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BlogsLegal updates, news, and commentary from the attorneys of Baker Sterchi Cowden & Rice LLC

Missouri Court of Appeals Finds Arbitrator Lacked Authority to Resolve Automobile Repossession Dispute

September 20, 2021 | John Brooks

The Missouri Court of Appeals, Western District, recently reversed a trial court decision and subsequent arbitration award in favor of an automobile repossessor. In Car Credit, Inc. v. Pitts, the Court of Appeals held that the trial court incorrectly allowed arbitration of Pitts’ claims against Car Credit. The contract at issue designated the National Arbitration Forum (“NAF”) as arbitrator of disputes arising between Car Credit and Pitts related to the vehicle purchase.  At the time Pitts filed her lawsuit, the NAF was not available to serve as arbiter.  Consequently, Car Credit could not resolve Pitts’ claims through arbitration.  

Following Car Credit’s repossession of her vehicle in 2015, Pitts sued Car Credit and claimed breach of contract.  Pitts also sought to pursue a class action lawsuit against Car Credit.  Pitts alleged Car Credit engaged in a “deceptive pattern of wrongdoing . . . regarding collection of alleged deficiencies.”  Car Credit moved to compel arbitration of Pitts’ claims.  Pitts purchased the vehicle at issue from Car Credit in 2011 and financed the purchase.  Pitts signed an arbitration agreement at the time of purchase:

You and we [Car Credit] agree that if any Dispute arises, either you or we may choose to have the Dispute resolved by binding arbitration under the rules then in effect of the Arbitration Organization shown below (if no Arbitration Organization is shown below, the Arbitration Organization shall be the National Arbitration Forum). If such rules conflict with this Arbitration Agreement, the terms of this Arbitration Agreement shall apply.

While the arbitration clause referenced an arbitration organization “listed below,” the arbitration agreement did not identify any specific organization, leaving the NAF as the applicable arbitration organization.  Car Credit cited this arbitration agreement and moved to compel arbitration.  Pitts correctly pointed out that the NAF was no longer available to serve as arbitrator.  Pitts argued that since the NAF was the sole designated arbitration agency and was not available, the court should not compel arbitration.  The NAF stopped providing arbitration services in 2009 after Minnesota’s Attorney General sued it for alleged consumer fraud, false advertising, and deceptive trade practices.

The trial court denied Car Credit’s first motion to compel arbitration.  However, after Pitts moved to certify the class action claims against Car Credit, Car Credit made a renewed motion to compel arbitration.  At the time, the Missouri Court of Appeals had recently held that an arbitration agreement was enforceable even though it designated the NAF as arbitrator in A-1 Premium Acceptance v. Hunter, WD79735, 2017 WL 3026917, at * 5 (Mo. App. W.D. July 18, 2017).  The trial court granted Car Credit’s renewed motion and Pitts’ claims proceeded to arbitration.  After the trial court granted arbitration of Pitts’ claims, the Missouri Supreme Court overruled the Court of Appeals’ decision in the separate case, A-1 Premium Acceptance v. Hunter, 557 S.W.3d 923, 929 (Mo. banc 2018), and held that separate organization could not arbitrate disputes where the NAF was unavailable. 

Meanwhile, in Pitts’ case, since the NAF was unavailable, an arbitrator from the American Arbitration Association (“AAA”) reviewed Pitts’ claims.  That arbitrator found in favor of Car Credit.  Based on that determination, the trial court entered judgment in favor of Car Credit and decertified the class action claims.  Pitts appealed. 

The Court of Appeals reversed, holding that since Pitts and Car Credit agreed to resolve their disputes before the NAF, the AAA arbitrator lacked the authority to determine the validity of Pitts’ claims.  The appellate Court held that the applicable federal law—the Federal Arbitration Act—does not require a court to compel arbitration when the parties agree to arbitrate only before a specified arbitrator.  Furthermore, the Missouri Supreme Court’s recent decision in A-1 Premium Acceptance v. Hunter was on point.  In both cases, the parties agreed that the NAF would resolve disputes: “[T]he agreement clearly provided the parties the opportunity to identify an organization other than NAF, and, with equal clarity, the parties unambiguously declined to do so . . .”

 While Car Credit will have the opportunity to appeal this decision to the Missouri Supreme Court, it is likely that the recent decision in A-1 Premium Acceptance v. Hunter will result in Pitts’ claims against Car Credit, including Pitts’ class action claims, moving forward.  If the applicable arbitration agreement had designated a different arbitrator from the NAF, or had provided an alternative arbitrator, Pitts’ claims likely would have been resolved through arbitration.  Careless drafting was also a key factor here.  Pitts entered into this agreement in 2011, nearly two years after the NAF had stopped arbitration.  Had the applicable arbitration agreement been updated to remove the NAF as arbitrator and designate a different organization after Minnesota’s lawsuit in 2009, Car Credit may have been able to successfully compel arbitration.  Parties seeking to resolve disputes through arbitration should be careful to ensure their agreements are up to date with the current law.  

Returning to Work Post-COVID – Handle with Care, Employers

September 14, 2021 | Nicholas Ruble and Megan Sterchi Lammert

COVID-19 created unprecedented situations in every type of job, industry, and profession, including the legal field.  Change, evolution, and adaptation became commonplace as everyone learned how to navigate the process of operating from both work and home. Essentially, the COVID-19 pandemic turned our working lives upside down for the better part of two years.

As more people become fully vaccinated, many are eagerly anticipating a return to “normalcy.”  For most, that includes returning to the office (whether full-time, part-time, or by remote or virtual means). But more than 100 million Americans have worked remotely (at least part-time) since the beginning of the pandemic. And many of these employees hope to work remotely permanently. However, for employers intending for their employees to return to the office, potential pitfalls await.

Employees who have learned to enjoy the work-from-home model see a variety of benefits, including:

  1. Not having to commute to work;
  2. No required dress code (unless you are on a video conferencing call, such as with a Court);
  3. The ability to take care of work/projects at home while on breaks from office work;
  4. The ability to stay home with a sick family member;
  5. The ability to more easily schedule personal appointments around work. 

But there are pitfalls to working from home, which include:

  1. Potentially having to purchase additional office equipment to effectively do work (e.g., printer/scanners, computer monitor);
  2. Taking extra precautions to keep client information safe and confidential;
  3. Blurring the lines between being present at work and being present at home;
  4. Losing some collaboration, communication, and visibility with your colleagues/team/management;
  5. More distractions at home to sidetrack you from getting your “office” work done.

Recent studies indicate that some categories of employees are less eager than others to return to the office. One such survey [Who Wants To Return To The Office? | FiveThirtyEight] indicates that women and minorities are less eager to return to in-person work, while white men are the group most eager to return to the office. In many families, women bear the load of being both the primary caregiver, as well as a full-time employee, and providing options to work from home provides potentially more time to devote to both. Another factor that may be at play is an office culture in some workplaces that has given white men a higher comfort level than other groups. Whether it’s “water cooler talk,” “the good ol’ boys club,” or the standing Friday afternoon round of golf, certain employees can feel excluded and alienated in the workplace.        

Employers should take note, as return-to-work and remote work policies may someday serve as the basis for disparate impact claims under Title VII or Equal Pay Act claims. If women and minorities are more likely to opt to work from home (or risk termination or quit when return to the office is mandated), then employers must carefully implement policies or practices to avoid violating the law.  These policies or practices should be implemented both to comply with the law, and to promote the well-being and job satisfaction of all of their employees.

Disparate Impact under Title VII

Disparate impact claims under Title VII can be tricky for employers to defend because there is no intent requirement. To state a claim of disparate impact, a plaintiff must allege a facially neutral policy that causes statistically significant disparities in employment between a favored class and a disfavored class. Here, women or minorities may be able state a claim for disparate impact where a remote work policy caused them to be disfavored.

