Connecticut Defense Lawyers Association

Attorneys who practice out of the “virtual” office are becoming more common. Perhaps it is the overhead costs deterring some from shelling out for a physical address, or the ease with which one can practice entirely online, or maybe a bit of both. Whatever the reason, more and more attorneys, especially new bar admitees, are opting for the virtual office. But can an attorney practice entirely online, maintaining the client’s file online, and communicating only with the client via e-mail, all through a secure third -party vendor (i.e. cloud computing) and still be in compliance with his or her ethical obligations? This was the recent issue put before the California State Bar Standing Committee on Professional Responsibility and Conduct in Formal Opinion no. 2012-184.

The issues decided in this opinion concerned an attorney who, through the firm’s website, assigned a password to each client who could then access their individual file online and communicate with the attorney via e-mail through the portal. The attorney may never meet in person with the client, or even communicate with them via telephone. All communications were to occur solely through the secure website.
In its opinion, the Committee found that while the Rules of Professional Conduct and the Business and Professions Code do not directly place any additional or different requirements on attorneys operating out of a virtual office, specific issues are implicated in the virtual setting that may give rise to further due diligence requirements.
For example, an attorney has a duty to maintain her clients’ confidences. (Bus. & Prof. Code §6068(e)(1); Rule 3-100(A).) An attorney utilizing technology in any law practice has a duty to ensure that the duty to maintain her clients’ confidences is met, and all communications occurring via e-mail are secure. However, in the case of the virtual office, where all files are also stored, the attorney has an additional duty to ensure that the third-party vendor securing the site, information, and communications has employed policies and procedures to protect the data that at a minimum equal what the attorney would do on her own to comply with the rule. While an attorney must not be an expert in the technological field to make this determination, an attorney should at least know the basics in analyzing the vendors. Factors to be considered in assessing the vendor include the credentials of the vendor, data security, transmission of information in the cloud, ability to supervise vendor, and terms of service with the vendor. If an attorney is unable to make this assessment herself, she is required to seek an expert opinion.
Another duty that may be implicated in this situation is the duty to provide competent representation, which relies heavily upon the attorney’s ability to communicate with her clients. (Rule 3-500; see also Calvert v. State Bar (1991) 54 Cal.3d 765, 782 (“Adequate communication with clients is an integral part of competent professional performance as an attorney.”) In conducting a legal practice entirely through the virtual office, special considerations must be taken to ensure the attorney is communicating effectively with the client in order to comply with this ethical obligation. For example, from the first interview, the attorney must ensure that she takes in sufficient information from the prospective client to determine if she can provide the legal services in question. The attorney then must ensure that she communicates with the client about the case status and issues, and that the client understands the legal concepts involved sufficiently to make informed decisions. When communicating solely through e-mail, it can be difficult for an attorney to discern whether the client completely understands the issues, whereas in person the attorney would have the ability to read verbal and nonverbal clues.
Once an attorney begins representation of the client, she must keep the client reasonably informed. (Bus. & Prof. Code §6068(m) & (n); rule 3-500.) If an attorney’s communications with a client include merely posting information on a client’s portal, the attorney must take steps to ensure that the client is in fact receiving that information in a timely manner.  It may be wise for the attorney to speak with the client regarding the importance of regularly logging into the portal to check for attorney communications. However, if the attorney does not believe the client is doing this regularly and therefore not timely receiving communications, it may be necessary to communicate with the client by other means to ensure this ethical obligation is complied with.
It should always be remembered that prior to beginning this sort of virtual representation, it must be determined if the client has sufficient knowledge of technology to check his or her portal, and navigate the site for case information and communications. If this is not the case, then the attorney may not be able to provide competent representation in this environment and all representation in the virtual office must cease immediately. The attorney would thereafter be free to represent the client in a non-virtual setting.
While operating a virtual office may provide many attorneys with a more economical and efficient means of connecting with their clients and providing legal services, it also presents ethical issues that are not encountered in a traditional law office setting. Attorneys choosing to go this route must ensure that they are complying with the same rules of professional conduct, however the means of compliance may require some additional due diligence.
This blog was originally posted on Jampol Zimet's Insurance Defense Blog. Click here to see the original post. 

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With the DC Circuit having invalidated President Obama’s recess appointments to the National Labor Relations Board, employers are finding increasingly more ways to challenge the Board’s authority to act.

The Court’s decision in Noel Canning v. NLRB held that the recess appointment of three Board members in 2012 were unconstitutional. Consequently, the Court held, the Board had no authority to decide pending cases because it lacked a quorum. Nearly 1600 published and unpublished Board decisions were declared void as a result.
Employers immediately used the case to challenge the Board’s decisions, including controversial decisions widely perceived as expanding the Board’s historical authority.  As Thomson Reuters reports, employers now are using Noel Canning to challenge the authority of the Board’s regional representatives and administrative law judges, and its ability to issue subpoenas, hold hearings, and preside over union elections.
The Board, for its part, maintains that it has authority to continue operating as usual.
The Supreme Court ultimately will decide the validity of the President’s recess appointments and the numerous decisions flowing from those appointments.
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In a unanimous decision, the Supreme Court affirmed both the lower court and Federal Circuit decisions rejecting Bowman’s patent exhaustion defense relating to his harvesting of second generation soybean seeds featuring Monsanto’s patented genetic trait.

Monsanto invented and patented a genetic alteration that allows soybean seeds to survive exposure to a certain herbicide.  Monsanto sold its patented seeds to farmers, subject to a licensing agreement that only allows farmers to plant the seed for a single growing season.  Thereafter, farmers have to purchase the patented seeds anew each year for planting.  While farmers may sell the crop for consumption or processing, they are not allowed to save any of the harvested soybeans for replanting.

Bowman, a farmer, purchased seeds from an authorized Monsanto affiliate, subject to the aforementioned license for his primary soybean crop.  However, in order to save money on a later season crop, Bowman purchased soybeans intended for consumption or processing from a grain elevator and replanted them, in the hopes that some contained the genetic trait of Monsanto’s patented seeds.  After spraying the late season crop with the herbicide, some of the seeds survived, confirming Bowman’s suspicions.  Bowman then harvested this second crop and replanted the resulting seeds with Monsanto’s patented genetic trait for eight subsequent late season plantings.  Monsanto sued Bowman for patent infringement.

Bowman raised the defense of patent exhaustion, arguing that the prior authorized sale of the soybeans from a farmer to the grain elevator exhausted Monsanto’s patent rights to control what Bowman did with the soybeans and their seeds thereafter.  The Federal Circuit, however, rejected this argument, holding that he had “created a newly infringing article” by replanting the progeny of Monsanto’s genetically altered seeds. 

On appeal, the Supreme Court affirmed, holding that “the exhaustion doctrine does not enable Bowman to make additional patented soybeans without Monsanto’s permission.”  The Court confirmed its prior holding in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617, 625 (2008) that under the doctrine, “the initial authorized sale of a patented item terminates all patent rights to that item,” and reiterated that “the exhaustion doctrine is limited to the ‘particular item’ sold.” 

The Court also rejected Bowman’s arguments that he was only doing what farmers have done with seeds for years and that the soybeans’ natural ability to self-replicate or “sprout,” like any other seed, is what “made” the additional soybean replicas – not Bowman.  The Court held that Bowman’s actions in planting the seeds, spraying them with herbicide, and thereafter repeatedly harvesting them exerted control of the reproduction, constituting infringement.

Finally, the Court noted that its decision in this case is limited to the facts at hand, leaving open any further questions regarding the applicability of patent exhaustion to other self-replicating technologies. 

FORGET EXHAUSTION, ARE SELF-REPLICATING TECHNOLOGIES SUBJECT TO SECTION 101 SCRUTINY?

With the recent uncertainty over Section 101 patent eligibility requirements, one might ponder the interplay between Section 101 and self-replicating technologies. This is especially true considering last Friday’s, evenly-split Federal Circuit decision affirming that certain system, method, and media claims directed to computer software for minimizing risk in financial trades were patent ineligible (see CLS Bank International v. Alice Corporation Pty. Ltd., 2011-1301 (Fed. Cir., May 10, 2013).  But at the risk of causing even more tension over the issue, consider whether the progeny of Monsanto’s seeds should be susceptible to a Section 101 challenge. 

Specifically, should the “natural law” exception to patent eligible subject matter apply to any progeny seed carrying Monsanto’s genetic trait?  See e.g. Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012) (holding that claims directed to a method for measuring the dosage of medication in patients fell under “natural law” and were thus patent ineligible).  In theory, Monsanto’s invention altering the genetics of the seed should be limited to just that – the alteration and subsequent first production of that very seed altered by humans.  Thereafter, the seed’s ability to self-replicate is a natural occurrence – the seed now exists in nature, forever able to replicate with all its genetic traits without further human alteration/intervention (think Bowman’s sprout argument) – a replication process that normally no one would argue is patentable.

