• Issue dates
• Top stories
• Annual Mtg
• Interim Mtg
• Tech columns

So declared AMA officials when they announced last month that they had disentangled themselves from Sunbeam Corp. by paying the appliance manufacturing firm $9.9 million.

The money, which has already been paid, settles a lawsuit Sunbeam filed in September 1997, when the AMA announced it would not honor a controversial endorsement agreement that was expected to earn both parties millions.

The contract called for the placement of the AMA seal on Sunbeam's line of "Health at Home" products -- which included heating pads and humidifiers -- in an exclusive royalty arrangement.

"The settlement with Sunbeam acknowledges our responsibility in this dispute," said Randolph D. Smoak Jr., MD, chair of the AMA's Board of Trustees, in a prepared statement. "The cost of the settlement was taken from Association reserves and thus will not affect the AMA's ongoing operations or mission."

The payment covers $2 million in out-of-pocket expenses, including Sunbeam's attorneys fees, and $7.9 million in damages. In its lawsuit, Sunbeam initially sought at least $20 million in damages but later revised its claim to seek an unspecified amount. Sources familiar with the litigation said they expected the company to ask for $40 million to $50 million at a trial scheduled to begin in November.

If the AMA had been found liable, it would have been obligated to pay all damages Sunbeam could prove, as well as attorneys' fees.

Both parties wanted out

While discovery in the lawsuit had not reached the stage where Sunbeam had established its damages, both sides appeared anxious to settle. A trial would have cost the AMA legal fees and bad publicity and would have proved a distraction to Sunbeam, which is confronting a host of its own legal problems, including possibly misstated financial results and, at last count, 17 related shareholder lawsuits.

A $10 million payment won't do a great deal to their bottom line, but it "gives them closure on one issue," said Jeff Middleswart, a Dallas-based financial analyst. The company itself has refused to comment on the settlement.

The AMA has paid at least $13.4 million in Sunbeam-related charges since the controversy began last August. In addition to the settlement, $3.5 million in legal fees had been reported as of June. On top of that, severance packages paid to high-ranking executives who quit or were fired in the wake of the controversy have added perhaps millions more to the cost, although AMA officials cited confidentiality agreements with the severed executives in refusing to disclose the details of those settlements.

AMA officials have said they will seek to recover a portion of the funds through the Association's directors and officers liability insurance. How much of the $9.9 million settlement the AMA can recover has not yet been determined.

Experts said the AMA's legal expenses would have grown rapidly once a trial got under way. And a trial would have been hard to win.

"This is such a clear case of liability, or breach of contract," said Eric Posner, a professor of law at the University of Chicago.

"You have to do what you have to do"

News of the settlement hasdrawn mixed reaction. Many members expressed relief that the dispute was finally put to rest and accepted the price of ending it.

"You have to do what you have to do," said Mark Levine, MD, an internist from Colorado who chaired the seven-member ad hoc committee of the AMA's House of Delegates that studied the Sunbeam affair. "It was clear that the AMA as an organization had some culpability in this. They weren't going to be able to walk away free, nor should they have."

Sandra Steinbach, MD, a Dallas psychiatrist who threatened to cancel her AMA membership when the licensing agreement with Sunbeam was first announced, was forgiving. "They are trying to recover from this horrible mistake," she said.

But other members were less sympathetic. A West Coast delegate who asked to remain anonymous said he expects heads to roll after a settlement this large.

"In any other organization of this size and net worth, there would be a change in leadership. I don't mean our new EVP, I mean the chairman of the board. Whether he was guilty or not guilty, I think he would be out," he said.

Those who were frustrated by the response of board members to the crisis said they had been looking forward to an accounting of the board's role at the November trial.

"If we went to litigation, and we gave depositions, and we had testimony we would find out whether the board or some members of the board actually knew about it," said Raymond Scalettar, MD, who challenged Thomas Reardon, MD, chair of the Board of Trustees at the time, in June's contest for president-elect. An independent review by outside legal counsel and the committee headed by Dr. Levine both concluded that board members were unaware of the details of the Sunbeam deal before it was made public.

Others said going to trial wasn't worth the price. "We may have learned more about the ill-doings, but I don't think it would have been worth the bad publicity for the AMA," said John E. Schowalter, MD, a New Haven, Conn., psychiatrist. "It has been a sad and tawdry time for the AMA. I think the public needs to see the AMA as backing quality of care and not looking out for itself."

Back to top.