Cibula Ex Rel. J.A.C. v. United States , 664 F.3d 428 ( 2012 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
ANDREW L. CIBULA, Individually, 
and as parent and next friend of
his minor son J.A.C.; JENNIFER L.
CIBULA, Individually, and as parent
and next friend of her minor son
J.A.C.,  No. 10-1245
Plaintiffs-Appellees,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.

Appeal from the United States District Court
for the Eastern District of Virginia, at Alexandria.
Gerald Bruce Lee, District Judge.
(1:05-cv-01386-GBL-TRJ)
Argued: September 20, 2011
Decided: January 9, 2012
Before MOTZ, GREGORY, and DUNCAN, Circuit Judges.
Affirmed in part, reversed in part, and remanded by published
opinion. Judge Motz wrote the opinion, in which Judge Greg-
ory and Judge Duncan joined.
2 CIBULA v. UNITED STATES
COUNSEL
ARGUED: William George Cole, UNITED STATES
DEPARTMENT OF JUSTICE, Washington, D.C., for Appel-
lant. Bruce Jay Klores, KLORES PERRY MITCHELL, PC,
Washington, D.C., for Appellees. ON BRIEF: Tony West,
Assistant Attorney General, William Kanter, UNITED
STATES DEPARTMENT OF JUSTICE, Washington, D.C.;
Neil H. MacBride, United States Attorney, Alexandria, Vir-
ginia, for Appellant. Thomas W. Mitchell, BRUCE J.
KLORES & ASSOCIATES, P.C., Washington, D.C., for
Appellees.
OPINION
DIANA GRIBBON MOTZ, Circuit Judge:
This Federal Tort Claims Act ("FTCA") case returns to us
after remand to the district court. See Cibula v. United States,
551 F.3d 316, 317 (4th Cir. 2009) (Cibula I).
The FTCA waives the federal Government’s sovereign
immunity in tort actions, making the United States liable "in
the same manner and to the same extent as a private individ-
ual under like circumstances." 28 U.S.C. § 2674. Courts
determine the Government’s liability "in accordance with the
law of the place where the [negligent] act or omission
occurred." 28 U.S.C. § 1346(b)(1); Starns v. United States,
923 F.2d 34, 37 (4th Cir. 1991). In Cibula I, we held that the
district court erroneously applied Virginia law in determining
that an award for future care costs could not be placed in a
reversionary trust. We remanded the case for the court to
apply California law, and "craft a remedy that holds the gov-
ernment liable ‘in the same manner and to the same extent as
a private individual under like circumstances.’" Cibula I, 551
F.3d at 321-22 (quoting 28 U.S.C. § 2674).
CIBULA v. UNITED STATES 3
On remand, the district court held it could not provide the
Government with a reversionary interest in the future care
award that "would comply with" both the FTCA and Califor-
nia law. The United States appeals. For the reasons set forth
within, we affirm in part, reverse in part, and remand for fur-
ther proceedings consistent with this opinion.
I.
We first briefly describe the proceedings resulting in our
initial opinion in this case and then set forth those leading to
the present appeal.
A.
1.
After the negligence of Government doctors in California
caused significant and irreversible brain damage to J.C., his
parents, Andrew and Jennifer Cibula, brought this FTCA suit
against the United States in the Eastern District of Virginia on
behalf of themselves and J.C. Following a bench trial, the dis-
trict court found the United States liable for J.C.’s damages
and awarded the Cibulas $2,704,800 for past care costs,
$250,000 for J.C.’s pain and suffering, $250,000 for Mrs.
Cibula’s pain and suffering, $2,360,771 for J.C.’s lost future
earnings, and, most relevant to this appeal, $22,823,718 for
J.C.’s future care costs.
In determining the amount of the future care award, the dis-
trict court relied on the testimony of the Cibulas’ expert, Dr.
Richard Lurito, a Ph.D. economist, who had previously testi-
fied as an expert in more than 700 cases. To calculate the cost
of J.C.’s future care, Dr. Lurito assumed that J.C. would live
a normal life expectancy, which at the time of trial was an
additional 64.8 years. Dr. Lurito based his calculations on the
analysis of Dr. Raphael Minsky, another expert retained by
the Cibulas, as to the care and services J.C. would need over
4 CIBULA v. UNITED STATES
those 64.8 years. At trial, Dr. Lurito testified that a present
value award of $22,823,718 would allow J.C. "if he earned
four and a quarter percent after tax on his investment [annu-
ally] . . . to reach into this pool of money, withdraw what he
needs to pay for each of these medical care needs, and at the
end of his expected life, there would be nothing left." This
amount would allow J.C. to live at home, rather than the far
less expensive figure ($11,831,347) necessary to fund his
needs at a residential care facility.
