Fall 2011 | Printer Friendly | Contact Us
Topics
Asbestos
Assumption of Risk
Bankruptcy
Damages
Duty
Introduction to Legal Insights
Welcome to the Fall 2011 edition of Legal Insights, a quarterly publication
produced by the Issue Management Group of Chartis Insurance. Legal Insights is
a compendium of updates and analysis of recent court decisions of interest to our
claims personnel, corporate risk managers and brokers. The articles are prepared
by attorneys in approved panel law firms and Chartis’ own staff counsel.Read
more...
Asbestos
E-Discovery
Environmental
Jurisdiction
Negligence
Preemption
Retroactive Application of Florida’s Asbestos and Silica Compensation
Fairness Act Held Unconstitutional
American Optical Corp. v. Spiewak Read more...
Portions of Texas Asbestos Medical Criteria Law Unconstitutional When
Applied Retroactively
Union Carbide Corp. v. Synatzske Read more...
Procedure
Product Liability
Statute of Limitations
Labor Law
Assumption of Risk
Play Ball! Court Of Appeals Reaffirms Recreational Activities Doctrine
Applies To Coaches
French v. MacArthur Read more...
Bankruptcy
Labor Law §240
Bankruptcy Court Power To Enter Final Judgments Limited To Matters
Arising Under The Bankruptcy Code
Stern v. Marshall Read more...
Regions
Federal
Midwest
Northeast
Southeast
Damages
Admissibility of Medical Expenses Finally Resolved in California
Howell v. Hamilton Meats & Provisions, Inc. Read more...
Duty
West
Michigan Supreme Court “Clarifies” Fultz Decision, Re-Defines Duty
Person Performing Contractual Obligation Owes To Non-Contracting
Third-Party
Loweke v Ann Arbor Ceiling & Partition Co, LLC Read more...
E-Discovery
2011 Mid-Year E-Discovery Update
Read more...
Environmental
U.S. Supreme Court Bars Climate Change Lawsuits under Federal Common
Law of Public Nuisance and Defers to the Clean Air Act and the EPA to
Regulate Carbon Dioxide Emissions
AEP v. Connecticut Read more...
Jurisdiction
Personal Jurisdiction: Is No News From The Supreme Court Good News
For Foreign Product Manufacturers?
J. McIntyre Machinery, Ltd. v. Nicastro Read more...
Negligence
Ninth Circuit Affirms District Court Ruling Based On Government
Contractor Defense
Getz et al. v. The Boeing Co. et al., Read more...
Florida Supreme Court Decision Regarding NICA
Bennett v. St. Vincent's Medical Center, Inc Read more...
Supreme Court Limits Recovery by Contractors' Employees for Injuries
Arising from Alleged Violations of Cal-OSHA Regulations.
Seabright Insurance Company v. US Airways, Inc. Read more...
Preemption
U.S. Supreme Court Holds State Law Failure-to-Warn Claims Impliedly
Preempted
Pliva v. Mensing Read more...
Procedure
Entry of Final Summary Judgment Will Terminate Ability to Accept Pending
Proposal for Settlement
Kroener v. Florida Insurance Guaranty Association Read more...
Jury Instructions on "Custom and Practice" under Monell Doctrine
Hunter, D.V.M., et al. v. County of Sacramento Read more...
Product Liability
Defending an “Inherently Dangerous Product” Has Become More Difficult
in New York
Chow v. Reckitt & Colman, Inc. Read more...
Consumer Expectation Test Cannot Be Used To Establish A Design Defect
When Complex Evaluation Is Required
Mansur, et al. v. Ford Motor Company, et al. Read more...
Statute of Limitations
Arizona Homebuilders Receive Favorable Decision on the Statute of
Repose
Albano v. Shea Homes Limited Partnership, et al. Read more...
Labor Law §240
Labor Law §240 Update
Nascimento v. Bridgehampton Construction Corp.
Haines v. Dick's Concrete Co., Inc.
Davis v. Wyeth Pharmaceuticals
Karcz v. Klewin Building Co., Inc. Read more...
Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
Back to Main
Introduction to Legal Insights
Welcome to the Fall 2011 edition of Legal Insights, a quarterly publication produced by the Issue Management
Group of Chartis Insurance. Legal Insights is a compendium of updates and analysis of recent court decisions of
interest to our claims personnel, corporate risk managers and brokers. The articles are prepared by attorneys in
approved panel law firms and Chartis’ own staff counsel.
This edition reviews cases on various subjects including, negligence, jurisdiction, bankruptcy, preemption and
environmental litigation. We also include a 2011 mid-year review of significant e-discovery decisions written by
our panel firm, Gibson Dunn & Crutcher as well as our regular column highlighting decisions concerning New
York Labor Law 240, written by Andrew Zajac of Chartis’ staff counsel office.
We hope you readers will find these reports informative and useful. Should you become aware of new decisions
that may be of interest to the claims, risk management and brokerage communities, feel free to send them to
issue.management@chartisinsurance.com for possible inclusion in future editions.
Issue Management provides technical expertise and support across all claims areas, including tracking emerging
liability and claims-related issues, as well as emerging exposures; legislative and tort reform efforts around the
country and is a resource for technical bankruptcy claims issues.
Back to top
Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
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Retroactive Application of Florida’s Asbestos and Silica Compensation
Fairness Act Held Unconstitutional
American Optical Corp. v. Spiewak
On July 8, 2011, the Supreme Court of Florida issued its opinion (5-2 decision) in American Optical Corp. v.
Spiewak, Nos. SC08-1616, SC08-1640, SC08-1617, SC08-1639, 2011 WL 2652189 (Fla. 2011), on
consolidated asbestos appeals pending since 2008. The sole issue on appeal was the constitutionality of the
retroactive application of the Florida Asbestos and Silica Compensation Fairness Act (Act) to claims that accrued
before the Act's effective date. The Act went into effect July 1, 2005. Consistent with a recent decision in Texas
and other jurisdictions, the Supreme Court of Florida has now ruled the Act is unconstitutional, as applied to
cases retroactively.
As applied, this decision will impact those cases which were filed prior to July 1, 2005. It may also possibly apply
to those cases where an injury or diagnosis occurred prior to July 1, 2005, but where the four-year statute of
limitations would not have expired until 2009.
The Court provided a detailed analysis of the procedural history and the operation of the Act as applied to
physical impairments, and then concluded that plaintiff's vested rights were impacted when applied to pending
cases where no level of impairment was ever historically required in Florida, prior to July 1, 2005. The Court
stated that the “common law of Florida has never required individuals who have suffered an injury to meet an
arbitrarily drawn threshold of physical impairment for a cause of action to accrue.” The Court analogized the
imbedding of asbestos fibers in the lungs to be consistent with other personal injury case law in Florida, which
merely requires proof of injury, rather than any specific level of impairment. Currently, the Act will continue to
apply to claims that accrued after its effective date of July 1, 2005.
Contributed by:
Hinshaw & Culbertson, LLP
222 North LaSalle Street
Suite 300
Chicago, IL 60601
Craig T. Liljestrand, Esq.
312.704.3647
cliljestrand@hinshawlaw.com
Peter J. Frommer, Esq.
954.467.7900
pfrommer@hinshawlaw.com
Daniel Garcia, Esq.
954.375.1152
dgarcia@hinshawlaw.com
Case Hyperlink:
http://www.floridasupremecourt.org/decisions/2011/sc08-1616.pdf
Back to top
Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
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Portions of Texas Asbestos Medical Criteria Law Unconstitutional When
Applied Retroactively
Union Carbide Corp. v. Synatzske
Overview
In a decision that has the potential to affect thousands of pending asbestos and silica cases, the Texas Court of
Appeals recently held that the statutory medical requirements for asbestos claims enacted by the 2005 Texas
Legislature (Chapter 90) cannot be constitutionally applied to a claim that existed but was not filed before the
statute took effect. Union Carbide Corp. v. Synatzske, No. 01-09-01141-CV (Tex. App. –Hou [14th Dist.] 2011).
Background
In 2005, the Texas Legislature enacted Chapter 90 of the Texas Civil Practice and Remedies Code. The
Legislature’s objective was to bar tort claims by people who have asbestos exposure but no functional or
physical impairment. To this end, the Legislature established detailed minimum medical criteria that claimants
must satisfy in order to proceed with their claims.
The statute took effect on September 1, 2005, and applies to all claims whether they arose before or after the
statute took effect. Cases filed after the effective date are subject to dismissal if the plaintiff fails to present a
physician’s report that satisfies the criteria. And cases that were filed before September 1, 2005, may not
proceed any further unless and until the claimant satisfies the statutory criteria.
Issue
In Synatzske, the plaintiffs brought a wrongful death claim on behalf of Joseph Emmite in 2007. They alleged that
Emmite died of asbestosis in June 2005, before the statute took effect. It was undisputed that Emmite was too ill
to undergo a pulmonary function test required by the Chapter 90 criteria.
Union Carbide moved to dismiss the lawsuit because plaintiffs did not satisfy Chapter 90. The Texas Asbestos
MDL (multi-district litigation) Court denied the motion, holding that the “exceptional circumstances” provision of
Chapter 90 excused compliance. Union Carbide took an interlocutory appeal.
Decision
The Court of Appeals affirmed, but did so based on its determination that retroactively applying Chapter 90 on
these facts is unconstitutional. In a lengthy opinion, the Court held, first, that the MDL court improperly applied
the exceptional circumstances clause. Thus, the plaintiffs would not be allowed to proceed with their claims if
Chapter 90 applied.
The Court, however, held that the Chapter 90 criteria were inapplicable because, as applied, they resulted in
application of an unconstitutional retroactive law. Emmite had died before pulmonary function testing was
required, and in any event he was too ill to undergo the testing. Thus, the Court concluded that applying Chapter
90 would extinguish the plaintiffs’ claims retroactively. The Court, therefore, held that plaintiffs’ claims may
proceed to trial.
Comment
This decision is still subject to reconsideration by the Court of Appeals and discretionary review by the Texas
Supreme Court. That said, it is difficult to predict whether this decision will apply to other claims that arose before
Chapter 90 took effect.
This was a highly exceptional case. The plaintiffs presented reports from a pulmonologist who treated Emmite. In
the reports, the pulmonologist explained that Emmite was too ill to undergo a pulmonary function test, stated that
Emmite’s history of asbestos exposure was consistent with asbestosis and, most significantly, reported that a
postmortem analysis of Emmite’s lung tissue confirmed the diagnosis of asbestosis.
Given these facts, it is interesting that the Court of Appeals held the exceptional circumstances clause
inapplicable. Had the court not done so, it would have altogether avoided the constitutional question.
Plaintiffs’ attorneys are likely to use this decision, if it stands, to attack the application of Chapter 90 to all cases
that arose before September 1, 2005. The defense bar will urge a more narrow reading of the decision by
characterizing the Court’s holding as limited to the specific and exceptional facts in the record: namely, that
Emmite died before the statute took effect, was too ill to undergo a pulmonary function test and had presented
other compelling evidence that he had asbestosis.
This decision bears watching as the appellate process continues. The decision, broadly read, could exempt
numerous cases that arose before September 1, 2005, and Chapter 90. If this occurs, the sheer size of the
asbestos docket in Texas could once again cause a serious problem for the courts and defendants.
Contributed by:
Wilson Elser Moskowitz Edelman & Dicker, LLP
Bank of America Plaza
901 Main Street
Suite 4800
Dallas, TX 75202-3758
John R. Henderson, Esq.
214.698.8005
john.henderson@wilsonelser.com
Sean Higgins, Esq.
713.353.2037
sean.higgins@wilsonelser.com
Case Hyperlink:
http://caselaw.findlaw.com/tx-court-of-appeals/1573396.html?utm_source=feedburner&
utm_medium=feed&utm_
campaign=Feed%3A+FindLawTexApp+%28FindLaw+Case+Law+Updates+
-+TX+Court+of+Civil+Appeals%29
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
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Play Ball! Court Of Appeals Reaffirms Recreational Activities Doctrine
Applies To Coaches
French v. MacArthur
Michigan law has long recognized that when a person chooses to participate in certain sports, he or she takes on
certain risks. See Ritchie-Gamester v City of Berkley, 461 Mich 73, 77-79 (1999). “Participation in a game
involves a manifestation of consent to those bodily contacts which are permitted by the rules of the game.” Id. at
79. From this line of cases, the Michigan Supreme Court developed the “recreational activities doctrine” as set
forth in the aptly named Ritchie-Gamester decision.
In Ritchie-Gamester, the Court changed the common law standard for liability between co-participants in
recreational activities. Ritchie-Gamester rejected the ordinary negligence standard and adopted a “reckless
misconduct” standard, stating:
“[We] adopt reckless misconduct as the minimum standard of care for co-participants in
recreational activities. [W]e believe that this standard most accurately reflects the actual
expectations of participants in recreational activities…. [W]e believe that participants in
recreational activities do not expect to sue or be sued for mere carelessness. A recklessness
standard also encourages vigorous participation in recreational activities, while still providing
protection from egregious conduct.”
In French v MacArthur, unpublished per curiam opinion of the Court of Appeals, decided 7/19/11, the Court was
called upon to apply this standard. In a timely decision – released just as high school football practice begins
across the state – the Court of Appeals found that a parent/assistant coach who was physically participating in
practice was a “co-participant” and was entitled to summary disposition.
In French, Plaintiff was injured during a youth-league softball practice when – during a practice drill – defendant
hit a line-drive that struck plaintiff ’s face, while she was standing on the pitcher’s mound. Defendant was a
parent of one of the players, who volunteered to assist at practice. The incident occurred during a drill in which a
coach is supposed to hit a softball to the infielders or the outfielders after the child batter swung and missed.
Defendant attempted to hit a fly ball to center field, but instead his swing resulted in a line-drive at the pitcher’s
mound that struck plaintiff. Plaintiff sued Defendant. Defendant moved for summary disposition under RitchieGamester. The motion was denied.
The Court of Appeals reversed, and remanded for entry of an order dismissing defendant from the case. The
Court of Appeals began its analysis by pointing out that Defendant was indeed a “co-participant” at the softball
practice, even though he was a coach. This issue had previously been addressed in Behar v Fox, 249 Mich App
314, 318 (2001), where the Court of Appeals determined that a defendant’s role as a coach did not necessarily
take him out of the category of “co-participant.” More specifically – like the assistant coach in Behar – Defendant
in French was physically participating in the activity (i.e., taking part in the action on the field) with the permission
of the head coach.
The Court of Appeals noted that there was a factual dispute as to whether Defendant called out the word
“outfield” before swinging (apparently, the drill called for the coach to alert the players that he was swinging and
where he intended to hit the ball). The panel determined that this fact question would not change the analysis,
regardless of how it was resolved. Even if Defendant should have shouted “outfield” and failed to do so this
could not be “reckless misconduct” as a matter of law. “We agree that a reasonable juror could find negligence
based on these facts, but no facts have been proffered that could justify a finding of reckless misconduct.”
French, supra at *2.
Contributed by:
Secrest Wardle Lynch, Hampton, Truex and Morley, P.C.
30903 Northwestern Highway
P.O. Box 3040
Farmington Hills, MI 48333-3040
Drew Broaddus, Esq.
248.539.2807
dbroaddus@secrestwardle.com
Case Hyperlink:
http://scholar.google.com/scholar_case?case=16049478024936190467&hl=en&as_sdt=2&as_vis=1&
oi=scholarr
Back to top
Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
Back to Main
Bankruptcy Court Power To Enter Final Judgments Limited To Matters
Arising Under The Bankruptcy Code
Stern v. Marshall
In Stern v. Marshall, 131 S. Ct. 2594 (June 23, 2011), the Supreme Court revisited the extent of a bankruptcy
court’s power to enter final judgments on claims that do not arise under the Bankruptcy Code. In a 5-4 split
decision, the Court determined that bankruptcy courts lack the Constitutional authority to enter final judgments on
claims that, while related to a bankruptcy case, do not arise in or under the Bankruptcy Code.
Factual Background
Vickie Lynn Marshall (“Vickie”) and E. Pierce Marshall (“Pierce”) were the widow and son, respectively, of J.
Howard Marshall II (“J. Howard”), one of the richest people in Texas during his life. Vickie, who is more
commonly known as Anna Nicole Smith, married J. Howard in June of 1994, about a year before his death. Prior
to J. Howard’s death, Vickie learned that J. Howard did not include her in his will, having elected instead to
create a living trust and make his son Pierce the primary beneficiary. Upon finding out that she had been
excluded from the will, Vickie filed a lawsuit in Texas state probate court, asserting that Pierce fraudulently
induced J. Howard to sign the living trust that excluded Vickie. According to Vickie, J. Howard’s true intent was to
give Vickie half his fortune.
After J. Howard’s death, Vickie filed for bankruptcy in California. Pierce filed a complaint in Vickie’s bankruptcy
case, asserting that Vickie had defamed him by alleging he had engaged in fraudulent activity to obtain control of
his father’s fortune. Pierce sought a judgment from the Bankruptcy Court that any damages caused by Vickie’s
defamation should be non-dischargeable under the Bankruptcy Code. Pierce also filed a “proof of claim” in the
bankruptcy proceeding, meaning that in addition to asking the court to allow him to pursue a recovery of his
claims after the bankruptcy, he also wanted to receive a pro-rata share of any distributions that were made in
connection with Vickie’s bankruptcy case.
In response to the defamation complaint, Vickie filed a counterclaim against Pierce, alleging that Piece “tortiously
interfered” with the gift she expected from J. Howard. This claim mirrored, in many respects, the case that Vickie
had previously filed in Texas state probate court (which was still pending). Similar to the Texas state court case,
Vickie petitioned the bankruptcy court for half of J. Howard’s estate. In November of 1999, the Bankruptcy Court
entered an order finding that Vickie did not defame Pierce. Ten months after that, the Bankruptcy Court entered
a judgment in Vickie’s favor on her tortious interference counterclaim and awarded her more than $400 million.
Pierce objected to the $400 million judgment on the grounds that the Bankruptcy Court lacked jurisdiction to
enter a judgment on Vickie’s tortious interference counterclaim. The Bankruptcy Court overruled this objection,
and Pierce appealed.
During the course of the appeal, on December 7, 2001, the Texas state probate court, following a jury trial,
entered a judgment for Pierce on the fraudulent inducement claims brought by Vickie (i.e., the Texas probate
court found that Vickie was not entitled to any portion of J. Howard’s estate). Pierce asked the Bankruptcy Court
to recognize the Texas state probate court’s judgment as conclusive of the dispute between Vickie and him.
Stated more technically, Pierce asserted that the Texas judgment should be given preclusive effect. The
Bankruptcy Court refused and additional appeals followed. During the appellate process, it was determined that
Pierce’s original objection regarding the Bankruptcy Court’s jurisdiction had merit, and thus the Texas state
probate court’s judgment should be given preclusive effect (since it was the only valid judgment that had been
entered). This appeal to the Supreme Court followed.
Analysis
Bankruptcy courts are courts of limited jurisdiction. Unlike federal district courts, which exist under Article III of
the Constitution (the Article that provides for the Judiciary and the “judicial power of the United States”),
bankruptcy courts exist as a result of Article I of the Constitution (the Article that provides for Congress and
congressional powers). In order to maintain the balance and separation of powers called for by the Constitution,
the Supreme Court has determined that “Article I courts” may only exercise judicial power that is necessarily
incident to rights and duties enumerated in Article I. The power to establish laws relating to bankruptcies is
provided for in Article I. See Art. I, sec. 8, cl. 4. Given that bankruptcy proceedings, by their nature, touch on all
aspects of the debtor-creditor relationship, Congress has faced a recurring difficulty between balancing the need
to grant bankruptcy courts sufficient power to restructure debts, and the need to restrain bankruptcy courts from
“exercising the judicial power of the United States” (i.e., restrain them from exercising the powers of “Article III
courts”).
The current statutory system, which has been in place since the 1980s, addresses this need for balance by
dividing bankruptcy proceedings into three categories: proceedings “arising under” the Bankruptcy Code,
proceedings “arising in” cases under the Bankruptcy Code, and proceedings that are merely “related to” cases
under the Bankruptcy Code. To further complicate this scheme, Congress has also divided matters that may
come before a bankruptcy court into “core” and “non-core” proceedings. Federal law provides that bankruptcy
judges may hear and enter final judgments in all “core proceedings” (matters that are created by the Bankruptcy
Code). Correspondingly, for those matters that are not “core proceedings,” bankruptcy judges may not enter
final judgments. Instead, bankruptcy judges may only submit proposed findings of fact and conclusions of law to
the applicable federal district court. The federal district court (again, an Article III court), since it has authority to
“exercise the judicial power of the United States,” may then enter a final judgment on the particular non-core
matter. One of the types of matters that are defined by federal law as “core proceedings” are counterclaims filed
by the Debtor. Here, Vickie (the debtor) filed a counterclaim against Pierce (her tortious interference claim), and
thus it would appear, based on the plain language of the statute, that her counterclaim was a “core” matter upon
which the bankruptcy court could enter a final judgment.