For example, a mandatory return to the office under threat of termination may cause a disparate impact if it causes women and minorities to quit in much higher numbers than white workers or men. The policy itself does not discriminate based on race or sex, so it is facially neutral. However, if it falls more harshly on a particular group, it may support a claim.

Disparate impact claims are analyzed under a burden-shifting scheme similar to the familiar McDonnell Douglass framework. If the plaintiff makes a prima facie case, then the burden shifts to the employer to demonstrate that the policy serves a “legitimate, non-discriminatory business purpose.” Then the burden shifts back to the plaintiff to show that the articulated reason is pretextual.

Some employers may have difficulty proving a legitimate business justification for ordering employees to return to the office. Many employers have seen that productivity has remained steady or in some cases increased as more employees work from home. In some cases, it may be more expensive for employers to have workers in the office than working remotely. Therefore, employers seeking company-wide return to work should carefully consider the reasons for doing so.

Minimizing Impacts on Remote Workers

A major potential pitfall will be in promotions. Employers must be mindful of the subjective and objective criteria managers employ in determining promotions. Traditional factors such as “face time” with the boss, being seen in the office early in the morning and late at night, or overall “attitude,” “personality,” or “fit,” may disfavor remote workers. Where these factors would tend to disfavor remote workers, they may work to cause statistical disparities between male and female or white and minority workers.

Equal Pay Act

The Equal Pay Act requires that employees of opposite sexes be paid the same for “equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions.”). In the absence of direct evidence of discriminatory intent, the court applies the familiar McDonnell Douglas burden-shifting framework. The plaintiff puts forth a prima facie case, and the employer must show that there exists a legitimate nondiscriminatory factor on which it based the wages paid. Legitimate factors include seniority systems, merit systems, piecework pay rates, for example. The burden then shifts back to the plaintiff to come forward with evidence that the proffered reason was pretextual.

Some employers may feel inclined to pay remote workers less than in-office workers. And studies indicate that some workers would be willing to take a pay cut to work from home. However, if disproportionate numbers of women intend to continue working remotely, then pay differentials could potentially support an Equal Pay Act claim. It is not a complete defense that there are also some men who work remotely at lower salaries. Likewise, it is an open question whether working from home versus working in the office would be a legitimate nondiscriminatory factor supporting pay disparities. However, if an employer saves money by having employees work remotely, it will be hard to avail themselves of that defense.

Planning and Recordkeeping Can Help Avoid Liability

In crafting a return-to-work policy that works for everyone, for purposes of potential employment-related claims, employers should consider:

  • Whether an across-the-board return to work policy is necessary or desirable.
  • If individual approval of remote work is practical. A policy should be based on specific, objective (and recorded) criteria such as seniority, performance evaluations, disciplinary history, and productivity. A copy of the determination should be placed in the employee’s file.
  • Whether to re-evaluate promotion and job performance criteria, to focus on objective work-related factors, while weeding out unintentionally discriminatory factors (such as face time with the boss, early arrival at work, etc.).
  • Whether remote work may be a reasonable accommodation for disabled workers.
  • How to ensure that remote workers have equal access to career-advancing training, mentorship, and special projects.

There is never a bad time to consider whether office culture can be made more inclusive. As more people return to the office, it is important to ask whether there are employees who are reluctant to return, and why. 

Back to Basics: Missouri Court of Appeals Highlights Importance of "Plain-Meaning" Rule in Contract Interpretation

September 8, 2021 | Kyra Short

The Eastern District of the Missouri Court of Appeals reversed a trial court’s grant of summary judgment in Pelopidas, LLC et al. v. Keller due to that court’s erroneous contract interpretation, and instead ordered that summary judgment be entered for the opposing party. In its ruling, the Court of Appeals underscored the basic tenets of contract interpretation and highlighted the role of the American Bar Association’s A Manual of Style for Contract Drafting as “a highly regarded authority on contract drafting.”

The case originated from a 2016 dispute concerning the management of a commercial enterprise jointly owned by ex-spouses. The parties entered into a settlement agreement in September 2019, whereby the ex-wife (Keller) agreed to transfer her 50% ownership in the business to Respondents (Pelopidas, LLC and Brown) in exchange for compensation of $8.85 million. Following the September 2019 settlement agreement, the timing of the Keller’s transfer of her Pelopidas stock became a point of contention between the parties, as the contract itself did not contain a date of transfer. Respondents sued to enforce the terms of the settlement agreement, claiming that Keller had transferred her 50% ownership interest effective as of the date of the settlement agreement; seeking to enjoin Keller from claiming she still had an ownership interest in the company; instructing the parties to finalize the settlement under which Keller was to be paid $1.1 million that Brown had placed in escrow; and awarding Respondents their reasonable attorneys’ fees. Keller counterclaimed, seeking damages for Respondents’ alleged failure and refusal to make an accelerated payment of $8.6 million pursuant to the terms of the settlement agreement.

The disputed language in the settlement agreement reads as follows: “… [Keller’s] stock shall be surrendered/sold, escrowed and pledged back to plaintiff.” Respondents argued that the language required Keller’s stock to be immediately transferred upon the date of settlement, September 30, 2019. Keller contended that, according to the settlement agreement’s language, the transfer would become effective on “some future date (i.e., whenever the parties could negotiate, draft, and execute the necessary supplemental documentation).”

The trial court granted summary judgment in favor of the Respondents, finding that “Keller surrendered, transferred, and assigned all right, title, and interest in Pelopidas, LLC effective September 20, 2019.”  The trial court likewise denied Keller’s cross-motion for summary judgment, and awarded Respondents over $400,000 in attorneys’ fees.

On appeal, Keller argued that the lower court erred and that Respondents were not entitled to judgment as a matter of law because the settlement agreement “contained a promise of future performance regarding the transfer of her stock in Pelopidas to Brown.”  Rather, Keller argued, she was entitled to summary judgment, ordering that payment be made at some reasonable future date. The Court of Appeals agreed with Keller.

The appellate court noted that summary judgment in contract interpretation disputes is not appropriate where the contract language is ambiguous or requires a factual determination by the court. But here, there was no dispute that the contract language required Keller to transfer her stock, and the only question at issue was when that transfer should occur. That issue, the Court of Appeals concluded, was ripe for summary disposition.

On the matter of contract interpretation, the appellate court emphasized the familiar principle that the judiciary should use the “plain, ordinary, and usual meaning of the contract’s words” in order to give effect to the intention of the contracting parties. In determining the timing of Keller’s stock transfer to Respondents, the court ruled that the use of “shall be” in the parties’ settlement agreement imposed a future obligation on Keller and did not create a requirement for immediate performance.

In its decision, the court endorsed Keller’s citations to the ABA Manual of Style for Contract Drafting, which instructs that contract drafters can select between “language of performance” and “language of obligation” among other types operative contract language. Language of performance “expresses actions accomplished by means of signing the contract itself” and is typically accompanied by use of the word “hereby.” Language of obligation “is used to state any duty a contract imposes on one or more parties and is typically accomplished by the use of the word “shall.”” The court further emphasized that because the English language does not contain a future tense, “shall and will have come to be used with future time.” The court further instructs that, even though “shall” is “now used in a variety of other ways, “in the stylized context of the language of business contracts … shall continues to serve as the principal means of expressing obligations.” The court also found that Keller’s interpretation of “shall” was consistent with dictionary definitions for the term.

Based on their findings, the appellate court reversed the trial court’s grant of summary judgment against Keller and instead directed the circuit court to enter judgment for Keller, plus interest and attorneys’ fees.

This case serves as an important reminder to go back to basics when drafting business contracts in Missouri. Drafters must pay special attention to the plain language meaning of the language they choose, to avoid ambiguity and ensure that the contract accurately reflects the intention of the parties. And they should pay special heed to the distinction between “language of performance” and “language of obligation”.

