Before TACHA, Chief Judge, McKAY, and ANDERSON, Circuit Judges.
Upon consideration of appellee's motion to publish the order and judgment filed on December 14, and appellant's memorandum opposing publication, the motion is granted.
The order and judgment filed on December 14, 2001, shall be published.
The published opinion is attached to this order.
Elizabeth Zink Pearson, Pearson & Bernard, PSC, Covington, Kentucky, appearing for Appellant.
Martha Ann Paluch, Assistant United States Attorney (Thomas L. Strickland, United States Attorney, with her on the brief), Office of the United States Attorney, Denver, Colorado, appearing for Appellee.
Appellant AllCare Home Health, Inc. ("AllCare") requested reimbursement from the Medicare program for certain bonus payments to AllCare's owners. The Provider Reimbursement Review Board ("PRRB") disallowed these bonus payments as an unallowable return on equity. The district court affirmed the judgment of the PRRB, and AllCare appeals that decision. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and affirm.
AllCare Home Health, Inc. is a for-profit home health agency that provides home health services to Medicare beneficiaries and others in the greater Denver area. The Medicare program pays home health providers the lesser of the "reasonable cost" or the "customary charges" for the services provided to Medicare beneficiaries. 42 U.S.C. § 1395f(b)(1). The Health Care Financing Administration ("HCFA"), a branch of the Department of Health and Human Services, administers the program. HCFA contracts with private insurance companies known as "fiscal intermediaries" to assist in processing and paying claims.
Home health services providers are reimbursed for their Medicare services in advance of submitting a cost report for a given year. At the end of the fiscal year, the provider must submit a report to its fiscal intermediary reflecting its costs for that reporting period. The fiscal intermediary reviews the cost report and issues the provider a notice of program reimbursement, which includes an explanation of any determination of overpayment. 42 C.F.R. § 405.1803. The services provider may appeal this decision to the Provider Reimbursement Review Board ("PRRB").
AllCare timely appealed the adjustment to the PRRB, which held a hearing on the matter on January 28, 1999. The PRRB issued a decision on December 9, 1999, in which it reversed $14,500 of the fiscal intermediary's adjustments concerning salary and benefits, but affirmed the intermediary's decision not to allow the $60,000 in bonus payments.
AllCare petitioned the Secretary of Health and Human Services ("Secretary") to review the PRRB decision, but the Secretary declined. AllCare then sought judicial review in the U.S. District Court for the District of Colorado. The district court affirmed the PRRB's decision, finding that the agency's decision was not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law or unsupported by the evidence.
AllCare now appeals the district court's decision, arguing that: (a) the PRRB's disallowance of the bonuses was arbitrary and capricious; and (b) the PRRB's decision violated fundamental fairness because it was based on a finding not argued or presented at the hearing.
We apply the same standard of review as the district court, giving no deference to the district court's decision. Santa Fe Energy Prods. Co. v. McCutcheon, 90 F.3d 409, 413 (10th Cir. 1996). Our review of the underlying decision of the Secretary is governed by the Administrative Procedure Act ("APA"), which requires that we give deference to the agency. St. Mark's Charities Liquidating Trust v. Shalala, 141 F.3d 978, 980 (10th Cir. 1998) (citing 42 U.S.C. § 1395oo(f)). Under the APA, we set aside the agency's action only if it was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law." 5 U.S.C. § 706(2)(A). The party challenging an agency action bears the burden of proving that it was arbitrary and capricious. Angel v. Butz, 487 F.2d 260, 263 (10th Cir. 1973). The arbitrary and capricious standard of review has been equated to the substantial evidence test. Northwest Pipeline Corp. v. Fed. Energy Regulatory Comm'n, 61 F.3d 1479, 1485 (10th Cir. 1995). Deference is especially warranted for the Secretary's interpretation of complex and highly technical regulatory programs such as Medicare. Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994).
AllCare appeals as arbitrary and capricious the PRRB's finding that the bonuses awarded to the CEO and CFO were returns on equity and therefore not allowable under the Medicare program.
Owners may receive compensation only if they render necessary services, and their compensation is limited to the reasonable cost of those services. 42 C.F.R. § 413.102(c)(2). According to the regulations, "[r]easonableness of compensation may be determined by reference to, or in comparison with, compensation paid for comparable services and responsibilities in comparable institutions; or it may be determined by other appropriate means." Id.
The Medicare program prohibits owners of service providers from receiving profits, however. 42 C.F.R. § 413.102(c)(2). Section 902.2 of the Medicare Provider Reimbursement Manual states: "Payments found to represent a return on equity capital are not compensation and are in no event allowable as an item of reimbursable cost."
At the end of fiscal year 1996, the owners of AllCare awarded themselves $60,000 in bonuses, which they claim was reasonable compensation for their services as CEO and CFO. Including these bonuses, the total compensation packages of the CEO and CFO were $127,000 and $97,000 respectively. The PRRB did not dispute the reasonableness of the amount of the bonuses, as the total compensation for each individual was in line with others in the industry.
The PRRB instead disallowed the bonuses because the method of calculation made the bonuses analogous to the payment of a return on equity capital. The PRRB stated that bonuses may properly be labeled as compensation if there is a well-defined incentive plan in place with clear standards, but it found that AllCare had no such incentive plan in place. Instead, the owners determined the bonus amounts by examining the spread between AllCare's actual costs and the Medicare program's established limits. Because the cost limits do not create payment entitlements, the PRRB found that bonuses calculated in this fashion constitute an unallowable return on equity.