In its split decision, the Supreme Court determined that this conclusion, however, was incorrect. The Court,
while acknowledging that the relevant statute did define counterclaims like Vickie’s as core proceedings, found
that satisfying the “core” definition was not determinative of the Bankruptcy Court’s authority to enter a final
judgment. As explained above, the Constitution permits bankruptcy courts to enter final judgments only on claims
that “arise in or under the Bankruptcy Code.” Vickie’s counterclaim was merely “related to” a case under the
Bankruptcy Code, and thus established principles of Constitutional law prevented the Bankruptcy Court from
entering a final judgment. Congress cannot modify these Constitutional principles by enacting a statute that
provides for all counterclaims to be treated as core matters; the checks and balances of our system of
governmental would not function properly if it could.
The Court rejected the notion that any judicial exception applied under the circumstances,
and similarly rejected the argument that Pierce’s act of filing a claim was relevant to whether the Bankruptcy
Court could enter a final judgment on Vickie’s counterclaim (the dissent disagreed on this point). The Bankruptcy
Court had an independent obligation to assess whether Vickie’s counterclaim arose in or under the Bankruptcy
Code, and, since the counterclaim did not, the Bankruptcy Court should have recognized that it lacked the
Constitutional authority to enter a final judgment on the counterclaim.
Conclusion
Bankruptcy courts are courts of limited jurisdiction, and the Supreme Court’s Stern v. Marshall decision is a
powerful reminder that a court’s failure to adhere to the limitations set by the Constitution and make an
independent assessment that it has jurisdiction over a matter can have significant consequences. In light of the
Stern case, bankruptcy courts are likely to be much more attentive to ensuring that they have a firm basis for
exercising jurisdiction over a particular claim. It is also likely that bankruptcy courts will be more willing to defer to
district courts for the entry of final judgment whenever jurisdiction is not clearly established. Furthermore, this
renewed jurisdictional focus will be procedurally burdensome, causing an increase in the cost and expense for
debtors to bring counterclaims against creditors. This may result in the removal of certain litigation from
bankruptcy courts, in favor of state courts or other federal courts.
Contributed by:
Butler Pappas Weihmuller Katz Craig LLP
115 S. LaSalle Street, Suite 3200
Chicago, IL 60603
Susan N. K. Gummow, Esq.
312.456.0900
sgummow@butlerpappas.com
Case Hyperlink:
http://www.supremecourt.gov/opinions/10pdf/10-179.pdf
Back to top
Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
Back to Main
Admissibility of Medical Expenses Finally Resolved in California
Howell v. Hamilton Meats & Provisions, Inc.
On August 18, 2011, the California Supreme Court finally settled a widely followed, long-simmering dispute
concerning the appropriate damage awards for claimed medical specials. The near-unanimous decision (6-1) in
Howell v. Hamilton Meats & Provisions, Inc. (2011 S.O.S. 4563) puts to rest the claims by plaintiffs that they are
entitled to recover the amount of medical bills as opposed to the much lesser amount that is actually paid.
Pursuant to Howell, argued recently before the California Supreme Court, plaintiffs seeking to recover medical
expenses in personal injury, products liability, or other matters, are only entitled to recover what was actually paid
for treatment by health insurers, not the full medical bills.
The Howell decision is remarkable for several reasons. First, it establishes a clear rule for the determination of
medical specials in which a plaintiff’s health insurer satisfies medical bills for amounts set by pre-existing
contracts between the health insurer and medical providers. Second , the Chief Justice of the Supreme Court
reversed a previous, separate appellate case which she authored for the opposite holding. Finally, it is very
possible this ruling will result in a reduction of all damage awards in personal injury lawsuits.
The Issue and Ruling
When an injured plaintiff receives medical care for injuries and the medical providers accept pre-negotiated
amounts from the plaintiff’s medical insurer for treatment received, is plaintiff entitled to an award greater than the
amount accepted by the provider to satisfy the bills? Despite multiple appellate court rulings which said yes,
including one by the Chief Justice Cantil-Sakauye, the Supreme Court said no in Howell. Therefore, a plaintiff
may recover medical specials in an amount up to, and no more than, the amount accepted by the medical
provider in full and final payment for the services.
The Facts and Background
Plaintiff Rebecca Howell was injured in a traffic collision with a truck owned and operated by Hamilton Meats &
Provisions, Inc. Liability was admitted by the defense at trial, with only the issue of damages to be determined.
The defense moved to exclude from evidence the full billed amounts of plaintiff’s medical bills, pursuant to Hanif
v. Housing Authority (1988) 200 Cal.App.3d 635 (“Hanif”), because plaintiff’s medical providers accepted
approximately $130,000 less than the billed amount in full satisfaction of the bills. Hanif held that a Medi-Cal
recipient could not recover an award for medical specials greater than what Medi-Cal paid to satisfy the plaintiff’s
medical bills. Hamilton’s motion was deferred until post-trial, at which time the trial court granted the defendant’s
motion and reduced the medical specials award by approximately $130,000 (from about $190,000 down to about
$60,000).
Plaintiff appealed to the 4th District Appellate Court in California. In November 2009 that court reversed the trial
court and held the plaintiff should recover the full amount of medical specials as billed, regardless of what her
providers accepted as full payment from her health insurers. The court reasoned the $130,000 difference fell
under the collateral source rule, which permits plaintiffs to recover from defendants amounts paid by plaintiffs’
own insurers.
The defendant appealed the 4th District decision and the matter was accepted for review by the Supreme Court.
After briefing, including many amicus briefs by interested parties on both sides of the aisle, the matter was
decided on August 18, 2011.
The Supreme Court Reasoning
The Supreme Court reversed the appellate court and affirmed the trial court’s decision to remove $130,000 from
plaintiff’s medical specials award. The final decision rests on several main points.
First, the Court agreed with Hanif, in which a lower appellate court held a plaintiff may recover as economic
damages no more than the reasonable value of the medical services received. In other words, the medical
specials in Hanif were limited to the amounts actually “paid or incurred.” Hanif, 200 Cal.App.3d at 64.
Second, the Court recognized the “highly complex” nature of medical billing and the fluctuating rates depending
on the consumer or location. For example, “chargemaster” rates, which hospitals bill for procedures such as a
chest x-ray, can vary from $200 to $1,500 depending upon location of the provider. Moreover, those without
insurance are often provided deep discounts by medical providers. These realities rendered moot the plaintiff’s
argument that defendants will gain a “windfall” if required to only pay the discounted amount of medical bills, as
the discounted amounts are not mere arbitrary reductions, but reflect a true “market value” because of their
negotiated nature.
Third, the Court also rejected the main thrust of plaintiff’s argument that the difference between the full billed
amount and the reduced accepted amount is an insurance benefit (i.e., collateral source benefit) recoverable by
the plaintiff. The Court noted the plaintiff never incurred liability for her provider’s full bills because when the
charges were allegedly incurred the providers had already agreed on a different price schedule for particular
insureds, like plaintiff. Having never incurred the full bill, plaintiff could not recover it in damages for economic
loss.
The Court agreed defendant had complied with the collateral source rule by paying plaintiff the amount of money
her health insurer paid to satisfy the medical bills. The holding by the Supreme Court that the plaintiff’s recovery
is limited to “paid charges…provides certainty without violating the principles protected by the collateral source
rule.”
Finally, the evidentiary issue related to the collateral source rule was addressed. Amounts paid by insurers are
typically excluded from trial to prevent the jury from discovering the plaintiff is insured. That rule still exists. To
avoid this problem, the Court suggested that in the event juries award an amount greater than the amount
accepted as full payment by the medical provider, the defendant may move for a new trial on grounds of “excess
damages.” Cal. Code of Civ. Proc. § 657(5). If the trial court grants the new trial motion, it may also permit the
plaintiff to choose between accepting reduced damages or undertaking a new trial. Cal. Code of Civ. Proc. §
662.5(b). The Court did not address the plaintiff’s other claims of procedural and evidentiary error. Instead, it
remanded the case to the Court of Appeal and directed it to consider, “as appropriate,” any remaining issues
regarding the procedures and evidence on which the trial court ordered the damages reduced. Thus, the lower
court may determine a post-trial “Hanif” hearing is proper, or follow the suggestion of the Supreme Court with
respect to a new trial motion. The decision effectively removes any claims by plaintiffs that medical insurance
records and information is not relevant and non-discoverable.
Conclusion
The Howell decision firmly declares an injured plaintiff whose medical expenses are paid through private
insurance may not recover as economic damages more than the amounts paid by the plaintiff or his or her
insurer for the medical services received. Jury verdicts in personal injury, products liability or any matter
involving medical expenses (emotional distress in Employment cases, etc.) and other pain and suffering
components are likely to be smaller as a result of this ruling.
Contributed by:
Tyson & Mendes, LLP
5661 La Jolla Blvd.
San Diego, CA 92037
Robert F. Tyson, Esq.
858.459.1476
rtyson@tysonmendes.com
Mark T. Petersen, Esq.
858.459.4400
mpetersen@tysonmendes.com
Case Hyperlink:
http://www.newdorflegal.com/California-Supreme-Court-Medical-Damages-Decision-Howellv-Hamilton-Meats.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
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Michigan Supreme Court “Clarifies” Fultz Decision, Re-Defines Duty
Person Performing Contractual Obligation Owes To Non-Contracting
Third-Party
Loweke v Ann Arbor Ceiling & Partition Co, LLC
On June 6, the Michigan Supreme Court issued a decision which the court stated was a “clarification” of its
previous decision in Fultz v Union-Commerce Assoc, 470 Mich 460 (2004). In reality, the court did not simply
“clarify” the Michigan law, but changed it regarding the potential liability of a party to a contract to a
non-contracting third-party, effectively returning state law to what it was prior to 2004.
The Fultz decision held that a party to a contract could not be held liable to a non-contracting third-party for
negligence unless the duty upon which the non-contracting third-party’s lawsuit was based upon alleged a duty
which was “separate and distinct” from the duties set forth in the contract at issue.
According to the recent Michigan Supreme Court decision issued in Loweke v Ann Arbor Ceiling & Partition Co,
LLC, No. 141168, (MSC, 2011), a contracting party’s assumption of contractual obligations does not extinguish or
limit separately existing common law or statutory duties owed to a non-contracting third-party in the performance
of the agreement. Instead, the analysis must focus on whether there can be a basis for a claim that a duty does
exist from some other source, such as the common law or a specific tort statute.
In Loweke, an employee of a subcontract sued another subcontractor for a personal injury suffered as a result of
the allegedly negligent stacking of drywall by the defendant subcontractor. Both subcontractors had separate
contracts with the general contractor.
The defendant subcontractor moved for summary disposition, arguing that pursuant to the decision in Fultz, the
defendant subcontractor owed no duty to the plaintiff that was “separate and distinct” from defendant’s
contractual duties owed to the general contractor. The contract at issue stated that the defendant subcontractor
was responsible for unloading, moving, lifting, protecting, securing, and dispensing of the drywall at issue. Both
the trial court and the Michigan Court of Appeals agreed with the defendant’s position.
The Michigan Supreme Court, in reaching its decision in Loweke, first noted that it felt that courts in Michigan
were erroneously interpreting the Fultz decision and creating a legal rule which was unique to Michigan law that
resulted in the barring of negligence causes of action on the basis of a lack of duty if a third-party plaintiff alleged
a hazard that was the subject of the defendant’s contractual obligation. As a result of this perceived problem, the
Michigan Supreme Court decided to hear the Loweke case and “clarify” the rule of law in Michigan regarding this
issue.
According to the Michigan Supreme Court, the “error” in the various decisions by courts that had interpreted the
Fultz decision was that Fultz directed courts to focus on whether a particular defendant owed any duty at all to a
particular plaintiff, and, thus, required an inquiry into whether, apart from the contract, a defendant was under
any legal obligation to act for the benefit of the plaintiff. The Michigan Supreme Court indicated that a contracting
party’s assumption of a contractual obligation did not extinguish or limit pre-existing common law or specific
statutory duties owed to a non-contracting party in the performance of a contract.
The law in Michigan now is that a contracting party’s assumption of a contractual obligation does not extinguish
or limit separate, pre-existing common law or statutory tort duties owed to a non-contracting third party in the
performance of a contract. Courts must not permit the contents of the contract to obscure the inquiry of whether,
apart from the contract, the defendant owed any independent legal duty to the plaintiff, such as one created by
common law or statute.
The Michigan Supreme Court held that, as a general rule, a defendant owes the non-contracting party (the
plaintiff) the common law duty to use ordinary care in order to avoid physical harm to persons and property in the
execution of its undertaking. The fact that a defendant owes the same contractual obligation to a general
contractor does not absolve the defendant from its common law duties to the public in general. Such a duty is
“separate and distinct” from the defendant’s contractual obligations it owes to the general contractor. However,
the court did not determine if this general rule or the exception regarding the absence of a duty on the part of the
subcontractor to make the worksite safe for other subcontractors, see Klovski v Martin Fireproofing Corp, 363
Mich 1 (1961), applied because the issue had not been decided by the trial court.
The Loweke decision, while stated to be a “clarification” of Fultz, really is a departure from Fultz and a return to
the law as it existed before Fultz. The effect of the Loweke decision will be to now permit more lawsuits by
non-contracting third-parties who will rely upon general common law duties to support their “separate and
distinct” claims. The defense that the duties alleged by the non-contracting plaintiff were not “separate and
distinct,” from the defendant’s obligations under its contract, as previously permitted by Fultz, no longer exists.
Another issue, which has now been created by the Loweke decision, deals with the issue of the return to a
misfeasance/nonfeasance test for determining if a “separate and distinct” duty exists. Under Loweke, there can
be no liability to a non-contracting third-party if there is a finding of nonfeasance (the contractor failed to do
anything). Liability can only be found if there is a finding of misfeasance (the contractor acted in a negligent
manner).
The Michigan Supreme Court failed to provide any standard to determine when misfeasance, as opposed to
nonfeasance, occurs. In some cases, the resolution may be straightforward (the contractor fails to perform
anything required by the contract). In other cases, the resolution may be not so straightforward (the contractor
performs part, but not all, of its required contractual obligations). This leaves the door open for future judicial
interpretation and another possible future clarification by the Michigan Supreme Court.
Contributed by:
Plunkett and Cooney
Buhl Building
535 Griswold St., Suite 2400
Detroit, MI 48226
Ernest Bazzana, Esq.
313.983.4798
ebazzana@plunkettcooney.com
Robert Marzano, Esq.
248.594.6357
rmarzano@plunkettcooney.com
Case Hyperlink:
http://www.courts.michigan.gov/supremecourt/Clerk/10-11-Term-Opinions/141168.pdf
Back to top
Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
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2011 Mid-Year E-Discovery Update
EDITORS’ NOTE: In our Spring/Summer 2011 issue of Legal Insights, we included an article on Judge
Shira Sheindlin's decision in National Day Laborer Organization v. U.S. ICE Agency. In this decision,
Judge Sheindlin established the Government’s routine obligation to produce metadata under FOIA
requests for electronic information. On June 17, 2011, Judge Scheindlin withdrew the opinion
explaining that her decision “was not based on a full and developed record.” Judge Scheindlin also
made clear that the February opinion “shall have no precedential value in this lawsuit or in any other
lawsuit.”
This 2011 Mid-Year E-Discovery Update analyzes trends and developments in e-discovery based on our review
of 187 e-discovery decisions from the federal courts issued between January 1 and June 15, 2011 (listed here in
an Appendix). We identified those decisions from various sources, including commercial reporting services and
publicly available online repositories.
Highlights from our analysis of these decisions include:
The number of e-discovery decisions continues to increase at a blistering pace. The 187 decisions we
identified in the first half of 2011 represents an 82% increase over the 103 decisions we identified at
mid-year 2010.
The number of instances in which litigants sought sanctions in the first half of 2011 was more than double
the number in the same period last year (68 at mid-year 2011 versus 31 at mid-year 2010), and sanctions
awards have nearly doubled in absolute terms (38 at mid-year 2011 versus 21 at mid-year 2010).
Notwithstanding this increase, courts awarded sanctions at essentially the same rate as in 2010 (56% of
the instances in which a party sought sanctions in the first half of 2011, versus 55% for the full year in
2010).
Determining when litigation is "reasonably foreseeable" for purposes of triggering the duty to preserve
continued to be a fact-specific analysis.
Courts continued to emphasize that counsel's responsibility to ensure preservation does not end with
timely distribution of a legal hold notice.
Courts continued to demand cooperation and remained keenly aware of counsel's efforts--or lack
thereof--to resolve e-discovery disputes before seeking judicial involvement.
It turns out that there is such a thing as "discovery karma," at least in the 10th Circuit, and "ankle-biting"
an opponent for alleged discovery glitches may not be appreciated, especially when one's own house is
not in order.
While no reported case addressed the use of predictive coding or other advanced search technologies,
there is no doubt that these tools have been noticed, as The New York Times and Forbes focused on
their potential impact in featured articles.
E-discovery law continued to develop rapidly, and while some areas of law are coming into focus, other
areas--including basic issues such as whether a litigation hold notice must be written--continue to be
heavily debated.
Calls for reform of the Federal Rules of Civil Procedure continued, and the Civil Rules Advisory
Committee is considering various approaches to address concerns raised at the Duke Conference in
2010.
Introduction
The overall number of e-discovery-related decisions in the federal courts in the first half of 2011 was remarkably
higher than the same period in 2010 (187 decisions at mid-year 2011 versus 103 at mid-year 2010). We believe
that this trend of dramatic increases in the number of e-discovery decisions reflects how ubiquitous and important
e-discovery has become in litigation.
Of particular note, the instances in which parties sought sanctions in the first half of 2011 (on pace for nearly 140
for the full year) are set to significantly outpace 2010 (100 cases for the full year). Although this increase in
sanctions requests has led to a greater number of instances in which courts awarded sanctions, the frequency of
courts awarding sanctions (56%) remained relatively constant compared to the full-year 2010 (55%). The
increase in sanctions requests may be attributable--at least in part--to the proliferation of highly publicized
sanctions decisions in recent years, leading to an increased awareness of how parties may capitalize on an
opponent's e-discovery missteps, whether real or merely perceived. Additionally, the increasing prevalence of
e-discovery in litigation, coupled with the likelihood of mistakes being made in an area that is fraught with peril,
are likely factors.
In the area of preservation, a number of courts in the first half of 2011 deliberated over whether a legal hold
notice must be written or whether oral notification is sufficient. Several courts have been unwilling to follow Judge
Shira Scheindlin's 2010 Pension Committee decision, which held that failure to issue a written legal hold notice
constitutes gross negligence per se and gives rise to a presumption of spoliation and prejudice to the opposing
party. Another hotly litigated issue continues to be when the duty to preserve is triggered. In the first half of 2011,
the Federal Circuit dealt with this issue in the latest chapter of the long-running Rambus saga.
Courts also continued to remind counsel of their obligation not only to ensure that a legal hold notice is issued in
a timely manner, but also to monitor its implementation. In addition, courts continued to grapple with the
preservation and authentication of social media, along with whether traditional privacy rights should apply--with
most courts holding that there is no reasonable expectation of privacy in social media.
Cooperation remained a significant topic, both in the context of search methodology and form-of-production
disputes. Courts continued to be keenly aware of counsel's efforts--or lack thereof--to resolve e-discovery issues
before seeking judicial assistance.
One of the most publicized cases in the first half of 2011, National Day Laborer Organization Network v. U.S.
Immigration & Customs Enforcement Agency, rocked the government's perception of its discovery obligations
when responding to Freedom of Information Act ("FOIA") requests. Judge Scheindlin made headlines when she
held that the government had to preserve and produce metadata when responding to a FOIA request. She made
headlines again when she withdrew her opinion, citing the fact that the judicial record had not been fully
developed on that issue. Nevertheless, it seems likely that courts and litigants alike will rely (albeit indirectly) on
Judge Scheindlin's position on the importance of metadata in any production of electronically stored information
("ESI").
Finally, it is still too early to tell whether 2011 will bring e-discovery reform. Following the Duke Conference in
2010, the Civil Rules Advisory Committee met again in April 2011 to discuss potential federal rule changes. The
Committee has planned a "mini-conference" in September 2011 to engage in additional fact finding. States
continued to propose and pass amendments to their rules, some of which adopt and some of which reject
portions of the 2006 e-discovery amendments to the Federal Rules of Civil Procedure.
We invite you to review our analysis of developments in the e-discovery areas listed below.
Contents
Introduction
Sanctions
Preservation and Legal Holds
Inaccessible Information
Proportionality
Cooperation
Search Methodology
Privilege
Social Media
Cross-Border Discovery
Privacy
The Government's E-Discovery Obligations
E-Discovery Reform
Appendix of Cases Reviewed
Sanctions: A Look at the Trends
At year-end 2010, we and others reported that the frequency with which courts granted sanctions motions had
declined compared to 2009. A few others claimed sanctions had increased (some based on a law review article
that reported sanctions trends only through year-end 2009, but which some commentators misinterpreted as
including 2010). We cannot, of course, claim to have found every e-discovery sanctions decision filed in every
case in every federal courthouse in the country. Even in this Internet era, some decisions--perhaps many--are
never reported.