The Court’s decision in Monsanto, however, seems to put to rest any such possibility, dismissing Bowman’s attempt to raise the issue as an unsuccessful “blame the seed” argument.  The Court further acknowledged the importance of incentivizing innovation in the field by protecting such technology.  Nevertheless, others inventing self-replicating technologies should be cognizant of the Court’s statement limiting its decision to the specific facts presented in Monsanto (though only related to the issue of exhaustion) in light of the apparent expansion of Section 101 applicability.

In the meantime, perhaps Monsanto will consider inventing seeds that do not self-replicate in such a manner (seedless grapes, anyone?). 

PATENT EXHAUSTION, GOING FORWARD

The Supreme Court’s recent decisions regarding intellectual property exhaustion, including Monsanto and an unrelated copyright case, shed light on the Court’s March 25, 2013 denial of a petition for certiorari requesting the Court address the extraterritorial reach of the patent exhaustion doctrine. 

In Ninestar Tech. Co. Ltd. v. ITC, 667 F.3d 1373 (Fed. Cir. 2012), cert. denied 133 S.Ct. 1656 (2013), alleged infringer Ninestar purchased used/spent Epson ink cartridges in China, refilled them with ink, and then shipped them to the U.S. for resale.  The ITC found Ninestar’s practice to be infringing upon Epson’s patents relating to the ink cartridges.

On appeal to the Federal Circuit, Ninestar asserted the defense of patent exhaustion, arguing that its purchase of the cartridges, even if overseas, exhausted Epson’s U.S. patent rights.  The Federal Circuit, however, rejected the defense, applying Federal Circuit precedent that patent exhaustion does not apply to foreign sales of patented goods.  Ninestar petitioned the high court seeking reversal and an expansion of the patent exhaustion doctrine extraterritorially. 

While awaiting a decision on Ninestar’s petition, however, the Supreme Court issued a decision explicitly expanding the doctrine of first sale/exhaustion with respect to copyrights outside U.S. boundaries in Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351 (2013).  Kirtsaeng, a foreign student studying in the U.S., arranged for family members in Thailand to purchase English-language textbooks and ship them to him in the U.S. for resale.  The foreign printed textbooks were much cheaper, and Kirtsaeng’s sale of the books at U.S. prices resulted in profit.  The publisher of the books sued, asserting copyright infringement.

On appeal, Kirtsaeng successfully relied on the first sale doctrine, arguing that his family members’ authorized purchases of the textbooks exhausted any U.S. copyright restriction on their resale, use, and other enjoyment of the books.  Agreeing with Kirtsaeng, the Supreme Court explicitly held that neither Congress nor the common law expressed any intent that the first sale doctrine should not apply to foreign sales of copyrighted works.

Based on Kirtsaeng, many believed the Supreme Court might grant Ninestar’s petition to address the similar issue of whether patent exhaustion applies to sales or purchases made outside the U.S., or that the Court might at least remand the case in light of Kirstaeng.  But a mere six days after the release of its decision in Kirtsaeng, the Supreme Court denied Ninestar’s petition outright.

Comparing the facts in Ninestar to Monsanto and Kirtsaeng, however, perhaps the Court was hinting that patent exhaustion was not the correct issue presented.  Specifically, Ninestar’s purchase of the spent Epson cartridges and subsequent refilling of those cartridges before resale likely removed the products from any protection under the patent exhaustion or first sale doctrines.  The refurbished cartridges were thus no longer the “particular item” (see above discussion) sold by Epson and initially purchased by Ninestar.  In effect, Ninestar’s practice created a new instance of infringement, just like Bowman’s harvesting and reproduction of seeds constituted new infringement, or unauthorized copying of Monsanto’s patented seeds.  In contrast, Kirtsaeng’s U.S. sales were mere resale of the same “particular items” initially purchased – Kirtsaeng did not run to Kinko’s/Fed Ex, so to speak, and make numerous unauthorized copies of the textbooks to sell.

Accordingly, though the issue of whether patent exhaustion reaches beyond the boundaries of the U.S. still lingers, what appears to be clear is that exhaustion will not save one from infringement liability where the accused instrumentality is not the “particular item” initially purchased. 

 

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In a decision issued on March 7, 2013, the Supreme Court of Florida reaffirmed Florida’s commitment to adherence to the economic loss rule in product liability litigation. In Tiara Condominium Association, Inc. v. Marsh & McLennan Companies, Inc. etc., et al., No. SC10-1022, the high court provides a helpful discussion of the origin and development of the economic loss rule. In summary, the economic loss rule is described as “the fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others.” Thus, economic loss has been defined by Florida courts as “damage for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits – without any claim of personal injury or damage to other property.” In other words, economic losses are “disappointed economic expectations,” which are protected by contract law, rather than tort law.

Despite the rule’s underpinnings in the product liability context, the economic loss rule has also been applied to circumstances when the parties are in contractual privity and one party seeks to recover damages in tort for damages arising in contract.

In a product liability context, the economic loss rule was developed to protect manufacturers from liability for economic damage caused by a defective product beyond those damages provided by warranty law.  In discussing the development of economic loss rule principles, the Florida Supreme Court analyzed the California Supreme Court’s holding in Seely v. White Motor Co., 403 P.2d 145 (Cal. 1965). In Seely, the California Supreme Court held that the doctrine of strict liability in tort did not supplant causes of action for breach of express warranty.

In that case, the court was confronted with a situation in which plaintiff sought recovery for economic loss resulting from his purchase of a truck that failed to perform according to expectations. The court concluded that the strict liability doctrine was not intended to undermine the warranty provisions of sales or contract law, but was designed to govern the wholly separate and distinct problem of physical injuries caused by defective products. In East River Steamship Corp. v. Transamerica Delaval, Inc., 476 U.S. 858 (1986), the U.S. Supreme Court adopted the reasoning of Seely when it considered the issue of economic loss resulting from defective products in the context of admiralty.

According to the Supreme Court, when the damage is to the product itself, “the injury suffered – the failure of the product to function properly – is the essence of a warranty action, through which a contracting party can seek to recoup the benefit of its bargain.” Recognizing that the extending strict product liability law to cover economic damages would result in “contract law… drowning in a sea of tort,” the Supreme Court held that “the manufacturer in a commercial relationship has no duty either under a negligence or a strict products liability theory to prevent a product from injuring itself.” Thus, from the outset, the focus of the economic loss rule was directed to damages resulting from defects in the product itself.

In a Client Alert, dated July 5, 2011, Stites & Harbison lawyers John L. Tate and Cassidy R. Rosenthal wrote about the Kentucky Supreme Court’s adoption of the economic loss rule in Giddings & Lewis, Inc. v. Industrial Risk Insurers (6/18/11). The Court unanimously held that “a manufacturer in a commercial relationship has no duty under a negligence or strict products liability theory to prevent a product from injuring itself.” The Court wrote: “We believe the parties’ allocation of risk by contract should control without disturbance by the courts via product liability theories.” As discussed by Mr. Tate and Ms. Rosenthal, in Giddings & Lewis, the manufacturer sold a sophisticated machining center to an industrial concern. The parties set forth their mutual obligations in a detailed commercial contract. After seven years of continuous operation and after the contract’s express warranty expired, the machining center malfunctioned in a spectacular fashion – throwing chunks of steel weighing thousands of pounds across the factory floor. The costs to repair the machining center and to get the business up and running again were almost $3 million. After reimbursing the machine’s owner for its losses, a consortium of insurance companies asserted a subrogation claim against the machining center’s manufacturer. With the warranty expired, the insurance companies sued in negligence, strict liability, negligent misrepresentation, and fraudulent misrepresentation. What could be more tortious conduct that this?  

Applying the economic loss doctrine, the Kentucky Supreme Court agreed with Mr. Tate holding that the purchaser could not recover from the manufacturer under any tort theory. The consortium was limited to contractual remedies, all of which expired years earlier.

Despite such groundbreaking decisions, is the economic loss rule under-utilized in products liability and commercial litigation today?  Of course, if personal injury results from an alleged defect, the rule does not apply. However, not infrequently, complaints alleging damages arising from a defective product that purportedly caused economic loss sound in negligence or strict products liability. Are defense lawyers seeking dismissal of these tort claims on the basis of the economic loss rule as often as they should?
This blog was originally posted on the Toxic Tort Litigation Blog on April 3 by Bill Ruskin. Click here to see the original post. 