These findings were supported by substantial evidence. Nothing in the record demonstrates that a formalized incentive program existed. To the contrary, Mr. Bhasin's testimony indicates that AllCare did not rely on such a program in setting bonuses. Instead, AllCare set the CEO's and CFO's base salaries at the beginning of the year, and then set the bonuses at the end of the fiscal year based on the financial status of the company. The owners admit that they set the bonuses in consultation with the reimbursement consultant, and that they considered the difference between the cost limits and actual costs in setting the bonuses. These admissions support the PRRB's determination that the bonuses were analogous to a return on equity and therefore not allowable. Given the substantial evidence supporting it, we cannot find that the PRRB's decision was arbitrary and capricious.
AllCare next argues that the PRRB based its decision on a post-hearing argument that was not raised or briefed sufficiently to allow AllCare to respond, and that this amounts to a denial of due process. An agency must provide a meaningful hearing, Mathews v. Eldridge, 424 U.S. 319, 333 (1976), and may not violate basic concepts of fair play, Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1583 (10th Cir. 1994). AllCare asserts that if it had been provided with notice before the PRRB hearing, it would have produced additional evidence that the bonuses were not "analogous to a return on equity capital."
In several ways, however, AllCare had notice that the PRRB could disallow the bonuses. Further, AllCare had an opportunity to respond. Applicable regulations put AllCare on notice that the PRRB may raise issues sua sponte  Title 42 C.F.R. § 405.1869 states that the PRRB "shall have the power to affirm, modify, or reverse a determination of an intermediary with respect to a cost report and to make any other modifications on matters covered by such cost report (including modifications adverse to the provider or other parties) even though such matters were not considered in the intermediary's determination." Next, the intermediary indicated in its position paper that it was effectively disallowing the bonuses, giving notice before the PRRB hearing that the allowability of the bonuses was an issue. Finally, even if there was no pre-hearing notice, the PRRB provided AllCare an opportunity to respond at the hearing and in its post-hearing brief. AllCare had sufficient notice to make the hearing a meaningful one that did not violate basic concepts of fair play. Therefore, AllCare's due process rights were not violated.
Because there is substantial evidence supporting the findings of the Provider Reimbursement Review Board, and because AllCare had sufficient notice of the disallowance of bonuses, the judgment of the district court is AFFIRMED.
1. We use rounded numbers in referring to these dollar amounts.


Stapleton v. Comm. of Revenue Servs.
ARNOLD W. ARONSON, Judge Trial Referee.
The defendant, Commissioner of Revenue Services (commissioner), moves to dismiss this appeal filed by the plaintiffs, Dorothy W. and Craig R. Stapleton (the Stapletons) regarding the commissioner's denial of their claim for a tax credit carryover from their 2003 income tax return to their 2004 income tax return.
The facts in this case are not in dispute. The plaintiffs had previously paid $60,000 of estimated taxes for their 2003 income tax return which resulted in an overpayment of $12,225.
The plaintiffs allege in their complaint that they timely filed their Connecticut Resident Income Tax Return (Form CT-1040) for the year ending December 31, 2003 and claimed a refund of $12,225 to be applied to their 2004 income tax return. The commissioner contests this allegation and contends that the plaintiffs' 2003 Connecticut Income Tax Return was not filed until June 25, 2008.
See attachments to defendant's memorandum of law, dated August 17, 2009, Exhibit A.
7. Upon review of the Department's records, the Department determined that the Taxpayers had not filed a 2003 Income Tax Return with the Department prior to receipt of the Taxpayers' 2003 Income Tax Return received by the Department on or about June 25, 2008.
10. The statute of limitations governing claims for refund of income tax is governed by Conn. Gen. Stat. § 12-732(a) . . . Upon review of the Department's records, the Department determined that the Taxpayers were granted an extension of time to file their income tax return for taxable year 2003. Therefore, in accordance with the requirements of Conn. Gen. Stat. § 12-732(a)(1), in order to make a timely claim for refund for taxable year 2003, the Plaintiffs had to file their Refund Claim no later than October 15, 2007. The Plaintiffs, however, did not file their Refund Claim until June 25, 2008. As such, the Plaintiffs failed to comply with the statute of limitations prescribed by Conn. Gen. Stat. § 12-732.
11. As the Taxpayers' Refund Claim was filed more than eight months beyond its due date, said Refund Claim was not filed within the time prescribed by Conn. Gen. Stat. § 12-732(a)(1).
12. Based upon the Taxpayers' Refund Claim being filed beyond the time prescribed by Conn. Gen. Stat. § 12-732(a)(1), the Department's ITAS program issued a notice of proposed disallowance of the Refund Claim ("Disallowance Notice"), wherein it denied the Taxpayers' Refund Claim for the taxable year 2003.
"This letter is in response to your claim for a refund from the Individual Income tax return filed on 06/25/2008 for the period ending 12/31/2003. Because you did not file a timely, written claim for refund with the Commissioner, as specified in Connecticut General Statute[s] § 12-732(a), the Department of Revenue Services (DRS) is denying your claim.
Over four months later, on December 8, 2008, the plaintiffs mailed their reply to the department of revenue services' July 18, 2008 notice of disallowance.
"The commissioner's notice of proposed disallowance was mailed to you on July 18, 2008. However, your written protest against the proposed disallowance was not mailed to the commissioner until December 8, 2008. Accordingly, your written protest is denied.
"Because you did not file a written protest against the proposed disallowance with the commissioner within the sixty-day period specified in the statute, the Department of Revenue Services is without legal authority to consider (and, therefore, has not considered) the reasons, if any, that are given in your representative's letter postmarked December 8, 2008, for granting your refund claim.