Nevertheless, we believe it is possible to discern trends by employing the same search methodology in each of
our mid-year and year-end reports over several years--particularly when looking at the ratio of sanctions granted
to requests for sanctions. Additionally, to avoid double-counting, we have only included original trial court
decisions in our sanctions case counts. Decisions on appeal and those affirming or overruling the
recommendations of a magistrate judge were not counted if the underlying decision was previously reported and
included in our statistics (although they were still considered and included in our analysis).
Our count shows that federal trial courts imposed sanctions at almost the same rate as in 2010, but the instances
in which parties sought sanctions in the first half of the year has increased--leading to a greater number of
sanctions awards in absolute terms. In particular, we found 68 cases decided between January 1 and June 15,
2011, in which parties sought sanctions for e-discovery misconduct. Courts awarded sanctions in 38 cases, or
56% of the time. This percentage is almost identical to the overall rate of sanctions imposed in the cases in the
2010 calendar year (55%) that we identified.
Although the frequency with which courts granted sanctions of any type remained relatively constant, the number
of reported cases in which parties sought sanctions continued on an upward trend--now on pace for nearly 140
in 2011 compared to 100 in 2010. Highly publicized cases in which courts awarded onerous sanctions, coupled
with increased awareness of how parties may capitalize on an opponent's e-discovery failures, may explain the
trend. The increasing prevalence of e-discovery in litigation is also likely a factor. We note that it is possible that
the legal media and commercial and non-commercial reporting services are identifying and reporting more
sanctions decisions than in the past. Some combination of all of these factors is likely at play.
January 1 through June 15, 2011, Sanctions Awarded in E-Discovery
By Type and Percentage of Cases Where Sanctions Granted
Note: Sanctions were awarded in 38 cases. Some involved awards of multiple types of sanctions. In
particular, monetary sanctions were often granted in conjunction with another sanction.
Monetary Sanctions: As has been true every year we have tracked e-discovery sanctions decisions, monetary
sanctions were the most frequently awarded type of sanction in the first half of 2011. Of the 38 decisions
awarding sanctions that we identified, 26 (68%) granted monetary sanctions. This percentage is very similar to
last year's rate for the full year, in which courts in 36 of 55 cases (65%) granted monetary sanctions. In general,
courts awarded monetary sanctions to compensate aggrieved parties for the fees and costs incurred in bringing
the motion for sanctions and any other injury caused by the discovery misconduct.
For example, in IOWI, LLC v. Monaco Coach Corp., No. 07-3453, 2011 WL 2038714, at *5 (N.D. Ill. May 24,
2011) (Cox, Mag. J.), the defendant failed to search its network drives and was required to pay half the costs of
the forensic search that the plaintiff subsequently conducted. (The defendant was not required to pay the full
amount because the search only turned up one responsive email.) Monetary sanctions awards occasionally were
very large. See, e.g., Victor Stanley, Inc. v. Creative Pipe, Inc., No. MJG-06-2662, 2011 WL 2552472, at *2 (D.
Md. Jan. 24, 2011) (imposing more than $1 million in attorneys' fees and costs following September 2010
decision to impose monetary sanctions to recoup fees and costs associated with unnecessary discovery and
motion practice due to defendants' spoliation).
In some cases, courts awarded monetary sanctions significantly in excess of the amount needed to compensate
the aggrieved party. See, e.g., Green v. Blitz, No. 2:07-CV-372 (TJW), 2011 WL 806011, at *1 (E.D. Tex. Mar. 1,
2011) (imposing $250,000 in civil contempt sanctions and $500,000 bond in "purging" sanctions, i.e., sanctions
issued to "coerce the defendant into compliance with the court's order"); Rosenthal Collins Group, LLC v.
Trading Techs. Int'l, Inc., No. 05 C 4088, 2011 WL 722467, at *14 (N.D. Ill. Feb. 23, 2011) (imposing a $1 million
penalty and case-terminating sanctions because it was found that plaintiff's agent engaged in "egregious
conduct," such as deliberately modifying and destroying a significant amount of evidence).
Adverse Inference and Evidence Preclusion: In the first half of 2011, courts granted adverse inference
instructions in 9 of the 38 sanctions cases (24%), roughly the same as in calendar year 2010 (25%). Courts
precluded evidence as a sanction in only two cases (5%), which is lower than in calendar year 2010 (11%).
Further, courts remain divided on the level of culpability required to impose an adverse inference or evidence
preclusion sanction. Certain courts require proof of bad faith before imposing an adverse inference sanction, as
"only the bad faith loss or destruction of a document will support an inference of consciousness of a weak case."
McCargo v. Texas Roadhouse, Inc., No. 09-cv-02889-WYD-KMT, 2011 WL 1638992, at *9 (D. Colo. May 2,
2011). For example, in FTC v. Asia Pacific Telecom, Inc., No. 10 C 3168, 2011 WL 2110220, at *10 (N.D. Ill. May
25, 2011), the court stated that an adverse inference sanction is appropriate for misconduct "on par with behavior
that has earned other litigants default judgment or dismissal," a sanction generally reserved for the most
egregious bad faith conduct. Other courts required proof of at least gross negligence. See, e.g., Surowiec v.
Capital Title Agency, Inc., No. CV-09-2153-PHX-DGC, 2011 WL 1671925, at *7 (D. Ariz. May 4, 2011) (imposing
an adverse inference sanction for gross negligence for failure to preserve a computer after receiving notice of
lawsuit). Still others merely required proof of negligence. See, e.g., Liberman v. FedEx Ground Package Sys.,
Inc., No. 09 CV 2423 (RML), 2011 WL 145474, at *4 (E.D.N.Y. Jan. 18, 2011) (Levy, Mag. J.).
Case-Terminating Sanctions: We found eight cases in the first half of 2011 in which the court granted terminating
sanctions (21% of the 38 cases in which sanctions were granted), compared to a total of 12 cases in all of 2010
(a rate of 22%). In these cases, terminating sanctions were often coupled with monetary sanctions due to the
egregious nature of the misconduct. Courts continued to reserve this harshest of sanctions for cases in which the
culpable party violated its e-discovery obligations willfully and in bad faith and caused the aggrieved party
significant damage. See, e.g., Philips Elecs. N. Am. Corp. v. BC Tech., No. 2:08-CV-639 CW-SA, 2011 WL
677462, at *62 (D. Utah Feb. 16, 2011) (granting default judgment and monetary sanctions against the defendant
for violating the court's discovery order, intentionally deleting relevant files from officers' laptops, and lying to the
court about the nature of the deleted data). The type of willful behavior courts found to justify terminating
sanctions includes, for example, continually and repeatedly failing to produce relevant documents, ignoring court
orders and continually and consistently obstructing the discovery process. See, e.g., State Farm Mut. Auto. Ins.
Co. v. Grafman, No. 04-CV-2609 (NG)(SMG), 2011 WL 1869387, at *10 (E.D.N.Y. Apr. 4, 2011).
The widely publicized Rambus decisions in the Federal Circuit evidence the fact-dependent--and often
discretionary--nature of case-terminating sanctions. Presented with the same conduct in companion cases, the
District of Delaware granted case terminating sanctions while the Northern District of California denied them. The
District of Delaware concluded that Rambus had a duty to preserve because it destroyed documents after
litigation became reasonably foreseeable. Based on the same facts, the Northern District of California found that
litigation was not reasonably foreseeable because litigation was not "imminent" and depended on several
contingencies. The Federal Circuit affirmed the District of Delaware's finding of spoliation but held that the trial
court had inadequately stated the factual basis for its imposition of case terminating sanctions, which required
clear and convincing evidence of bad faith on the part of the producing party and prejudice to the requesting
party. Micron Tech., Inc. v. Rambus Inc., No. 2009-1263, 2011 WL 1815975, at *15-16 (Fed. Cir. May 13, 2011).
The Federal Circuit reversed the Northern District of California's decision, holding that the trial court had applied
too narrow an interpretation of the "reasonably foreseeable" standard, and that such a duty had arisen in any
event before the second of two company "shred days." See Hynix Semiconductor Inc. v. Rambus, Inc., No.
2009-1299, 2009-1347, 2011 WL 1815978, at *8 (Fed. Cir. May 13, 2011).
Other Sanctions: Courts continued the trend of customizing the sanctions imposed so that they directly remedy or
punish the harm caused by the misconduct at issue. For example, in Green v. Blitz, 2011 WL 806011, nearly a
year after trial, the plaintiff uncovered documents that the defendant had failed to produce and sought to have
the case reopened and sanctions imposed. The court not only imposed $250,000 in civil contempt sanctions and
a $500,000 bond to "coerce the defendant into compliance with the court's order," but also ordered the defendant
to file a copy of the order with its first pleading or filing in all new lawsuits for the next five years--a Scarlet
Letter-type punishment if there ever was one. See id. at *10-11.
In DL v. District of Columbia, No. 05-1437(RCL), 2011 WL 1770468 (D.D.C. May 9, 2011), because the
defendant was still in the process of reviewing its documents for privilege during trial, the court imposed a unique
sanction waiving the defendant's attorney-client privilege with respect to the late-reviewed documents and
required defendant to produce all remaining relevant documents within a week.
In several cases, courts allowed litigants to re-depose witnesses due to inadequate production before the
deposition. See, e.g., Rudnick v. Bank of Am. Na'l Ass'n, No. 10-cv-00144-WJM-MJW, 2011 WL 1882977, at *5
(D. Colo. May 16, 2011) (Watanabe, Mag. J.); Berge Helene Ltd. v. GE Oil & Gas, Inc., No. H-08-2931, 2011 WL
798204, at *5 (S.D. Tex. Mar. 1, 2011). Finally, one court sanctioned a party by denying that party's motion for
summary judgment, explaining that the undisclosed documents could bring to light factual disputes. See Seven
Seas Cruises S. De R.L. v. V. Ships Leisure Sam, No. 09-23411-CIV, 2011 WL 772902, at *1 (S.D. Fla. Feb. 28,
2011).
Preservation and Legal Holds
A number of cases in the first half of 2011 addressed whether a legal hold notice must always be in writing. In
2010, Judge Shira Scheindlin of the Southern District of New York articulated a bright-line rule in her highly
publicized and controversial Pension Committee decision. According to Judge Scheindlin, a party's failure to
issue a written legal hold notice constitutes gross negligence per se, supporting an inference that relevant
evidence was destroyed, that the opposing party was prejudiced, and that sanctions are justified unless the party
rebuts the presumptions. Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 685
F. Supp. 2d 456 (S.D.N.Y. 2010). This bright-line rule clearly delineates sanctionable conduct, but as a number of
courts have observed, it leaves little room for judges to consider facts specific to the parties and the case that
may justify or even warrant an oral legal hold notice.
A number of courts, even in the Second Circuit and in Judge Scheindlin's own district, have declined to adopt this
bright-line rule. The most recent example is Steuben Foods, Inc. v. Country Gourmet Foods, LLC, No. 08-CV561S(F), 2011 WL 1549450, at *4 (W.D.N.Y. Apr. 21, 2011) (Foschio, Mag. J.), in which the magistrate judge
declined to impose sanctions or to hold that spoliation should be presumed based on the plaintiff's failure to issue
a written legal hold notice. "In contrast to the facts in Pension Committee, [the p]laintiff has produced a
substantial number of documents and there is no reason to presume that important documents have been lost as
a result of [the p]laintiff's negligence. . . ." Id.; see also Centrifugal Force, Inc. v. Softnet Commc'n, Inc., No. 08
Civ. 5463(CM)(GWG), 2011 WL 1792047, at *11 (S.D.N.Y. May 11, 2011) (Gorenstein, Mag. J.) (declining to
sanction a defendant that issued an oral legal hold notice shortly after the duty to preserve attached; only a
single non-relevant email was lost).
In Steuben Foods, the plaintiff's corporate counsel implemented a legal hold orally through conversations with
the company's President, Vice President of Business Development and six other managers and officers. 2011 WL
1549450, at *1. The court rejected the defendant's argument that relevant documents that were not produced
should be presumed lost and sanctions imposed. Instead, based on the nearly 12,000 pages of documents that
the plaintiff produced and the absence of any showing that any data had been lost or destroyed, the court found
that it would be inappropriate to presume that the plaintiff had a culpable mental state. See id. at *1, *4-5.
Rejecting Judge Scheindlin's Pension Committee holding, the court determined that the Second Circuit has not
adopted a requirement of a written legal hold notice in any of its case law and noted that "the decisions of district
courts, even those located within the same district, are not binding upon other district courts." Id. at *5.
The court in Steuben Foods was careful to point out that the plaintiff's relatively small size (400 employees) as
well as the limited issues and custodians, "len[t] itself to a direct oral communication of the need to preserve
documents" and that "[s]uch considerations have been found persuasive as reasons why a written legal hold is
not essential to avoid potential sanctions for spoliation." Id. Steuben Foods thus suggests that an oral hold notice
may be proper depending on case-specific and party-specific facts. Nevertheless, issuing a written legal hold
notice is widely regarded as a best practice and doing so can avoid challenges like those in Steuben Foods. It
also avoids the risk that some judges may follow Judge Scheindlin in holding that failing to issue a written legal
hold notice is per se gross negligence. (For additional discussion of Steuben Foods and the format of legal hold
notices, see Gibson Dunn's "E-Discovery Developments: Court Holds That Oral Preservation Notice Is
Not Automatically Sanctionable.")
Decisions in the first half of 2011 also reinforced that the duty to preserve is triggered when litigation is
reasonably foreseeable, which may be well before a complaint is actually filed. See, e.g., Liberman, 2011 WL
145474, at *3 (holding that the duty to preserve survives dismissal without prejudice of an initial action because
plaintiff was clearly continuing its investigation); McCargo, 2011 WL 1638992, at *4 (holding that plaintiff's
internal formal complaint to his employer that he intended to pursue legal action triggered employer's
preservation duty). In the latest chapter in the long-running Rambus saga, the trigger of the preservation
obligation was in the spotlight. The Federal Circuit, in one of its most comprehensive decisions relating to the
preservation obligation and discovery sanctions, stepped in to reverse a lower court's ruling that litigation was
not reasonably foreseeable when the decision to initiate the litigation had not been finalized due to "some
contingencies," and resolution of those contingencies was expected. Hynix Semiconductor Inc., 2011 WL
1815978, at *7 (recognizing that while Rambus had developed a litigation strategy, it had not yet, but "fully
expect[ed]" to, budget for litigation and receive board approval and therefore had a duty to preserve). According
to the Federal Circuit, litigation need not be "immediate or certain" to trigger the preservation duty. Id. at *8.
In another case, the court held that a preservation duty was triggered when the plaintiff first approached the
defendant to license the plaintiff's patent and the defendant sought a formal opinion from patent counsel in
response, but that duty then expired once the parties executed a license. Cacace v. Meyer Mktg. Co., No. 06
Civ. 2938(KMK)(GAY), 2011 WL 1833338, at *2 (S.D.N.Y. May 12, 2011) (Yanthis, Mag. J.). The defendant's
preservation duty did not "re-attach" until the license expired and the plaintiff sued the defendant. Id. (rejecting
argument that the duty to preserve persisted throughout the license term). Notably, the court examined
defendant's privilege log to support the conclusion that it did not anticipate litigation between the license's
effective date and the date defendant was sued. Id.; see also Velocity Press, Inc. v. Key Bank, N.A., No. 2:09 CV
520 TS, 2011 WL 1584720, at *3 (D. Utah Apr. 26, 2011) ("Although Velocity may have hinted at potential claims .
. . [the] possibility of litigation is insufficient to require . . . a litigation hold.").
Similarly, in In re Delta/AirTran Baggage Fee Antitrust Litigation, --- F. Supp. 2d ---, No. 1:09-md-2089-TCB,
2011 WL 915322 (N.D. Ga. Feb. 22, 2011), the court looked beyond the fact that the Department of Justice had
served Delta with a Civil Investigative Demand ("CID"). Although Delta issued a legal hold after receiving the CID,
it did not immediately alter the auto-delete procedures for its email system and backup tapes. Plaintiffs later filed
a civil complaint based on the same facts covered by the CID and argued that Delta had engaged in spoliation by
not acting quickly enough to alter its email auto-delete and backup tape overwriting procedures. The court held
that Delta was not obligated to preserve its emails because it could not have reasonably foreseen the possibility
of civil litigation based merely on its receipt of the CID.
Courts continued to emphasize that counsel's responsibility to ensure preservation does not end with timely
distribution of a legal hold notice. Rather, attorneys remain responsible to ensure that the party is complying with
the hold. See, e.g., Zimmerman v. Poly Prep Country Day Sch., 09 CV 4586(FB), 2011 WL 1429221, at *17-18
(E.D.N.Y. Apr. 13, 2011) (Pollak, Mag. J.) (holding, in the context of preservation of hard copy documents, that
counsel has the duty to "oversee compliance with the [legal hold], [and] monitor[] the party's efforts to retain and
produce the relevant evidence"); Northington v. H & M Int'l, No. 08-CV-6297, 2011 WL 663055, at *19 (N.D. Ill.
Jan. 12, 2011) (Mason, Mag. J.) (holding the defendant's preservation efforts were unreasonable because the
defendant asked self-interested custodians to search their own hard drives and the custodians could delete
troublesome documents); Green, 2011 WL 806011, at *3 (designating self-interested employee to spearhead
document collection was inappropriate, as shown by that employee's failure to search his own documents).
These cases serve as a reminder of the trend we noted last year: courts will hold attorneys responsible for
ensuring their clients properly implement legal holds.
Courts also recognized that a duty to preserve some ESI does not necessarily mean a party must preserve all
ESI. See E.I. Du Pont De Nemours & Co. v. Kolon Indus., Inc., No. 3:09cv58, 2011 WL 1597528, at *4, *10 (E.D.
Va. Apr. 27, 2011) ("Upon recognizing the threat or anticipation of litigation, litigants are not required to 'preserve
every shred of paper, every email or electronic document, and every back up tape,' for '[s]uch a rule would
cripple large corporations.'"). Similarly, the Eleventh Circuit held that where evidence was preserved in some
sufficiently reliable form, it did not necessarily need to be preserved in its original format. United States v.
Lanzon, 639 F.3d 1293, 1300-01 (11th Cir. May 4, 2011) (preserving screenshots of actual "chats" not required
where detective transcribed the conversations and checked to ensure his transcription exactly matched the chat
screens in their entirety). It is possible that Lanzon's holding ultimately will be unpersuasive outside its particular
circumstances: the court was faced with determining the admissibility in a criminal case of a pedophile's
incriminating communications.
Inaccessible Information: Don't Just Claim It, Prove It
Courts continued the 2010 trend of requiring parties to provide increased evidentiary support (including detailed
information about time, cost, effort and burden) in support of claims that ESI need not be produced pursuant to
Federal Rule of Civil Procedure ("FRCP") 26(b)(2)(B) because it is not reasonably accessible. See Brokaw v.
Davol, Inc., No. PC 07-5058, 2011 WL 579039, at *4-5 (R.I. Super. Ct. Feb. 15, 2011) (deeming data to be
inaccessible when an expert's affidavit supplied a detailed break-down of the cost, including attorney review time,
incurred to restore 745 backup tapes containing 200 terabytes of data); Thermal Design Inc. v. Guardian Bldg.
Prods., Inc., No. 08-C-828, 2011 WL 1527025, at *1 (E.D. Wis. Apr. 20, 2011) (determining requested information
was not reasonably accessible and therefore denying motion to compel discovery of all archived email accounts
and shared network drives without any restriction as to custodian because it would cost $2 million and the
producing party had already produced 1.46 million pages of ESI); Nissan N. Am., Inc. v. Johnson Elec. N. Am.,
Inc., No. 09-CV-11783, 2011 WL 1002835, at *2-3 (E.D. Mich. Feb. 17, 2011) (Majzoub, Mag. J.) (finding data to
be inaccessible in light of a declaration by producing party's employee identifying the reasons the producing
party did not restore backups and the estimated cost to do so).
As in the past, courts continued to have little patience for claims of inaccessibility when a party simply failed to
search relevant ESI. See Star Direct Telecom, Inc. v. Global Crossing Bandwidth, Inc., 272 F.R.D. 350, 358-59
(W.D.N.Y. 2011) (Payson, Mag. J.) (holding that ESI was not inaccessible "simply" because the producing party
"elected not to search for archived [ESI]," particularly in light of failure to inform movant of that decision); IOWI,
2011 WL 2038714, at *4 (holding that producing party could not use inaccessibility as a defense for failing to
search for ESI "more thoroughly than they apparently did" when they should have "explain[ed] why such a search
would be too burdensome, costly or difficult" at the outset).