* Hannah D. Chanin assisted in the research and drafting of this post.  Chanin earned her J.D. from Washington University School of Law in St. Louis this spring and is a current candidate for admission to the Missouri Bar.   

Related Services: Appellate

Attorneys: Kyra Short

Oral Surgeons Get Drilled in Eighth Circuit Ruling on COVID Coverage

August 31, 2021 | Laura Beasley

The Eighth Circuit recently upheld a ruling by the Southern District of Iowa granting a Motion to Dismiss a policyholder’s lawsuit for failure to state a claim, finding that the policyholder failed to allege facts that showed a direct physical loss that would trigger coverage under the policy.

In Oral Surgeons v. Cincinnati Insurance, the policyholder owned and operated oral surgery clinics in and around Des Moines, Iowa. The Oral Surgeons brought suit against the insurer for breach of contract and bad faith in its denial of coverage for losses suffered as a result of the suspension of non-emergency procedures due to COVID-19. The COVID-19 pandemic and subsequent government restrictions forced the clinic to cease its nonemergency procedures from March 2020 until the restrictions were lifted in May 2020. Oral Surgeons alleged that the government restrictions constituted a direct loss to property because Oral Surgeons was unable to fully use its offices. Oral Surgeons argued further that the term “loss”, defined in the disjunctive as “physical loss” or “physical damage”, in the policy, creates an ambiguity and should therefore be construed against the insurer.

The Court of Appeals rejected the policyholder’s arguments, reasoning that the policy as whole refers to “loss” as being physical in nature. Interpreting the policy to require a direct “physical loss” or “physical damage” to trigger business interruption and extra expenses coverage. The court primarily referred to the portion of the policy title “period of restoration” which exclusively discussed physical alterations to the building such as repair or relocation. Nowhere in the policy discussed intangible loss, such as mere loss of use.

The Court of Appeals relied on Pentair v. American Guaranty & Liability Insurance and Source Food Technology v. U.S. Fidelity & Guaranty Company to justify their reasoning. The court likened the clinics’ loss of use of its offices to the policyholder in Pentair who experienced a power outage that shut down one of its supply factories in Taiwan. Although the power outage led to a significant increase in shipping costs, the court said a manufacturing shutdown was temporary and did not cause a direct physical loss of or damage to Pentair’s supplies property. Therefore, the temporary shutdown did not constitute a direct physical loss. To hold otherwise would allow coverage to be established whenever property cannot be used for its intended purpose.

 Similarly, in Source Food Technology, a beef embargo prevented Source Food from receiving a major shipment, which ultimately caused the company to lose its biggest customer. The insurance company denied coverage because the shipment of beef was not physically contaminated or damaged therefore, not a direct physical loss.  Eighth Circuit compared the government’s COVID-19 restrictions in the present case to the beef embargo between the U.S. and Canada. A governmental regulation, although it impairs the function and value of a product, does not constitute direct “physical loss”.

Applying Iowa and federal law the court found that the government’s COVID-19 restrictions do not constitute direct physical loss. Further, the policyholder did not allege physical alteration of property in their complaint and the policy did not cover Oral Surgeons’ partial loss of use of its office without some type of direct physical damage.  Additionally, the Court of Appeals did rejected the policyholder’s argument that the word ‘loss’ is ambiguous, stating, “where no ambiguity exists, the Court will not write a new policy to impose liability on the insurer.”

Following in the footsteps of the U.S. District Court for the Eastern District of Michigan’s ruling that the Government closures do not trigger business interruption coverage and the Western District of Missouri’s ruling that a policyholder could not prevail on claims that were denied under a policy’s Pollution Exclusion clause, the Eighth Circuit found that the government’s COVID-19 restrictions do not constitute direct physical loss and the “loss” is not ambiguous.

That said, there is no shortage of COVID-19 business interruption cases being filed around the country, where coverage has been denied, and the insured has filed suit.  See, for example, the lawsuit recently filed by beloved Kansas City barbeque joint, Joe’s Kansas City, against Lloyd’s of London. We will keep our readers apprised of further major developments in this area. 

Supreme Court of Missouri Upholds Constitutionality of Noneconomic Damage Cap in Case Against Healthcare Provider

August 24, 2021 | John Mahon, Jr. and Terrence O'Toole, Jr.

The Supreme Court of Missouri, in a case filed against a healthcare provider defendant, has upheld the constitutionality of Missouri’s statutory noneconomic damage cap.  The Velazquez v. University Physician Associates case had been closely monitored by various stakeholders, because the case has significant implications for patients and healthcare providers, as well as other litigants. The Court also analyzed another important cap related issue in determining which cap year is appropriate to apply the statutory cost of living escalator to account for inflation.

Procedurally, the case involved cross-appeals from plaintiff as to the trial court’s reduction of damages, and the healthcare provider defendants’ appeal of the plaintiff verdict on several grounds.  The plaintiff had alleged negligence in the cesarean delivery of her child and in her postpartum care.  The jury found in plaintiff’s favor, allocating 100% of fault to the physician defendants.  The jury awarded $30,000 in economic damages and $1 million in noneconomic damages.  The trial court granted the physicians’ Motions for Remittitur asking the court to reduce the total noneconomic damage award to $400,000.  The plaintiff opposed these Motions by making a constitutional objection and arguing that the higher noneconomic damage cap amount for “catastrophic” personal injury applied.  The trial court did not find the noneconomic damage caps to be unconstitutional and agreed with plaintiff that the higher cap amount applied, thereby reducing the noneconomic damage award from $1M to $748,828 (using the 2019 cap year because that was the trial year).

The Noneconomic Damage Caps Do Not Violate
the Missouri Constitution's Right to Trial by Jury

On appeal, plaintiff argued the noneconomic damage caps violated her constitutional right to trial by jury as it existed at common law before the State Constitution’s first adoption in 1820. The Court addressed and rejected this same argument in the 2012 Sanders v. Ahmed decision, where the Court held that wrongful death is a statutory cause of action that did not exist at common law, and therefore the Legislature has the power to define the remedy available (and impose damage caps) since it created the cause of action.  The Sanders decision reached the opposite conclusion of the 2012 Watts v. Lester E. Cox Medical Center case, in which the Court declared the noneconomic damage caps unconstitutional in medical negligence actions because they were common law claims rather than statutory claims. 

The Velazquez Court found that Watts did not control because in 2015, the Legislature amended certain statutes to provide a new statutory cause of action to replace the common law claim for damages against a healthcare provider.  The Court found the Legislature has the authority to abolish common-law causes of action, as it had done before when it abolished certain common-law negligence claims against employers by enacting a statutory workers’ compensation scheme.  Thus, because all medical negligence actions are now statutory causes of action, and the Legislature has the authority to enact statutory noneconomic damage caps, the current noneconomic damage caps do not violate the constitutional right to trial by jury.

Judge Draper was the lone dissenter from the Court’s ruling, arguing that the principal opinion provides the Legislature with unfettered authority to limit the constitutional right to trial by jury through hostile legislation when, in fact, Missouri voters are the only ones with the power to change the Constitution.  In his view, the 2015 statutory revisions were a “blatant end run” around the Missouri Constitution's right of trial by jury because they converted the common law medical malpractice cause of action into a statutory one merely to impose the same statutory caps the Court previously struck down for infringing on the right to trial by jury.  Judge Draper argues that the principal opinion erodes the right of trial by jury to a mere privilege that may be withdrawn by legislative prerogative. 

The Applicable Noneconomic Damage Cap is Based on Trial Year
Rather than Year of Underlying Injury

The Velazquez Court rejected the healthcare provider defendants’ argument that applying the noneconomic damage cap at the time of trial (2019 – $748,828) – rather than the cap in effect at the time of the alleged injury (2015 – $700,000) – violated protections afforded by the Missouri Constitution against retrospective application of law. 