"By this letter, the Department of Revenue Services is confirming only that you did not make a timely written protest against the proposed disallowance. There can be no further administrative action on this matter. Any appeal to the Superior Court concerning this confirmation of your failure to make a timely written protest against the proposed disallowance must be taken within one month of the date of this letter. (Procedures to take an appeal to the Superior Court are set forth in Conn. Gen. Stat. § 12-730.) The Superior Court, however, may only consider the issue of whether you did, in fact, make a timely written protest against the proposed disallowance and may not consider the grounds upon which your claims were founded."
December 8, 2008: the date on which the plaintiffs filed an appeal with the commissioner protesting the commissioner's disallowance of their claim for a refund.
March 3, 2009: the date that the commissioner denied the plaintiffs' protest on the grounds that the protest was not filed within the time requirements of § 12-732(a).
The plaintiffs' December 8, 2008 protest was not a claim for a refund of taxes that was required to be filed by October 15, 2007, but a protest to the commissioner's letter to the plaintiffs that they were not in compliance with § 12-732(a)(1). As the commissioner notes, in order to properly appeal the disallowance of the plaintiffs' claim for a refund, as set forth in the July 18, 2008 letter, the plaintiffs were required to file such an appeal within sixty days from the notification of the commissioner's denial of their claim. Based on the affidavits, this was not done.
The present action was commenced with service of process on the commissioner on April 1, 2009 and was filed with the court on April 7, 2009. This case is merely an appeal of the commissioner's letter notifying the plaintiffs that their protest was not timely filed pursuant to § 12-732(a). By appealing the commissioner's decision rejecting the plaintiff's December 8, 2008 refund claim, the plaintiffs seek to resurrect the late filing of their claim. Having failed to file their protest to the commissioner's denial of their refund claim within sixty days of the commissioner's July 18, 2008 notice of the disallowance, the commissioner's letter of March 3, 2009 was merely a notification of the July 18, 2008 rejection of the refund claim.
The plaintiffs' appeal only challenges the commissioner's letter of notification of March 3, 2009 and not the commissioner's July 18, 2008 denial of the plaintiffs' claim for a tax refund. Therefore, the plaintiffs lack standing to challenge the commissioner's notice of disallowance having failed to comply with § 12-732(a)(1) which, if complied with, might have afforded the plaintiffs with relief. The court notes that "[t]he commissioner is on stronger footing when [he or she] reminds us that failure to comply with the statutory requirements for a tax appeal deprives a trial court of subject matter jurisdiction. This principle has regularly been applied to administrative appeals. We recognize that tax appeals differ from other administrative appeals because only tax appeals are trials de novo. For jurisdictional purposes, however, we can see no distinction between tax appeals and other statutory appeals." (Citations omitted.) Millward Brown, Inc. v. Commissioner of Revenue Services, 73 Conn.App. 757, 763-64, 811 A.2d 717 (2002).
Accordingly, for the foregoing reasons, the defendant's motion to dismiss is granted without costs to either party.


text:
The Sixth Amendment is one of the most important amendments of the United States Constitution. It ensures that an “accused shall enjoy the right … to be confronted with witnesses against him.” In 1988 the U.S. Supreme Court, in Coy v. Iowa, observed that “it is always more difficult to tell a lie about a person ‘to his face’ than ‘behind his back.’” Just two years later, in Maryland v. Craig, the Court made this follow up observation: “[F]ace-to-face confrontation enhances the accuracy of fact-finding by reducing the risk that a witness will wrongfully implicate an innocent person.” That observation is critically important because, as pointed out by the New York-based The Innocent Project, roughly 75 percent of the nation’s 282 DNA exonerations involved eyewitness misidentification.
Since the Confrontation Clause was forcefully made applicable to the states through the Fourteenth Amendment by the Supreme Court in 1965, in Pointer v. Texas, the Sixth Amendment has been a source of evolving, though conflicting, change in a long line of state cases. In an effort to resolve some of the conflict associated with Sixth Amendment cases, the Supreme Court in 2004 handed down Crawford v. Washington which held that a major underpinning of the Sixth Amendment is to prevent the admission of hearsay evidence because a criminal defendant cannot cross-examine what is called “out-of-court” testimony.
Crawford clarified the difference between “testimonial” and “nontestimonial” hearsay evidence. Crawford specifically held that the use of testimonial hearsay violates a criminal defendant’s confrontation rights unless the individual making the hearsay statements is unavailable at trial and the defendant had a prior opportunity to cross-examine him/her. Non-testimonial hearsay, on the other hand, does not violate the Confrontation Clause and its admission would be determined by local rules of evidence. Crawford rejected the use of recorded statements given to the police by a wife incriminating her husband in a stabbing incident but who refused to testify against her husband by invoking the marital privilege (here).
Two years later, in Davis v. Washington, the Supreme Court provided a more definitive clarification of testimonial evidence. Davis held that hearsay is testimonial when, under the “totality of the circumstances,” a law enforcement interrogation is part of an investigation into past events about a case and not in response to an “ongoing emergency.” Davis upheld the use of out-of-court statements made to a 911 operator during an emergency call for police assistance which implicated the defendant in domestic violence. Then, in 2009 the Supreme Court handed decided Giles v. California which involved the use of incriminating statements against a husband/accused given to the police by a wife several weeks before she was killed by the accused. Giles held that the incriminating testimonial statements of the deceased wife used against the accused violated the Confrontation Clause.