Proportionality: Balancing Burden Versus Benefit
Proportionality was a factor in a number of decisions in the first half of 2011. See, e.g., Thermal Design Inc.,
2011 WL 1527025, at *1 (denying motion to compel production where 1.46 million pages were already produced
by responding party with significant financial strength because further requests amounted to a "fishing
expedition"); United States ex rel. McBride v. Halliburton Co., 272 F.R.D. 235, 240-41 (D.D.C. Jan. 24, 2011)
(Facciola, Maj. J.) (denying motion to compel production and accepting responding party's expert's view that the
burden on responding party outweighed any potential benefit of locating "hopelessly insignificant" emails,
coupled with the requesting party's failure to demonstrate sufficient need); Call of the Wild Movie, LLC v. Does
1-1062, No. 10-455 (BAH), --- F. Supp. 2d ----, 2011 WL 996786, at *18-20 (D.D.C. Mar. 22, 2011) (granting
motion to compel in light of narrow request and importance of data requested, compared with insufficient showing
of undue burden); Hock Foods, Inc. v. William Blair & Co., LLC, No. 09-2588-KHV, 2011 WL 884446, at *9 (D.
Kan. Mar. 11, 2011) (Sebelius, Maj. J.) (denying in part a motion to compel in light of costs estimated between
$1.2 and $3.6 million to search 12,000 gigabytes of data in order to answer an overbroad interrogatory). In cases
where the requesting party's initial request is overly broad and unduly burdensome, some courts attempted to
narrow the request to something more "reasonable." See id. *9 (suggesting the search be narrowed to focus on
key executives or the general counsel's files rather than the non-movant's entire universe of clients and files).
See also Diesel Mach., Inc. v. Manitowoc Crane, Inc., No. CIV 09-cv-4087-RAL, 2011 WL 677458, at *2-3
(D.S.D. Feb. 16, 2011) (denying a motion to compel the production of documents in native format due to failure to
explain why information contained in native format was necessary to facts of case when those same documents
had already been produced as PDFs).
Cooperation
As predicted in our 2010 E-Discovery Year-End Report, courts continued to demand cooperation and
remained keenly aware of counsel's efforts--or lack of efforts--to resolve e-discovery disputes before seeking
judicial involvement. Various decisions resolving form-of-production disputes repeated the call for cooperation
among the parties, often not only citing The Sedona Conference's® publications (including The Cooperation
Proclamation and The Case for Cooperation), but also quoting the growing list of court decisions emphasizing
the need for greater cooperation between litigants. See, e.g., In re Facebook PPC Adver. Litig., No. C09-03043,
2011 WL 1324516, at *1-2 (N.D. Cal. Apr. 6, 2011) (Lloyd, Mag. J.) (ordering reproduction of documents in a
format capable of being searched electronically and observing that the FRCP, case law and commentary
"emphasize" that "communication among counsel is critical to a successful [e-]discovery process"). Judge
Scheindlin of the Southern District of New York issued, and later withdrew, an opinion addressing the need for
cooperation among litigants during the e-discovery process, this time in the context of determining the
appropriate form of production. See Nat'l Day Laborer Org. Network v. U.S. Immigration & Customs Enforcement
Agency, No. 10 Civ. 3488, 2011 WL 381625, at *1-2, *8 (S.D.N.Y. Feb. 7, 2011) (noting that the expense of
litigation could be "greatly diminished" if lawyers fulfilled their obligation to cooperate and communicate about the
form in which ESI would be produced), withdrawn, No. 98 (S.D.N.Y. June 17, 2011). For more detail on this
decision, see Gibson Dunn's "E-Discovery Trends: Latest Scheindlin Decision Offers Guidance Regarding
Format of Production, Metadata and Rule 26(f) Duties."
At least one court was skeptical of the parties' expressed, but seemingly disingenuous, willingness to cooperate
to resolve ESI disputes. See McNulty v. Reddy Ice Holdings, Inc., 271 F.R.D. 569, 571 (E.D. Mich. 2011)
(Whalen, Mag. J.) ("Both parties claim the high ground on willingness to cooperate in [e-discovery], but amid
mutual recriminations of intransigence, apparently no cooperation has occurred."). Other courts simply called out
bickering and lack of communication as the reason for protracted e-discovery motions practice. See IOWI, 2011
WL 2038714, at *1 (describing the court's repeated directives to meet and confer, the parties' continued bickering
and the court's multiple interventions); S. De R.L. v. V. Ships Leisure Sam, No. 09-234-11-CIV, 2011 WL 181439,
at *6 (S.D. Fla. Jan. 19, 2011) (noting that the ESI dispute was primarily caused by "the parties' mutual failure to
communicate and work together in a good faith effort to resolve the areas of dispute").
Noting that "just as our good and bad deeds eventually catch up with us," Judge Gorsuch of the Tenth Circuit
Court of Appeals cited The Sedona Conference® publication, The Case for Cooperation, for the proposition that
FRCP 37 seeks to ensure that discovery misconduct will also catch up to a litigant. Lee v. Max Int'l, LLC, 638
F.3d 1318, 1321 (10th Cir. 2011) (saying that "there is such a thing as discovery karma" and affirming the
sanction of dismissal for the plaintiffs' repeated discovery misconduct). This case was also notable because it
represents one of the infrequent instances where e-discovery was addressed squarely by a circuit court of
appeals.
Search Methodologies: A Continuation of Previous Trends
While no cases this year have yet addressed the legal implications of using predictive coding and other
advanced search technologies, there is no doubt that these tools are becoming better known. Even the
mainstream media started to pay attention to these advanced search methodologies this year. See John Markoff,
Armies of Expensive Lawyers Replaced by Cheaper Software, NY Times, Mar. 4, 2011; Ben Kerschberg,
E-Discovery and The Rise of Predictive Coding, Forbes Magazine Blog, Mar. 23, 2011.
Where meet-and-confers and cooperation in general fail, some courts showed a willingness to take a more active
role in resolving e-discovery disputes. Some even actively crafted search terms. See Trusz v. UBS Realty
Investors, LLC, 3:09-CV-268, 2011 WL 1628005, at *7-8 (D. Conn. Apr. 27, 2011) (Margolis, Mag. J.) (dictating
specific search terms to be used and date ranges considered for specific custodians in response to a dispute
about overly broad search terms); Wellogix, Inc. v. Accenture, LLP, No. 3:08-cv-119, 2011 WL 1458632, at *8
(S.D. Tex. Apr. 15, 2011) (ordering a search for a specific term); Reid v. Siniscalchi, C.A. No. 2874-VCN, 2011
WL 378795, at *10 (Del. Ch. Jan. 31, 2011) (limiting searches by "full name of any known family member," or "by
the last name of the relevant individual . . . irrespective of the first name"); Seven Seas Cruises, 2011 WL
181439 (ordering defendants to file an affidavit outlining their search process in order to assess the efficacy of
Boolean searches).
One court offered a choice to a defendant that complained about broad search terms causing its database to
crash--either employ the 15 search terms that plaintiff chose or permit plaintiff's expert to conduct the searches
himself. See Embry v. Acer Am. Corp., C09-01808-JW, 2011 WL 250397, at *3 (N.D. Cal. Jan. 26, 2011) (Lloyd,
Mag. J.). Still others required sampling before further meet-and-confer efforts. See Ingersoll v. Farmland Foods,
Inc., 10-6046-CV-SJ-FJG, 2011 WL 1131129, at *19 (W.D. Mo. Mar. 28, 2011) (requiring the parties to conduct
sampling of search term results and to confer prior to a second phase of ESI production).
Privilege: "Claw-Back" Requires a Reasonable Process
The inadvertent disclosure of privileged information remains an issue of concern for courts and litigants. During
the first half of 2011, courts continued to grapple with whether litigants took "reasonable steps" to prevent the
disclosure of privileged information, thereby protecting themselves from a waiver of privilege pursuant to Federal
Rule of Evidence ("FRE") 502(b).
Courts reached different conclusions regarding whether the use of standard e-discovery software that works as a
database for ESI and can be used to review documents is necessary to meet the reasonableness standard under
FRE 502(b). At least one court determined that reasonable steps had not been taken where an attorney failed to
use a standard e-discovery review tool. In that case, the attorney had instead reviewed the documents by hand
and sequestered the "obviously" privileged documents, but he forgot that he had two sets of the file. When it was
time to produce documents the attorney did not inspect the documents that his assistant assembled for
production and did not provide the assistant with any instructions to screen for privileged documents. When the
assistant produced the documents, she copied the set of documents from the version of the file that had not been
reviewed for privilege. As a result privileged materials were produced. Sidney v. Focused Retail Prop. I, LLC, --F.R.D. ----, No. 09 C 6879, 2011 WL 1238920, at *4-5 (N.D. Ill. Mar. 30, 2011) (Denlow, Mag. J.). Another court,
however, determined that a manual document-by-document review was appropriate in a case with a small
volume of non-ESI data (130 pages), even where 1.5% of the documents were inadvertently produced. Valentin
v. Bank of N.Y. Mellon Corp., No. 09 Civ. 9448, 2011 WL 1466122, at *2-3 (S.D.N.Y. Apr. 14, 2011) (Francis, Maj.
J.) (noting that using the percentage of inadvertently produced documents as a measure of reasonableness is
"less meaningful" as the total number of documents produced diminishes).
In one situation where the use of e-discovery software led directly to the inadvertent production, the court
determined that the review process was reasonable under FRE 502(b), despite the technical glitch that gave rise
to the inadvertent production. Datel Holdings Ltd. v. Microsoft Corp., No. C-09-05535 EDL, 2011 WL 866993, at
*3 (N.D. Cal. Mar. 11, 2011) (Laporte, Mag. J.) (holding that production of privileged documents was inadvertent
when "standard" e-discovery software, for unknown reason, cut off the first email in the chain, so that the
privileged nature of the email could not be determined from the four corners of the document as reviewed).
Courts also differed on how willing they were to excuse attorney mistakes as "reasonable" under FRE 502(b).
Compare Datel Holdings, 2011 WL 866993, at *3 (holding privilege not waived and reasonable steps taken in
production of "over 119,000 documents" during a "shortened discovery period" in which the responding party
conducted a multi-stage, "fairly robust" privilege review, notwithstanding 177 previously clawed-back documents)
and Cargo v. Kansas City S. Ry. Co., Civ. A. No. 05-2010, 2011 WL 1234391, at *2 (W.D. La. Apr. 1, 2011)
(holding privilege not waived and reasonable steps taken where only one other inadvertent disclosure was made
during production of more than 200,000 documents since 2005) with Sidney, 2011 WL 1238920, at *5-6
(deeming privilege waived where attorney failed to take reasonable steps to rectify inadvertent production by
failing to object to the use of "obviously privileged" documents at deposition and holding that the only time
constraints relevant to any reasonableness analysis are that of the case itself and that the attorney's "busy
schedule" was of no import).
The timing of the response to an inadvertent disclosure was also a factor that courts weighed in evaluating
reasonableness. In one case, a lack of promptness in addressing the inadvertent production of documents led to
a waiver of privilege over those materials. See Martin v. State Farm Mut. Auto. Ins. Co., No. 3:10-cv-0144, 2011
WL 1297819, at *5 (S.D. W. Va. Apr. 1, 2011) (Eifert, Mag. J.) (holding that privilege was waived because the
disclosing party "did not act promptly to rectify the inadvertent disclosure" and "did not express any interest in
protecting the [inadvertently disclosed privileged materials] until plaintiffs requested additional undisclosed
information relating to the subject matter of the letter"); but see Cell Therapeutics, Inc. v. Lash Group, Inc., No.
C07-0310JLR, 2011 WL 1930603, at *2-4 (W.D. Wash. May 18, 2011) (holding that plaintiff's efforts to remedy an
inadvertent disclosure known for two years were sufficient in light of the "overriding issue of fairness" because,
during those two years, plaintiff changed counsel multiple times and the case was appealed to the Ninth Circuit).
Courts continued to encourage parties to settle future privilege and inadvertent disclosure arguments in advance
through the use of two devices: FRE 502(d) protective orders and FRE 502(e) claw-back provisions in
agreements between the parties. See, e.g., Doe v. Nebraska, Nos. 4:09-cv-3266, 4:10-cv-3005, 8:09-cv-456,
2011 WL 1480483, at *8 (D. Neb. Apr. 19. 2011) (Zwart, Mag. J.) (stating that the parties should confer "in good
faith to determine if an agreement can be reached regarding the scope, type and method of document
disclosure," and that the "parties are encouraged to consider using protective orders, or "claw-back" agreements
such as those contemplated under Rule 502(d) and (e)").
Social Media: Broadly Discoverable, If Authenticated
Throughout 2011, courts continued to grapple with how to authenticate social media and protect users' privacy
by attempting to fit this new source of communication into a traditional discovery paradigm. In an implicit
recognition of the increasing importance of ESI from social media sites in the discovery process, e-discovery
vendors (e.g., Nextpoint, X1 Technologies and DCSemap) and social media sites (e.g., the "Download Your
Information" feature on Facebook) have begun developing technologies to aid in its collection and retention.
Although ESI from social networking sites has been held to be discoverable, it is not generally considered to be
self-authenticating. Indeed, some courts suggested that a greater authentication showing may be necessary
social media because this data may be easily manipulated. See, e.g., Griffin v. Maryland, No. 74, 2011 WL
1586683, at *1-10, *4 (Md. Apr. 28, 2011) (overturning murder conviction when State failed to supply the
additional extrinsic evidence necessary to properly attribute MySpace profile and postings to the alleged author;
simply confirming that the profile photo, nickname and birthday were the author's was insufficient because
"anyone can create a fictitious account and masquerade under another person's name or can gain access to
another's account by obtaining the user's username and password[]").
The Griffin court offered several suggestions to properly authenticate a profile or posting printed from a social
networking site, including (1) asking the alleged owner of the account about the profile or posting under oath, (2)
searching the alleged owner's hard drive and Internet history to determine whether that computer was used to
originate the profile or post and (3) obtaining "information directly from the social networking website that links
the establishment of the profile to the person who allegedly created it, and also links the posting to the person
who initiated it." Id.at *9-10. The court observed that additional means for authenticating profiles and postings
likely will develop "as the efforts to evidentially utilize information from [social networking] sites increases." Id. at
*9; see also People v. Mills, III, No. 293378, 2011 WL 1086559, at *13 (Mich. Ct. App. Mar. 24, 2011) (finding
photographs from a MySpace page were not properly authenticated, in part because the proponent of the
evidence "ha[d] no way of knowing if the photos were altered in any way").
A frequently litigated issue regarding the discovery of social media was the role of traditional privacy rights in
protecting those new methods of personal expression. Courts continued to find that individuals generally do not
have a reasonable expectation of privacy, regardless of activated privacy settings, in the information they submit
to social networking sites. See Zimmerman v. Weis Mkts., No. CV-09-1535, 2011 WL 2065410, at *1 (Pa. Com.
Pl. May 19, 2011) (finding no reasonable expectation of privacy in social media because "[a]ll the authorities
recognize that Facebook and MySpace do not guarantee complete privacy" and ordering the social media user to
"provide all passwords, user names and log-in names for any and all MySpace and Facebook accounts" and
refrain from deleting or altering existing posts).
Recently, a court held that, under the Electronic Communications Privacy Act ("ECPA"), 18 U.S.C. § 2701 (1986)
(also known as the "Stored Communications Act"), individual petitioners lacked standing to challenge a court
order requiring Twitter to turn over subscriber information to the United States, implying that the individuals did
not have a privacy right in subscriber information. Compare In re § 2703(d) Order; 10GJ3793, --- F. Supp. 2d ---,
No. 1:11dm00003, 2011 WL 900120, at *3 (E.D. Va. Mar. 11, 2011) (Buchanan, Mag. J.) (concluding that a
government request for message records from Twitter, as opposed to content, is not susceptible to a challenge
under the ECPA) with Mancuso v. Fla. Metro. Univ., Inc., No. 09-61984-CIV, 2011 WL 310726 (S.D. Fla. Jan. 28,
2011) (Seltzer, Mag. J.) (holding that an account holder had third-party standing to challenge subpoenas served
on Facebook and MySpace because he had a "personal interest" in the information). The court in In re §2703(d)
Order also held that the order to Twitter did not violate the First and Fourth Amendments, two constitutional
issues that discovery of social media has raised. Id.at *4-5.
Cross-Border Discovery: A Complicated Balancing Act
Consistent with a trend previously observed in our 2010 Year-End Update, U.S. courts continued to find that
U.S. interest in broad discovery generally trumps foreign privacy laws that would prevent disclosure. See
AstraZeneca LP v. Breath Ltd., Civil No. 08-1512 (RMB/AMD), 2011 WL 1421800 (D.N.J. Mar. 31, 2011) (Donio,
Mag. J.) (ordering production of communications between Swedish in-house counsel and employees because
documents were not privileged under U.S. or Swedish law and U.S. discovery rules, permitting disclosure of
trade secrets pursuant to a protective order, outweighed Sweden's interest in protecting trade secrets pursuant
to the Swedish Trade Secret Protection Act); see also In re § 2703(d) Order, 2011 WL 900120 (rejecting
argument that requiring Twitter to disclose a member of the Icelandic Parliament's subscriber information to the
U.S. threatens international comity); In re TFT-LCD (Flat Panel) Antitrust Litig., No. M 07-1827 SI, 2011 WL
723571, at *3 (N.D. Cal. Feb. 22, 2011) (ordering in-camera review of documents pertaining to the European
Commission and Japan Fair Trade Commission investigations of Hitachi despite objections that review would
violate European and Japanese laws because of failure to support assertions that review would impair the
effectiveness of current and future investigations).
Recognizing that international discovery disputes require U.S. courts to "exercise special vigilance," however,
some courts exercised their discretion to require the requesting party to first exhaust the Hague Convention's
discovery procedures. See S.E.C. v. Stanford Int'l Bank, Ltd., Civil Action No. 3:09-CV-0298-N, 2011 WL
1378470, at *3 (N.D. Tex. Apr. 6, 2011) (citing Société Nationale Industrielle Aérospatiale v. U.S.D.C., 482 U.S.
522, 546 (1987)) (ordering receiver to first conduct discovery from foreign nonparty pursuant to the Hague
Convention, rather than the FRCP, because comity factors weighed, at least initially, in favor of foreign nonparty).
While most cross-border opinions focus on U.S. litigants seeking discovery from non-U.S. litigants abroad, there
are also situations in which non-U.S. litigants use U.S. rules to seek discovery against U.S. parties, as recently
illustrated in the case of Heraeus Kulzer GmbH v. Biomet, Inc., Nos. 09-2858, 10-2639, 2011 WL 198117 (7th
Cir. Jan. 24, 2011) (reversing the district court's denial of plaintiff's request for discovery in federal district court
pursuant to 28 U.S.C.§1782 for use in a foreign trade secrets case). In Heraeus Kulzer, the Seventh Circuit
allowed a foreign litigant, litigating in a foreign jurisdiction, to obtain U.S.-style discovery from a U.S. corporation
pursuant to the U.S. FRCP because there was no evidence of potential abuses that would warrant denial, such
as harassing the opposing party. Id. at 594-95.
Overall, U.S. courts are showing some willingness to acknowledge the varying discovery and data privacy
requirements across jurisdictions, but they still show great deference to U.S. rules and standards for discovery,
resulting in litigants being stuck between either disobeying the laws of another nation or disobeying a U.S. court.
It may be wise for parties with international discovery issues to communicate these issues to the opposing party
and the judge early on in the litigation so that a solution can be reached that balances the requirements of both
jurisdictions.
Privacy: Inside and Outside the Workplace
While some predicted a new era of public policy-based deference to the attorney-client privilege in workplace
communications following last year's New Jersey Supreme Court decision in Stengart v. Loving Care, 990 A.2d
560 (N.J. 2010), that trend has yet to materialize. Instead, the past six months have seen several decisions
piercing the attorney-client and other privileges in the workplace.
The Stengart opinion suggested that courts would be reluctant to pierce the attorney-client privilege for use of a
personal email account on work-owned equipment to make privileged communications, but other courts have
shown a willingness to pierce the privilege when the employee communicates with his or her personal attorney
through employer-monitored email. See, e.g., Holmes v. Petrovich Dev. Co.,191 Cal. App. 4th 1047, 1051 (Cal.
App. Jan. 13, 2011).
In United States v. Hamilton, No. 3:11CR13-HEH, 2011 WL 1366481, at *4 (E.D. Va. Apr. 11, 2011), the court
held that an email between husband and spouse, seized by the government as part of a criminal investigation,
was not entitled to marital privilege protection because it resided on the server of the defendant's workplace and
the workplace maintained a policy that entitled it to inspect communications made over the network. Importantly,
the email itself was sent before this policy was put in place, but was retrieved several years after the policy was
implemented. See id. at *1-2. The court held that because the defendant failed to erase the message after being
on notice that his employer could monitor his email, he had no expectation of privacy in his marital
communication. Id. at *4; see also In re Reserve Fund Sec. & Derivative Litig., 09-MD-2011, 09-Civ-4346, 2011
WL 2039758 (S.D.N.Y. May 23, 2011) (holding that marital privilege was waived where personal emails were
sent from a work account and the workplace regularly monitored email for regulatory purposes and had an
acceptable use policy in effect).
Outside of the employer-employee setting, courts have been willing to uphold the attorney-client privilege in
communications on a personal email account, even if access to the account was not well-protected. Parnes v.