Noting that § 538.210.8, RSMo. “unambiguously express[ed] the legislative intent that a plaintiff’s non-economic damages award be protected from inflation,” the annual adjustment for inflation merely affected a procedure or remedy and did not run afoul of the constitutional proscription against retrospective laws.  As a result, the Court held that the determination of the applicable noneconomic damage cap year is based on the time of trial, not the time of injury, and upheld the trial court’s reduction of the noneconomic damages to $748,828 using the 2019 cap year.

The Velazquez decision is an important victory for Missouri healthcare providers because it affirms the constitutionality of the noneconomic damage caps in cases against healthcare provider defendants.  This affords the parties in those cases greater predictability in in terms of case value.  The decision also provides courts and litigants clarity as to which cap year applies to pending and future cases.  

They're Baaaaccckkkk: New COVID-19 Guidelines for Your Vaxed and Vexed Employees

August 16, 2021

In November 2020, many Americans breathed a sigh of relief, as news broke that an effective and safe vaccine had been developed against COVID-19. As vaccines from Pfizer, Moderna, and Johnson & Johnson began to roll out in early 2021, numerous citizens began to roll up their sleeves for protection against the virus.  In May 2021, many COVID-19 related restrictions were abandoned in the continental U.S. (including the dreaded indoor mask requirement) after the CDC advised that vaccinated individuals did not need to wear masks while indoors.

Fast forward to August 2021, and the unwelcome spread of the highly contagious Delta variant, and we seem to be creeping back to mandatory mask wearing in many states, as the CDC recently recommended that fully vaccinated individuals wear masks in public indoor settings in areas of “substantial or high transmission.”  This recommendation comes as no surprise with the Delta variant on the rise, coupled with the fact that vaccinated individuals can still become sick from the virus, as well as transmit the virus.

So what is an employer to do with these new CDC guidelines?  While the new guidelines do not define “public indoor settings,” such settings were previously differentiated by the CDC from household settings.  Hence, it is safe to say these new guidelines apply to businesses outside of individuals’ homes.  Because it is assumed that these guidelines pertain to companies, employers and businesses should consult with the CDC’s COVID-19 Integrated County View website (covid.cdc.gov/covid-data-tracker/#county-view) to determine if the areas in which they do business are COVID-19 hotspots with substantial or high transmission.  This website is updated by the CDC daily, reflecting locations that have substantial transmission or high transmission over a 7-day period.

While CDC guidelines are not considered “law,” OSHA and the courts could interpret CDC guidelines to be a standard of care.  Accordingly, in the event an employer does not abide by the new CDC guidelines, OSHA could cite an employer for not abiding by the guidelines, on the grounds that the employer breached the OSHA “general duty clause.”  In addition, individuals who contract the virus while visiting non-CDC abiding businesses may sue, claiming that the business was negligent by not abiding by the respective restrictions.  Although CDC guidelines are just that – guidelines – employers and businesses should therefore heed the CDC’s guidance… to the possible dismay of your some of your vaxed and vexed employees.  

Missouri Court of Appeals affirms denial of motion to compel arbitration based on contract of adhesion

August 10, 2021 | John Brooks

The Eastern District Missouri Court of Appeals recently affirmed a trial court decision that denied Verizon’s motion to compel arbitration. In Rose v. Verizon Wireless Services, LLC, the Court of Appeals held that an arbitration provision was not enforceable because the contract at issue was an unenforceable contract of adhesion and did not match the reasonable expectations of the parties.

Plaintiff Breanna Rose sued Verizon Wireless and its employee Santiago Sabala, Jr. based on a visit to a Verizon store in St. Louis County to exchange her iPhone 6s for a newer model. Rose alleged that Sabala took her iPhone into the back of the store, purportedly to evaluate its condition for the trade in; but that four months later, she discovered Sabala sent an email from Rose’s phone to Sabala’s email address, attaching intimate photographs of Rose. Obtaining private, intimate images of a person without their consent is a felony under Missouri law. R.S. Mo § 573.110.2. Rose claimed negligent infliction of emotional distress and invasion of privacy by Sabala, and negligence and negligent hiring, retention and supervision by Verizon Wireless Services, as the employer of Sabala.

Verizon moved to compel arbitration. Verizon argued that Rose agreed to Verizon’s customer agreement when she purchased her iPhone 6s. That agreement contained a clause requiring arbitration of any customer dispute, under the Federal Arbitration Act:

ANY DISPUTE THAT IN ANY WAY RELATES TO OR ARISES OUT OF THIS AGREEMENT OR FROM ANY EQUIPMENT, PRODUCTS AND SERVICES YOU RECEIVE FROM US (OR FROM ANY ADVERTISING FOR ANY SUCH PRODUCTS OR SERVICES), INCLUDING ANY DISPUTES YOU HAVE WITH OUR EMPLOYEES OR AGENTS, WILL BE RESOLVED BY ONE OR MORE NEUTRAL ARBITRATORS . . ..

Rose argued that Verizon’s customer agreement constituted a contract of adhesion. Contracts of adhesion are typically contracts offered on a “take this or nothing basis,” as opposed to a contract where the terms are negotiated by the parties. Swain v. Auto Servs., Inc., 128 S.W.3d 103, 107 (Mo. App. E.D. 2003). Most people have experienced contracts of adhesion when scrolling through lengthy terms and conditions of service and clicking “accept,” usually without actually reading the terms and conditions. The Circuit Court agreed with Rose, and denied Verizon’s motion to compel arbitration. Ordinarily parties must wait to appeal until a final judgment is entered, but Missouri law allows an immediate appeal from an order denying an application to compel arbitration. § 435.440.1(1), RSMo. Verizon appealed.

The appellate Court ruled against Verizon and affirmed the circuit court’s decision to deny arbitration. As the appellate Court noted, contracts of adhesion can be enforceable, depending on whether the contract matches the reasonable expectations of the parties. However, the store receipt signed by Rose when she purchased her phone did not contain the above arbitration clause itself, but merely referenced the online customer agreement and arbitration, as follows (emphasis added):

I AGREE TO THE CURRENT VERIZON WIRELESS CUSTOMER AGREEMENT (WITH EXTENDED LIMITED WARRANTY/SERVICE CONTRACT, IF APPLICABLE), INCLUDING THE TERMS AND CONDITIONS OF MY PLAN AND ANY OPTIONAL SERVICES I HAVE AGREED TO PURCHASE AS REFLECTED ON THE SERVICE SUMMARY, ALL OF WHICH I HAVE HAD THE OPPORTUNITY TO REVIEW. I UNDERSTAND THAT I AM AGREEING TO AN EARLY TERMINATION FEE PER LINE, LIMITATIONS OF LIABILITY FOR SERVICE AND EQUIPMENT, SETTLEMENT OF DISPUTES BY ARBITRATION INSTEAD OF JURY TRIALS, AND OTHER IMPORTANT TERMS IN THE CUSTOMER AGREEMENT. I AM AWARE THAT I CAN VIEW THE CUSTOMER AGREEMENT ANYTIME AT VERIZONWIRELESS.COM OR IN MY VERIZON ACCOUNT.

The appellate Court noted that while the receipt Rose signed does mention settling disputes by arbitration, that reference was merely a portion of a single sentence and did not set out the full terms of arbitration, as described in Verizon’s customer agreement. The full customer agreement was a separate document from the one signed by Rose. The appellate Court also ruled that the circumstances of the transaction weighed against Verizon, in that Santiago’s alleged actions did not relate to Verizon’s telecommunications business. Because the reasonable expectations of the parties would not include arbitrating disputes related to a Verizon employee allegedly obtaining intimate photographs of a customer, the appellate Court held that Verizon was not entitled to arbitration.