Bryant befuddles Giles. The police in Giles were investigating complaints of domestic violence between husband/wife. Several weeks before the husband killed the wife, she told the police that her husband had threatened to kill her. The Supreme Court said those statements violated the Confrontation Clause. In Bryant the police were responding to a call that a man was on the ground in a gas station parking lot. Upon arrival, the police realized the man had been shot. The first question the police asked the dying man was who shot him. He identified his killer. The police were not responding to an ongoing medical emergency. Like Giles, they were asking questions in connection with a law enforcement investigation—“who shot you?” has nothing to do with an ongoing medical emergency.
In 1980, some twelve years after Barber, the Supreme Court, in Ohio v. Roberts, applied the “good faith” rule in a non-testifying witness case in which the prosecutor spoke to the witness’ mother (who did not know where her daughter was or how to contact her) and issued five subpoenas in the witness’ name to her parents residence during a four-month period. Roberts held that “the lengths to which the prosecution must go to produce a witness is a question of reasonableness.” While Crawford did not overrule the “good faith” rule endorsed in Roberts, it did specifically overrule Roberts’ premise that “testimonial” hearsay did not violate the Confrontation Clause in cases where a witness gives the police a statement but refuses to testify at trial and the statement is subsequently used at a trial at which the statement could not be cross-examined.
On December 12, 2011, the Supreme Court once again muddied the confrontation waters in Hardy v. Cross. Cross involved a situation where a sexual assault victim testified against the accused at trial but the jury was unable to reach a verdict on the charge. The judge declared a mistrial, but the victim disappeared before a re-trial could take place. The State made a number of attempts to locate the victim before advising the trial court that she could not be located and asking the court to declare the witness “unavailable” for trial. The court granted the State’s unavailability request and allowed the victim’s testimony from the first trial to be used against the accused at his re-trial. The jury found the accused guilty.
A very conservative Seventh Circuit Court of Appeals reversed Cross’ conviction, citing three reasons why it felt the State’s efforts to produce the witness were inadequate. First, the appeals court said the State failed to contact the victim’s boyfriend or other friends. Second, the State did not make any inquiries at the cosmetology school where the victim had been enrolled. And, finally, the State failed to serve a subpoena on the victim when she informed prosecutors she would not testify at the re-trial.
There is little wonder that the federal circuits are steadily issuing conflicting decisions in light of the Supreme Court’s convoluted approach to state confrontation cases. For example, five years after Crawford, a sharply divided Court decided Melendez-Dias v. Massachusetts which held Crawford prohibited a State from using lab examination “affidavits” attesting to the quantity and nature of a seized drug without producing the individual who conducted the examination. The majority five justices found the affidavits had been prepared for express use at trial which amounted to witness testimony subject to cross-examination. The four remaining dissenting justices argued that Melendez-Diaz was a “mistaken extension” of Crawford. Justice Kennedy, however, made it clear that his support for Melendez-Diaz was limited to “formalized testimonial materials, such as affidavits, depositions, prior testimony, or confessions.” Last June the Supreme Court, in Bullcoming v. New Mexico, reaffirmed Melendez-Diaz in a DWI, holding that a “forensic lab report” which certified a “machine-read-out of blood alcohol level” could not be introduced at trial without the “expert” who prepared the report (here).
“At trial in January 2001, Dr. Garber was not called to testify. Rather, the prosecution called two other pathologists to testify—Dr. Cohen, the head pathologist from the coroner’s office, and Dr. Bloor, a professor of medicine and pathology from the University of California, San Diego. The defense again called Dr. Herrmann.
“Dr. Garber was not called to testify nor was his autopsy report admitted into evidence. Nevertheless, over defense counsel’s repeated objections, Dr. Garber’s opinion was elicited by the prosecution during cross-examination of the defense expert, Dr. Herrmann. Dr. Herrmann was asked to explain his disagreement with Dr. Garber’s opinion that head trauma contributed to Mrs. Chromy’s death. In response, Dr. Herrmann testified that he believed Mrs. Chromy’s pre-existing medical conditions likely contributed to the cause of death, but that neither head trauma nor torso trauma contributed to her death. Earlier in the trial, the two experts called by the prosecution had not adopted Dr. Garber’s opinion. Dr. Cohen had testified that torso trauma may have contributed to the cause of death, but gave conflicting testimony as to whether head trauma may have contributed to her death or to the cause of death. Dr. Bloor testified that torso trauma contributed to the cause of death, but that head trauma did not. Therefore, Dr. Garber’s inadmissible opinion was the only expert opinion provided to the jury that head trauma definitely contributed to Mrs. Chromy’s death.
The Ninth Circuit not only found constitutional error in the prosecution getting Dr. Garber’s autopsy opinion before the jury, albeit during cross-examination of a defense witness, but also concluded the error was sufficiently prejudicial to warrant a reversal of Merolillo’s conviction.
We suspect the uncertainty will continue to increase as the Supreme Court continues to send out mixed signals about the parameters of the Confrontation Clause. The Sixth Amendment is fairly straight forward: “In all criminal prosecutions, the accused shall enjoy the right…to be confronted with the witnesses against him…” It should be an equally straight forward task to develop a simple rule guarantees this fundamental right.

matches: v. v. v. v. v. v. v. v. v. v.


The entry into force of the Law of Obligations Act (LOA)*1 on1 July 2002 has generated the first discussions and positions regarding the implementation of the Act. Rules of compensation for damage must be based on clear conditions that are unambiguously intelligible for the parties, and ensure that civil relationships work in society fluently. Therefore, when regulatory law changes, a relevant legal theoretical basis needs to be created and developed for a better understanding of the changes and for assistance to the forming legal practice.