Parnes, 80 A.D.3d 948 (N.Y. App. Div. 2011) (no waiver of attorney-client privileged communications stored in
personal email account even when account log-in information was left in plain view of third parties).
The Government's E-Discovery Obligations
The U.S. government continued to seek clarification from the courts regarding the contours of its e-discovery
obligations as criminal prosecutor, civil litigant and custodian under FOIA. The government also continued to
struggle to define the limits on its ability to obtain ESI in an investigative capacity.
Trends in the Criminal Context
In a recent bulletin for U.S. Attorneys, Andrew Goldsmith, the National Criminal Discovery Coordinator, surveyed
e-discovery decisions and noted "a coherent body of case law on appropriate collection, management, and
disclosure of ESI has yet to emerge in the criminal context." See Andrew Goldsmith, Trends - Or Lack Thereof In Criminal E-Discovery: A Pragmatic Survey of Recent Case Law, U.S. Att'ys' Bull., May 2011, at 2. He
reiterated the position of the Department of Justice ("DOJ") that "traditional disclosure requirements and
procedures" govern ESI, rejecting any argument that the government has obligations beyond Federal Rule of
Criminal Procedure 16, Brady and Giglio. Id. at 4. Although the United States Attorneys' Manual encourages
broader disclosures in several ways, Mr. Goldsmith claimed that those guidelines were not legally binding,
explicitly rejecting recent scholarship that implied that civil and criminal e-discovery obligations may be merging.
Id. at 2-3. Mr. Goldsmith emphasized that the government is only required to meet its "basic obligation under
Federal Rule of Criminal Procedure 16 … to make that material available for inspection and copying." Id. at 5.
Regarding government-held ESI, courts implied that the government is under no duty to direct a defendant to
specific evidence within a larger mass of disclosed material, but the government should do more than simply
"dump" voluminous ESI files on criminal defendants. See, e.g., United States v. Ohle, No. S3 08 CR 1109(JSR),
2011 WL 651849, at *4 (S.D.N.Y. Feb. 7, 2011) (holding that the government fulfilled its discovery obligations
where it provided a text-searchable database of an admittedly "voluminous" file that was "unduly onerous to
access" and where there had been no overt effort to "purposefully confound[]" the defendant's search for
exculpatory material); see also United States v. Shafer, No. 3:09-CR-249-D(05), 2010 WL 977891, at *4 (N.D.
Tex. Mar. 21, 2011) (no Brady violation despite disclosure of 200 terabytes of ESI and 10,000 pages of paper
without directing the defendant to relevant evidence given the prosecution's "additional steps," the complexity of
the defendant's case and the absence of evidence that the government tried to hide potentially exculpatory
evidence or otherwise act in bad faith). Typically, these government discovery decisions are fact-specific, with
the courts placing particular importance on equal access and good faith practices.
Trends in the Civil Context
As discussed in our 2010 Year-End Update, the government's e-discovery obligations in the context of civil
litigation are consistent with those of any other civil litigant. The District of Columbia was recently reminded of
this fact after being harshly criticized for its "repeated, flagrant, and unrepentant failures to comply with discovery
orders." DL v. District of Columbia, 2011 WL 1770468, at *6. The court colorfully admonished that "[t]he District
would be well-advised to invest the time it's spent ankle-biting the plaintiffs for various alleged discovery abuses
in bringing its own conduct in line with the [FRCP] and this Court's Orders." The court upheld waiver of privilege
as an appropriate sanction for the government's failure to timely produce ESI and other documents. Id.at *6.
Several governmental agencies took strides to improve their e-discovery practices in order to meet their
obligations as civil litigants. The Securities and Exchange Commission hired an expert to revamp its e-discovery
protocols and serve as special counsel in e-discovery matters. SeeMonica Bay, Giant Steps: Can a Corporate
Veteran Help the SEC Learn New E-Discovery Moves?, Law Tech. News, Jan. 31, 2011, at 1. The DOJ formed
a Civil E-Discovery Committee tasked with developing new training programs and "best practices" for
e-discovery. Hon. Thomas J. Perrelli, Introduction to the E-Discovery Issue of the USA Bulletin, U.S. Att'ys' Bull.,
May 2011, at 1. Additionally, each branch of the DOJ appointed an attorney dedicated full-time to e-discovery
issues, and every individual DOJ office appointed an Electronic Discovery Office Coordinator to serve as a
local resource.
Government's FOIA Obligations
The government's e-discovery obligations under FOIA came under increasing judicial scrutiny as courts
considered whether FOIA requires governmental entities to maintain and preserve ESI as they would for civil
litigation. Governmental agencies argued that imposing civil litigation standards on FOIA productions is
unreasonable and untenable. Unlike civil litigation, where the duty to preserve ESI is triggered upon the
"reasonable anticipation" of litigation, FOIA requests can be made by any person at any time. Imposing strict
preservation and production standards could potentially require government agencies to maintain ESI indefinitely.
Judge Scheindlin of the Southern District of New York recently weighed in on this debate, dismissing the
government's concerns and imposing civil litigation standards on government files produced pursuant to FOIA.
See Nat'l Day Laborer Organizing Network, 2011 WL 381625, at *2-5. After the government was granted a
temporary stay and appealed this issue to the Second Circuit, however, Judge Scheindlin withdrew her opinion,
stating that in "the interests of justice" it was "prudent" to withdraw her opinion because the record was
incomplete. Nat'l Day Laborer Org. Network, 2011 WL 381625, withdrawn, Nat'l Day Laborer Organizing
Network v. U.S. Immigration & Customs Enforcement Agency, No. 10 Civ. 3488 (SAS) (S.D.N.Y. June 17, 2011).
The Sixth Circuit imposed less stringent obligations on governmental entities responding to FOIA requests,
holding that regularly requiring complex searches to retrieve and produce ESI would "cripple" governmental
agencies and that "is manifestly not what [FOIA] intends." See CareToLive v. FDA, 631 F.3d 336, 343-44 (6th Cir.
2011).
In another FOIA-related development, the Supreme Court recently held that "personal privacy" within the
meaning of FOIA exception 7(C) does not extend to corporations. FCC v. AT&T, 131 S. Ct. 1177, 1185 (2011).
Exception 7(C) exempts the production of law enforcement records, the disclosure of which "could reasonably be
expected to constitute an unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(7)(C). AT&T argued that
this exception prohibited the distribution of records that AT&T turned over during a government investigation.
The Supreme Court held that the ordinary meaning of the phrase "personal privacy" is evocative of human
concerns and not those associated with corporate entities. FCC, 131 S. Ct. at 1179.
Trends in the Investigative Context
The judiciary continued to struggle to define the proper boundaries of ESI searches. Federal circuits remain split
over whether law enforcement officers may search apparently unrelated files while executing computer search
warrants. In United States v. Stabile, 633 F.3d 219, 240-41 (3d Cir. 2011), the Third Circuit held that the "plain
view" exception applies to seizure of evidence during computer searches, but that the exact confines of the
doctrine require a case-by-case inquiry. Id. at 241 n.16.
In addition to seeking ESI in the subject's own possession, law enforcement increasingly sought information
directly from online service providers. And the types of information that service providers may properly disclose to
the government continue to grow. As two recent decisions illustrate, IP addresses, data transfer volume and
service provider's correspondence and notes relating to customer accounts have all been categorized as
non-content records within the meaning of the ECPA, thus immunizing service providers from liability for
disclosing those records pursuant to court orders, warrants, subpoenas, statutory authorization or certification.
Sams v. Yahoo!, Inc., No. CV-10-5897-JF(HRL), 2011 WL 1884633, at *4, *6-7 (N.D. Cal. May 18, 2011) (Yahoo!
email user's registration and log-in IP address information are "records"); In re § 2703(d) Order, 2011 WL
900120, at *3 (data transfer volume, source and destination IP addresses, provider's correspondence and notes
of records related to Twitter accounts are "records"); see also 18 U.S.C. §§ 2703(c)(2), 2703(e).
One area that garnered increased attention is government access to geolocation data. Courts disagreed as to
whether and when law enforcement may obtain such information without a warrant. See, e.g., United States v.
Davis, Crim No. 10-339-HA, 2011 WL 2036463, at *2-4 & n.1 (D. Or. May 24, 2011) (noting debate among courts
regarding location information; warrantless search of network element information permitted under the ECPA); In
re Application of United States for an Order Authorizing the Release of Historical Cell-Site Information, No.
11-MC-0113 (JO), 2011 WL 679925, at *1-2 (E.D.N.Y. Feb. 16, 2011) (holding that Title II of the ECPA permits
warrantless disclosure of 21 days of historical cell-site information, while month-long monitoring would require a
warrant).
Federal legislators are working to provide more clarity on access to geolocation data. Identical Senate and
House bills known as the Geolocation Privacy and Surveillance (GPS) Act were introduced in mid-June. S. 1212,
111th Cong. (2011); H.R. 2168, 112th Cong. (2011). The proposed legislation would require law enforcement to
get a warrant to obtain geolocation data from wireless or tracking devices, subject to certain exceptions. See id.
Similarly, the Electronic Communications Privacy Act Amendments Act of 2011, introduced in May 2011, also
would require the government to obtain a warrant to gain access to location data, subject to emergency
exceptions. S. 1011, 112th Cong. (2011). We will continue to track legislative developments in this area.
E-Discovery Reform: Continued Efforts to Retool a Flawed Process
Critics of the ESI status quo continued to demand more consistent and predictable treatment of ESI across
jurisdictions, particularly in the areas of preservation and sanctions standards. At the same time, critics of the
ECPA continued to demand more reliable and consistent treatment of communications held in electronic storage.
These calls to action have led to increased efforts at both the federal and state levels in the first half of 2011 to
develop more consistent standards for the treatment of ESI.
Reform of Federal Rules Progresses in the Wake of the Duke Conference
As we reported in our 2010 Year-End Update, the "Duke Conference" was convened by the Civil Rules Advisory
Committee (the "Committee") last year amid numerous calls to reform the discovery process. This year, the
Committee continued that work, evaluating whether and how to develop rules regarding preservation and
sanctions standards.
The Committee met in April 2011, and it is planning to hold a "mini-conference" in September 2011 to focus
specifically on discovery reform. Draft Minutes, Civil Rules Advisory Committee, Tab 5F (April 4-5, 2011). In
September, the Committee hopes to hear from individuals with a technical background who can educate the
judiciary on the storage, searching and retrieval of ESI, as well as from plaintiff's, defense and in-house counsel
regarding their concerns about the treatment of ESI. Presently, the Committee is seeking input from leading
organizations such as the American Bar Association and The Sedona Conference® regarding how to best
effectuate change.
The Committee has not yet agreed that rule amendments will be the most productive way to resolve the current
issues related to e-discovery. Rather, the Discovery Subcommittee developed three possible approaches for
addressing these concerns: (1) a detailed duty-to-preserve rule; (2) a rule that describes the preservation
obligation in general terms; or (3) a sanctions-based rule that "avoids any direct statement of a duty to preserve,
but instead describes appropriate responses and sanctions for failure to preserve." Id.The third approach was
developed when some Committee members expressed concern about the Committee's authority under the Rules
Enabling Act (28 U.S.C. § 2072) to develop preservation rules as the duty to preserve generally arises before
federal courts have jurisdiction over a case (i.e., before a case has been filed).
If the Committee does not have authority to develop preservation-focused rules, then the sanctions-focused rule
at least "will give retrospective guidance on what should be preserved." Draft Minutes, Civil Rules Advisory
Committee (April 4-5, 2011). The Committee has considered asking Congress to give it the express authority to
create a preservation rule in the event the Committee concludes that the judiciary does not have the authority to
enact such a rule. Id. A copy of the current working language for the possible rules changes is available on the
US Courts' website. Following the mini-conference, the Committee's Discovery Subcommittee plans to
recommend a general approach to the full Committee in November 2011 and then present a detailed proposal
ready for the full Committee's consideration at the Spring 2012 meeting. Id.
Progress on Reforming the Electronic Communications Privacy Act
In our 2010 Year-End Update, we reported on calls to reform the ECPA. In 2011, those calls led to concrete
action.
On April 6, 2011, the Senate Judiciary Committee held a hearing on reforming the ECPA. In his opening
statement, Senator Patrick Leahy explained that the ECPA "is hampered by conflicting standards that cause
confusion for law enforcement, the business community and American consumer alike. For example, the content
of a single email could be subject to as many as four different levels of privacy protections under ECPA,
depending on where it is stored, and when it is sent." The Electronic Communications Privacy Act: Government
Perspectives on Protecting Privacy in the Digital Age: Hearing Before the S. Judiciary Committee, 112th Cong.
(2011) (statement of Sen. Patrick Leahy, Chairman, S. Comm. on the Judiciary).
On May 17, 2011, Senator Leahy introduced the "Electronic Communications Privacy Act Amendments Act
of 2011." This legislation proposes to update the ECPA to clarify how data privacy issues should be addressed
consistently. The bill addresses five main issues: general consumer privacy, consumer location privacy, tools for
law enforcement to obtain electronic records, cyber security and national security.
While Senator Leahy's proposed legislation is still a long way from becoming law, it demonstrates that the calls
for reform have been recognized at the federal level, and Congress is beginning to seriously consider reforming
the ECPA.
Reform at the State Level
As in 2010, e-discovery reform continues to be active at the state level. Proposed rules and amendments were
introduced in a variety of jurisdictions, and we expect reform efforts to continue apace in the second half of the
year.
In many states, the courts, rather than legislatures, are leading current reform efforts. For example, in January
2011 the Delaware Court of Chancery issued the Court of Chancery Guidelines for Preservation of
Electronically Stored Information. These Guidelines instruct litigants on how to address issues related to ESI
and encourage cooperation between parties. (For more information on the Guidelines, see the Gibson Dunn
client alert, "E-Discovery Trends: Delaware Chancery Court Adopts Preservation Guidelines for
Electronically Stored Information.")
In New York, the E-Discovery Working Group for the New York State Unified Court System continued to address
a possible reform of New York e-discovery rules and to discuss educating practitioners about issues related to
the preservation, collection and processing of ESI.
In California, although the "The Electronic Discovery Act" was enacted just two years ago, the California Judicial
Council is considering additional e-discovery legislation to ensure that the changes from 2009 are
comprehensively applied to the entire California Code of Civil Procedure. Earlier this year, the Council issued
"Proposed Clean-Up Legislation on the Discovery of Electronically Stored Information." The proposed legislation
clarifies that ESI is discoverable during all stages of the judicial process and provides guidance on how ESI
should be treated when a subpoena is issued. The proposed changes would also clarify that the California "safeharbor" provision, which is analogous to the FRCP standard, is broadly applicable to various sections of the
California Code of Civil Procedure. Judicial Council of California, Invitation to Comment, Leg. 11-01, 17 (2011).
The Council accepted public comments on the proposed changes through June 20, 2011, and is now
considering sponsoring the legislation and seeking enactment. If passed, the legislation likely would become
effective on January 1, 2013.
North Carolina made significant reform strides in the first half of this year, passing a comprehensive e-discovery
law on June 23, 2011. Act of June 23, 2011, Ch. S.L. 2011-0199 (N.C. 2011) (amending North Carolina Rules of
Civil Procedure to clarify the procedure for the discovery of ESI). House Bill 380, was introduced on March 16,
2011, and it was quickly approved by the House, the Senate and Governor Perdue. The new law has some
similarities to the FRCP, but also some key differences. For example, the law expressly addresses and partially
defines discoverable metadata, explaining that ESI "includes reasonably accessible metadata that will enable the
discovering party to have the ability to access such information as the date sent, date received, author, and
recipients. The phrase does not include other metadata unless the parties agree otherwise or the court orders
otherwise upon motion of a party and a showing of good cause for the production of certain metadata." Id. This
definition seeks to avoid some of the ambiguity that has emerged in other jurisdictions regarding what metadata
must be preserved and produced. The bill also follows a state law trend of making the Rule 26(f) conference
optional, whereas it is mandatory under the FRCP.
Finally, breaking with a trend seen in other states that adopt rules similar to the FRCP and strongly rebuking the
disarray of numerous and sometimes inconsistent federal e-discovery decisions, the Supreme Court of
Pennsylvania's Civil Procedure Rule Committee has proposed e-discovery rule amendments that expressly reject
the federal e-discovery scheme. The proposal clarifies that e-discovery in Pennsylvania should "be governed by
the same considerations that govern other discovery," and states that ESI disputes should be "resolved pursuant
to the general principles of [Pennsylvania] Rule 4011, and not pursuant to the FRCP and the frequent intricate
case law developing in the federal courts." Supreme Court of Pennsylvania, Civil Procedural Rules Committee,
Proposed Recommendation No. 249 (2011).
Conclusion
In the first half of 2011, the number and sophistication of e-discovery cases continued to grow at an increasingly
fast pace. Gibson Dunn will continue to track the latest developments and trends. Look for our updates
whenever a major opinion is issued and watch next winter for our 2011 Year-End E-Discovery Update.
Contributed by:
Gibson Dunn & Crutcher
333 South Grand Avenue
Los Angeles, CA 90071-3197
Gareth T. Evans, Esq.
213.229.7734
gevans@gibsondunn.com
Jennifer H. Rearden, Esq.
212.351.4057
jrearden@gibsondunn.com
G. Charles Nierlich, Esq.
415.393.8239
gnierlich@gibsondunn.com
Farrah L. Pepper, Esq.
212.351.2426
fpepper@gibsondunn.com
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U.S. Supreme Court Bars Climate Change Lawsuits under Federal
Common Law of Public Nuisance and Defers to the Clean Air Act and the
EPA to Regulate Carbon Dioxide Emissions
AEP v. Connecticut
On June 20, 2011, the U.S. Supreme Court handed down its eagerly awaited decision on “climate change
litigation” in the case of American Electric Power Co., Inc. v. State of Connecticut, No. 10-174. The Court,
without endorsing any particular view of the “complicated issues related to carbon-dioxide emissions and climate
change,” unanimously held that plaintiffs may not sue power companies for climate change damages based on a
federal common law public nuisance theory, because the EPA's implementation of the Clean Air Act displaces
any federal common law right to seek abatement of power plant emissions.
Case Background
In 2004, eight states joined the City of New York and three nonprofit land trusts in suing four electric power
corporations and the Tennessee Valley Authority (TVA) for allegedly emitting approximately 10% percent of all
human-caused carbon dioxide emissions in the United States. By contributing to global warming, the plaintiffs
asserted that the defendants’ emissions had led to the loss of state-owned land, put their citizens’ health at risk,
and created a “substantial and unreasonable interference with public rights” in violation of the federal common
law of public nuisance or, in the alternative, state tort law. The plaintiffs sought an injunction affirmatively
requiring that each defendant abate its contributions to the “public nuisance” by capping its emissions of carbon
dioxide, and reducing those emissions by a specified percentage each year for at least ten years.
The district court dismissed the claims as non-justiciable because they presented political questions best left to
the legislative and executive branches and outside the province of the courts to decide. However, a two-judge
panel of the Second Circuit reversed and reinstated the claims holding that: (1) the plaintiffs had Article III
standing to bring their lawsuit; (2) the plaintiffs’ claims did not present political questions and could be decided by
the courts; (3) the complaint adequately alleged claims under the federal common law of nuisance; and (4) the
Clean Air Act did not displace the plaintiffs’ claims because, at the time, the EPA had not yet acted to regulate
greenhouse gases. The Second Circuit did not rule on the alternative state law claims because it found that
federal common law applied.
U.S. Supreme Court Decision
The U.S. Supreme Court affirmed, by an equally divided vote of 4-41, the Second Circuit's holding that the
plaintiffs had Article III standing to sue; however, such an equal split on the standing issue holds no precedential
value in other circuits. The Court then proceeded to the merits of the case, without any discussion of the political
question doctrine, other than noting that “no other threshold obstacle bars review.” Slip op. at 6.
In the opinion authored by Justice Ginsburg, the Court held by a vote of 8-0 that "the Clean Air Act and the EPA
actions it authorizes displace any federal common law right to seek abatement of carbon dioxide emissions from
fossil-fuel fired power plants." Slip op. at 10.
The Court emphasized its 2007 holding in the case of Massachusetts v. EPA, where it found the EPA had been
told by Congress to treat greenhouse gas emissions as an “air pollutant” under the Clean Air Act.
"Massachusettsmade plain that emissions of carbon dioxide qualify as air pollution subject to regulation under
the Act. [citation omitted] And we think it equally plain that the Act speaks directly to emissions of carbon dioxide
from the defendants' plants." Slip op. at 10.
The Court responded to arguments of whether displacement should take place before the EPA has finalized
standards governing emissions from the defendants' plants stating, "The critical point is that Congress delegated
to EPA the decision whether and how to regulate carbon-dioxide emissions from power plants; the delegation is
what displaces federal common law. Indeed, were EPA to decline to regulate carbon-dioxide emissions altogether
at the conclusion of its ongoing §7411 rulemaking, the federal courts would have no warrant to employ the
federal common law of nuisance to upset the agency’s expert determination.” 2 Slip op. at 12.