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DRI and The National Academy of Distinguished Neutrals announced today that they are joining forces to provide you with access to the biographies and calendars of NADN members across more than 45 states.

All DRI members will now have immediate access to NADN's live database of more than 800 top-rated, litigator approved neutrals via www.dri.org/neutrals. This new DRI Neutral Database allows defense counsel to search by state, type of civil dispute, ADR practice expertise and other criteria important to defense counsel. Given NADN's rigorous due diligence interview procedures, DRI members are assured that the neutrals resulting from any searches are considered amongst the top ADR practitioners, as rated by both defense and plaintiff's attorneys in any given state. NADN.org's live calendar functionality will also prove useful to DRI members who may wish to confirm which of the top local mediators or arbitrators is available on a preferred date.

"DRI is excited about partnering with the NADN to make the Academy's database of neutrals available to our entire membership," said John R. Kouris, DRI Executive Director. "In addition to serving as a tremendous resource, the database will provide DRI members with great value."

"We're delighted to partner with DRI in providing defense firms with access to detailed biographies of the nation's top mediators and arbitrators," said Darren Lee, Executive Director of NADN. "Since 2008, we've sought the feedback of defense and plaintiff attorneys in many states in order to identify those neutrals that litigators trust to mediate or arbitrate their own cases. This project has allowed us to compile a terrifically useful roster of proven ADR practitioners - from solo practice mediators, to panelists with respected ADR organizations. We look forward to working with DRI in the years to come, providing its members with a reliable roster of the most experienced ADR attorneys."

The DRI neutral database is for members only - another great benefit of DRI membership.  For more information on this benefit and other resources DRI offers to help grow your practice, visit www.dri.org or call our Customer Service Department at 312.795.1101.

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In today’s connected society, it’s difficult to escape the necessity of joining the world of social media networking. For attorneys, social media may provide fast, easy, and economical means of reaching clients and potential clients and advertising their services. “Victory in court today! Contact me for a free consultation,” and “Just won a million dollar verdict! Tell your friends to check me out,” are examples of common social media postings utilized by attorneys to spread the word of their success and appeal to clients. But are such postings subject to the Rules of Professional Conduct regarding advertising? This was the issue recently decided by The State Bar of California Standing Committee on Professional Responsibility and Conduct.

The Rules of Professional Conduct and the Business and Professions Code place numerous requirements and restrictions on attorney advertisements and communications. Rule 1-400 of the Rules of Professional Conduct entitled “Advertising and Solicitation” provides detailed requirements with which attorney advertising must comply. However, despite its title, it speaks in terms of “communications” rather than specifically “advertisements.”  The rule defines a “communication” as “any message or offer made…for professional employment…directed to any former, present, or prospective client.”  Furthermore, the Business and Professions Code defines an advertisement as any “communication…that solicits employment of legal services.” Therefore, when it comes to social media postings, because such postings are technically communications, they must be carefully analyzed to ensure that the rules are complied with. Despite the fact that these rules do not specifically refer to Facebook or Twitter postings, “there is little doubt that the restrictions [of the rules] indeed apply to computer-based communications.” (The State Bar of California Standing Committee on Professional Responsibility and Conduct, Formal Opinion no. 2012-186.) In light of the foregoing, it was determined by the Standing Committee that the real issue when determining whether a Facebook or Twitter posting constitutes a communication within the meaning of the rules is whether the statement “concern[s] the availability of professional employment” of an attorney. (Rule 1-400(A).)
For example, a Facebook posting stating, “Case finally won! Celebrating tonight,” does not seek employment by the attorney. Whatever the attorney’s subjective intent when making the statement, it does not constitute a communication for purposes of the rules. In contrast, the statement “Victory in court today! My client is delighted. Contact me for a free consultation,” suggests the availability of professional employment and is therefore subject to the rules. This statement furthermore violates Rule 1-400(E), Standard 2 by containing a client testimonial (“[m]y client is delighted!”) without an express disclaimer.
Any social media posting that seeks professional employment and is therefore subject to the rules must comply with the advertising requirements that apply to such communications. Rule 1-400, Standard 5 requires that the communication bears the word “advertisement” or “newsletter”, or other words to that effect. Additionally, any such communication must be retained by the attorney for two years; this rule has been specifically extended to include “electronic media” by Rule 1-400(F). 
While the social media outlets may provide personalized, informal contact with friends and business contacts, it should be remembered by all attorneys that the informal arena does not relieve the attorney of his or her ethical obligations. So, before you press “send” on your tweet, don’t forget to check your statements to ensure they are in compliance with the Rules of Professional Conduct.
*This was originally posted on May 7 on Jampol Zimet LLP’s Insurance Defense Blog. Read the original post here. 
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On April 30, 2013, the California Court of Appeal, Second Appellate District, Division Three, issued its opinion in the matter of Corenbaum v. Lampkin. The opinion addresses an evolving issue in California regarding the admissibility of medical bills when the medical provider has agreed to accept less than the full amount billed in complete payment for services.  The court categorically rejected plaintiff's arguments and held that the full amount billed for past medical services is irrelevant and therefore inadmissible to prove:

- the value of the past medical services; - the value of past pain and suffering; - the value of future medical expenses; -the value of future pain and suffering.
In addition, the amount actually accepted by the medical provider in satisfaction of its services is not hearsay and is admissible to prove all of the foregoing.   The court also held that expert witnesses may not rely on the full value bills as a basis for rendering opinions on the value of future medical services.  The decision is the latest and most significant to interpret the California Supreme Court's Howell decision. It is also very likely to be appealed to the California Supreme Court, but for now, it is the law in California.
For the full opinion, click here. 
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No good deed goes unpunished when it comes to the United States Environmental Protection Agency’s (“U.S. EPA”) efforts to regulate climate change.  Rather, U.S. EPA’s authority to regulate climate change (e.g. greenhouse gas emissions or “GHGs”) is currently being challenged by some States, while other States are simultaneously threatening to sue U.S. EPA for failing to act to address climate change.

Since the United States Supreme Court’s decision in Massachusetts v. EPA, 127 S. Ct. 1438 (2007) holding that U.S. EPA could regulate GHG emissions under the Clean Air Act, various States and industrial groups have challenged U.S. EPA’s subsequent attempts to regulate GHGs.  Most recently, on April 19, 2013, the Attorney General of Texas supported by 11 other state attorney generals, filed a petition for writ of certiorari to the United States Supreme Court claiming that U.S. EPA overreached its authority by regulating GHGs, and requested that the Court overrule its decision in Massachusetts v. EPA on the basis of the “absurd” and detrimental economic consequences of regulating GHGs under the Clean Air Act.

Ironically, on April 17, 2013, 10 different states, the District of Columbia and the City of New York jointly sent U.S. EPA a Clean Air Act Notice of Intent to Sue for U.S. EPA’s failure to promulgate rules on new power plant emissions by the regulatory deadline (the “Notice”).  Under the Clean Air Act, U.S. EPA was required to finalize the New Source Performance Standards for fossil fuel power plants and petroleum refineries by April 13, 2013.  These are contentious standards that have been the subject of millions of public comments, as they effectively bar the construction of new coal fired power plants without prohibitively expensive control technologies.  The States’ intention in filing the Notice is to force U.S. EPA to issue/finalize these rules through court order, or through an agreement with U.S. EPA.

Thus, U.S. EPA now finds itself fighting a two fronted war both trying to defend its action and inaction at the same time.  Given these conflicting positions, U.S. EPA would be justified in feeling that it just can’t win when it comes to climate change, and it appears that the more aggressive states may be the ones that start to drive change in this arena.
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As a general proposition, a defendant at trial suffers unfair prejudice when the court does not permit the jury to learn of certain facts that, if disclosed, would reveal a witness’s bias or self-interest.  If a witness with no apparent motive for lying gives strong testimony favoring one side at trial, that testimony may have a significant impact on the jury.  It is for this reason that all potential bias or self-interest of both fact and expert witnesses must be vigorously explored during pre-trial discovery.

In Polett v. Public Communications, Inc., No. 1865 EDA 2011, slip op. (Pa. Super. March 1, 2013), a verdict for a whopping for $27.6 million in the Court of Common Pleas of Philadelphia County, Civil Division, was reversed on multiple grounds. However, for purposes of this article, we focus on the finding by the Superior Court that it was error for the trial court not to permit the jury to learn that plaintiff’s treating physician, Dr. Richard Booth, an orthopedic surgeon, had been a named defendant earlier in the litigation and had entered into a tolling agreement with the plaintiffs. Under such a tolling agreement, a plaintiff can await the outcome at trial and decide afterward whether to pursue the party with whom she had entered into the tolling agreement.  Dr. Booth's best protection against being sued at a later date was to ensure that the plaintiffs made a substantial recovery at trial.  Is this self-interest?  You bet!