Dr. Lurito emphasized that his calculations took a "conser-
vative" approach. He acknowledged that he did not consult
any authorities on "annuities" and so did not know if "consid-
erably less" funds would produce an income stream sufficient
to meet all of J.C.’s future care needs. Nevertheless, the dis-
trict court relied on Dr. Lurito’s testimony to conclude that a
present value award of $22,823,718 was "the amount of
money that is needed today, if invested prudently for the rest
of J.C.’s life, to pay for the care that J.C. will need each year,
such that no money will be left at the end of his normal life
expectancy."
The United States argued that California law permitted it to
retain a reversionary interest in this future care award. The
district court rejected this argument because it concluded that
Virginia law governed and did not permit this remedy. Apply-
ing Virginia law, the district court ordered the $22,823,718
future care award be placed in a non-reversionary "trust for
J.C.’s benefit" to be established and managed by a court-
appointed guardian ad litem.
2.
On appeal in Cibula I, neither the United States nor the
Cibulas challenged the district court’s finding of liability, cal-
culation of the present value of the future care damages, or
placement of the calculated future care damages in a trust to
be managed by a court-appointed guardian ad litem.
CIBULA v. UNITED STATES 5
However, the United States did challenge the district
court’s refusal to create a reversionary trust. The United
States contended that the district court should have applied
California law and, pursuant to that state’s law, should have
ordered the present value future care award be placed into a
reversionary trust. The United States relied on section 667.7
of the California Civil Procedure Code. That statute accords
any party in a medical malpractice action the right to elect
that future damages "be paid in whole or in part by periodic
payments rather than by a lump-sum payment if the award
equals or exceeds fifty thousand dollars," Cal. Civ. Proc.
Code § 667.7(a), and permits periodic payments (other than
those awarded for loss of future earnings) to be "subject to
modification in the event of the [plaintiff’s] death." Id.
§ 667.7(b)(1), (c); Salgado v. County of Los Angeles, 967
P.2d 585, 589 (Cal. 1998).
Because courts cannot subject the United States to continu-
ing obligations like periodic payments, see, e.g., Hull v.
United States, 971 F.2d 1499, 1505 (10th Cir. 1992), the Gov-
ernment sought to pay the entire future care award as a lump
sum into the trust created by the district court but retain a
reversionary interest in any funds remaining in trust at the
time of J.C.’s death. Such a remedy would make the entire
future care award immediately available to J.C.’s trustee to
invest and provide for him, but also ensure that the United
States would receive any funds remaining in the trust at the
time of J.C.’s death. The Government contended that in this
way its proposal would properly approximate the periodic
payment scheme available under California law.
We agreed with the Government that the district court erred
by not applying California law. Accordingly, we remanded
the case, instructing the district court to apply California law
and "craft a remedy that holds the government liable ‘in the
same manner and to the same extent as a private individual
under like circumstances.’" Cibula I, 551 F.3d at 321-22
(quoting 28 U.S.C. § 2674).
6 CIBULA v. UNITED STATES
B.
On remand, the district court requested proposals from the
Cibulas and the Government as to how it should "craft a rem-
edy" consistent with California law.
The Cibulas made two proposals. They proposed that the
Government pay not the present value future care damages
award ($22,823,718) but the estimated gross costs of J.C.’s
future care (approximately $119,000,000)1 into a reversionary
trust "to ensure that J.C. is sufficiently compensated." Alter-
natively, they proposed that the United States pay only the
present value award into a reversionary trust but remain liable
to them for the estimated gross costs in the event the present
value award proved insufficient. The district court rejected
both proposals, holding the first placed too onerous a burden
on the Government in relation to a private defendant in like
circumstances under California law, and the second imposed
an impermissible continuing obligation on the United States.
See Cibula I, 551 F.3d at 319 (noting "the FTCA has been
interpreted to prohibit ongoing obligations against the United
States"). The Cibulas do not challenge these holdings on
appeal.
The United States proposed that it pay J.C.’s trust a "lump
sum" payment "equal to the future care costs . . . awarded at
trial," i.e., $22,823,718, and "retain [a] reversionary inter-
est[ ]" in that trust "should J.C. not survive for his full life
expectancy or if funds remain at the expiration of his life
expectancy." The district court rejected that proposal, finding
that it too failed to treat the United States sufficiently like a
private defendant under California law because it risked
underfunding J.C.’s future care. The district court based this
finding on new evidence the Cibulas introduced at a post-trial,
1
The Cibulas derived this figure from an expert report they submitted
to the district court on remand. At trial, the Cibulas presented only Dr.