The Court further noted that the Clean Air Act offered "multiple avenues" by which the complainants could
petition for emissions rulemaking or seek judicial review of the EPA's decisions regarding regulatory actions. The
Court concluded that the Clean Air Act "provides a means to seek limits on emissions of carbon dioxide from
domestic power plants -- the same relief the plaintiffs seek by invoking federal common law. We see no room for
a parallel track." Slip op. at 11.
Lastly, focusing on the “prescribed order of decision making,” Justice Ginsburg wrote, "It is altogether fitting that
Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse
gas emissions. The expert agency is surely better equipped to do the job than individual district judges issuing
ad hoc, case-by-case injunctions. Federal judges lack the scientific, economic and technological resources an
agency can utilize in coping with issues of this order." Slip op. at 14.
The Future of Climate Change Litigation
The AEP decision leaves open the question of whether such climate change claims can proceed under state
common law.
The Court noted, in closing, that the plaintiffs had also sought relief under state law and that the Second Circuit
did not reach the state law claims because it held that federal common law governed. The Court stated, "In light
of our holding that the Clean Air Act displaces federal common law, the availability vel non of a state lawsuit
depends, inter alia, on the preemptive effect of the federal Act. None of the parties have briefed preemption or
otherwise addressed the availability of a claim under state nuisance law. We therefore leave the matter open for
consideration on remand." Slip op. 15-16.
The plaintiffs in AEP will now have a chance to litigate the alternative state common law claims, with the focus
being on whether the state law claims are preempted by the Clean Air Act. With the Second Circuit having
originally rejected displacement, it will be interesting to see how it takes on a preemption defense, which is
considered more difficult to invoke than displacement. Thus, it is possible that at some point this case could wind
up back in front of the U.S. Supreme Court on the preemption issue.
In the interim, the continuing viability of climate change claims will be tested in a case presently pending in the
Ninth Circuit, Native Village of Kivalina v. ExxonMobil Corp., 663 F. Supp. 2d 863 (N.D. Cal. 2009). In the
Kivalina case, residents of a small Alaska village sued 24 oil companies, electric utilities, and a coal company
alleging that the defendants’ greenhouse gas emissions eroded the Arctic ice protecting the Kivalina coast from
winter storms and destroying the village. Among other things, the plaintiffs sought monetary damages for this
alleged nuisance under federal and state law. The district court in Kivalina dismissed the state nuisance claims
without prejudice based on its holding that the federal nuisance claims presented non-justiciable political
questions and that there was no standing. That ruling is currently on appeal to the Ninth Circuit, which stayed the
case pending the Supreme Court's ruling in AEP.
The Ninth Circuit will thus have the opportunity to determine how AEP should apply to the Kivalina case.
Commentators have suggested that the AEP opinion can be limited to those instances where parties are only
seeking injunctive relief, and may be distinguishable where parties are seeking monetary damages, such as in
Kivalina. Whether the Ninth Circuit will find standing and embrace the displacement holding of AEP or, as the
Ninth Circuit is often known to do, find ways to distinguish itself and the Kivalina case, remains to be seen.
For now, with AEP seemingly decided on the narrowest of grounds, and with the viability of pursuing these
climate change claims under “state law” still an open question, calls to sound the death knell for climate change
litigation are, for the moment, premature. Stay tuned.
1. Justice Sotomayor took no part in the consideration or decision of the case, having recused herself
because she had been on the original Second Circuit panel that heard the AEP case.
2. EPA commenced a rulemaking to set limits on greenhouse gas emissions from new, modified, and
existing fossil-fuel fired power plants. EPA has committed to issuing a proposed rule by July 2011, and a
final rule by May, 2012. Slip op. at 3
Contributed by:
Schaffer, Lax, McNaughton & Chen
515 S. Figueroa St., Suite 1400
Los Angeles, CA 90071
Jill A. Franklin, Esq.
213.337.1000 x2214
franklinj@slmclaw.com
Kevin J. McNaughton, Esq.
213.337.1000 x2217
kevin@slmclaw.com
Katrina J. Valencia, Esq.
213.337.1000 x2219
valenciak@slmclaw.com
Case Hyperlink:
http://www.supremecourt.gov/opinions/10pdf/10-174.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
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Personal Jurisdiction: Is No News From The Supreme Court Good News
For Foreign Product Manufacturers?
J. McIntyre Machinery, Ltd. v. Nicastro
The Supreme Court of the United States recently reversed two state court decisions, a development that should
help bar some future state court product liability lawsuits against foreign manufacturers having little or no
contacts with the forum. Unfortunately, however, the Court missed an opportunity to definitively answer important
1
questions that were left open after it decided Asahi Metal Indus. Co. v. Superior Court a quarter-century ago. In
Asahi, a divided Court disagreed on the extent of forum contacts necessary to support the exercise of jurisdiction
over a defendant whose product is placed into the stream of commerce outside the forum, but allegedly causes
an injury in the forum. The Court’s failure to resolve the competing opinions from Asahi comes as a
disappointment to those who saw its decision to review these cases as a signal that much-needed clarity might
soon be coming to this unsettled area of the law.
In J. McIntyre Machinery, Ltd. v. Nicastro,2 the Court reversed the Supreme Court of New Jersey after deciding
by a 6–3 vote that jurisdiction could not be exercised in New Jersey State court over J. McIntyre Machinery, Ltd.
(“McIntyre”), the English manufacturer of a recycling shearing machine that severed four of the plaintiff’s fingers.
McIntyre manufactured the machine in England and sold it through its independent exclusive U.S. distributor in
Ohio, McIntyre Machinery America, Ltd. (“McIntyre America”). McIntyre America sold the machine to the plaintiff’s
New Jersey employer, and the injury occurred in that state. There was no evidence of any contacts between
McIntyre and New Jersey, other than the machine in question ending up there. Six of the justices considered
McIntyre’s sale of such machines to McIntyre America, but to no one else in the U.S.; its attendance at annual
trade shows in various U.S. states, but not New Jersey, and the presence of up to four McIntyre machines in
New Jersey, including the machine in question, and found that these facts did not support the exercise of
jurisdiction in this case. The justices, however, failed to agree on a majority opinion to support their decision.
Backing his vote with the lead opinion, in which Chief Justice Roberts, Justice Scalia, and Justice Thomas
joined, Justice Kennedy squarely addressed the split decision from Asahi. He disagreed with Justice Brennan’s
opinion that a defendant’s ability to anticipate a lawsuit in the forum is a sufficient basis upon which to exercise
jurisdiction. He wrote, “Justice Brennan’s concurrence, advocating a rule based on general notions of fairness
and foreseeability, is inconsistent with the premises of lawful judicial power. This Court’s precedents make clear
that it is the defendant’s actions, not his expectations, that empower a State’s courts to subject him to a
3
judgment.” Justice Kennedy thus rejected the notion embraced by Justice Brennan, and still adhered to in
some courts today, that jurisdiction can be premised on the mere placement of a product into the stream of
commerce, so long as the defendant is aware that the product is being marketed in the forum state and “the
possibility of a lawsuit there cannot come as a surprise.” 4
Justice Kennedy instead favored the position taken by Justice O’Connor in Asahi, in which she rejected such
awareness as a basis for jurisdiction and stated that “a finding of minimum contacts must come about by an
5
action of the defendant purposefully directed toward the forum State.” As Justice O’Connor explained, ‘[t]he
placement of a product into the stream of commerce, without more, is not an act of the defendant purposefully
6
directed toward the forum state.” Based on this, Justice Kennedy opined that jurisdiction over McIntyre was
lacking because, while it may have intended to serve the U.S. market generally, there was no evidence that
McIntyre took any actions to purposefully avail itself of the New Jersey market in particular.
In a concurring opinion, Justice Breyer, with whom Justice Alito joined, agreed that jurisdiction was lacking. But,
he opined that this finding required “no more than adhering to our precedents.” 7 He therefore declined to join
Justice Kennedy’s attempt to resolve the debate from Asahi. In Justice Breyer’s opinion, jurisdiction over
McIntyre was lacking under either of the two Asahi opinions, as well as under the Court’s earlier product liability
8
personal jurisdiction decision in World-Wide Volkswagen Corp. v. Woodsen. He also found the Nicastro case to
be “an unsuitable vehicle for making broad pronouncements that refashion basic jurisdictional rules” due to its
limited factual record that did not implicate the kinds of modern commercial concerns (such as internet sales
activity on a manufacturer’s own website, or through third-party distributors such as Amazon.com) that might
9
compel a reassessment of the Court’s existing precedents.
Justice Ginsburg, joined by Justice Sotomayor and Justice Kagan, dissented. She opined that jurisdiction could
be properly exercised over McIntyre based on its efforts to distribute products in the U.S. generally. She wrote
that “McIntyre UK, by engaging McIntyre America to promote and sell its machines in the United States,
‘purposefully availed itself’ of the United States market nationwide, not a market in a single State or discrete
collection of States. McIntyre UK thereby availed itself of the market of all States in which its products were sold
10
by its exclusive distributor.”
With no majority opinion, the Court left Asahi and the ramifications of its split decision largely unaltered. Its
decision, however, does provide some guidance by making clear that at least as to a foreign manufacturer who
distributes its products in the U.S. through an exclusive independent distributor, jurisdiction in a state court may
not exist merely because its product causes an injury in that state, where there are no other contacts between
the manufacturer and that state. The Court’s holding, while limited to these facts, should make it more difficult for
plaintiffs to succeed on pure stream of commerce arguments in future cases against foreign product
manufacturers having this fairly common factual scenario.
11
In the other case, Goodyear Dunlop Tires Operations, S.A. v. Brown, the Court ruled unanimously that three
foreign subsidiaries of The Goodyear Tire and Rubber Company (“Goodyear USA”) were not subject to personal
jurisdiction in North Carolina state court for wrongful death claims arising from a bus accident that occurred near
Paris, France. The accident killed two boys from North Carolina. The plaintiffs sued Goodyear USA and three of
its subsidiaries located in Turkey, France, and Luxembourg. Goodyear USA did not contest jurisdiction in North
Carolina. The North Carolina Court of Appeals found that jurisdiction could be exercised over the foreign
subsidiaries based on the sales of tires manufactured by them in the U.S., including North Carolina, despite the
fact that the tires in question were not sold in North Carolina and allegedly caused the injury in France. The
Supreme Court reversed.
Only general jurisdiction was at issue in the case, since nothing any of the defendants did either in or directed at
North Carolina was related to the injury. Writing for the unanimous Court, Justice Ginsburg, reinforcing
long-standing precedent, made clear that general jurisdiction could not be premised on the mere fact that some
of the tires manufactured by the defendants abroad made their way through the stream of commerce into North
Carolina. This fact, she wrote, was “an inadequate basis for the exercise of general jurisdiction” since it did not
“establish the ‘continuous and systematic’ affiliation necessary to empower North Carolina courts to entertain
12
Justice Ginsburg explained that while
claims unrelated to the foreign corporation’s contacts with the State.”
“[f]low of a manufacturer’s products into the forum . . . may bolster an affiliation germane to specific jurisdiction,”
13
it will not support the exercise of general jurisdiction. She explained why: “Under the sprawling view of general
jurisdiction urged by respondents and embraced by the North Carolina Court of Appeals, any substantial
manufacturer or seller of goods would be amenable to suit, on any claim for relief, wherever its products are
distributed.” 14
In both cases, the Court declined the opportunity to expand the jurisdictional reach of state courts based on a
foreign defendant’s nationwide contacts. They also declined, however, to clarify, expand, or modify the Court’s
prior jurisdictional precedents, leaving unanswered many important lingering questions about the jurisdictional
reach of U.S. courts in product liability cases. Perhaps the Court is waiting for a fact pattern involving internet or
some other modern commercial dynamic before deciding on a uniform and clear jurisdictional standard, as
Justice Breyer suggested. Given that the Court did little more with these cases than simply reverse the New
Jersey and North Carolina courts, one wonders why it agreed to review them at all.
1. 480 U.S. 102 (1986).
2. 564 U.S. __, 2011 U.S. LEXIS 4800 (No. 09-1343, June 27, 2011).
3. Id. at * 19 (Kennedy, J).
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Id. at *17-18, quoting Asahi, 480 U.S. at 117.
Id. at 18, quoting Asahi, 480 U.S. at 112 (emphasis deleted, citations omitted).
Id.
Id. at *30 (Breyer, J., concurring).
444 U.S. 286 (1980).
Id. at *30 (Breyer, J., concurring).
Id. at *56 (Ginsburg, J., dissenting).
564 U.S. __, 2011 U.S. LEXIS 4801 (No. 10-76, June 27, 2011).
Id. at *10.
Id. at *21-22.
Id. at *25.
Contributed by:
Nixon Peabody, LLP
One Embarcadero Center, Suite 1800
San Francisco, CA 94111
Eric C. Strain, Esq.
415.984.8373
estrain@nixonpeabody.com
Case Hyperlink:
http://www.supremecourt.gov/opinions/10pdf/09-1343.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
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Ninth Circuit Affirms District Court Ruling Based On Government
Contractor Defense
Getz et al. v. The Boeing Co. et al.,
Today, the Ninth Circuit, issued a seminal decision regarding the Government Contractor Defense in Getz et al.
v. The Boeing Co. et al., No. 10-15284 (D.C. No. 4:07-cv-06396-CW) (9th Cir. Aug. 2, 2011). The decision was
authored by Senior Circuit Judge Wallace and joined by Judge Noonan and Judge Clifton. The Ninth Circuit’s
fact-intensive analysis of the three prongs of Boyle, as well as the state law failure-to-warn claim, provides a
well-written analysis of current Ninth Circuit precedent, and serves as a roadmap for future government
contractor defense cases in the Ninth Circuit.
Government Contractor Defense
The Government Contractor Defense establishes that government contractors can be protected from tort liability
that arises as a result of the contractor’s “compli[ance] with the specifications of a federal government contract.”
Getz, No. 10-15284 at 9963, citing In re Hanford Nuclear Reservation Litig., 534 F.3d 986, 1000 (9th Cir. 2008).
In order to establish the government contractor defense, a contractor needs to establish: (1) government
approval of reasonably precise specifications, (2) conformance to those specifications, and (3) warnings of
dangers known to the contractor but not the government. See Boyle v. United Technologies Corp., 487 U.S. 500,
512 (1988).
Analysis Of Getz Decision
The Ninth Circuit created new circuit precedent related to the second element of Boyle, and held that “the
operative test for conformity with the reasonably precise specifications turns on whether ‘the alleged defect . . .
exist[ed] independently of the design itself.” Getz at 9969, citing Miller v. Diamond Shamrock, 275 F.3d 414, 421
(5th Cir. 2001). The Getz Court continued “[t]herefore, absent some evidence of a latent manufacturing defect, a
military contractor can establish conformity with reasonably precise specifications by showing ‘[e]xtensive
government involvement in the design, review, development and testing of a product’ and by demonstrating
‘extensive acceptance and use of the product following production.’” Getz, No. 10-15284 at 969, citing Kerstetter
v. Pac. Scientific Co., 210 F.3d 431, 435-36 (5th Cir. 2000).
The decision by the Ninth Circuit also acts to solidify current Ninth Circuit precedent related to the Government
Contractor Defense’s first and third prongs. For the first prong of Boyle, a contractor must demonstrate that the
government approved reasonably precise specifications. To achieve this, the Ninth Circuit reaffirmed previous
case law establishing that a “continuous exchange” and “back and forth dialogue” was required between the
contractor and the government, and that evidence was required that the approval of the specification was not a
mere “rubber stamp.” See Butler v. Ingalls Shipbuilding, Inc., 89 F.3d 582, 585 (9th Cir. 1996); Snell v. Bell
Helicopter Textron, Inc., 107 F.3d 744, 747 (9th Cir. 1997). For the third prong of Boyle, the Ninth Circuit clarified
that Boyle “does not require a contractor to warn about dangers of which it merely should have known.” Getz,
No. 10-15284 at 9973, citing Boyle, 487 U.S. at 512. The Ninth Circuit also analyzed the plaintiffs’ state law
failure-to-warn claims and determined that those claims were also preempted by the government’s discretion in
issuing the Army controlled Operator Manual, and its contents. The Ninth Circuit stated that to establish
preemption of a failure-to-warn claim a party need only establish that “governmental approval (or disapproval) of
particular warnings ‘conflict’ with the contractor’s ‘duty to warn under state law,” not that the government is
required to specifically forbid the issuing of warnings altogether or that the government itself must dictate the
content of the warnings. Getz, No. 10-15284 at 9975.
Case Background
On February 17, 2007, a United States Army Special Operations Aviation Regiment MH-47E Chinook helicopter
crashed in the Zabul Province of Afghanistan. The subject helicopter and two other Chinook helicopters were
part of a mission to drop off personnel to capture or kill someone in the Al-Qaeda network. The mission was
cancelled for “intel” reasons after the target did not develop as planned. After takeoff, weather conditions
deteriorated, and by thirty-five minutes after takeoff, the Chinooks encountered snow, mist, and heavy/severe
icing. Several witnesses described the weather as the “worst” in which they had ever flown.
Sixty-four minutes into the flight, the helicopter crashed, resulting in eight deaths and fourteen injuries. The
survivors were evacuated by combat search and rescue forces. After two series of investigations as to the cause
of the crash, investigators believed that “the aircraft’s engine flamed out because it ingested an inordinate
amount of water and ice during the inclement weather.” Getz, No. 10-15284 at 9958.
Lawsuits were filed against the contractors in California state court by fifteen of the twenty-two aboard alleging
that a cause of the crash was a power loss on one of the engines, or alternatively, abnormalities with the
aircraft’s engine control system. The case was removed to federal court pursuant to the Federal Officer Removal
Statute, 28 U.S.C. § 1442(a). In January 2010, Judge Claudia Wilken from the Northern District of California
granted summary judgment for the Contractors based on the Government Contractor Defense adopted in Boyle
v. United Technologies Corp., 487 U.S. 500 (1988). The Ninth Circuit affirmed that decision on August 2, 2011.
Contributed by:
Morrison Foerster, LLP
12531 High Bluff Drive
Suite 100
San Diego, CA 92130-2040
James W. Huston, Esq.
858.720.154
jhuston@mofo.com
Erin M. Bosman, Esq.
858.720.5178
ebosman@mofo.com
William V. O’Connor, Esq.
858.720.7932
woconnor@mofo.com
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
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Florida Supreme Court Decision Regarding NICA
Bennett v. St. Vincent's Medical Center, Inc
The Florida Supreme Court narrows definition of "birth-related neurological injury" for NICA claims and
holds that health care providers are not entitled to benefit of statutory rebuttable presumption in favor
of NICA compensability
On July 7, the Florida Supreme Court made it more difficult for a health care provider to establish that a brain
damaged infant has suffered a "birth-related neurological injury" and is therefore statutorily limited to only no-fault
compensation under the Florida Birth-Related Neurological Injury Compensation Plan (NICA) as the exclusive
remedy for his or her injury.
In Bennett v. St. Vincent's Medical Center, Inc., Case No. SC10-364 (Fla. July 7, 2011), the Florida Supreme
Court quashed the First District Court of Appeal's decision in St.Vincent's Medical Center, Inc. v. Bennett, 27 So.
3d 65 (Fla. 1st DCA 2009) and approved the Fifth District Court of Appeal's decision in Orlando Regional
Healthcare System, Inc. v. Florida Birth-Related Neurological, 997 So. 2d 426 (Fla. 5th DCA 2008), holding that
in order for a "birth-related neurological injury" to occur, both the oxygen deprivation that causes the injury and
the brain injury itself must occur during labor, delivery or resuscitation in the immediate postdelivery period - a
period that requires ongoing and continuous efforts of resuscitation. The court also held that the statutory
rebuttable presumption in favor of compensability may only be invoked by a claimant who is actually seeking
NICA benefits - not a health care provider or the NICA program.
As a result of the Bennett decision, a health care provider seeking to enforce NICA exclusivity will have the
burden to produce evidence (1) proving that the infant at issue suffered oxygen deprivation or mechanical injury
during labor, during delivery, or during an ongoing and continuous period of resuscitation immediately following
delivery, (2) proving that the infant's brain injury occurred during that same time period, and also (3) proving that
the oxygen deprivation or mechanical injury caused the infant's brain injury. The health care provider will not be
able to claim the benefit of the statutory presumption that a brain injury caused by oxygen deprivation or
mechanical injury qualifies for coverage under the NICA plan when the timing is unknown.
Contributed by:
Carlton Fields, Attorneys at Law
4221 W. Boy Scout Boulevard, Suite 1000
Tampa, Florida 33607-5780
Edward J. Carbone, Esq.
813.229.4307
ecarbone@carltonfields.com
Case Hyperlink: http://scholar.google.com/scholar_case?case=6574917807411800853&hl=en&
as_sdt=2&as_vis=1&oi=scholarr
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
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Supreme Court Limits Recovery by Contractors' Employees for Injuries
Arising from Alleged Violations of Cal-OSHA Regulations.