By way of background, in mid-2006, Zimmer, a medical device manufacturer, launched the Gender Solutions Knee, a knee replacement device designed specifically for women. Zimmer hired Public Communications, Inc. (“PCI”), a marketing firm, to produce a sales video, which would include interviews and footage of patients who had undergone successful knee replacement surgery using the device. Plaintiff Margo Polett underwent successful bilateral knee replacement surgery. On account of her good surgical outcome, her treating physician, Dr. Richard Booth, recommended Mrs. Polett to Zimmer as a candidate to participate in Zimmer’s sales video.

Plaintiffs allege that following the videotaping, which involved Mrs. Polett riding on a stationery exercise bike, her condition worsened and she underwent four further surgeries in failed attempts to repair the damage that plaintiffs alleged occurred during the filming of the promotional video.  Dr. Booth admitted in deposition that the “sword of litigation” hung suspended above his head. Substantial evidence was developed during discovery that when Dr. Booth first gave his causation testimony, which supported plaintiffs’ theory of the case, he had a strong incentive to place responsibility on the medical device manufacturer and the filming company and away from himself. Due to his clear self-interest in presenting causation testimony favorable to plaintiffs, the Superior Court determined that the defendants should have been permitted to demonstrate Dr. Booth’s partiality as a doctor who faced the possibility of litigation; who did not think he was at fault; who did not want to alienate his patient; and who squarely placed responsibility for Mrs. Polett’s injuries on the filming company and the device manufacturer.  

In so holding, the appellate court concluded that the probative value of the tolling agreement outweighed the danger of unfair prejudice. Although the use of a tolling agreement for impeachment purposes was a matter of first impression for Pennsylvania courts, other Pennsylvania courts had found that analogous agreements were admissible to show bias or prejudice. Another type of agreement between a plaintiff and a defendant is referred to as a “Mary Carter agreement." These agreements are a means of effectuating a settlement with some but not all defendants in a multi-party lawsuit.  Like the tolling agreement in Polett, evidence of a Mary Carter agreement's existence should be presented before the jury, but they are often shrouded in secrecy and never reach the light of day.

Mary Carter agreements usually incorporate the following basic elements although the terms vary from case to case:

1. the defendant in an multi-party lawsuit who enters into the agreement guarantees that the injured plaintiff  will receive a certain amount, even if the plaintiff fails to receive a judgment against that defendant or the amount of the judgment obtained is less than the guaranteed amount; 2. the agreeing defendant’s liability, which is capped, can be reduced or even eliminated by increasing a co-defendant’s liability; 3. the agreement is kept secret from the jury absent court-ordered disclosure; and 4. the agreeing defendant remains in the lawsuit as a party.   For obvious reasons, Mary Carter agreements have been challenged as being unethical. Arguably, the agreement contravenes the canons of professional conduct concerning candor and fairness; conflicts of interest; unjustified litigation; and taking technical advantage of opposing counsel. Because Mary Carter agreements are collusive agreements between parties with supposedly adverse interests, they create an inherent danger of perjury.

Moreover, these agreements mislead the jury into thinking that the agreeing defendant has interests adverse to those of the plaintiff, when, in fact, the defendant may sometimes share in the proceeds of the plaintiff’s recovery. In my view, lawyers who enter into Mary Carter agreements are walking into an ethical minefield. In New York, these agreements are considered contrary to public policy and are not permitted..

But whether the agreement in question is a tolling agreement or Mary Carter agreement, the finder of fact should be fully apprised of any relevant information that might give rise to bias or interested testimony. It is discouraging that the Polett court seemingly failed to understand this basic premise of trial fairness.

This article was originally posted on March 27 on the Toxic Tort Litigation Blog by Bill Ruskin. You can read the original post here. 
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When an insurer sues for rescission, the insured is generally responsible for omissions and misrepresentations on insurance applications. That being said, when a third party brokers the deal between the insurer and the insured, he too is potentially liable. A recent District Court case out of Northern California case illustrates how a broker can be held liable to the insured for those same omissions and misrepresentations in rescission actions.

In James River Ins. Co. v. DCMI, Inc., 2012 WL 2873763 (N.D. Cal. July 12, 2012), James River Insurance Company brought suit against DCMI, a construction contractor, to rescind the insurance contract taken out. The insurer alleged that DCMI made material omissions and/or misrepresentations about prior claims or threatened litigation against them. DCMI, who used a broker, Powers & Company, to find James River Insurance Company, argued that they were not responsible for the omissions.   DCMI cross-filed to include Powers & Company as a defendant in the suit. Powers & Company filed out the insurance application on behalf of DCMI. DCMI alleged that in doing so the broker neglected to explain material terms and used a pre-filled form. The cross-filing complained of breach of contract, negligence, and breach of duty. Powers & Company moved to dismiss the suit against them for a failure to state a claim regarding all three counts. The trial court denied the motion in relevant part.   The court held that the breach of contract and negligence cause of actions were proper. In doing so, the court explained that under California law, an insurance broker has the general duties found in any agency relationship. This includes the duty to use reasonable care, diligence, and judgment in procuring the requested insurance coverage. Failing to properly fill out an application and explain material terms is a breach of said duty—a breach that can be an element within either cause of action.   In ruling on the first claim, the court held that the use of a pre-filed form and then failing to explain key terms to a client could amount to breach of contract in a broker-relationship. The court explained that a breach of contract claim requires the showing of four elements:  (1) the existence of a contract; (2) the plaintiff’s performance under the contract; (3) that the defendant breached the contract; and (4) the breach resulted in damage to the plaintiff. DCMI’s allegation of an arrangement and then the incorrectly completion of the forms was enough to survive a motion to dismiss.   On the second claim, the court held that although an insured bears the responsibility of omissions in application as to an insurer, the broker can still be liable to the insured. A negligence claim requires the showing of three elements: (1) breach of duty; (2) causation; and (3) damages. The court acknowledged that when an insurer seeks to rescind the insured bears the responsibility of the application. However, the court explained that nothing prevents the insured from then recovering from the broker where the broker is liable. In this case, the use of a pre-filled application and then failing to explain key terms could amount to negligence.   This case is significant because it shows just how far insurance broker liability can go. Even where the law already holds the insured responsible for rescission actions, a broker may be joined to the suit for his own negligence or breach arising out of the contract.

This was originally posted on the Jampol Zimet LLP’s Insurance Defense blog. Read the original post here.



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Recently, the U.S. District Court for the Western District of Louisiana issued the Benoit v. Neustrom opinion. 2013 U.S. Dist. LEXIS 55971 (decided April 17, 2013). Here, the parties sought approval that CMS' future interest could be fully satisfied by funding an MSA for less than full value of the Claimant's future medicals. The parties agreed to resolve a liability claim for a gross amount of $100,000. Defendant had an MSA allocation prepared, which concluded that the Claimant would be expected to incur between $277,758.62 to $333,267.02 in future injury-related care otherwise covered by Medicare. Additionally, Medicare had made conditional payments on the Claimant’s behalf totaling $2,777.88. 

The Court, having previous experience addressing MSA related questions, looked to the 11th Circuit decision in Bradley v. Sebelius for guidance. 621 F.3d 1330 (11th Cir. 2010).  Bradley was an allocation case under the MSP with respect to conditional payments, holding that CMS must respect a judicial allocation based on the merits of the case. Applying the logic that CMS’ recovery can be fully satisfied by identifying that portion of an award which is intended to compensate a Claimant for medical expenses (past and future), the Court agreed with the parties in that an MSA did not need to be fully funded to satisfy Medicare’s interest.  It did, however, disagree with respect to the dollar amount of the MSA. 
Instead of following a strict pro rata approach advocated by the Claimant, the Court instead calculated a ratio of the net settlement proceeds (after costs of procurement and conditional payments by CMS had been subtracted from the gross award of $100,000) against the mean MSA figure. That ratio of 18.2% was then applied to the net proceeds, leading the Court to conclude that an MSA totaling $10,138 would be an appropriate amount with which to satisfy Medicare’s future interest.
This case is yet another example in 2013 (building on recent cases such as Early and Sterrett) depicting that MSA issues cannot be ignored simply because the claim being resolved is a liability claim instead of a workers’ compensation claim.  While the issue must be addressed, the opinions also display that a more sophisticated methodology must be applied which takes into account the inherent differences between liability and workers’ compensation claims.  As such, MSAs in the liability context should rarely be funded for the full value of a claimant’s overall future costs of care otherwise covered by Medicare (as the claimant did not recovery 100 cents on the dollar for such damages).  In applying the allocation logic previously utilized in Bradley for conditional payments, the Court has provided a reasonable and logical path for parties to follow in the short term, with CMS anticipated to provide guidance in 2013 in the form of a Notice of Proposed Rulemaking.  
The DRI MSP Task Force will continue to follow these developments and provide you with practical means for incorporating this guidance into your practice. var addthis_pub="blogengineextensionaddthis";

The U.S. Supreme Court decided in Genesis Healthcare Corp. v. Symczyk, 569 U.S. ___ (2013), that a sufficient Rule 68 Offer of Judgment issued to a lone plaintiff in an FLSA collective action prior conditional class certification and joinder of opt-in plaintiffs moots the entire claim – even if the plaintiff rejects the Offer.  The 5-4 opinion overruled the Third Circuit Court of Appeal, which held that such a mechanism frustrated the purpose of the FLSA’s collective action provision by allowing a defendant to “pick off” the named plaintiff prior to the conditional certification stage.