Arbitration is often favored as a less expensive method of resolving disputes. Parties can forego the expense related to interviewing and selecting jurors and generally reach a quicker resolution, while trials may take months or even years. The appellate Court’s decision does not mean that all contracts of adhesion are unenforceable, or even that contracts of adhesion containing arbitration clauses are unenforceable. The Court emphasized that its decision was narrow and based on the specific allegations of misconduct by Sabala. If the allegations were different – for example, if an employee dropped and broke a customer’s phone while handling it – the appellate Court may have permitted arbitration. Likewise, if the full terms regarding arbitration were contained in the receipt signed by Rose, the appellate Court may have permitted arbitration. Parties entering into written contracts should be careful to ensure both sides fully appreciate the contractual terms they are agreeing to, especially terms requiring arbitration of disputes. 

Related Services: Appellate and Employment & Labor

Attorneys: John Brooks

Are Non-Competes Doomed after Executive Order 14306?

August 5, 2021 | Nicholas Ruble and David Eisenberg

On July 9, 2021, President Biden signed Executive Order 14306. The EO has inspired headlines warning that non-compete agreements as we know them are doomed. These prognoses are premature. The EO itself does not affect non-compete agreements in employment, but merely recommends that the Federal Trade Commission begin the rulemaking process with the principles of the EO in mind.

Section 5(g) instructs that “To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

The overall tenor of the EO is that the consolidation of large corporations unfairly restricts competition. To date, the enforceability of non-compete clauses has been almost entirely governed by state law, and state laws dramatically vary on this subject. For example, California law is rather hostile to these provisions, while the laws of Missouri, Illinois, and Kansas are more in the mainstream, allowing restrictions that are appropriately limited in scope and duration.  While we have no idea what the FTC’s proposed regulation will look like, we can begin to guess by examining state laws on non-compete agreements generally.

Missouri

In Missouri, non-compete agreements are enforceable to the extent they protect a legitimate business interest, such as confidential information, trade secrets and customer contacts, and are reasonable in temporal and geographic scope. Importantly, customer contacts are protectable only as to those employees who actually interact with customers and can influence customers’ decisions. Whelan Security Co. v. Kennebrew, 379 S.W.3d 835 (Mo. banc 2012). A related restrictive covenant, the non-solicitation clause, which prevents employees from snatching up their former co-workers, is presumed enforceable for up to one year, where its purpose is to protect company loyalty, customer goodwill, and related interests. See Mo. Rev. Stat. § 431.202. For more information on Missouri non-competes, see our blog posts Non-Compete Agreements in Missouri: The Missouri Supreme Court (Once Again) Explains it All from December 2012 and Sometimes You Just Can't Compete from April 2020.

Illinois

Illinois common law generally resembles Missouri with regard to non-competes. However, in Illinois, non-competes with “low-wage employees,” an employee who earns the greater of the federal, state, or local minimum wage or $13.00 per hour, are explicitly prohibited by statute. “Illinois Freedom to Work Act,” 820 ILCS 90/5.

Kansas

The landscape in Kansas is also similar to Missouri. In Idbeis v. Wichita Surgical Specialist, P.A., 112 P.3d 81, 279 Kan. 755 (2005), the Supreme Court of Kansas established guidelines for enforcement that drafters of non-competes should note. In pertinent part, the Court held that non-competes are enforceable if they are not intended to avoid ordinary competition, do not create an undue burden on employees, and does not harm the public welfare.

What about e-Commerce?

In the Internet Age, geographic restrictions on non-competes sometimes seem irrelevant. A company headquartered in Kansas City, Missouri, may have a sales representative located in Juneau, Alaska, selling products to customers in Key West, Florida. A geographic prohibition of a 50-mile radius does not make sense. Can’t a company just prohibit its employees from going to work for a competitor?

These types of non-compete agreements, where a company identifies competitors and seeks to prohibit employees from switching teams, are likely to be an area of focus in the FTC regulations. Particularly in the post-pandemic Big Tech world, where remote work is becoming the norm, companies may seek to protect their employees from being raided by Silicon Valley with global non-competes. The tension is obvious: how will the FTC limit monopolistic raiding behavior by the Googles and Facebooks of the world and protect employees’ freedom of movement?

Employers and practitioners would do well to examine Sigma-Aldrich v. VIkin, 451 S.W.3d 767 (Mo. App. E.D. 2014). There, the Court held invalid a global non-compete that would have forbidden an employee to

“engage in, provide any services or advice to, contribute my knowledge to or invest in any business that is engaged in any work or activity that involves a product, process, service or development which is then competitive with, the same as or similar to a product, process, service or development on which I worked or with respect to which I had access to Confidential Information while with the Company anywhere the Company markets or sells any such product or service.”

The Court held that this broad prohibition sought to protect itself from regular competition. For more on Sigma-Aldrich, see our blog post Court of Appeals Affirms Denial of Sigma-Aldrich's Request for Injunctive Relief Against Former Employee. The Court instructed employers to evaluate the employee’s specific duties, use of trade secrets in their work, and then identify the protectable interest at stake, then to narrowly tailor the non-compete to protection of those interests. As always, a one-size-fits-all approach to non-competes simply does not work.

FTC’s Rulemaking Authority

Generally, a properly promulgated agency rule will preempt conflicting state laws on the same subject matter. But as an administrative agency, the scope of the rule is strictly confined to the agency’s statutory authority. The FTC can only issue a rule “where it has reason to believe that the unfair or deceptive acts or practice which are the subject of the proposed rulemaking are prevalent […],” that is “information available to the Commission indicates a widespread pattern of unfair or deceptive acts or practices.” 15 U.S.C.A. §15a(b)(1)-(3).

When can we expect this new rule to go into effect? Section 18(a) of the Federal Trade Commission Act includes rulemaking procedures that exceed those of the Administrative Procedures Act. The FTC is required to publish an Advanced Notice of Proposed Rulemaking in the Federal Register with information about the rule’s purpose and invite interested parties to comment. The FTC must also seek input from certain House and Senate committees. Then at least 30 days later, the FTC may issue a Notice of Proposed Rulemaking. 

Enforceability of Current Non-Competes After FTC Regulation

The logic of the EO is somewhat circular, given the law of restrictive covenants in Kansas, Missouri, and Illinois. By law, the FTC only has authority to regulate where there is widespread unfairness. Restrictive covenants are only enforceable to the extent they are reasonable and protect an employer’s legitimate interest in protection from unfair competition. So in theory, a non-compete that is enforceable under Missouri, Illinois, or Kansas law should also be enforceable under the FTC regulations.

Protecting Your Business Interests

There is no reason for the EO to scare businesses into abandoning non-compete agreements. However, the EO is an important reminder that now is a good time for employers to re-evaluate their non-compete agreements. Are they targeted at a protectable interest, such as customer contacts, trade secrets, and goodwill? Importantly, the EO does not address trade secrets, and Missouri, Illinois, and Kansas have already enacted the Uniform Trade Secrets Act. Employers whose businesses are dependent on trade secrets and proprietary information should consider a trade secrets agreement separate from its non-compete agreement.

 

Ultimately, we will not know what the FTC seeks to regulate until their proposed rule is published. Baker Sterchi Cowden & Rice attorneys will be closely monitoring and reporting on developments in this blog.

Department of Labor Withdraws Employer-friendly FLSA Test for "Employee" Classification

August 3, 2021 | Elizabeth Miller

On May 6, 2021, the U.S. Department of Labor withdrew the new Trump-era Fair Labor Standards Act independent contractor rule, scheduled to take effect the next day.

The rule, entitled “Independent Contractor Status under the Fair Labor Standards Act” (ICR), was a decided shift to a narrower definition of “employee” and thereby narrowed the scope of workers who may be entitled to FLSA protections.