The purpose of this article is to analyse the question of the scope of claims for compensation of damage in delict law from the position of the persons whose damage consists of consequential damage only. The author therefore first tries to explain which damages may be treated as consequential damage and to point out the differences between consequential damage and direct damage. The analysis that follows mainly focuses on the circumstances and conditions under which the payment of or refusal to pay compensation is justified in the case of consequential damage.
The discussion is structured mainly according to the modern legal principles generally accepted in Europe, the regulation of the new Estonian Law of Obligations Act, as well as the traditions common to current judicial practice.
To explain which persons who have incurred damage are entitled to compensation, a line should be drawn at first between direct and consequential damage.
According to the traditional approach, direct damage is understood as direct damage to or loss of property, as well as the expenses incurred in this relation. According to Estonian law, property damage also includes reasonable expenses on filing a claim for compensation and identifying the amount of damage, as well as on preventing or diminishing damage. Damage that does not fall within the scope of direct damage can thus be viewed as consequential damage.
Consequential damage may become apparent in different ways.
(1)Consequential damage can imply a further negative impact caused by direct damage, particularly loss of income. For example, when a person who has suffered a car accident cannot undergo training and expect higher wages, the loss of income may be regarded as consequential damage.
(2)Consequential damage may also become apparent independently of direct damage, in forms such as pure economic loss or non-patrimonial damage.
As opposed to Scandinavian countries and Germany, the Estonian regulatory law does not define consequential damage, but the term was used in the draft Civil Code of 1940 and signified the damage caused by the concurrence of special circumstances (§ 1371).
According to the delict law approach, loss of income (lucrumcessans) is expressed in the income that a person would probably have received as a result of his or her preparations if the damaging circumstance had not occurred.*3 In the legal theory of foreign countries, the term ‘pure economic loss’ has been used instead of loss of income. Legal theory speaks about pure economic loss where the damage does not pertain to persons or things, but to other matters related to economic activities.*4 In this sense, economic loss can be understood as damage arising from commercial transactions as well as other economic activities.
The author believes that it is not correct to equalise loss of income with pure economic loss. Pure economic loss is rather a part of loss of income, but the latter also includes the potential gain outside economic activities (such as the potential gain resulting from training). Distinction between direct or actual damage (damnumemergens) and loss of income (lucrumcessans) is familiar to all European law families. It is similar to the distinction between existing and future damage.
The Austrian Supreme Court has found that loss of income is direct damage, if receiving the income was almost certain. According to the position of the court, loss of income may be regarded as direct damage if the entitlement to income actually existed.*5 Estonian law does not allow for such interpretation, as according to the meaning of the Law of Obligations Act, direct damage includes reduction in value and expenses incurred in relation to damage, while loss of income associates with potential income.
Compensation for consequential damage only is clearly limited in both the judicial practice and regulatory law of different countries. The Danish judicial practice has found that entitling a person who has suffered only consequential loss to compensation is not justified.*6 Article 1151 of the French Code Civil also provides epressisverbis that only damage that is “the immediate and direct consequence of the violation of an obligation” is subject to compensation. The predominant approach of German law in delimiting the circle of persons entitled to compensation is described in the writing by Karl Larenz.*7 According to this, third parties who have no absolute rights or to whom the protection set out by a legal provision does not extend, are not entitled to compensation. However, events where damage is being attempted against a third party directly under BGB § 826 are an exception.
The author of the article supports the restricted approach when defining the circle of persons entitled to compensation, mainly because giving the right of claim to a person who has only suffered consequential damage would result in an unreasonable extension of the sphere of application of delict liability. For example, it is not reasonable to give the right to a claim for compensation to persons whose damage is only expressed by the fact that they must visit a more distant supermarket because their nearby shop burned down.
Allowing for the right of claim to those who have suffered consequential damage only would also materially damage the legitimate expectations of the tortfeasor. It is important for every person who may potentially cause damage to know and be familiar with the practically recognised criteria of liability. Knowing such criteria would also enable an adequate and rational assessment of the potential risks of damage. The principle of private autonomy gives the tortfeasor the opportunity to manage their own liability risks based on their knowledge, by making choices between the permitted (obliged) and prohibited alternatives of behaviour. The limit of protected legal merits must be clearly understandable for participants in law. Uncontrolled risk may lead to an unreasonable limitation of people’s freedom to act, which would be contrary to the main goal of a market economy-based society.
The legal-economical aspect of the issue also justifies the limitation of the circle of persons entitled to compensation. When providing the right of claim not only to the person who incurs direct damage but to all other persons who have indirectly suffered from the event, the legal system would be overloaded by the number of claims, and this would significantly increase the cost of maintaining the legal apparatus. Payment of larger compensation for damage is often excessively ruining for the tortfeasor.
Teaching of the purpose of the protective provision helps to further delimit the circle of persons entitled to compensation for consequential damage. According to the theory of legal protection of a provision, the scope of compensation for damage is limited depending on whether the type and method of causing damage is covered by the aim of protecting the violated provision or not.
Normzweck’s teaching is reflected in Estonian positive law directly in LOA § 127 (2): “Damage shall not be compensated for to the extent that prevention of damage was not the purpose of the obligation or provision due to the non-performance of which the compensation obligation arose”. According to delict law regulation, the unlawfulness of causing damage is excluded if the purpose of the violated provision was not to protect the aggrieved person against that type of damage. Like Estonian law, the sphere of application of the legal provision is also limited in the Dutch Civil Code, according to which there is no obligation to compensate for damage if the purpose of the violated provision was not to protect against the type of damage that the aggrieved person incurred (6.163).