   Procedural History
The underlying case involved a nurse suing for overtime violations under the Fair Labor Standards Act, 29 U.S.C. § 201, et seq., when her employer automatically deducted 30 minutes from her work day for a mandatory meal period even when she worked through it.  Symczyk sued on behalf of herself and all those similarly situated.  Concurrently with its answer, Genesis served a Rule 68 offer of judgment for $7,500 plus reasonable attorney’s fees, costs and expenses to be determined by the Court, an amount which fully satisfied Symczyk’s damages and included a reasonable attorney’s fee.  Plaintiff did not accept the offer during the prescribed 10-day time period, and a motion to dismiss the case for lack of subject matter jurisdiction followed.  The District Court granted the motion, holding that the employer’s offer of judgment fully satisfied plaintiff’s individual claim and thus mooted the lawsuit because no other class members had opted in.    On appeal, the Third Circuit reversed.  Symczyk v. Genesis Healthcare Corp., 656 F. 3d 189 (3d Cir. 2011).  The appellate court agreed that plaintiff’s individual claim was moot, but not the collective action.  The Third Circuit held that calculated attempts to pick off named plaintiffs with Rule 68 offers of judgment before conditional certification could short circuit the process and thereby frustrate the goals of collective actions.  The case was remanded to permit Symczyk to seek conditional class certification, which would relate back to the date of filing of the Complaint for statute of limitations purposes.  
Supreme Court Opinion
The U.S. Supreme Court reversed.  Justice Clarence Thomas, writing for the majority, held that straightforward “case or controversy” principles governed the Court’s decision.  Justice Thomas first addressed plaintiff’s argument that her individual claim was not moot because she did not accept the offer of judgment.  The majority held that plaintiff’s argument was not properly before the Court, as the Third Circuit affirmed the trial court on this point and no cross-petition to the Supreme Court was filed.  Accordingly, the only issue before the Court was whether the collective action survived in light of the lack of any remaining plaintiffs.  Distinguishing several decisions based on Federal Rule 23 class actions, the Court held that no individuals other than plaintiff had a stake in the litigation at the time of the offer of judgment.  The majority similarly rejected arguments relating to the purpose of the FLSA’s collective action provision.
Speaking for the minority, Justice Elena Kagan wrote a sarcastic but effective opinion, stepping through the door left open by the majority’s refusal to address the question of whether plaintiff’s refusal to accept the offer of judgment mooted her claim.  The dissent questioned how an unaccepted offer of judgment could be deemed a satisfied claim, especially since the plaintiff took nothing in the action.    Impact
The key question following Symczyk is its scope.  Specifically, will it be read to apply only where the employee fails to argue that their individual claim is not moot?  In a footnote, Justice Thomas noted four appellate opinions that either declared the individual claims moot in similar circumstances or authorized lower courts to enter judgment for the plaintiff where an offer of judgment provided complete relief.  See Weiss v. Regal Collections, 385 F. 3d 337, 340 (3d Cir. 2004); Griese v. Household Bank (Ill.), N.A., 176 F. 3d 1012, 1015 (7th Cir. 1999); O’Brien v. Ed Donnelly Enters., Inc., 575 F. 3d 567, 575 (6th Cir. 2009); McCauley v. Trans Union, LLC, 402 F. 3d 340, 342 (2d Cir. 2005).  Symczyk’s impact in these circuits is significant.  In other circuits, the impact will largely depend on how each circuit resolves the mootness argument.  
If other circuits join the position that a sufficient offer of judgment moots an individual claim, Symczyk provides a strategic pawn in putative FLSA collective actions previously rejected by multiple courts.  Employers immediately could pick off the named plaintiff and thwart the collective action process, forcing the plaintiff’s attorney either to 1) accept an attorney’s fee on a single claim and move on; 2) attempt to locate a new named plaintiff to file a new suit against the employer; or 3) make a broader strategical adjustment, such as to file suit exclusively under state wage and hour laws which typically mirror the FLSA, and utilize state law class action procedures.    Advising the Client
Employment attorneys should be cautious in advising their corporate clients about Symcyzk’s impact.  The majority’s failure to address whether Symcyzk’s individual claim was moot leaves lower courts free to address the individual mootness issue on pre-Symcyzk precedent.  Even if a motion to dismiss is successful, a fellow employee’s claim may follow close behind.   Still, there appears to be little downside serving a Rule 68 Offer of Judgment.  Of course, clients should be advised that if the offer is accepted, a judgment will be entered against it.    Spencer Silverglate is the Managing Partner and co-founder of Clarke Silverglate, P.A., in Miami, Florida, with an active trial practice specializing in employment and commercial litigation.  Craig Salner is a Partner at Clarke Silverglate, also specializing in employment and commercial litigation. var addthis_pub="blogengineextensionaddthis";

On April 16, 2013, the U.S. Supreme Court issued its decision in US Airways, Inc. v. McCutchen (No. 11–1285), deciding the issue of whether equitable defenses, such as the principle of unjust enrichment, can override the reimbursement provision of a health benefits plan established under the Employee Retirement Income Security Act (ERISA). Specifically at issue in the case was §502(a)(3) of ERISA, which authorizes health-plan fiduciaries to bring a civil action to obtain appropriate equitable relief to enforce the terms of a plan. The Court held that such equitable defenses cannot override the clear terms of a plan.

The case arose from a dispute over a health benefit plan provision that required participants to reimburse the plan for medical expenses where the expenses were incurred as a result of the fault of a third party and the participant was able to obtain a recovery from the third party. After a participant in the health plan suffered injuries in a car accident, the plan paid medical expenses in the amount of $66,866. The participant then sued the driver and recovered $110,000 ($40,000 of which went to attorney’s fees). The employer, as a fiduciary of the health plan, then sued the participant under §502(a)(3) seeking reimbursement. In response, the employee asserted various equitable defenses to reduce the plan’s recovery, including unjust enrichment, and also argued that the plan was required to share in the attorney’s fees and costs incurred in obtaining the tort recovery.
The case eventually reached the Third Circuit Court of Appeals, which ruled that in a §502(a)(3) suit and regardless of the terms of an ERISA plan, a court must apply any “equitable doctrines and defenses” that traditionally limited the relief requested. The Third Circuit held that “the principle of unjust enrichment,” for example, overrides a plan’s reimbursement clause if and when they come into conflict. The court also held that the plan was required to share in the participant’s attorney’s fees and costs under the common fund doctrine.
The U.S. Supreme Court held that equitable defenses cannot override the clear terms of an ERISA plan. According to the Court, attempting to enforce the employer’s plan— “the modern-day equivalent of an ‘equitable lien by agreement’”—“means holding the parties to their mutual promises” and “declining to apply rules…at odds with the parties’ expressed commitments.” Because the health plan effectively disclaimed the application of unjust enrichment or other equitable defenses, the Court ruled that the participant could not rely on equitable defenses to defeat “the plan’s clear terms” and thereby reduce the plan’s recovery. However, the Court went on to find that the health plan was silent on the issue of whether it was obligated to share in the attorney’s fees and costs incurred in obtaining the tort recovery. As a result of this silence, the Court held that the common fund doctrine would provide the default rule, requiring the plan to reduce its reimbursement recovery by a pro rata share of the fees and costs incurred in the tort action. 
The McCutchen decision reinforces the importance of ERISA plan documents and the fact that plan terms override otherwise applicable equitable principles. It provides important guidance not only for those who litigate these types of cases, but also for those who draft the plans in the first place. var addthis_pub="blogengineextensionaddthis";

Wednesday's United States Supreme Court opinion in Kiobel v. Royal Dutch Petroleum Co. et al., 569 U.S. ___ (2013), has confirmed that the Alien Tort Statute (ATS) has a limited scope and cannot open the doors of United States courts to lawsuits based on ordinary torts committed by companies outside the territorial confines of the United States.  Although the Court did not meaningfully address the issue of corporate liability, its narrow holding all but guarantees that ATS will not become an issue in lawsuits against corporate clients in products cases.