The FLSA was the first federal law to afford employees a right to a minimum wage and overtime pay, among other benefits.  The condensed statutory definition of “employee” is any individual who is permitted to work by an employer.  See 29 U.S.C. § 203 (2019).  As the Supreme Court interpreted the FLSA, it became clear that the sweepingly broad language of the Act’s “employee” definition required that employers delineate between “employees” and “independent contractors” lest the FLSA be misinterpreted “to stamp all persons as employees.”  See Walling v. Portland Terminal Co., 330 U.S. 148, 152 (1947).  Whether a worker is classified as an “employee” – and therefore is entitled to FLSA protections – or, alternatively, as an “independent contractor” has been a costly question steeped in debate ever since.  

Evolving common law and DOL guidance, via Wage and Hour Division opinion letters, are the tools employers have to decipher who is and who is not an “employee” for purposes of meeting FLSA standards.  Employers are often motivated to classify workers as “independent contractors” to avoid the need to meet FLSA requirements for minimum wages and overtime pay, for example.  For the same reasons, workers often prefer to be classified as “employees.”  Which begs the question, why is a worker’s classification up for debate?  The answer is because every analysis that common law or the DOL provide amounts to a non-exhaustive list of factors, each bearing indeterminate and malleable weight that exposes the factors to legitimate disputes.  The Supreme Court and federal courts of appeals are clear, however, on one point: no single factor is dispositive of a conclusion for or against a classification of “employee,” and a totality of the circumstances must be considered. 

Over the years, the most commonly applied multifactorial test has been the Economic Reality Test (ERT), a version of which is published by the DOL on the FLSA Fact Sheet (left column below).  The would-have-been new test, ICR, modified the ERT (middle and right columns below).

Both tests were designed to pinpoint workers who are economically dependent on a potential employer for work.  However, unlike the ERT, the ICR would have mandated that two “core” factors – nature and degree of control, and worker’s opportunity for profit or loss – take priority, without analysis of the other factors or the totality of the circumstances.  By doing so, the ICR necessarily would have narrowed the scope of workers who may have been deemed “employees” covered by the FLSA umbrella. 
 

Economic Reality Test

(DOL’s FLSA Fact Sheet)

Independent Contractor Rule

(not implemented)

a. The employer’s versus the individual’s degree of control over the work;

Core Factors 

 If both core factors point towards the same classification (employee or independent contractor) there is a substantial likelihood that that classification is appropriate and generally no further analysis is required.

1. The nature and degree of the worker’s control over the work; and

b. The individual’s opportunity for profit or loss;

2. The worker’s opportunity for profit or loss based on initiative and/or investment.

c. The individual’s investment in facilities and equipment;

   

d.  The permanency of the relationship between the parties;

Tie Breaker Factors 

If the Core Factors do not point towards the same classification, these three other factors may serve as “additional guideposts” in the analysis.

a. The degree of permanence of the working relationship between the individual and the potential employer;

e. The skill or expertise required by the individual;

b. The amount of skill required for the work; and

f. Whether the work is “part of an integrated unit of production”; and

c. Whether the work is “part of an integrated unit of production.”

g. The degree of independent business organization and operation.

   


The ICR was considered a win for employers, but because the DOL withdrew the rule before it took effect and has since published an excoriating explanation of the withdrawal – that the ICR “was inconsistent with the FLSA’s text and purpose, and would have had a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent,” – it is highly unlikely that the ICR can be resurrected under the current Administration.

While advocates of ICR touted that the rule could provide more certainty and predictability for employers and workers alike, the totality of the circumstances approach of the ERT will remain the federal standard, applying multiple factors to any determination of employee versus independent contractor status. 

The Consequences of Extending Counteroffers to Pre-Suit Settlement Demands

July 29, 2021 | John Brooks

Jameson v. Still arose from an auto accident between Still’s vehicle and Jameson’s on New Year’s Eve 2018. Jameson’s counsel sent a settlement demand for $150,000 or all available coverages to Still’s insurer. Jameson’s demand was entitled “Offer to Settle Pursuant to RSMo §408.040 and RSMo §537.058.” By law, offers of settlement made pursuant to § 408.040 and § 537.058 “shall remain open” for a period of 90 days.

Section 408.040 provides that a plaintiff must comply with specific statutory requirements to recover prejudgment interest. Section 537.058 provides that a settlement demand is inadmissible in a bad faith failure to settle claim unless the demand complies with the statute. In compliance with § 408.040 and § 537.058, Jameson’s settlement demand stated the “offer to settle will remain open for ninety (90) days.” Jameson’s demand was sent on May 20, 2019 and expired on August 18, 2019.

Still’s insurer responded to Jameson’s settlement demand with an offer of settlement for $24,751 on June 21, 2019. On June 24, 2019, Jameson filed his Petition alleging negligence by Still in St. Louis County Circuit Court. Jameson’s Petition alleged, “Plaintiff’s RSMo section 408.040 offer was rejected on June 21, 2019.” On August 6, 2019 Still’s insurer offered the applicable policy limits of $100,000. On August 14, 2019 Still’s insurer re-offered the $100,000 policy limits. Then, on August 15, 2019, prior to expiration of the original time-limited demand, Still’s insurer sent a letter purporting to accept the original May 20, 2019 settlement demand. Still moved for summary judgment, alleging the parties settled the case. The trial court granted that motion. Jameson appealed.

Until 2015, Missouri’s pre-judgment interest statute contained language specifically addressing rejection of a time-limited demand: “2. Any such demand or offer shall be made in writing and sent by certified mail and shall be left open for sixty days unless rejected earlier.” § 408.040 2005 Mo. Legis. Serv. H.B. 393 (emphasis added). In 2015, the Missouri legislature amended § 408.040 and extended the time for pre-judgment settlement demands to ninety days. The amended version of §408.040 did not contain the “unless rejected earlier” language. In her brief in support of her summary judgment motion, Still argued that the removal of the “unless rejected earlier” language in the amended § 408.040 reflected the legislature’s intent that pre-suit settlement demands are not rejected by a counteroffer.

The Missouri Court of Appeals disagreed. Longstanding black letter Missouri law provides that a counteroffer operates as a rejection of a contractual offer and as a new offer. Here, Jameson’s 90-day settlement demand was a contractual offer of settlement, and Still’s June 21, 2019 offer of $24,751 modified the proposed contractual terms. The appellate Court held that in doing so, Still extended a counteroffer.

The Court noted two circumstances under Missouri law where contractual offers may be irrevocable: 1) when parties enter into an option contract - inapplicable here - and 2), when a statute mandates the offer is irrevocable. Missouri courts interpret statutes by reviewing the plain and ordinary meaning of the words contained. As the appellate Court noted, “[n]either section 408.040 nor section 537.058 use the words irrevocable or non-rejectable or their equivalents.”  It thus concluded that the Missouri legislature did not intend to make time-limited settlement demands pursuant to § 408.040 and § 537.058 irrevocable.

The appellate Court reversed and remanded the case to the trial court. Still has applied to have the case transferred to the Missouri Supreme Court, and that application is still pending. Given the frequency of pre-suit settlement demands in litigation, it is possible the Missouri Supreme Court may accept transfer of this matter to resolve a question of general importance.

Parties should be aware of the consequences of time-limited demands before providing a response to a pre-suit settlement demand. While this case is not yet fully resolved, and it is possible the Missouri Supreme Court may choose to weigh in, it appears the longstanding rule that a counteroffer constitutes rejection and a new offer still applies in the context of settlement demands made pursuant to §408.040 and §537.058, RSMo. Accordingly, a response to a pre-suit settlement demand that modifies the terms - here, the amount of settlement - may function as a counteroffer. Parties who extend counteroffers to pre-suit settlement demands should carefully evaluate the potential for excess liability and a corresponding bad faith claim. 

COVID Liability Bill Update - Governor Signs Legislation Shielding Healthcare Providers and Others From Most COVID-Related Lawsuits

July 27, 2021 | John Mahon, Jr.