Lurito’s present value calculations.
CIBULA v. UNITED STATES 7
post-remand hearing held in November 2009. At that hearing
a new expert retained by the Cibulas, Dr. James Koch, opined
that the recent economic downturn made unattainable the
"conservative after tax discount rate of 4.25%" that Dr.
Lurito, the Cibulas’ trial expert, calculated and the district
court accepted in finding the present value award of
$22,823,718 as the amount necessary "to pay for the care that
J.C. will need each year" in the future.
The district court concluded that it was unable to craft a
suitable reversionary trust that reconciled "the competing
objectives" of the FTCA and California law. Accordingly, the
court ordered the present value future care award of
$22,823,718 "be placed into a special needs trust for the bene-
fit of J.C." to be administered by his guardian ad litem, but
which contained no reversion provision. The United States
again appeals, contending that the district court erred by
refusing to order the future care award be placed into a rever-
sionary trust. The Cibulas have filed no cross-appeal.
II.
A.
As we held in our earlier opinion, California law controls
the manner and extent of the liability of the United States in
this case. See Cibula I, 551 F.3d at 321-22. California law
permits a private defendant in a medical malpractice action to
elect not to make a lump sum award but instead to compen-
sate a plaintiff for future damages by periodic payments,
which largely cease upon the plaintiff’s death. Cal. Civ. Proc.
Code § 667.7. Enacted as part of the Medical Injury Compen-
sation Reform Act ("MICRA"), this provision serves the twin
legislative purposes of
[1] provid[ing] compensation sufficient to meet the
needs of an injured plaintiff . . . for whatever period
is necessary while [2] eliminating the potential wind-
8 CIBULA v. UNITED STATES
fall from a lump-sum recovery which was intended
to provide for the care of an injured plaintiff over an
extended period who then dies shortly after the judg-
ment is paid, leaving the balance of the judgment
award to persons and purposes for which it was not
intended.
Id. § 667.7(f).
Upholding the constitutionality of this provision, the
Supreme Court of California concluded that it was "rationally
related to the legitimate objective of reducing insurance
costs." Salgado, 967 P.2d at 589 (citing Am. Bank & Trust
Co. v. Cmty. Hosp., 683 P.2d 670 (Cal. 1984)). The court
explained that in furthering this objective the statute accords
medical malpractice defendants certain benefits. A defen-
dant’s election to pay out a large future damages award peri-
odically, rather than in an upfront lump sum, permits a
defendant or typically its insurer to "retain fewer liquid
reserves and to increase investments," thereby reducing costs.
Id. ("As the legislative history of MICRA indicates, one of the
factors which contributed to the high cost of malpractice
insurance was the need for insurance companies to retain
large reserves to pay out sizable immediate lump sum
awards."). Likewise, the termination upon death provision
"obviously" serves to reduce a defendant’s "insurance costs."
Id.
The Salgado court further recognized that in addition to
benefitting defendants by reducing insurance costs and pre-
venting windfalls in the event of a plaintiff’s premature death,
the legislature sought to assure plaintiffs adequate compensa-
tion over the life of the award. Thus, the legislature provided
that defendants opting to make periodic payments must be
adequately insured or must "post security adequate to assure
full payment." Cal. Civ. Proc. Code § 667.7(a). To further
guard against non-payment, the statute authorizes courts to
hold delinquent defendants in contempt of court and order
CIBULA v. UNITED STATES 9
them to pay "all damages caused by the failure to make such
periodic payments, including court costs and attorney’s fees."
Id. § 667.7(b)(2). Of course if either party opts for periodic
payments, in exchange for this guarantee of fixed future pay-
ments, a plaintiff forfeits the flexibility accorded a plaintiff
who receives an immediate lump sum payment. See id.
§ 667.7(f) (providing that once "all elements of the periodic
payment program [are] specified with certainty in the judg-
ment ordering such payments" neither party may seek "modi-
fication at some future time which might alter the
specifications of the original judgment").
B.
