2) failed to pay or guarantee reduced future annuity payments; and (3) failed to guarantee deferred/lump-sum trust payments. They sought present-value damages totaling about $38 million.
- The court considered cross-motions for partial summary judgment, stayed for the Federal Circuit’s decision in Nutt, received supplemental briefing, and then decided liability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the U.S. contractually guaranteed future annuity payments (beyond purchasing annuities) | Shaw: contract language ("will…provide", "shall make", guarantees in ¶6) and drafting by the Government show the U.S. agreed to guarantee periodic payments (or at least be liable if annuity issuer defaulted). | U.S.: plain text requires only lump-sum payments and purchase of annuities; FTCA waiver limits, and Government did not promise to guarantee annuity issuer performance. | Court: latent ambiguity exists; reading the contract as a whole, the U.S. guaranteed parents’ monthly payments for a 20‑year period (1985–2005) but did not guarantee the lifelong payments to Richard or trust payments beyond the annuity purchase. |
| Whether plaintiffs have standing to sue for shortfalls owed to the medical-care trust (trust claims) | Shaw: plaintiffs can assert the trust’s claims; trustee’s refusal to join does not defeat plaintiffs’ claim and the trust terms do not preclude plaintiffs’ suit. | U.S.: the trust agreement vests exclusive management and the power to enforce claims in the trustee; only the trustee can sue on behalf of the trust; plaintiffs lack standing and any injury is speculative. | Court: plaintiffs lack standing to sue on behalf of the Irrevocable Reversionary Medical Care Trust; trustee has exclusive authority to enforce trust claims. |
| Whether settlement silence or actions about MLSS/qualified assignment made MLSS liable for annuity shortfalls | Shaw: failure to effect a qualified assignment (MLSS prefunded/initial owner) violated IRC §130 and deprived plaintiffs of recourse against MLSS for shortfalls. | U.S.: agreement expressly made the United States the sole owner of the annuities; settlement did not contemplate qualified assignment to MLSS. | Court: settlement is silent on assignment; as written the annuities were owned by the United States and no assignment to MLSS was part of the contract; plaintiffs’ argument fails. |
| Whether any government obligation to guarantee payments remains (timing/survival of guarantee) | Shaw: Government’s limited guarantee (or responsibility) continues to cover shortfalls caused by ELNY liquidation. | U.S.: even if a guarantee existed, it would be limited in time or was satisfied by purchase; plaintiffs’ claims for ongoing shortfalls are unfounded. | Court: any governmental guarantee extended only to the 20‑year guaranteed-period payments to the parents (1985–2005) and those obligations have expired; no surviving contract obligation for the later shortfalls to plaintiffs or the guardianship. |
Key Cases Cited
- Massie v. United States, 166 F.3d 1184 (Fed. Cir. 1999) (interpreting settlement language to find Government guaranteed annuity payments)
- Nutt v. United States, 837 F.3d 1292 (Fed. Cir. 2016) (FTCA settlement may provide for future payments; where agreement’s plain language limits Government obligation to purchase annuities and pay lump sums, no guaranty of annuity issuer's ongoing payments)
- Stathis v. United States, 120 Fed. Cl. 552 (Fed. Cl. 2015) (applied Massie; relevant to structured-settlement interpretation)
- Vanhoy v. United States, 514 F.3d 447 (5th Cir. 2008) (parties may agree to periodic damage awards)