At first blush, Kiobel does not appear to be the type of case that would interest product liability lawyers.  It involved Nigerian nationals who had obtained asylum in the United States suing foreign corporations that has allegedly aided and abetted the government of Nigeria in committing abuses against its citizens including, among others, extrajudicial killings, crimes against humanity, and torture.  It goes without saying that "crimes against humanity" are topics that are generally outside the pale of the average civil defense attorney's resume.    Representing clients in a global marketplace, however, often necessarily means representing clients who have potential exposure to liability abroad.  Although your client may not be accused of crimes against humanity, the prospect of a German client with an American office being sued in America for building a product in Guatemala that injured someone in Japan is still daunting.  Because ATS has a somewhat broad purpose:  to permit federal courts to recognize "certain causes of action based on sufficiently definite norms of international law,"  569 U.S. ___ (2013), it is conceivable that a clever plaintiffs' attorney would argue that principles of negligence or product liability were "sufficiently definite norms" of international law to warrant jurisdiction.
Whether that argument would be successful is doubtful.  But the Second Circuit, whose opinion the Supreme Court reviewed, had a simple, comforting answer for corporate clients:  ATS does not apply to corporations.  The hypothetical Japanese plaintiff simply could not sue a corporate defendant in America to recover for her injuries.  There would be no need to litigate if the lawsuit involved "sufficiently definite norms of international law." 
Wednesday, the Supreme Court skirted the issue of corporate liability, but announced a rule that should provide a similar degree of certainty to corporate clients.  Its decision did not turn on the corporate status of the defendant, but whether ATS applies extraterritorially.  The Court concluded that it does not. 
Writing for the majority, Chief Justice Roberts concluded that ATS was not intended to bring into the United States Courts claims involving torts committed against foreign subjects outside the territorial confines of the United States.  The majority noted that, historically, ATS had been used only rarely since its 18th century enactment, and historically used only to address claims that a person had violated the law of nations:  violating safe conduct, infringing on the rights of ambassadors, and piracy.  Therefore, it held that to warrant jurisdiction under ATS, a plaintiff's claim must "touch and concern the territory of the United States . . . with sufficient force to displace the presumption against extraterritorial application." 
No justice dissented from the majority opinion, and even the most critical concurrence—by Justice Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan—tended to confirm that corporate clients will not, in the ordinary course of litigation, be faced with jurisdiction based on ATS.  The concurrence advocated reading ATS as permitting jurisdiction over extraterritorial torts when "the defendant's conduct substantially and adversely affects an important American national interest," emphasizing the importance of the United States not becoming a safe harbor for "a torturer or other common enemy of mankind."
In short, although the "easy" ATS answer is now gone, the average corporate client has little to fear from ATS.  Negligence and products liability—while serious allegations—are hardly the stuff from which allegations of being a "common enemy of mankind" are made.     
William F. Auther is the managing partner of the Phoenix, Arizona office of Bowman and Brooke, LLP, where he has an active trial practice in product liability and business litigation.  Amanda Heitz is an associate at Bowman and Brooke.
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As was reported yesterday the plaintiffs in the 2011 landmark class action case Dukes v. Wal-Mart haven't given up and are now attempting to pursue regional class cases in federal courts in California, Tennessee, Texas, Florida and Wisconsin.  In an attempt to overcome the issues raised by the U.S. Supreme Court, counsel for the Wal-Mart plaintiffs contend the narrower, regional classes pass muster because they are geographically focused and allegedly identify specific store, district and regional practices that led to the alleged discriminatory practices.  Counsel for Wal-Mart contends the plaintiffs' class certification motion merely "recycles" arguments previously rejected by the high court, noting the remaining differences between the individual plaintiffs in each of the proposed classes.

Do these new regional classes meet the standards announced in Dukes v. Wal-Mart?  How have the plaintiffs overcome the conflicts present in the initial classe, such as including female managers and their female subordinates in the same class?

 

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In almost every case that crosses our desks these days, plaintiffs make an offer of settlement and set a time limit for acceptance, striking fear in the heart of my clients who then ask: will a court find that we acted in bad faith by refusing to settle within the time limit? The seminal case on this issue is Southern General Ins. Co. v. Holt, 262 Ga. 267, 416 S.E.2d 274 (1992). In Holt, the plaintiff’s attorney made a time-limited settlement offer for policy limits of $15,000. The plaintiff’s attorney advised the insurer the plaintiff’s medical bills totaled more than $10,000 and the lost wages exceeded $5,000. The letter included a doctor’s report indicating the plaintiff had a herniated disc, and included medical bills totaling over $6,000. The plaintiff’s attorney later sent proof of additional expenses of over $4,000. In a last letter to the insurer, the plaintiff’s attorney extended the offer to settle within policy limits for five additional days and included in the letter a certified copy of the plaintiff’s complete medical records. The insurer neither sought more time to evaluate the claim nor responded to the offer before it expired. The insurer offered to settle the case within limits only after the plaintiff’s attorney had withdrawn the offer. A jury returned a verdict in favor of the plaintiff for $82,000. The insured assigned to the plaintiff her claim against the insurer for negligent or bad faith refusal to settle within the policy limits. The plaintiff in this suit sought the excess of $67,000, plus interest.

In the affirming the judgment for the amount of excess, the Georgia Supreme Court first noted the insurer may be liable to its insured for failing to settle a claim “where the insurer is guilty of negligence, fraud, or bad faith.” 262 Ga. at 268. While reiterating the equal consideration rule, the Court further stated “[a]n insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person’s attorney.” Id. at 269. The Court, however, rejected the insurer’s argument “that an insurance company has no duty to its insured to respond to a deadline to settle a claim within policy limits when the company has knowledge of clear liability and special damages exceeding the policy limits.” Id. (emphasis in the original). The Court found the insurer did more than simply fail to settle within the time frame set by the plaintiff’s attorney. The insurer had information, including medical bills and documented lost wages, which showed special damages alone, exceeded the limits of the insured’s policy. The insurer’s claims representative acknowledged he had the information, but he testified he needed medical documents to support it. The Court noted, however, that neither the claims representative nor the claims manager requested an extension of time to evaluate the plaintiff’s claim. Thus, there was some evidence for the jury to conclude the insurer did not give equal consideration to the interest of its insured.
The issues raised in Holt have percolated through Georgia courts for the past twenty years. Most recently, the Georgia Court of Appeals ruled that Plaintiff’s policy limit demand, without an agreement to assure satisfaction of hospital liens, constituted an excess demand. See Southern General Ins. Co. v. Wellstar Health Systems, Inc., 315 Ga. App. 26, 34 (2012). The Court noted that “had Southern General verified the validity of the liens, made payment directly to Wellstar, and then paid the remainder of its policy limits to Plaintiff, Southern General would have created a safe harbor from liability under Holt and its progeny.” Unfortunately, Southern General had not done so.
As those of us in the insurance defense business know, Holt demands have been abused by some in the plaintiffs' bar who attempt to extract large settlements by setting short time frames for responses to their demands. The General Assembly took note and last term considered HB 1175 which proposed giving insurers a minimum of 60 days to respond to offers of settlement before being subjected to a bad faith claim. Additionally, the Bill mandated that such offers include full and complete copies of the claimant’s relevant medical records. After various groups, including the plaintiffs' bar, made their “contributions” to the Bill, it became too unwieldy to come up for a full chamber vote.
The issue of Holt demands has resurfaced before the General Assembly in 2013 – with both sides of the bar coming together in an attempt to create a standardized practice for communicating settlement offers which provides the defense with all pertinent information as well as the time with which to provide a considered response. While they have fallen a bit shy of the goal, there is at last some light at the end of the tunnel.
A secret group (really) of plaintiffs’ and insurance defense lawyers appointed by the Speaker of the House recently negotiated House Bill 336, which would give insurers at least 30 days to respond to a settlement offer submitted prior to the filing of a lawsuit, before a bad faith claim could be brought. HB 336 would also require that all settlement demands include (1) the specific time period in which the demand must be accepted; (2) the amount of the demand; (3) the identification of all parties the claimant would release; (4) the type of release; and (5) the specific claims to be released. Significantly, HB 336’s application will be limited in its application to claims of personal injury or death arising out of the use of a motor vehicle. Finally, while HB 336 does not require plaintiffs to produce all of their related medical records with their initial demand, it does allow insurers to seek clarification regarding the facts of the case, liens, standing to release the claims, medical records and bills, without these requests constituting a counter-offer.
Those in the know anticipate that HB 336 will move through the House Judiciary Committee unscathed due to its “bipartisan” support. At least HB 336 is a step in the right direction.