Both the Cibulas and the Government recognize that due to
the Government’s inability to shoulder continuing obligations,
see, e.g., Hull, 971 F.2d at 1505, the FTCA permits courts to
craft remedies that "approximate" state periodic payment stat-
utes, including reversionary trusts. See Dutra v. United States,
478 F.3d 1090, 1092 (9th Cir. 2007) (holding that "nothing in
the FTCA prevents district courts from ordering the United
States to provide periodic payments in the form of a rever-
sionary trust" in order to "approximate the results contem-
plated by state statutes"); Hill v. United States, 81 F.3d 118,
121 (10th Cir. 1996) (holding district court could create a
reversionary trust that "would approximate the result contem-
plated by" state periodic payment statute). Our opinion in
Cibula I suggested as much, as we remanded for the district
court to craft a remedy consistent with California’s periodic
payment statute while acknowledging that "the FTCA has
been interpreted to prohibit ongoing obligations against the
United States." 551 F.3d at 319, 321-22. Indeed, both parties
urged the district court on remand to fashion a reversionary
trust that (in their respective views) would approximate the
periodic payments contemplated by § 667.7.
Of course, the parties disagree as to the amount necessary
for a reversionary trust to approximate California law. The
10 CIBULA v. UNITED STATES
Government argues that its proposal—placing the present
value future care award, i.e., $22,823,718, into a reversionary
trust—"closely resembles" the liability of a private defendant
under § 667.7. Appellant’s Br. at 29.
The Cibulas contend that to approximate California law,
the corpus of the reversionary trust must be the gross future
care costs, not the present value damages that the district
court awarded. However, Salgado, the case on which the
Cibulas rely, offers them no support here. The admonition in
Salgado that trial courts applying § 667.7 must "fashion the
periodic payments based on the gross amount of future dam-
ages" was driven by the concern that if "a present value award
is periodized, a plaintiff might not be fully compensated for
his or her future losses." Salgado, 967 P.2d at 590 (internal
quotation omitted) (second emphasis added). In such a case,
"the judgment, in effect, would be discounted twice: first by
reducing the gross amount to present value and second by
deferring payment." Id. (internal quotation omitted). The Sal-
gado court was rightly concerned that a plaintiff receiving a
discounted award over time would receive far less than a
plaintiff receiving the same award in an immediately invest-
able lump sum. See id. at 591 (explaining that pursuant to
§ 667.7, "the plaintiff is entitled to receive, over time, the
equivalent of the immediate lump-sum award at the time of
judgment . . . i.e., the amount that the . . . award would have
yielded if invested prudently at the time of judgment").
The concerns the Salgado court addressed are not present
in this case. Under the Government’s proposal, J.C.’s trust
would receive the entire present value award up front in a
lump sum. Thus, the Cibulas would not be deprived of the
anticipated investment benefit inherent in a present value cal-
culation. See id. at 592 (explaining that the generally accepted
practice of discounting future damages "estimate[s] . . . the
actual amounts that plaintiff would have received" over the
years (emphasis added)). In other words, the reversionary
trust the Government seeks would not result in the same dou-
CIBULA v. UNITED STATES 11
ble discount that was of concern in Salgado. Rather, the
trustee could immediately invest the entire future care award,
which the Government must pay up front, allowing J.C. to
reap the investment benefit of that award over the life of the
award.
Of course, the Cibulas are correct that a lump sum present
value award may prove inadequate to cover all of J.C.’s future
care costs, but denying the Government a reversionary inter-
est does nothing to mitigate this possibility.2 A reversionary
interest would result in payment to the Government only if the
trust over-performed or if J.C. died prematurely. In neither
case would the reversionary interest impact the sufficiency of
the award. Indeed, in both of these situations the trust would
have proved more than adequate to cover all of J.C.’s future
care costs, as only those funds remaining in trust after full
payment of these costs would revert to the Government.
The Cibulas also rely on the district court’s holding that the
Government’s proposal ran "the risk of under compensating
J.C.," because the recent economic decline made the 4.25 per-
cent investment rate relied on by the Cibulas’ expert in reach-
ing the $22,823,718 figure "unattainable." In making this
finding, the district court relied entirely on testimony from the
Cibulas’ new post-trial, post-remand expert.
The Government contends that the district court erred in so
holding because (1) the new evidence looked only at a short
window of time rather than taking an appropriate long-term,
historical view of economic forecasting; and (2) the court vio-
lated the mandate rule by finding the amount of the future
2
Alternatively, the Cibulas suggest that as compensation for bearing the
risk that the lump sum will prove inadequate, they should be allowed to
retain any funds remaining in trust at the time of J.C.’s death. A jury, or
even a legislature, certainly could accept this argument. The California
legislature, however, has not done so. See Cal. Civ. Proc. Code § 667.7(f)
(seeking to "eliminat[e] the potential windfall from a lump-sum recov-
ery").