Seabright Insurance Company v. US Airways, Inc.
In a series of cases beginning with Privette v. Superior Court (1993) 5 Cal.4th 689, the California Supreme Court
has limited the circumstances in which those who retain contractors may be held liable for injuries sustained by
contractors' employees. In Seabright, the Supreme Court has extended the Privette doctrine, holding that
contractors' employees may generally not rely on duties imposed by Cal-OSHA regulations to avoid Privette's
limitations on liability of those who hire independent contractors.
The injury at issue in Seabright occurred after US Airways retained a contractor to maintain conveyor belts at an
airport. During the course of this work, an employee of the contractor was injured when one of his arms became
caught in the moving parts of a conveyor belt. The plaintiff contended that the conveyor belt lacked a necessary
safety guard; that US Airways had a duty under Cal-OSHA regulations to ensure that the conveyor belt was in
proper working order; and that US Airways could not lawfully delegate that regulatory duty to the contractor. After
the trial court granted summary judgment in favor of US Airways based on the Privette doctrine, the Court of
Appeal reversed, holding that Privette permits imposition of liability on a hirer for injuries caused by its failure to
ensure a contractor's compliance with Cal-OSHA regulations.
The Supreme Court reversed, holding that the Cal-OSHA regulation governing conveyor belts imposed a duty on
US Airways to protect its own employees from moving parts on the conveyor belt, but that the regulation did not
preclude US Airways from delegating to the contractor the duty to comply with the regulation in order to prevent
injury to the contractor's employees. The court determined that the right of delegation applied with particular
force in this case because the contractor had sole control over the manner in which the maintenance work was
performed.
Contributed by:
Horvitz & Levy, LLP
15760 Ventura Boulevard
18th Floor
Encino, California 91436-3000
David Axelrad, Esq.
818.995.0800
daxelrad@horvitzlevy.com
Case Hyperlink:
http://www.courtinfo.ca.gov/opinions/documents/S182508.PDF
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
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U.S. Supreme Court Holds State Law Failure-to-Warn Claims Impliedly
Preempted
Pliva v. Mensing
The United States Supreme Court in Pliva, Inc. v. Mensing, 564 U.S. __ (2011), by a 5-4 majority, held that state
law failure-to-warn claims brought against manufacturers of generic pharmaceutical products are impliedly
preempted by federal drug regulations, reversing decisions from the Eighth and Fifth Circuit Courts of Appeals.
The Supreme Court found that because federal regulations prevent generic manufacturers from unilaterally
changing their products’ labeling, federal law conflicts with and preempts contrary state-law duties requiring
those manufacturers to update their warnings to account for new risk information.
The plaintiffs in Mensing claimed that they suffered neurological injuries as a result of taking the prescription
drug metoclopramide, which also is sold under the brand name Reglan. Plaintiffs sued the manufacturers of
generic metoclopramide, alleging that the drug’s warnings were inadequate to advise their physicians about the
potential risk of harm. The generic manufacturers asserted that federal law preempted those claims. They
argued that federal statutes and FDA regulations required them to use the same safety and efficacy labeling as
the brand-name equivalent drug, and that it thus was impossible for them to comply both with federal law and
with any state tort-law duty to use a different label.
The Supreme Court agreed that the federal regulatory scheme barred the plaintiffs’ tort claims. It explained that
the 1984 Drug Price Competition and Patent Term Restoration Act – commonly called the Hatch-Waxman
Amendments – permits manufacturers to gain FDA approval for generic drugs by showing equivalence to an
already-approved reference listed drug without the need for duplicating clinical trials already performed on the
brand-name product. That law further provides that generic drug labeling must be “the same” as that for the
brand-name drug. The Court concluded that there was no regulatory mechanism available that would have
permitted the generic manufacturers to unilaterally alter their labeling because such action would render the
generic warnings out of step with the brand-equivalent product’s warnings.
The Supreme Court rejected three arguments raised by the plaintiffs that the federal scheme was broad enough
to allow generic manufacturers to revise their products’ warnings. First, the Court deferred to the FDA’s
interpretation of its regulations that manufacturers of generic drugs cannot take advantage of the FDA’s
“changes being effected” (CBE) process, which otherwise allows a brand-name drug manufacturer to add or
strengthen a warning without prior approval for the change from the FDA. Second, the Court agreed with the
FDA that generic manufacturers are prohibited from issuing “Dear Doctor” letters advising prescribing physicians
of warning information different from that contained in the approved labeling, because such a letter would
improperly imply a therapeutic difference between the brand and generic drugs. Finally, the Court rejected the
notion that a generic manufacturer could have complied with both its federal and state obligations by proposing
stronger warnings to the FDA, which the agency then could have made to both drug labels. It was this final point
that proved most controversial and consumed the bulk of discussion in both the majority and dissenting opinions.
The Mensing majority found that although generic manufacturers could have requested the FDA’s help in
strengthening the brand-name label, such action would not have satisfied their state-law duty to actually provide
a different label to their customers. More significantly, the Court held that the generic manufacturers’ failure to
take these steps did not vitiate their preemption defense on impossibility grounds. Plaintiffs’ argument that such
steps could have made a difference depended upon a series of assumptions – that is, if the manufacturer had
asked for the FDA’s help in changing the label, and if the FDA had found there was sufficient supporting
information for a label change, and if the FDA undertook negotiations with the brand manufacturer, and if
adequate label changes were implemented, then the generic manufacturer’s request might eventually have led to
a better label. The Court declined to make federal preemption dependent upon what it characterized as a
“Mouse Trap game” requiring a series of decisions by different actors.
The Court instead found that the relevant question for preemption purposes “is whether the private party could
independently do under federal law what state law requires of it.” The generic manufacturers could not facilitate
a label change without the assistance and acquiescence both of the FDA and the brand manufacturer. The Court
found that this was the key distinction from its 2009 decision in Wyeth v. Levine, 555 U.S. 555 (2009), where it
held that the brand manufacturer unilaterally could make changes to its drug labeling without the FDA’s
assistance or permission. In contrast, the Mensing majority wrote that “when a party cannot satisfy its state
duties without the Federal Government’s special permission and assistance, which is dependent on the exercise
of judgment by a federal agency, that party cannot independently satisfy those state duties for preemption
purposes.” Because the generic manufacturer could not have changed the label on its own, plaintiffs’ failureto-warn claims were preempted.
Among the questions raised by Mensing is the impact it will have on general conflict preemption principles,
including the presumption against preemption. For example, a plurality of the Mensing Court suggests that
“[w]hen the ‘ordinary meaning’ of federal law blocks a private party from independently accomplishing what state
law requires, that party has established pre-emption[,]” regardless of whether the party could have taken action
that might eventually have satisfied its state-law duty to warn. The plurality explained that the Supremacy Clause
suggests “that courts should not strain to find ways to reconcile federal law with seemingly conflicting state law.”
These sentiments arguably strengthen implied conflict preemption as a defense.
The Mensing decision is notable not just for its obvious impact on the viability of tort claims against generic drug
manufacturers, but also for its interpretation of implied preemption principles generally. These and other issues
are likely to affect pharmaceutical and product liability litigation as a whole, and thus are worthy of close
examination by the drug industry.
Contributed by:
Gordon Rees, LLP
816 Congress Ave. Suite 1510
Austin, Texas 78701.
Leslie A. Benitez, Esq.
512.391.0197
lbenitez@gordonrees.com
J. Andrew Hutton, Esq.
512.391.0197
ahutton@gordonrees.com
Case Hyperlink:
http://www.gordonrees.com/documents/ILB_06232011.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
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Entry of Final Summary Judgment Will Terminate Ability to Accept
Pending Proposal for Settlement
Kroener v. Florida Insurance Guaranty Association
In Kroener v. Florida Insurance Guaranty Association, Case Nos. 4D09-3604 & 4D09-4102 (Fla. 4th DCA June
22, 2011), Florida’s Fourth DCA was called upon to decide, as a matter of first impression in Florida, whether
entry of final summary judgment would preclude a party’s ability to accept a pending proposal for settlement.
In the underlying litigation, the trial court granted the insurer’s motion for summary judgment on several theories,
one of which had not been previously considered in Florida. The issue of whether a party may accept a pending
proposal for settlement after entry of final summary judgment arose after the undisputed facts revealed that the
insurer had served a proposal for settlement to the insureds on June 9, 2009, one day prior to a hearing on the
carrier’s motion for summary judgment. On June 10, 2009, the trial court granted summary judgment in favor of
the insurer, and final judgment was entered on June 18, 2009. On June 22, 2009, the insureds submitted
correspondence to the insurer’s counsel indicating that they accepted the carrier’s proposal for settlement. The
insureds moved to compel enforcement of the proposal for settlement. The trial court denied that motion, ruling
that the entry of final summary judgment terminated the insureds’ ability to accept the proposal for settlement.
The insureds’ argument was based on the language of Fla. Stat. § 768.79 and Fla. R. Civ. P. 1.442. Fla Stat. §
768.79(4) provides:
"An offer shall be accepted by filing a written acceptance with the court within 30 days after
service. Upon filing of both the offer and acceptance, the court has full jurisdiction to enforce the
settlement agreement."
Fla. R. Civ. P. 1.442(f)(1) provides:
A proposal shall be deemed rejected unless accepted by delivery of a written notice of acceptance within 30
days after service of the proposal. The provisions of rule 1.090(e) do not apply to this subdivision. No oral
communications shall constitute an acceptance, rejection, or counteroffer under the provisions of this rule.
The insureds argued that because neither the statute nor the rule addressed nor shortened the time for
acceptance in relation to a ruling on summary judgment, the offer was “valid and open for acceptance” for the full
30-day time period, despite the entry of summary judgment.
The trial court disagreed. In reaching its decision, the court analyzed nonbinding, persuasive case law submitted
by both parties, and cited Day v. Krystal Co., 241 F.R.D 474 (E.D. Tenn. 2007), wherein the court stated:
Once a final judgment has been entered and the case is closed, any attempt to settle the case is then futile. . . .
This is because when the Court entered a final judgment in favor of Defendant, the Court ended the litigation,
and the need for settlement was no longer present. . . .
Summary judgment serves the same purpose as a determination after trial. It concludes the case unless there
are outstanding parties or issues. Treating summary judgment the same as a judgment entered after trial
reconciles all the rules and is in keeping with the goals of finality in litigation.
The Kroener trial court agreed, and the appellate court affirmed, noting that under established Florida law, a
party may not accept a pending proposal for settlement after trial has commenced or a verdict has been
announced because “it would frustrate the purpose of Rule 1.442 to encourage settlement, obviate the necessity
of protracted litigation, and ‘totally defeat the ends of justice and allow a mockery of the judicial system.’”
Practice Note
Although this decision was issued by Florida’s 4th DCA, absent contrary case law, it is binding in all of Florida’s
judicial districts. Hence, it is essential to fully consider whether a party would prefer to settle a matter pursuant to
a proposal for settlement rather than risk entry of a nonfavorable result on summary judgment or at trial.
Contributed by:
Hinshaw & Culbertson, LLP
9155 South Dadeland Boulevard
Suite 1600
Miami, FL 33156
Karma D. Hall, Esq.
305.428.5107
khall@hinshawlaw.com
Case Hyperlink:
http://www.4dca.org/opinions/June%202011/06-22-11/4D09-3604.op.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
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Jury Instructions on "Custom and Practice" under Monell Doctrine
Hunter, D.V.M., et al. v. County of Sacramento
Under the doctrine the U.S. Supreme Court set forth in Monell v. Dep't of Soc. Servs., 436 U.S. 658 (1978), a
municipality sued for a deprivation of federal civil rights pursuant to 42 U.S.C. § 1983 may only be liable if a
municipal policy, custom or practice resulted in the alleged deprivation. In Hunter v. County of Sacramento, the
Ninth Circuit Court of Appeals addressed whether § 1983 plaintiffs are entitled to jury instructions detailing
factual circumstances that may constitute a municipal custom or practice, where the Circuit's own Model
Instructions employ a much more general definition.
Plaintiffs Robert Hunter and Howard Eley alleged that deputies employed by the County Sheriff's Department
used excessive force against them while the plaintiffs were in pre-trial detention at the County's jail. The
defendants moved for summary judgment, which the district court granted on all causes of action except the
Monell claim against the County.
The district court's denial of summary judgment on the Monell claim rested primarily on the declaration of
plaintiffs' expert, Lieutenant Twomey, a former employee of the Sacramento County Sheriff's Department. Lt.
Twomey declared that there were 40 to 50 "major incidents" of excessive force at the jail from 2000 to 2005, and
that jail officials repeatedly failed to investigate the incidents, discipline the guards or take other action to
address the problem. The district court found that this evidence created a material issue of fact as to whether the
County had a custom or practice of using excessive force.
Prior to trial, the district court issued a set of proposed jury instructions. Its proposed Monell instruction set forth
the generic elements of a Monell claim but did not define "practice or custom." Both parties filed objections to the
proposed instructions. The County suggested that the Monell instruction include the definition of "practice or
custom" found in Ninth Circuit Model Civil Jury Instruction 9.4: "'practice or custom' means any permanent,
widespread, well-settled practice or custom that constitutes a standard operating procedure of the defendant."
The plaintiffs' proposed Monell instructions listed a number of factual situations that the Ninth Circuit had
previously held to constitute a custom or practice. At issue on the appeal was the plaintiffs' proposed instruction
stating that the jury may infer an unconstitutional custom or practice from the failure to properly investigate prior
uses of excessive force and to discipline the employees involved.
The district court rejected the plaintiffs' proposed additional instructions and instead gave the Ninth Circuit's
Model Instruction. The jury found in favor of the County. Plaintiffs moved for a new trial based on the court's
failure to give the proposed instructions. The district court denied the motion, and the plaintiffs appealed.
The Ninth Circuit reversed. In addressing the merits of the proposed instructions, the Ninth Circuit set forth the
following principles from prior decisions: (1) jury instructions must fairly and adequately cover the issues
presented, must correctly state the law, and must not be misleading; (2) use of a model jury instruction does not
preclude a finding of error; (3) each party is entitled to an instruction about her theory of the case if it is
supported by law and has foundation in evidence; and (4) if the error in the jury instruction is harmless, it does
not warrant reversal. Applying these principles to the plaintiffs' proposed instruction regarding evidence of prior
excessive force that resulted in no investigation or discipline, the Ninth Circuit found that the district court
committed reversible error.
The Ninth Circuit first found that the Model Instruction defining "practice or custom," which the district court
actually gave to the jury, was a correct statement of the law. However, the court stated, "it is far from a complete
statement of our caselaw." The plaintiffs' proposed instruction used language taken directly from a prior Ninth
Circuit decision, and was thus also a correct statement of the law. Moreover, their instruction was key to their
theory of the case, as supported by the testimony of Lt. Twomey. In addition, the proposed instruction stated a
principle that cannot be readily deduced from the Model Instruction's definition, rendering the Model Instruction
an incomplete and incorrect statement of the law in the context of this case. Accordingly, it was error for the
district court to refuse to give the proposed instruction.
The Ninth Circuit then held that the error was prejudicial. Noting that the County bore the burden of
demonstrating the likelihood that the jury would have reached the same verdict if it had been properly instructed,
the court found that the combination of Lt. Twomey's testimony and the plaintiffs' proposed instruction might well
have swayed the jury to reach a different result. Accordingly, the Ninth Circuit vacated the judgment in favor of
the County.
COMMENT
Read narrowly, Hunter stands for the proposition that a § 1983 plaintiff is entitled to jury instructions setting forth
factual situations that have been held to constitute a Monell "custom or practice," if based on actual evidence.
The case thus highlights the need for law-enforcement policymakers to be familiar with those situations and to
prevent them from occurring in their agencies. From a broader perspective, Hunter is a reminder to legal
practitioners not to rely on form jury instructions, but to propose instructions that combine prior case law and
existing evidence in order to maximize the likelihood of a favorable verdict.
Contributed by:
Low Ball & Lynch, Attorneys at Law
505 Montgomery Street, 7th Floor
San Francisco, CA 94111-2584
Dirk Larsen, Esq.
415.981.6630
DLarsen@Lowball.com
Case Hyperlink:
http://www.ca9.uscourts.gov/datastore/opinions/2011/07/26/09-15288.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
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Defending an “Inherently Dangerous Product” Has Become More Difficult
in New York
Chow v. Reckitt & Colman, Inc.
In the May 2011 decision issued in Chow v. Reckitt & Colman, Inc., 17 N.Y. 3d 29, 2011 NY Slip Op 3888, New
York’s Court of Appeals, the state’s highest court, reversed the defendant’s successful summary judgment
motion, holding that the defendant’s attorney’s affirmation had failed to show that the defendant’s drain cleaner
product could not be designed in a safer, yet similarly effective and reasonably priced manner. Using language
that calls for careful analysis among products liability defense practitioners across the state, the Court held that
an attorney’s affirmation – standing alone – could no longer exonerate the manufacturer of an inherently
dangerous product.
The underlying facts of the Chow case are simple and straightforward. The plaintiff used the defendant’s drain
cleaner product to open the floor drain located in the kitchen of his employer‘s restaurant. Plaintiff suffered
severe burns to his face and ultimately lost sight in one eye when the solution splashed back. There was ample
evidence and little question in the record that the plaintiff had not followed the printed instructions on the product.
Thus, Chow presented a “typical” drain cleaner case, and on these facts the defendant/manufacturer moved for
summary judgment.
The manufacturer’s counsel submitted an affirmation that pointed out that the drain cleaner product was 100
percent sodium hydroxide – commonly known as “lye” – marketed in the form of dry crystals. The affirmation took
the position that lye is “inherently dangerous” and that any variation in the drain cleaner’s composition would
result in a different product because it would no longer be “pure” sodium hydroxide.
Historically, “the product is what it is” defense has typically been more than enough in New York practice to
successfully defend manufacturers of “inherently dangerous products” such as firearms, knives and cutting
implements, as well as any other product known to be inherently hazardous and virtually sure to cause injury
except where used in strict conformity with the manufacturer’s instructions. After all, knives are supposed to cut,
explosives are supposed to blow up and guns are supposed to fire. In this way, the defendant’s counsel in Chow
was simply submitting the kind of proof that for decades was sufficient under long-standing New York
jurisprudence to extricate the manufacturer from the “inherently dangerous” products liability lawsuit. However,
using language that could forever change the landscape in the defense of these kinds of products, the Chow
court announced a new extra burden that must be addressed by defendants when seeking summary judgment in
the “inherently dangerous product” case:
“At this stage, defendants cannot rely simply on the fact that their product is what they say it is and that everyone
knows that lye is dangerous; that only begs the question… knowing how dangerous lye is, was it reasonable for
defendants to place [the lye] into the stream of commerce as a drain cleaning product for use by a lay person?
Defendants offered no answer to this question, and thus, did not demonstrate their entitlement to judgment as a
matter of law.” (Emphasis added.)
The italicized language above from the Chow decision is potentially far-reaching. But for the fact that the Chow
facts involved drain cleaner instead of some other “inherently dangerous” product, the language could just as
easily read “whether the TNT in question should have been marketed as an explosive” or “whether the sharp
edge on the piece of metal in question should have been marketed as a knife and cutting implement,” given the
inherently dangerous qualities of these products.
Some readers of the Chow decision are likely to argue that the Court’s ruling simply makes summary judgment
more difficult in “inherently dangerous” products cases and that counsel can effectively do an end run around its
holding by additionally submitting an affidavit from an expert about how, for example, “anything less than 100
percent sodium hydroxide is no longer lye and would no longer be an effective drain opener,” or something to
that effect. Practitioners should be forewarned, however, because the Court also noted that the
defendant/manufacturer had failed to show that the plaintiff’s handling of the drain cleaner was the sole
proximate cause of his injuries and that, under these facts, the fact finder could conceivably conclude that the
100 percent lye solution “was so inherently dangerous that it should never have found its way into the stream of
commerce as packaged and marketed.” Plaintiff’s attorneys are sure to cite this language from the Chow
decision to urge trial courts to deny summary judgment so that a “fact finder” – i.e., a jury – could take a crack at
that question.
The Chow decision makes for interesting reading and its future impact remains to be seen. One thing is certain,
however, the defense of products liability cases in New York did not get any easier because of it.
Contributed by:
Wilson Elser Moskowitz Edelman & Dicker, LLP
3 Gannett Drive
White Plains, NY 10604-3407
Russ Vignali, Esq.
914.872.7250
rosario.vignali@wilsonelser.com
Case Hyperlink:
http://www.wilsonelser.com/files/repository/ChowvReckittColmandecision.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
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Consumer Expectation Test Cannot Be Used To Establish A Design
Defect When Complex Evaluation Is Required
Mansur, et al. v. Ford Motor Company, et al.
In Mansur v. Ford Motor Company, et al., the California Court of Appeals (Fourth Dist.) ruled that the consumer
expectation test, used to determine whether a product is defectively designed in a strict liability action, is
inapplicable when a plaintiff fails to present sufficient evidence concerning the objective features of the subject
product and instead relies on a complex evaluation.