This blog was originally posted on the Georgia Insurance Defense Lawyer Blog on February 26. Click here to read the original post. 


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Lance Armstrong is riding a new tour these days, but instead of fresh air and the beautiful landscapes of France, this tour will be inside offices (lawyers’ offices) and courtrooms. Yes, it is the Tour de Courts.  Since his confession to doping in an interview with Oprah Winfrey, his legal problems have compiled dramatically. 

One of the more public legal disputes is with SCA Promotions (SCA). SCA helps companies run promotions that involve large payouts – payouts that these companies would otherwise not be able to offer. For example, suppose a company sponsors a “half-court shot” during a local college game. A contestant is selected to make the shot. If that contestant makes the basket, he or she wins $250,000. The sponsoring company will pay a percentage of the total prize offering to SCA. If the basket is made, SCA pays the $250,000.  It’s an insurance of sorts with the fees acting as a kind of premium.
SCA entered into one of these contracts Lance Armstrong.  SCA would pay millions including bonuses if Armstrong won multiple Tours de France. SCA is no stranger to the issue of doping and Lance Armstrong – which is what this current litigation is all about. SCA paid the winnings but withheld his bonuses originally amidst early allegations of doping. However, in the end, a $7.5 million settlement ultimately resolved that dispute.  Now that Armstrong has confessed to doping, SCA wants their money back and took Armstrong to court to get it.
Armstrong counters that the original settlement agreement contained a “Will Not Challenge Under Any Circumstances” clause and has filed papers with the court seeking dismissal of SCA’s lawsuit.  SCA counters that Armstrong lied during the original dispute and that Armstrong perpetuated fraud in negotiating the original settlement.
This is but one stop on the Tour de Courts for Armstrong and, though one of the most public, not the most serious. Amongst the agencies suing Armstrong is the Department of Justice who accuses him of defrauding the U.S. government (the U.S. Postal Service was a big sponsor).
This upcoming tour will make the mountains classification of the Tour de France seem easy. However, in this tour, there are no additional points for getting to the top first.
*This blog was originally published on April 11 on the Sports and Entertainment Law Insider. Read the original post here. 

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On March 27, 2013, a jury in federal district court in Bridgeport, Connecticut awarded Cara Munn, a 20-year-old woman who formerly attended the Hotchkiss School  in Lakeville, Connecticut, $41,750,000 in a case styled Orson D. Munn III et al. v. The Hotchkiss School, No. 3:09cv0919 (SRU).  The case raises important issues concerning "duty" and "assumption of risk."

The jury determined that Hotchkiss, a prestigious prep school, was negligent for two reasons: (1) in failing to warn plaintiff before or during a school sponsored trip to China during the summer of 2007 about the risk of insect-borne illness on the trip; and (2) in failing to ensure that plaintiff used protective measures to prevent infection by an insect-borne disease while visiting Mt. Pan in China.

In an article appearing in the Connecticut Law Tribune (Vol. 39, No. 13), titled "Tick Bite Leads To Big Verdict," it was reported that the school was faulted specifically  for not warning plaintiff (and her parents) that she would be traveling in mountainous and forested terrain. As a result, the jury determined that the plaintiff was not aware that she had to protect herself from insects by wearing bug repellent, long sleeve shirts and trousers, and by avoiding brushy undergrowth.

According to Plaintiffs' Amended Complaint, Ms. Munn's parents had Cara flown back to the United States in July '07, where she was hospitalized for several weeks at Weill Cornell Medical Center in the pediatric ICU and later at the Rusk Institute for extensive rehab.  As a result of her severe encephalitis, plaintiff suffered severe neurological and motor injuries, including permanent loss of speech. 

The case, which will almost certainly be appealed, raises significant issues concerning duty and the assumption of personal responsibility by parents who agree to have their child travel abroad for educational purposes. Apart from the obvious differences in food, culture and living conditions, traveling abroad carries many potential risks, some of which are foreseeable and some of which are not. Stepping back from the facts presented by this particularly tragic case, should a high school be held responsible for failing to prevent a student from being bitten by a tick in China? What if the tick had bitten her during a field trip to Central Park?

Assuming that the Second Circuit upholds this verdict, what does this case portend for high schools and colleges that plan educational trips abroad? Is there some bright line test that would provide guidance to a school evaluating the safety concerns of its students? Short of wrapping all of their students in cocoons and keeping them closely monitored in classroom settings, how can any school protect against the kind of unforeseen liability presented by this case?  

Hotchkiss' Answer to Plaintiffs' Amended Complaint states that plaintiffs' claims should be barred by the doctrine of assumption of risk.  The school argues that plaintiffs voluntarily assumed the risk of travel to China as evidenced by their execution of the pre-trip Agreement, Waiver, and Release of Liability.  In this agreement, plaintiffs agreed that Hotchkiss "would not be responsible for any injury to person or property caused by anything other than its sole negligence or willful misconduct" (emphasis added). Would legal weight did the court give to this release? 

Based upon the Verdict Form presented to the jury, it would appear that the trial court gave short shrift to the language in the release.  The jury was asked the following questions: (1) Was one or more of Hotchkiss' negligent acts or omissions a cause-in-fact of Cara Munn's injuries; and (2) Was one or more of Hotchkiss' negligent acts or omissions a substantial factor, that acting alone or in conjunction with other factors, brought about Cara's injuries? 

Those inquiries are a lot different from asking whether the jury finds that Hotchkiss' "sole negligence or willful misconduct" caused the injuries.  Although the jury determined that plaintiff did not contribute to any degree whatsoever in causing her injuries, it was not asked to consider whether other intervening factors played any role in causing Cara's injuries.

There are circumstances when a school can and should be held responsible when things go wrong on a school outing.  Three examples come quickly to mind: (1) sending kids into a war zone despite State Department warnings; (2) sending kids abroad into an epidemic earlier identified by the CDC; or (3) taking non-swimmers for an ocean swim outing without proper supervision. 

How is Munn different from these scenarios?  Is a random bug bite as foreseeable, if at all, as the kinds of risks discussed in the three scenarios above? According to Hotchkiss' summary judgment memorandum, the CDC reported that plaintiff was the first U.S. traveler ever to have reported TBE after traveling in China. Moreover, no U.S. traveler since plaintiff has developed the disease.  Therefore, how unreasonable was it for Hotchkiss not to take precautions against a risk of harm that arguably had such a slight likelihood of taking place?  Shouldn't plaintiffs have had to prove that the defendant was on prior notice of the existence of circumstances that could give rise to an injury? 

Plaintiffs' expert, Peter Tarlow once led a group of children, including his own son, on a tour of Israel.  If a child on that Israel tour had been unexpectedly assaulted by someone holding anti-Zionist views, would Dr. Tarlow expect to be held responsible for any resultant injury because he was "on notice" of decades of endemic unrest in the region? 

Two strong CT trial lawyers squared off against each for this eight day trial--for the plaintiffs, Antonio Ponvert of Koskoff, Koskoff & Bieder, one of the New England plaintiff bar's preeminent firms, and for the defendant, Penny Q. Seaman of Wiggin & Dana, one of Connecticut's oldest and most accomplished firms.  The bar should expect to see excellent post-trial briefing as events unfold.  
*This was originally posted on April 5 on Toxic Tort Litigation Blog. Read the current post here. 
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In a decision made public on April 8, 2013, the United States District Court, for the Northern District of California, effectively put an end to fracking in the Monterey Shale Formation, for the time being, with its opinion in Center for Biological Diversity and Sierra Club v. The Bureau of Land Management and Ken Salzar, Secretary of the Department of the Interior, Case No. 11-6174 PSG. Although the Court made clear that the policy question of whether fracking is a good thing or a bad thing is outside the Court’s bailiwick, it is apparent from the Court’s decision that fracking may continue to be subject to intense judicial scrutiny.  

In this case, the plaintiffs challenged the decision of the Bureau of Land Management (“BLM”) and Interior Secretary Ken Salazar’s sale of four oil and gas leases for approximately 2,700 acres of federal land in Monterey and Fresno counties, in California.  The Plaintiffs argued that the leases were sold in violation of the National Environmental Policy Act (“NEPA”) and the Mineral Leasing Act of 1920 (“MLA”).  The Court found that the lease terms did not violate the MLA, but that the leases were issued in violation of NEPA.