As discussed in ourJune 1, 2021, blog post, the Missouri Legislature passed a COVID liability bill (SB 51) that contains protections for healthcare providers, manufacturers, and other businesses from tort liability related to the COVID-19 pandemic. On July 7, Governor Parson signed the legislation, which has an effective date of August 28, 2021.

Whether COVID-19 tort liability protections are reasonable and necessary is a hotly debated topic among various stakeholders, including the Missouri Chamber of Commerce, the American Medical Association, and trial lawyer organizations.  Proponents of the new law believe it is critical to the State's economic recovery and to stopping those who would seek to profit from the pandemic.  Opponents argue that the law will provide blanket immunity to negligent nursing homes and others who harm innocent Missourians.

As discussed in our December 21, 2020 blog post, Governor Parson has encouraged lawmakers to author this sort of tort liability legislation since at least November 2020, when he issued a written proclamation on the topic.  SB 51 passed the Missouri Senate in February 2021.  A key benefit of the bill to defendants generally is protection from suits stemming from COVID-19 exposures unless a plaintiff can show clear and convincing evidence of recklessness or willful misconduct and the exposure caused personal injury. 

There are protections in the bill specific to healthcare providers.  In the healthcare context, the bill states that “[a]n elective procedure that is delayed for good cause shall not be considered recklessness or willful misconduct.”  There is also a shortened limitations period for bringing a COVID-19 medical liability action.  Such an action “may not be commenced in any Missouri court later than one year after the date of the discovery of the alleged harm, damage, breach, or tort unless tolled for proof of fraud, intentional concealment, or the presence of a foreign body which has no therapeutic or diagnostic purpose or effect.” 

The bill also limits punitive damages in a COVID-19 related action to a maximum of nine times the compensatory damages.  However, § 510.265, RSMo. (2005), may provide greater protection to healthcare provider defendants, in that it limits punitive damages to $500,000, or five times the net amount of the judgment awarded to the plaintiff, whichever is greater.

SB 51 comes in the wake of the filing of thousands of COVID-related lawsuits nationally.  Missouri alone has seen more than 140 COVID-related suits since the start of 2020.  One potential unintended consequence of this legislation could be a sharp rise in COVID-related suits filed hastily in Missouri courts during the several weeks leading up to the August 28 effective date to circumvent the new law.  Should this occur, many of these suits could be meritless and lacking adequate pre-suit investigation. 

Missouri will not be alone in providing COVID-19 tort liability protections.  Other states have done so through executive order and/or legislative action.  In addition, federal liability protections are already available under the 2005 Public Readiness and Emergency Preparedness (PREP) Act, which provides immunity to certain defendants, including healthcare provider defendants in certain situations.

We will continue to monitor the implementation of this new law and its impact on our courts.  

COVID Liability Bill Update - Governor Signs Legislation Shielding Healthcare Providers and Others From Most COVID-Related Lawsuits

July 27, 2021 | John Mahon, Jr.

As discussed in our June 1, 2021, blog post, the Missouri Legislature passed a COVID liability bill (SB 51) that contains protections for healthcare providers, manufacturers, and other businesses from tort liability related to the COVID-19 pandemic. On July 7, Governor Parson signed the legislation, which has an effective date of August 28, 2021.

Whether COVID-19 tort liability protections are reasonable and necessary is a hotly debated topic among various stakeholders, including the Missouri Chamber of Commerce, the American Medical Association, and trial lawyer organizations.  Proponents of the new law believe it is critical to the State's economic recovery and to stopping those who would seek to profit from the pandemic.  Opponents argue that the law will provide blanket immunity to negligent nursing homes and others who harm innocent Missourians.

As discussed in our December 21, 2020 blog post, Governor Parson has encouraged lawmakers to author this sort of tort liability legislation since at least November 2020, when he issued a written proclamation on the topic.  SB 51 passed the Missouri Senate in February 2021.  A key benefit of the bill to defendants generally is protection from suits stemming from COVID-19 exposures unless a plaintiff can show clear and convincing evidence of recklessness or willful misconduct and the exposure caused personal injury. 

There are protections in the bill specific to healthcare providers.  In the healthcare context, the bill states that “[a]n elective procedure that is delayed for good cause shall not be considered recklessness or willful misconduct.”  There is also a shortened limitations period for bringing a COVID-19 medical liability action.  Such an action “may not be commenced in any Missouri court later than one year after the date of the discovery of the alleged harm, damage, breach, or tort unless tolled for proof of fraud, intentional concealment, or the presence of a foreign body which has no therapeutic or diagnostic purpose or effect.” 

The bill also limits punitive damages in a COVID-19 related action to a maximum of nine times the compensatory damages.  However, § 510.265, RSMo. (2005), may provide greater protection to healthcare provider defendants, in that it limits punitive damages to $500,000, or five times the net amount of the judgment awarded to the plaintiff, whichever is greater.

SB 51 comes in the wake of the filing of thousands of COVID-related lawsuits nationally.  Missouri alone has seen more than 140 COVID-related suits since the start of 2020.  One potential unintended consequence of this legislation could be a sharp rise in COVID-related suits filed hastily in Missouri courts during the several weeks leading up to the August 28 effective date to circumvent the new law.  Should this occur, many of these suits could be meritless and lacking adequate pre-suit investigation. 

Missouri will not be alone in providing COVID-19 tort liability protections.  Other states have done so through executive order and/or legislative action.  In addition, federal liability protections are already available under the 2005 Public Readiness and Emergency Preparedness (PREP) Act, which provides immunity to certain defendants, including healthcare provider defendants in certain situations.

We will continue to monitor the implementation of this new law and its impact on our courts.  

EEOC Issues New Guidance for Employers on COVID-19 Vaccinations in the Workplace

July 22, 2021 | Brandy Simpson

On May 28, 2021, the U.S. Equal Employment Opportunity Commission (EEOC) issued new guidance seeking to clarify significant questions regarding mandating vaccines for employees, reasonable accommodation, and employee incentives for vaccination.

In considering mandatory vaccination policies in the workplace, the EEOC advised employers to be mindful of whether certain employees may face greater barriers to obtaining vaccination, and to make sure that any mandatory vaccination program would not disparately affect any protected classes. The EEOC confirmed that an employer may require all employees physically entering the workplace to receive a COVID-19 vaccination, so long it continues to comply with reasonable accommodation obligations under the ADA and Title VII for employees seeking an exemption. Notably, the EEOC remains silent on an employer’s ability to mandate vaccination of remote workers. Employers who implement a mandatory vaccination policy must ensure that the standard is job-related and consistent with  business necessity.

 Reasonable accommodation may be required for an employee who declines vaccination due to a disability or sincerely held religious belief, unless doing so would pose an undue hardship on the operation of the employer’s business or create a direct threat to the health of others. Employees who are not vaccinated because of pregnancy may also be entitled to adjustments (under Title VII) if the employer makes modifications or exceptions for other employees. These modifications may be the same as the accommodations made for an employee based on disability or religion. (Note, however, that the May 28th EEOC guidance says employers should be alert to and should follow any updated CDC guidance, and on June 29th, the CDC issued new guidance that essentially encourages pregnant persons to be vaccinated, because they are at above-average risk for Covid-19 infection. While the new CDC guidance may not have the effect of reversing the EEOC’s guidance on this point, it at least may muddy the waters.)

The EEOC reminded employers that when determining if an employee poses a “direct threat,” the employer must make an individual assessment of the employee’s ability to perform the essential functions of the job and rely on reasonable medical judgment regarding the most current medical knowledge about COVID-19, including factors such as current community spread. Further considerations of the employer’s assessment of a “direct threat” may include: the proximity of the employee to co-workers; whether they work indoors or outdoors; available ventilation; direct interaction with others; how many nearby individuals are partially or fully vaccinated; and whether employees are wearing masks, social distancing, or undergoing routine testing. For employees receiving an exemption from a workplace mandatory vaccination program, employers may continue requiring the use of face coverings, social distancing, and periodic COVID-19 testing. Other examples of reasonable accommodations include: modified work shifts; telework; or a reassignment.