According to the position adopted by the Austrian judicial practice, the teaching on the protective provision allows for compensation for consequential damage only to the persons entitled to compensation for direct damage; damage to third parties is not covered by the protective purpose of the provision.*8 The author believes that Estonian legal practice should be shaped on the basis of the same position, by allowing for compensation of consequential damage only to persons who have incurred direct damage and whose absolute rights have been violated.
The cautious attitude to compensation for consequential economic loss is usually reasoned by the fear that because of the speculative nature of economic loss, compensation may place the aggrieved person in a better position than the aggrieved person would have been in if the damaging event had not occurred. Another powerful argument is the weak relation between pure economic loss and the damaging event, compared to direct damage, which is why the establishment of a lower protective standard toward this type of damage is justified.*10 An important argument in the restrictive attitude to economic loss is currently also the need of “keeping the floodgates shut” so to avoid an unlimited liability of the tortfeasor.
In the author’s opinion, broad-scale compensation for economic loss expressed as consequential damage only will result in the conflict of two major public interests. When weighing the aggrieved person’s interest in full compensation on the one hand and people’s general interest in freely determining and planning their behaviour on the other hand, the latter may prove to be a higher social value. For people to be able to reasonably use their freedom to act, they have to perceive the limits and legal consequences of their risks as clearly as possible. Uncontrolled extension of liability would not enable that if the venturer has no clear understanding of what kind of damage they might be liable for.
The Dutch BurgerlijkWetboek as well as the Estonian LOA do not pose direct limits to compensation for pure economic loss. In limiting compensation for damage in the Netherlands, the main question is whether the purpose of the legal provision violated by the tortfeasor was to protect the aggrieved person against economic loss or not.*16 The same basic question has to be asked in Estonian law. Before deciding, we have to ascertain if there are any legal provisions that prescribe compensation for economic loss besides other damage in the event of an offence. In the author’s opinion, the LOA like the Germanic law primarily proceeds from the need to protect absolute rights (property, life, and health). Hence, if the damage that an aggrieved person incurs is only pure economic loss, this cannot be regarded as the violation of an absolute legal right and the establishment of a strong protection standard is not justified.
The author finds that the question of compensation for pure economic loss should be solved, taking into account the meaning of § 483 (1) of the Portuguese Civil Code, according to which persons whose (absolute) rights have been directly violated may claim compensation.*17 Such a clause in regulatory law would clearly exclude the possibility of compensation for consequential damage only. As LOA does not contain such a restriction, it is up to judicial practice to determine the limits of compensation for consequential damage.
According to the Chamber’s position, loss of income could not be equalised with potential income. One may agree with the court’s position on the basis that nobody can guarantee a certain income in a market economy.
The author believes that such a case should be settled according to the following principles.
(1)In a market economy, loss of sales is a part of every businessman’s risk. Proving one’s supremacy over other competitors in the course of economic activities is the driving force of a market economy. If we prohibit all activities that are harmful to competitors (such as alluring clients with better service), it would have an inhibiting effect on enterprise and the development of society as a whole. Cases where changes in economic turnover have resulted from activities that violate the rights of another person (theft, fraud, violence, etc.) are an exception, in which case the changes in sales can be taken into account in deciding on compensation.
(2)Economic turnover can be affected by a variety of circumstances and all the effects cannot probably be identified in reality. Therefore, identification of loss on the basis of previous periods’ sales can be justified in exceptional cases. However, calculations of potential future income based on the overall economic situation and competitors should not be used to decide on compensation, as such calculations would be speculative.
b) the relation between the loss and the violation is adequately proven.
Also, it should be checked in the course of settlement whether compensation for such damage complies with the purpose of the protective legal provision and falls within its scope of application.
The principle that patrimonial damage caused to an aggrieved person can sometimes be accompanied by further non-patrimonial damage to persons close to the aggrieved person is increasingly accepted in the European legal area on the level of regulatory law or judicial practice.
Subsection 134 (3) of the Estonian LOA sets out that in the case of an obligation to compensate for damage arising from the death of a person or a serious bodily injury or health damage caused to the person, the persons close to the deceased or the aggrieved person may also claim compensation for non-patrimonial damage if payment of such compensation is justified by exceptional circumstances.
Based on the analogy of a contract for provision of health care services, persons related to an aggrieved person may be understood as the relatives of the aggrieved person, i.e. the patient’s spouse, parents, children, sisters and brothers, as well as other persons close to the patient, if this arises from the patient’s living arrangements. The circle of persons close to the aggrieved person would also include the aggrieved person’s unmarried partner, but not his or her employer or friends, who are not in such close relationship with the aggrieved person. The court has the discretion to identify the level of closeness and nature of a relationship in the case of each dispute.
What kind of exceptional circumstances could justify the payment of compensation to persons close to the aggrieved person? Finding an answer to this question is a complicated problem.
As the main characteristic of non-patrimonial damage is the lack of objective criteria that would enable a direct monetary assessment of the loss, it is difficult to identify the existence of such damage in reality at all.
b) results from patrimonial damage to another person (direct patrimonial damage, loss of income).
From the position of the tortfeasor, the ground for the claim of a person who has suffered non-patrimonial damage only is weak, if the tortfeasor at the time of the offence did not and could not know that the personal injury caused by him or her to the particular person may have a negative impact on other persons. To avoid an excessive broadening of the limits of liability, there must be weighty arguments for compensation for such non-patrimonial damage. No such arguments have been found in the Estonian judicial practice so far, and the courts have dismissed the claim for compensation of a person close to an aggrieved person. For example, in 1998, the Civil Chamber of the Supreme Court dismissed a plaintiff’s claim of EEK 360,000 for moral damage. According to the plaintiff’s reasoning, his moral damage resulted from his spouse’s death, which caused the need to use expensive paid medical aid.*21 In this judgment, the Supreme Court clearly assumed the position that a surviving spouse cannot be regarded as an aggrieved person.