12 CIBULA v. UNITED STATES
care award, which was not challenged on appeal, was no lon-
ger sufficient to fund J.C.’s future care due to changed eco-
nomic conditions. See Doe v. Chao, 511 F.3d 461, 465 (4th
Cir. 2007). We agree that the district court was bound by its
initial finding—unchallenged on appeal—that the amount of
the lump sum award was sufficient to meet J.C.’s future care
needs and was equivalent to the present value of J.C.’s future
damages.
Moreover, even if the district court could have taken into
account the changed economic conditions, it failed to explain
the relevance of those changes to the only issue before it.
Because the Cibulas have never challenged the sufficiency of
the $22,823,718 present value award for J.C.’s future care
costs (which the district court based on the calculations of the
Cibulas’ own expert), or the placement of those funds in a
trust to be managed by J.C.’s guardian ad litem, the only issue
before the district court was the Government’s entitlement to
a reversionary interest in that award. The district court offered
no rationale as to why granting the Government a reversion-
ary interest would impact the sufficiency of the award. And
we see none.
Allowing the Government to retain a reversionary interest
in the lump-sum, present-value judgment without remaining
liable for the gross costs of J.C.’s future care does not dupli-
cate California law. It seems to us, however, that it does suffi-
ciently approximate that state’s law. In exchange for release
from a continuing obligation that the Government cannot
undertake, the Government must make a large lump sum pay-
ment to J.C.’s trust up front, and, thus, forego the retention
and investment benefits available to private defendants mak-
ing periodic payments under California law. Requiring the
Government to make this immediate large lump sum payment
provides the Cibulas with the ability, unavailable to plaintiffs
receiving periodic payments under California law, to invest
this large sum throughout their child’s life.
CIBULA v. UNITED STATES 13
The district court expressly found that this amount would
be sufficient, if invested conservatively, to provide for all of
J.C.’s care during his lifetime. And, although the Cibulas have
no guarantee that the lump sum payment will cover all of
J.C.’s future care costs, no party has suggested the district
court is without the authority to fashion a reversionary trust
that would allow the Cibulas flexibility in paying for J.C.’s
future care.
For example, some portion of the trust funds could pur-
chase an annuity to guarantee "a stream of periodic payments"
while investing the remainder of the funds.3 See Salgado, 967
P.2d at 592-93 & n.3. Because the district court fashioned the
present value award based on its conclusion that J.C. had a
normal life expectancy, 64.8 additional years, the cost of an
annuity to fund the full value of J.C.’s future care costs could
be significantly less than the $22,823,718 lump sum award
ordered by the district court. See id. at 592 n.3 (explaining
that an annuity can well "reduce . . . overall out-of-pocket
costs" because, although a "jury, based on the evidence pre-
sented at trial, concludes that the plaintiff has a fairly long life
expectancy, life insurance companies, after reviewing the
plaintiff’s medical records and applying actuarial principles,
frequently are willing to assume a shorter life expectancy and
price an annuity accordingly"). Allowing the Cibulas this type
of flexibility would provide an advantage over the fixed, non-
modifiable periodic payments that § 667.7 dictates for plain-
tiffs in cases in which defendants remain liable on the judg-
ment. See Am. Bank & Trust, 683 P.2d at 684 (Mosk, J.,
dissenting) (maintaining that periodic payments "prevent[ ]
the victim from using the entire amount of the judgment as his
needs require" and thus deprive him "a financial safety valve
. . . for unexpected expenses connected with his injury during
the course of his life").
3
We, of course, leave it to the district court on remand to determine the
viability of purchasing an annuity. Indeed, we express no view as to how
the district court should fashion the trust on remand other than to incorpo-
rate a reversionary clause in favor of the Government.
14 CIBULA v. UNITED STATES
III.
Because granting the Government a reversionary interest in
J.C.’s future care award eliminates the potential for a windfall
without in any way rendering the award less sufficient com-
pensation for J.C., we find such a remedy approximates
§ 667.7 in a manner that is consistent with the FTCA. Accord-
ingly, we remand the case with instructions for the district
court to fashion such a remedy; we affirm in all other respects.4
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED
4
The Government, in arguing that it also is entitled to a reversionary
interest in J.C.’s lost future earnings, fails to acknowledge the language in
Salgado, 967 P.2d at 589, explaining that future earnings damages are not
subject to termination upon a plaintiff’s death. Nor, in briefing to this
court, does the Government cite any case law to the contrary. Based on
Salgado and given that § 667.7 expressly aims to prevent a potential
"windfall from a lump-sum recovery which was intended to provide for
the care of an injured plaintiff" (emphasis added), we are not persuaded
that the district court erred in denying the Government a reversionary
interest in the damages awarded for J.C.’s lost future earnings.