In 2006, BLM prepared a Proposed Resource Management Plan/Final Environmental Impact Statement (“PRMP/FEIS”) which outlined a plan for managing approximately 274,000 acres of land, and 588,197 acres of split estate (surface rights owned by private owners/subsurface mineral rights owned by the United States), including the leased area at issue in this case which lies in the Monterey Shale Formation. This Shale is estimated to contain over 15 billion barrels of oil, or 64 percent of the nation’s total shale oil reserve. The PRMP/FEIS included a Reasonably Foreseeable Development Scenario for Oil and Gas (“RFD”) which projected that no more than 10 development wells would be drilled over the next 15 to 20 years across the entire development area. The PRMP/EIS also addressed the potential impacts of oil and gas development on specific endangered animal species. The report was published and adopted by the BLM in its Record Division (“ROD”), which subsequently established stipulations and conditions to protect endangered species, as well as water and air quality. 

In April 2011, BLM proposed an oil and gas lease sale for approximately 2,700 acres and issued a draft Environmental Assessment (“EA”).  During the comment period, BLM received many comments related to the potential effects of fracking; however, BLM stated that “these issues are outside the scope of this EA because they are not under the authority or within jurisdiction of the BLM.”  This comment would later become important to the Court’s analysis.

In June 2011, BLM issued its final EA, which discussed environmental issues, and evaluated the environmental impacts of three alternatives:  1) a competitive oil and gas lease sale for 2,605 acres of federal mineral estate, including 360 acres of split estate; 2)  a competitive lease sale of 6,401 acres of federal minerals for sale, which would include the acreage from alternative number one, plus an additional 3,796 acres of split-estate federal minerals; 3)  no proposed sale of the federal mineral estate. Importantly, the EA also evaluated and projected the extent of drilling activity to be conducted and its impacts.  Using the 2006 projection in the PRMP/FEIS, and considering the fact that no wells had been drilled on the subject property in the five years since the issuance of the RFD, the BLM projected that no more than one exploratory well would be drilled on the land within the leases. The BLM reserved its analysis of the impacts of fracking until applications for permits to drill were submitted, as it determined that analyzing site-specific impacts would be more feasible.  Also important for the Court’s analysis, the EA noted that a discussion of fracking was “not relevant to the analysis of impacts…because the reasonable foreseeable development scenario anticipates very little (if any) disturbance to human environment.”

On June 16, 2011, BLM’s Acting California State Director executed a Finding of No Significant Impact (“FONSI”).  Following this, the BLM issued its final Decision Record documenting the decision to offer for oil and gas lease auction eight parcels encompassing the 2,703 acres of federal mineral estate.  The Decision Record stated that a NEPA review would be conducted at the well permitting application stage.  

Plaintiffs, and others, protested the lease sale; however, the lease sale went forward.  In September, 2011 BLM successfully auctioned leases in three parcels, and a fourth parcel was sold “over the counter.”  All four leases were subject to standard stipulations as well as three Special Stipulations.  All four leases included Special Stipulation No. 1 (Endangered Species Stipulation) and Special Stipulation No. 2 (Cultural Resource Stipulation).  Two parcels contain Special Stipulation No. 3, which is a No Surface Occupancy (“NSO”) stipulation.  The other two parcels did not contain this stipulation.  

Plaintiffs were successful with their challenge under NEPA, with the Court finding that BLM did not meet its obligations under NEPA.  NEPA requires federal agencies to take a “hard look” at “every significant aspect of the environmental impact of a proposed action.”  It also requires an agency to inform the public that it has considered environmental impacts, and requires agencies to prepare an Environmental Impact Statement (“EIS”) for all proposed federal actions which will “significantly affect the quality of the human environment.”  The Ninth Circuit case of Conner v. Burford, 848 F.2d 1441 (9th Cir. 1988) was instructive for the Court. Conner requires an EIS to include a statement of “any irreversible and irretrievable commitments of resources which would be involved in the proposed action should it be implemented.”  Relying on Conner, the Court found in the instant case that the two leases categorized as NSO leases, contain a provision preventing any surface-disturbing activities, and, under Conner, did not result in an “irretrievable commitment of resources”  Therefore, there was no obligation for BLM to conduct a NEPA analysis at the time of the lease sale for the NSO leases.  The other two parcels do not contain NSO provisions.  Without NSO provisions, the government does not have the absolute ability to prohibit potentially significant impact on the surface environment, and cannot unilaterally deny drilling rights on the non-NSO leases. As a result, the Court found that BLM was required to conduct a thorough NEPA analysis to determine whether the sale would have a substantial environmental impact.  

The Court also found that BLM’s conclusion that the leases would have no “significant environmental impact” was unreasonable. In order to avoid issuing an EIS, a FONSI must contain a statement of reasons as to why the project’s impacts are insignificant.  An agency must consider both the context of the action and the intensity of the action. The Court took great fault with BLM’s projection that only one well would be drilled across the four parcels to be leased.  The Court found that this projection failed to take into account all “reasonably foreseeable” possibilities, as required by NEPA. Furthermore, the Court was incensed by BLM’s assertion that the issue of environmental impact of fracking was outside of BLM’s jurisdiction.  “…if not within BLM’s jurisdiction, then whose?” The Court went through a recitation of facts related to the increase in fracking nationwide, and the fact that the 2006 PRMP/FEIS did not address potential concerns related to fracking that have since come to light.  

The Court further found that BLM’s assessment of intensity factors in its FONSI was distorted.  First, BLM erroneously held that the leases were not highly controversial. Second, BLM erroneously analyzed the potential effect of the leases on public health and safety. Third, BLM discounted the uncertainty of fracking that could have been addressed in an EIS.  

The Court declined the Plaintiff’s request to invalidate the lease sale, and instead is requiring the parties to meet and confer and submit an appropriate judgment by April 15, 2013.   Producers may take solace in the fact that the Court did not tackle the policy issues associated with fracking, and instead based this ruling on BLM’s failure to comply with appropriate procedure; however, the Court did spend time making note of the controversial nature of fracking, the studies by the U.S. House and EPA which  take notice of potential contamination risks, and opined that the “…potential risk for contamination from fracking, while unknown, is not so remote or speculative to be completely ignored.”  Therefore, if this case is any indication of future judicial review, fracking will continue to be closely scrutinized.  

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The Connecticut Supreme Court is presently considering whether claims for breach of contract against a contractor for failing to properly construct a building may constitute an “occurrence” under a commercial general liability policy.  At issue in Capstone Development Corp. v. American Motorists Ins. Co., No. SC 18886 are various questions certified from a federal district court in Alabama concerning the availability of insurance coverage for defects in the construction of buildings an the University of Connecticut.

Meanwhile, the U.S. Court of Appeals for the Second Circuit has issued a new ruling calling into question an earlier precedent that insurers have relied on in disputing such claims.  In Scottsdale Ins. Co. v. R.I. Pools, Inc., No. 11-3529 (2d Cir. March 21, 2013), the Second Circuit reversed a Connecticut District Court’s declaration that a liability insurer did not owe coverage for claims brought against its insured by purchasers of swimming pools for damage the purchasers sustained when cracks developed in their pools.  
The District Court had ruled in Scottsdale Ins. Co. v. R.I. Pools, Inc., No. 09-1319 (D. Conn. August 15, 2011) that the insurer had no duty either to indemnify or defend the insured, and was furthermore entitled to the return of funds it had previously expended in the defense of the insured.  On appeal, however, the Court of Appeals recently ruled that the District Court had erroneously relied on a distinguishable Second Circuit precedent and therefore remanded the matter for further proceedings in the District Court.
The District Court had relied on Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 961 9 F.2d 387 (2d Cir. 1992) in finding that the cracking of the concrete resulting from defects in the insured’s work could not constitute an “accident” or “occurrence.”  The Second Circuit found, however, that there was a crucial difference between the CGL policy that Scottsdale had issued to R.I. Pools and the Aetna policy as issue in Jakobson.  In this case, the Scottsdale “your work” exclusion contained an “exclusion [from coverage] does not apply if the damaged work . . . was performed on [the insured’s] behalf by a sub-contractor.”  The court noted:

Whereas Jakobson held that the insured's faulty workmanship could not be a covered occurrence under the policy, the present policies expressly provide that in some circumstances the insured's own work is covered. As coverage is limited by the policy to “occurrences” and defects in the insured's own work in some circumstances are covered, these policies, unlike the Jakobson policy, unmistakably include defects in the insured's own work within the category of an “occurrence.” 

While therefore remanding the case for further findings as to whether the underlying claims fell within the sub-contractor exception, the Second Circuit held that there was a duty to defend up until the point at which it is legally determined that there is no possibility for coverage under the policies and that Scottsdale therefore had no right to recoup the defense costs up until then.
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