According to a generally accepted principle of delict law today, only the person who incurred damage, i.e. the aggrieved person is entitled to compensation. Estonian regulatory law contains this principle in LOA § 127 (1), according to which the aggrieved person should be placed in a situation as near as possible to that in which the person would have been if the circumstances which are the basis for the compensation obligation had not occurred. It follows from the meaning of the provision that the circle of entitled persons can be limited to persons who incur such damage due to the offensive act which the legal order considers possible to compensate for.
Although the legal doctrine recognised in Continental Europe does not, as a rule, entitle a third party to compensation for damage, regulatory law provides for exceptions of compensation, where due to the special circumstances of damage, the law equalises a third party to the aggrieved person in their entitlement to compensation. Causing death is the primary exceptional circumstance that entitles a third party to compensation for damage.
Incurrence of funeral expenses by a third party upon causing the death of the aggrieved person may, in the author’s opinion, be regarded as a special case of consequential damage.
If we regard causing death as direct patrimonial damage similarly to bodily injury or health damage, this results in further expenses for a third party because of the need to incur funeral costs. The author does admit that this does not constitute consequential damage in the traditional sense, as funeral costs can also be regarded as direct patrimonial damage.
A claim for compensation is justified if a third party has incurred expenses in relation to the event of damage. It is not wise to let the tortfeasor get away without paying compensation in such a situation. The law of Estonia and other Continental European states allows for compensation of funeral expenses to a person who has incurred them. The Danish judicial practice has assumed the position that as an exception, the circle of persons provided by law are entitled to compensation for consequential damage in the event of causing death.*24 According to LOA § 129 (1), upon causing death, a third party may claim compensation for the reasonable funeral expenses of the deceased person. However, only the person obligated to bear the funeral expenses of the decreased person or who actually incurred the costs may file such a claim. In the author’s opinion, the reasonable limits of funeral expenses should be determined taking into account the funeral traditions and customs arising from the deceased person’s nationality and place of residence. In the legal practice of the Russian Federation, expenses on a memorial dinner and rituals have been considered as reasonable expenses.*25 Besides, the social status of the deceased person has to be taken into account as well. Compensation for funeral expenses is distinguished from the traditional compensation for damage by the fact that nobody causes damage to the third party and the expenses are incurred voluntarily or on the bases provided by law.
Entitling a third party to compensation sometimes serves the goal of ensuring social justice. Many states have considered it necessary to ensure social justice by providing in regulatory law a certain circle of persons, as an exception, who are entitled to maintenance in the event of the aggrieved person’s death. Loss of the possibility of maintenance can be classified as damage under loss of income and this can be regarded as consequential damage. Although we assumed the position earlier that as a general rule, compensation for consequential damage only is unjustified, compensation for damage in the form of loss of maintenance as an exception is justified by the existence of mandatory regulation.
b) persons whose entitlement to maintenance is not provided by family law and arises from delict law regulation.
– to a person who was maintained on the basis of a moral obligation.
(3)the person whose death was caused would presumably have continued to maintain the person in the future.
Sweden uses a regulation similar to Estonia: according to its law on delict liability, the circle of persons entitled to maintenance covers the persons entitled to maintenance by law, as well as other persons whom the deceased person actually maintained when alive (such as factually cohabiting persons).*26 A child who has been conceived but is yet unborn may also be entitled to compensation.
In Estonia, a person who has been maintained is entitled to maintenance in the amount corresponding to the maintenance that the deceased person would have given to the person during his or her presumed lifespan. Thus, maintenance has to be decided, among other things, on the basis of the economic potential of the person claiming maintenance and his or her potential lifespan. The problem is how to consider a surviving spouse’s chances of marrying again in the future. According to the Swiss legal practice, the possibilities of the dependant person to find alternative supporters have to be taken into account.*27 In Israel, assessing the chances of a surviving spouse to marry again is considered offensive.*28 Neither does the author consider it morally justified to weigh the chances of a surviving spouse in arranging their life in the future, as this would be clearly a speculative practice. Rather, the legal practice forming in Estonia should be guided by the facts known at the time when compensation is decided. If it is established later that the person has alternative supporters, the entitled person maintains the right to demand that compensation be changed according to the support he or she receives.
In the author’s opinion, compensation for damage arising from loss of maintenance upon causing death is also justified by the requirement for ensuring prevention as one of the main aims of delict law. General prevention is effective when society as a whole considers causing unlawful damage immoral and unjustified. Thus, society should not give the tortfeasor a chance to escape civil liability in a situation where the aggrieved person can no longer protect their interests.
As a rule, the right of a claim is provided for a person who incurs direct damage due to a damaging circumstance. However, it is questionable whether those persons who only indirectly incur the negative impact should be entitled to compensation. The author believes that it is justified to limit the circle of entitled persons to only those persons whose absolute rights have been directly and immediately violated and who fall within the sphere of application of the protective provision. Compensation for consequential damage is justified only if the person also incurred direct loss as a result of the violation, and as an exception in the case of death, a person who incurred funeral costs and a person who was maintained by the deceased should be entitled to compensation.