Factual Background
Mohammad Mansur (“Mohammad”) was driving a 1996 Ford Explorer at approximately 50 to 60 miles per hour
when he lost control of the car. The Explorer rolled over three and a half times, coming to rest on its roof in the
center median. Omeedeh Mansur (“Omeedeh”), Mohammad‟s wife, was riding in the Explorer‟s passenger seat
and wearing a seat belt. The Mansurs‟ two young children were seated in child restraint systems in the
Explorer‟s rear seats.
As the Explorer rolled, the roof above the passenger seat buckled and crushed into the passenger seat, causing
serious injuries to Omeedeh‟s head and upper torso. Omeedeh died from blunt force injury shortly after arriving
at the emergency room. Mohammad and the children suffered non-fatal injuries.
Mohammad filed a lawsuit against Ford Motor Company and a Ford dealer, alleging claims for strict products
liability, negligence, and breach of implied warranty. At trial, Mohammad‟s attorneys offered expert testimony from
an engineering consultant and a biomechanical engineer concerning the Explorer‟s stability, handling, roof
strength, and restraint system. Ford filed a motion to preclude Mohammad‟s use of the consumer expectation
test to establish a design defect on the grounds that the vehicle‟s stability, handling, roof strength, and restraint
system were beyond the common experience of an ordinary consumer, meaning that an ordinary consumer could
not have a legitimate expectation as to how these systems should perform in a rollover accident. The trial court
granted Ford‟s motion to preclude the consumer expectation test, explaining that the test is reserved for cases in
which the everyday experience of a user would permit a finding that the product‟s design was defective. The
expert testimony offered at trial, the court held, was beyond the knowledge of an ordinary consumer.
The Appellate Court’s Holding
On appeal, the Appellate Court affirmed the trial court‟s ruling to preclude the consumer expectation test. The
Court based its ruling on the following theories and analysis:
i. Design Defect
A product liability claim can be established under one of three theories: design defect, manufacturing defect, or
failure to warn. At trial, Mohammad attempted to establish his product liability claim under the design defect
theory. A design defect claim can be established under one of two different tests: (1) the consumer expectation
test, which asks whether the product performed as safely as an ordinary consumer would expect (when the
product is used in an intended and reasonably foreseeable way); or (2) the risk-benefit test, which asks whether
the benefits of the design outweigh the risk of danger inherent in the design. (Id., at 10-11.) At trial, both tests
may be presented to the jury in an attempt to establish a design defect.
ii. The Consumer Expectation Test
The consumer expectation test is limited to those cases in which “the everyday experience of the products‟ users
permits a conclusion that the product‟s design violated minimum safety assumptions, and is „defective
regardless of expert opinion about the merits of the design.‟” (Id. at 11.) Thus, in determining whether the
consumer expectation test applies, the controlling issue is the common knowledge, experience, and
understanding of an ordinary consumer; not the complexity of the product itself. (Id.) Indeed, a complex product
may still perform so unsafely that the defect is apparent to the understanding of an ordinary consumer. (Id.)
iii. Required Evidentiary Showing
A consumer expectation jury instruction will only be given at trial if there is sufficient evidence to support the
theory. (Id. at 11-12.) Generally, it is sufficient “if the plaintiff provides evidence concerning (1) his or her use of
the product; (2) the circumstances surrounding the injury, and (3) the objective features of the product which are
relevant to an evaluation of its safety.” (Id. at 12 [citing Saller v. Crown Cork & Seal Co., Inc. (2010) 187
Cal.App.4th 1220, 1232].) Using these three evidentiary requirements, the Court concluded that Mansur satisfied
requirements one and two.
As to the third evidentiary requirement, objective features relevant to an evaluation of the product‟s safety, the
Court concluded that Mohammad presented insufficient evidence. At trial, evidence was introduced which
established that a 1993 Ford focus group considered the Explorer a “station wagon of the 90s” which provided a
greater sense of safety and security; that the Mansurs viewed the Explorer as a family vehicle; that the Explorer
worked “great” for the Mansurs; that the vehicle had Goodyear tires on it; and that there was a warning on the
driver‟s sun visor about the handling of SUV‟s. (Id. at 15-16.)
The Court concluded, however, that the evidence presented did not show the Explorer‟s objective features in a
way that the jury could understand why the roof crushed in on Omeedeh. (Id. at 16-17.) Further, proof that the
Explorer is a family vehicle is not sufficient to evaluate a vehicle‟s safety features. (Id. at 17.) The Court ruled
that the expert testimony offered by Mohammad concerning the Explorer‟s stability, handling, roof strength, and
restraint system was beyond the knowledge of an ordinary consumer and therefore could not be relied upon in a
consumer expectation theory of liability. (Id. at 20.) Thus, based upon the insufficient evidence presented about
the objective features of the product, the Court concluded that the trial court correctly denied the consumer
expectation jury instruction at trial.
Contributed by:
Sabaitis O’Callaghan, LLP
975 East Green Street
Pasadena, CA 91106
Frank Sabaitis, Esq.
626.744.2000
fsabaitis@sollp.com
Case Hyperlink:
http://www.leagle.com/xmlResult.aspx?xmldoc=In%20CACO%2020110705017.xml&
docbase=CSLWAR3-2007-CURR
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038
Fall 2011 | Printer Friendly | Contact Us
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Arizona Homebuilders Receive Favorable Decision on the Statute of
Repose
Albano v. Shea Homes Limited Partnership, et al.
In the matter of Alfred Albano, et al. v. Shea Homes Limited Partnership, et al., the Arizona Supreme Court
recently held that American Pipe and Construction Co. v. Utah, 414 U.S. 538 (1974), class action tolling does
not apply to Arizona's Statute of Repose, Arizona Revised Statutes § 12-552.
Why This Case Is Important
Contrary to other State Court and Federal Court opinions, the Arizona Supreme Court has established that the
Statute of Repose is an absolute bar and is not subject to tolling, absent amendment to the statute by the
Legislature, thereby allowing developers and builders to limit potential liability exposure on contract claims for
construction defects for a finite period of time.
Facts of Case
The underlying consolidated matters represented the third and fourth lawsuits alleging construction defects in
homes located in the Carriage Lane community in Gilbert, Arizona. In the first lawsuit which was filed as a
putative class action, Mark Hoffman, et al. v. Shea Homes Limited Partnership, et al., the trial court denied class
certification as untimely, as well as on the merits, since Plaintiffs failed to seek certification for more than two
years following the filing of the complaint. The named Plaintiffs settled their respective claims and the complaint
was dismissed with prejudice. A second lawsuit was then filed by the putative class members, alleging
construction defects in their respective homes in the community, which was dismissed without prejudice for a
procedural defect. When the third and fourth lawsuits were filed, Shea removed the cases to Federal Court
where they were consolidated. Shea then filed a motion for summary judgment on the Statute of Repose, which
was granted by the district court.
The Appeal
On appeal in the Ninth Circuit Court of Appeals, the homeowners contended that the district court erred in failing
to apply American Pipe class action tolling from the time the Hoffman complaint was filed to denial of class
certification. Shea contended that the Statute of Repose was a finite period of time which could not be tolled.
Following oral argument, the Ninth Circuit certified three questions to the Arizona Supreme Court, including
whether or not American Pipe tolling applied to Arizona's Statute of Repose, Arizona Revised Statutes § 12-552
. The Arizona Supreme Court accepted jurisdiction. Holding that the Statute of Repose, Arizona Revised
Statutes § 12-552, cannot be tolled by judicial rule, the court focused on the purpose and operation of a statute
of repose and stated that tolling was not consistent with the language of the statute.
Contributed by:
Wood, Smith, Henning & Berman, LLP
3131 E. Camelback Road, Suite 115
Phoenix, AZ85016-4229
Jill Ann Herman, Esq.
602.441.1336
jherman@wshblaw.com
Case Hyperlink:
http://www.azcourts.gov/Portals/23/pdf2011/Albano%20Filed.pdf
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Legal Insights is produced by Chartis' Issue Management Group. Issue Management provides technical expertise and support across all claims areas,
including tracking emerging liability and claims-related issues, as well as emerging exposures, legislative and tort reform efforts around the country and
is a resource for technical bankruptcy claims issues.
For questions or further information, please contact Bruce Margolin at (212) 458-9316, bruce.margolin@chartisinsurance.com; or Steve Lessick at
(212) 458-9315, steven.lessick@chartisinsurance.com.
This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
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Labor Law §240 Update
Although written in seemingly simple terms, Labor Law §240(1) engenders litigation which involves various and
often complex issues. In this edition, we examine cases from all four departments of New York's Appellate
Division which illustrate the variety of questions which are raised when courts are asked to apply the statute.
The case from the First Department addresses the issue of subcontractor liability under Labor Law §240(1). In
the next case, the Second Department holds that a worker who was delivering materials from a supplier to a
vendor, rather than to a construction site, is not covered by the statute's strict liability provisions. In the third
case, the Third Department determines that Labor Law §240(1) does not apply to a plaintiff who was injured
while moving a filtration unit weighing over 1,000 pounds. In the last case, the Fourth Department holds that the
statute applies to an accident which took place on land owned by a Nation of Native Americans.
WHEN IS A SUBCONTRACTOR AN "AGENT" UNDER LABOR LAW §240 - FIRST DEPARTMENT SAYS
LOOK TO LANGUAGE OF CONTRACTS, OR ACTUAL AUTHORITY EXERCISED BY THE DEFENDANT
Nascimento v. Bridgehampton Construction Corp.
Labor Law Labor Law §240(1) describes the persons and entities which can be charged with liability for the
violation of its provisions: "All contractors and owners and their agents, except owners of one and two-family
dwellings who contract for but do not direct or control the work." (emphasis added.) In Nascimento v.
Bridgehampton Construction Corp., 86 A.D.3d 189, 924 N.Y.S.2d 353 (1st Dep't 2011), the Appellate Division,
First Department issued a significant opinion on the question of when a contractor can be deemed an "agent"
within the meaning of the statute. In Nascimento, the plaintiff was injured while employed as a laborer for a
sub-sub-subcontractor on a renovation project, namely Figueiredo Construction ("Figueiredo"). The general
contractor on the project, Bridgehampton Construction Co. ("Bridgehampton") subcontracted the framing work to
Bayview Building and Framing Corp. ("Bayview"), the appellant in this case. Bayview subcontracted the framing
work to R & L Carpentry Corp. ("R & L"), which further subcontracted the work to plaintiff's employer Figueiredo.
Bayview moved for summary judgment contending that as a subcontractor, rather than a general contractor, it
was entitled to a dismissal because it did not have the authority to oversee the work plaintiff was performing or
the safety conditions at the site. Plaintiff opposed, arguing that all subcontractors in the "chain of command" are
subject to the same liability as a general contractor.
The First Department denied Bayview's motion. Initially, the court rejected plaintiff's assertion that all
subcontractors in the "chain of command" are necessarily as liable as the general contractor. The Appellate
Division then went on to set forth the principles which govern the liability of subcontractors under Labor Law
§240(1): "To be treated as a statutory agent, the subcontractor must have been delegated the supervision and
control either over the specific work area involved or the work which gave rise to the injury. If the subcontractor's
area of authority is over a different portion of the work or a different area than the one in which the plaintiff was
injured, there can be no liability under this theory." Then, to illustrate the point, the court described situations
where subcontractors have been held liable under the statute: "Subcontractors have been held to be the
statutory agents of general contractors in situations in which provisions of the subcontracts explicitly granted
supervisory authority, and those in which evidence showed that the subcontractors actually exercised
supervisory authority. Additionally, evidence that a subcontractor delegated the requisite supervision and control
to another subcontractor has been cited as forming part of the proof that the first subcontractor formerly
possessed that authority and may justify imposing Labor Law liability on the first subcontractor as a statutory
agent of the general contractor."
The court then addressed the facts in Nascimento. The Appellate Division noted the assertions of Bayview's
president that it was not empowered to enforce safety standards, that it did not supervise and coordinate the
project and that there was no written contract between Bayview and Bridgehampton from which the extent of
Bayview's authority could be inferred. However, the court noted that the subcontract between Bayview and R &
L stated that R & L agreed "to provide all labor, tools, equipment, supervision and other items necessary to
execute the framing work." (court's emphasis.) The court held that, given the reference to supervision in the
Bayview - R & L subcontract, a finder of fact could determine that the subcontract included the responsibility to
supervise the work, and this was an acknowledgement by Bayview that it formerly had such power. The court
added that whether Bayview actually supervised plaintiff's work is irrelevant. As long as Bayview had such
power, it could be deemed a statutory "agent." The court concluded that "once a subcontractor qualifies as a
statutory agent, it may not escape liability by the simple expedient of delegating the work to another entity. If it
undertook the supervision of the framing work, Bayview cannot avoid liability under the Labor Law by having
further subcontracted the work to Figueiredo."
DELIVERIES TO SUPPLIER OF CONSTRUCTION MATERIALS IS NOT AN ACTIVITY COVERED BY
LABOR LAW §240
Haines v. Dick's Concrete Co., Inc.
Labor Law §240(1) provides that it applies to "the erection, demolition, repairing, altering, painting, cleaning or
pointing of a building or structure." In Haines v. Dick's Concrete Co., Inc., 84 A.D.3d 732, 922 N.Y.S.2d 514 (2d
Dep't 2011), the Appellate Division, Second Department rejects plaintiff's contentions that his work fit within those
parameters.
In Haines, plaintiff, a truck driver, fell in the parking lot of property owned by defendant PJ Quarry and operated
by defendant Dick's Concrete. At the time of the accident, plaintiff was removing a set of tarps attached to a load
of masonry materials on the back of a flatbed truck owned by plaintiff's employer. Dick's Concrete was in the
business of the manufacture and sale of various masonry materials and supplies, and it used the subject
property for these purposes. Plaintiff fell while standing on top of the pre-loaded masonry cargo and tarp, which
was wet due to drizzly conditions, and he landed on the ground about 12 feet below. Consequently, plaintiff
commenced this action alleging, among other things, a violation of Labor Law §240(1). The trial court granted
summary judgment in favor of PJ Quarry and Dick's Concrete dismissing that claim.
The Appellate Division, Second Department affirmed. "The plaintiff was not delivering the masonry materials to a
construction site; rather, he was delivering them for a supplier to a vendor. Therefore, the plaintiff's work is not a
covered activity under [Labor Law §240(1)]". The court also held that "plaintiff's alternative argument that the
'structure' he was 'altering' at the time of the accident was the flatbed truck fails to bring his activities within the
ambit of [Labor Law §240(1)]".
TIPPING OF HALF-TON OBJECT, WHILE BEING MOVED WITH PALLET JACKS THAT RAISED IT 8-10
INCHES OFF THE FLOOR WAS NOT ELEVATION-RELATED RISK COVERED BY STATUTE
Davis v. Wyeth Pharmaceuticals
In prior issues of this publication, we discussed the highly-publicized decision of New York's highest court in
Runner v . New York Stock Exchange, 13 N.Y.3d 599, 895 N.Y.S.2d 279 (2009), as well as the ramifications of
that decision. (See Spring, 2010 and Winter 2011). In Runner, the plaintiff was injured while he and his
co-workers were moving an 800-pound reel of wire down four steps. Specifically, the plaintiff injured his hand
while holding a rope wrapped around a steel pipe which was placed so as to horizontally span a door jamb. The
other end of the rope was attached to the reel, and this arrangement was intended to control the descent of the
reel. Although plaintiff in Runner neither fell from a height nor was he struck by the reel, the Court of Appeals
held that he was protected by Labor Law §240(1). In Davis v. Wyeth Pharmaceuticals, 86 A.D.3d 907, ___
N.Y.S.2d ___ (3d Dep't 2011), the Appellate Division, Third Department rejected plaintiff's contention that Runner
applied to his somewhat analogous situation.
In Davis, plaintiff, a construction laborer, was injured while moving a filtration unit weighing over 1,000 pounds in
a building owned by defendant. Plaintiff and his coworkers used two pallet jacks to raise the unit 8-10 inches off
the floor so as to move it. With the unit on the pallet jacks, plaintiff and his co-worker pushed it. While the unit
was being pushed horizontally across the floor, plaintiff slipped and grabbed it, which caused it to tip over and
land on his leg. Plaintiff sued, contending that when viewed in light of the of the decision in Runner, his accident
implicated the provisions of Labor Law §240(1). Specifically, plaintiff asserted that Runner changed the law
regarding what constitutes a significant elevation differential within the meaning of the statute. Plaintiff
contended that, under Runner, the weight of a falling object must be considered in determining whether the
height differential is sufficient, and that given the weight of the filtration unit, his injury was compensable under
Labor Law §240(1).
The Appellate Division disagreed with plaintiff: "In our view, plaintiff's reliance on Runner is misplaced. In
Runner, the Court made it clear that it ws not establishing any new principles, merely expounding on the
governing principle enunciated almost 20 years previously, namely that Labor Law §240(1) was designed to
prevent those types of accidents in which the scaffold, hoist, stay, ladder or other protective device proved
inadequate to shield the injured worker from harm directly flowing from the application of the force of gravity to
an object or person. Thus, it remains the law that the purpose of the strict liability statute is to protect
construction workers not from routine workplace risks, but from the pronounced risks arising from construction
work site elevation differentials, and, accordingly, that there will be no liability under the statute unless the injury
producing accident is attributable to the latter sort of risk." (court's emphasis.)
The Appellate Division concluded that plaintiff's injury was not the result of a risk related to an elevation
differential. The court noted that the filtration unit was not being hoised or secured or otherwise being moved
vertically from one height to another. Rather, the unit was being moved horizontally and it tipped over because
plaintiff slipped, grabbed it and pulled it toward him. The court concluded that there was nothing to indicate that
the same result would not have occurred had the filtration unit been directly on the ground.
CONSTRUCTION ACCIDENT OCCURRING ON INDIAN RESERVATION - NEW YORK LAW APPLIES
WHERE NEITHER PLAINTIFF NOR DEFENDANT HAD TIES TO INDIAN NATION
Karcz v. Klewin Building Co., Inc.
Many disputes arising from events occurring on Indian reservations are governed by the laws of the Native
American Nations residing on such reservations. In Karcz v. Klewin Building Company, Inc., 85 A.D.2d 1649,
926 N.Y.S.2d 227 (4th Dep't 2011), defendants sought to utilize that principle to avoid liability under Labor Law
§240(1). In Karcz, plaintiff was injured when a truss he had lifted onto a platform of a scissor lift fell on him. The
incident occurred on a construction project at the Seneca Niagara Casino, which was on the Indian reservation
of the Seneca Nation. Consequently, plaintiff commenced this action against two contractors asserting violations
of various provisions of the Labor Law, including §240(1). Defendants moved to dismiss on the ground that
application of New York's Labor Law would violate the Seneca Nation's right of self-government. The trial court
denied the motion.
The Appellate Division, Fourth Department affirmed. The court indicated that state laws may apply on Indian
reservations "unless such application would interfere with reservation self-government or would impair a right
granted or reserved by federal law." The Appellate Division held that there was no such interference here since
this action was between non-Indians and did not implicate the internal affairs of the Seneca Nation. The court
added that the sole relation between the action and the alleged wrong was the happening of the accident on the
reservation, and this connection was only tangential. Accordingly, the New York court did not violate the Seneca
Nation's right to self-government by exercising jurisdiction over this action. In addition, the court noted that the
laws of the Seneca Nation direct that the Nation shall not assume jurisdiction in a case such as this, in which the
rights of the Nation or its members are not directly affected and another forum for resolution of the dispute
exists. Accordingly, the court concluded that Labor Law §240(1) applied to this case.
Contributed by:
McGaw, Alventosa & Zajac
2 Jericho Plaza, Suite 300
Jericho, NY 11753-1681
Andrew Zajac, Esq.
(516) 932-2832
Andrew.Zajac@chartisinsurance.com
Case hyperlinks:
http://www.leagle.com/xmlResult.aspx?xmldoc=In%20NYCO%2020110602354.xml&
docbase=CSLWAR3-2007-CURR
http://scholar.google.com/scholar_case?case=11503833216718238669&
q=Haines+v.+Dick%27s+Concrete+Co.,+Inc.&hl=en&as_sdt=2,33&as_vis=1
http://www.leagle.com/xmlResult.aspx?xmldoc=In%20NYCO%2020110728300.xml&
docbase=CSLWAR3-2007-CURR
http://www.leagle.com/xmlresult.aspx?xmldoc=In%20NYCO%2020110610458.xml&
docbase=CsLwAr3-2007-Curr
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This document is presented for informational purposes only. The information contained herein highlights several developments in the areas of tort and
insurance law and is not intended to represent these developments in their entirety or the entirety of developments in these areas. Neither the
document nor the information contained herein is intended to be construed as legal advice and should not be considered legal advice. Readers should
refer to the full text of the decisions for additional information and consult with their legal professional(s) regarding the applicability of these decisions to
their business operations. This report may not be reproduced, distributed, or copied without the prior written consent of the Chartis companies.
Copyright 2011 Chartis, Inc. All rights reserved.
180 Maiden Lane, New York, NY 10038