Similarly (in the author’s opinion) to Germanic law, the Estonian LOA is guided by the need to protect absolute rights (property, life, and health). Hence, if the damage incurred by the aggrieved person is pure economic loss, it cannot be viewed as violation of an absolute legal right, and the establishment of a strong protective standard is not justified.
Limitation of compensation for consequential damage is also justified in the author’s opinion by the need to keep liability within reasonable limits and by the legal-economical aspect of application of liability.
Compensation for non-patrimonial consequential damage to a person close to the aggrieved person is justified if the tortfeasor did or had to foresee the possibility that the offence could result in significant physical and emotional pain and suffering, such as serious physical suffering or a permanent trauma. Also, compensation for non-patrimonial consequential damage may be considered justified if the damage was actually aimed at a person close to the aggrieved person.
1 Võlaõigusseadus. – Riigi Teataja (the State Gazette) I 2001, 81, 487; 2002, 53, 336 (in Estonian).
2 For example, when a surgeon working in a private hospital is injured in a car accident, he or she himself or herself may claim compensation for damage. The problem is allowing for compensation for damage to the employer, who loses additional income because of the incapacity for work of the surgeon (the damage is only consequential).
3 Loss of income is defined in Estonian law in LOA § 128 (4).
4 See for example J. Spier. How to Keep Liability Within Reasonable Limits? A brief outline of Dutch law. – J. Spier (ed.). The Limits of Liability: Keeping the Floodgates Shut. Kluwer Law International, 1996, p. 6.
5 U. Magnus. Unification of Tort Law: Damages. The Hague: European Centre of Tort and Insurance Law, 2001, p. 11.
6 A. Vinding Kruse. Law of Torts. – H. Gammeltoft-Hansen, B. Gomard, A. Philip (eds.). Danish Law. A General Survey. Copenhagen: G.E.C. Gads Publishing House, 1982, p. 174.
7 K. Larenz. Lechrbuch des Schuldrecht. Part 1. 14th ed. München: C.H.Beck, 1987, pp. 598–599.
8 H. Koziol. The Limits of Expanding Liability. – J. Spier (ed.). The Auditor-Case. Kluwer Law International, 1998, pp. 71–72.
9 A classical example of pure economic loss is the hypothetical case where the power supply of a city district is cut off when a building company negligently breaks the cable. The cable belongs to the power distribution company. The damage caused to the distribution company by the broken cable would be subject to compensation as direct damage, but the entitlement of the district’s inhabitants to compensation and the scope of compensation pose problems. According to the teaching on the legal protection of a provision, consumers of power are not protected if the purpose of the provision is merely to protect the supplier of power against loss.
10 H. Stoll. Consequences of Liability: Remedies. IECL Vol. XI Torts. Tübingen: J.C.B.Mohr, 1972, p. 31.
11 J. Spier, O. Haazen. Preliminary Observations. – J. Spier (Note 8), pp. 9–12.
12 H. Koziol. The Auditor-Case. – J. Spier (Note 8), pp. 28–29.
13 Chapter 2, article 4 of the Swedish law on compensation for damage. The law defines damage that does not simultaneously harm any person’s life, health, or property, as pure economic loss.
14 E. Aurejärvi, M. Hemmo. Velvoiteoikeudenoppikirja. Helsinki, 1998, p. 147.
15 K. Zweigert, H. Kötz. An Introduction to Comparative Law. Vol. II. 3rd ed. Amsterdam, 1996, p. 298.
16 J. Spier. How to Keep Liability Within Reasonable Limits? A brief outline of Dutch law. – J. Spier (Note 8), pp. 161–162.
17 J. S. Monteiro. Comparative Law Report on Cases 3 and 4. – J. Spier (Note 8), p. 53.
18 See e.g. decision of the Supreme Court Civil Chamber, 21 June 2001, 3-2-1-70-01. – RiigiTeataja (the State Gazette) III 2001, 23, 256 (in Estonian); decision of the Supreme Court Civil Chamber, 20 June 2001, 3-2-1-86-01. – RiigiTeataja (the State Gazette) III 2001, 22, 246 (in Estonian), etc.
19 Decision of the Supreme Court Civil Chamber, 19 October 1999, 3-2-1-90-99. – RiigiTeataja (the State Gazette) 1999, 28, 270 (in Estonian).
20 Judgment of the Tallinn Circuit Court, 9 November 2001, II-2/1710/01. The circuit court annulled the judgment of the Rapla County Court and referred it to a new hearing.
21 Decision of the Supreme Court Civil Chamber, 8 December 1998, 3-2-3-16-98. – RiigiTeataja (the State Gazette) III 1999, 2, 26 (in Estonian).
22 E. H. Hondius. Medical Liability in Dutch Law. – E. Hondius (ed.). Modern Trends in Tort Law: Dutch and Japanese Law Compared. Kluwer Law International, 1999, p. 12.
23 Judgment of the Finnish Supreme Court, KKO 1983 II 8.
24 A. Vinding Kruse (Note 6), p. 174.
25 O. Sadikov. Kommentarii k Grazhdanskomu kodeksu Rossiiskoi Federatsii. Part II. Moscow: Infra-M-Norma, 1996, p. 701.
26 B. Bengtsson. An Introduction to the Swedish Law. 2nd ed. Norstedts, 1987, p. 309.
27 P. Honegger. Switzerland in European Product Liability. – P. Kelly, R. Attree (eds.). Product Liability. Butterworths, 1992, p. 415.
28 A. Porat. Introduction to the Law of Israel. – A. Shapira, K. C. DeWitt-Arar (eds.). Tort Law. Kluwer Law International, 1995, p. 152.