The EEOC has further clarified that employers may use incentives to encourage employee vaccinations so long as the incentive is not tied to the employee receiving the vaccine from the employer itself, or any other entity with which the employer may have a contract. Employers may provide incentives upon proof of vaccination from a third party. Employers may not offer incentives to employees for vaccinations received by family members from the employer or its agent. Employers are not allowed to require employees to have family members become vaccinated and must not penalize employees if family members decide not to become vaccinated. While employers are allowed to require documentation or other confirmation of vaccination, the ADA requirements for confidentiality of employee medical information applies such documentation.

Though the EEOC has provided some guidance on these issues, many speculate there will be a variety of legal issues that may come up as employers begin to implement return-to-work policies and mandatory vaccination policies in the months to come. 

Update: Supreme Court Holds No Concrete Injury in FCRA Class Action Case

July 20, 2021 | Megan Stumph-Turner

In an impactful and split Opinion, the United States Supreme Court has reversed a $40 million class action judgment award in light of its finding that thousands of class members had no standing for two of three Fair Credit Reporting Act (“FCRA”) claims, and that the majority of those class members lacked standing for the remaining claim.

As we advised in our December 2020 Financial Services Law Blog post, the Ramirez case, filed in the Northern District of California, arose when Mr. Ramirez faced an alarming situation at a car dealership: he was denied financing for a car loan due to an erroneous credit report alert indicating that he was listed on an OFAC advisor “terrorist list.” Although Mr. Ramirez’ wife was able to obtain approval to purchase the car, Mr. Ramirez later received a letter from TransUnion indicating that he was listed as a “prohibited Specially Designated National (SDN).” TransUnion removed the alert after Mr. Ramirez disputed the designation.

It was later learned that 8,185 other individuals had been falsely labeled as prohibited SDNs. Although only 1,853 of those individuals’ credit reports were furnished to potential creditors during the relevant time period, all 8,185 individuals were certified as class members and found by the lower courts to have Article III standing.

Mr. Ramirez filed suit on behalf of himself and the 8,185 class members, asserting that TransUnion failed to follow reasonable procedures to ensure the accuracy of credit files, and that it failed to provide consumers with complete credit files and a summary of rights upon request of the consumer. At trial, the jury awarded approximately $1,000 in statutory damages and $6,300 in punitive damages per class member. The Ninth Circuit Court of Appeals held that the class members all had standing but reduced the punitive damages award by roughly 50% on the basis that it was excessive. Now, the Supreme Court has reversed the judgment altogether.

The Supreme Court began its Opinion by citing the longstanding principle that, in order to have standing, claimants must have suffered a “concrete harm” that resulted from the defendant’s conduct and that is capable of being redressed by the Court.

Applying this standard to the “reasonable procedures” claim, the Court first found that the 1,853 plaintiffs whose credit reports were provided to third parties did suffer a concrete harm similar to the type of reputational harm that would be caused by a defamatory statement. The remaining 6,332 class members, on the other hand, suffered no such harm because the false information was not “published,” or furnished, to any third parties. The Court reasoned that the harm suffered from false information stored in a credit file would be similar to an insulting letter that sat in the author’s desk drawer – nonexistent.

The Court then considered whether any of the 8,185 unnamed class members had standing to assert their claims for failure to provide complete credit files and a summary of rights upon request. Plaintiffs did not demonstrate that TransUnion’s potentially faulty mailings caused any harm at all to plaintiffs. Therefore, the Court found there was no standing under Spokeo because these mere technical violations were “divorced from any concrete harm.” The Court rejected any argument by plaintiffs that there was a threat of future harm for any of the asserted claims.

The Opinion was bookended with this simple phrase, penned by Justice Kavanaugh: “No concrete harm, no standing.” And with that, the $40 million judgment out of the Ninth Circuit is reversed, and the case is remanded for proceedings consistent with the Supreme Court’s findings concerning standing.

The Court was split 5-4, and Justice Thomas authored the dissenting opinion.

The Ramirez case will, no doubt, have a reach far beyond FCRA claims. Baker Sterchi will continue to monitor for subsequent litigation interpreting the Ramirez decision.

Illinois Supreme Court Find a Duty to Defend for Alleged Biometric Information Privacy Act Violations

July 15, 2021 | Lisa Larkin

A tanning company customer filed a class action lawsuit against West Bend Mutual Insurance Company’s insured, Krishna Schaumberg Tan, Inc. The customer alleged Krishna violated Illinois’ Biometric Information Privacy Act, 740 ILCS 14/1, et seq., (BIPA) by scanning customers’ fingerprints and disclosing biometric information containing those fingerprints to an out-of-state third-party vendor. Krisha tendered the lawsuit to West Bend and requested a defense. West Bend had issued two businessowners’ liability policies to Krishna.

West Bend filed a declaratory judgment action contending that it did not owe a duty to defend Krishna against the class action lawsuit. First, West Bend argued that the class action compliant did not allege a publication of material that violates a person right of privacy. West Bend argued the Illinois Supreme Court has defined publication as communication to the public at large, not to a single party, as had occurred here. Second, it alternatively argued that the policies’ violation of statutes exclusion applied and barred West Bend from having to provide coverage to Krishna for the BIPA violations. Krisha argued that sharing biometric identifiers and biometric information with a single party is a publication covered by the policies. Further, Krishna argued that regardless of whether the violation of statutes exception applied, the policies also provided coverage for a violation of BIPA under the Illinois data compromise coverage endorsement of the policies.

The trial court entered summary judgment in Krisna’s favor on its counterclaim, finding that “publication” simply means the dissemination of information and that the sharing of biometric identifiers constitutes a publication within the purview of the policies. The trial court also found that the exclusion for violation of statutes does not apply because the exclusion only applies to statutes that regulate methods of sending information and not the collection, retention, disclosure, and destruction of biometric identifiers and information. West Bend appealed, and the appellate court (1st Dist.) affirmed. The Illinois Supreme Court then allowed West Bend’s petition for leave to appeal and affirmed the entry of summary judgment for Krishna.

The West Bend policies defined “personal injury” as an injury “other than a bodily injury” that arises out of an “oral or written publication of material that violates a person’s right of privacy.” The Supreme Court found the complaint alleged a “personal injury,” other than a “bodily injury” in that it alleged emotional upset, mental anguish, and mental injury when Krishna disclosed biometric identifiers and biometric information in violation of the right to privacy under BIPA.

The Court then looked to whether Krishna’s sharing of biometric identifiers and biometric information with the out-of-state third-party vendor was a “publication” that violated the customers’ right to privacy. The West Bend policies did not define “publication.” The Supreme Court, after considering dictionaries, treatises, and the Restatement, concluded that the term “publication” has at least two definitions and means both the communication of information to a single party and the communication of information to the public at large. When a term has multiple reasonable definitions or is subject to more than one reasonable interpretation within the context in which it appears, it is ambiguous. The Court, therefore, strictly construed the term against West Bend, as the insurer who drafted the policies. Accordingly, the Court adopted the construction used by Krishna as the insured and construed the terms publication to include a communication with a single party, like the out-of-state vendor.

The West Bend policy also failed to define the term “privacy.” BIPA codifies (1) an individual’s right to privacy in their biometric identifiers (such as fingerprints, retina or iris scans, voiceprints, or scans of hand or face geometry), and (2) an individual’s right to privacy in their biometric information. The Supreme Court found that BIPA protects a secrecy interest – the right of an individual to keep his or her personal identifying information like fingerprints secret. Disclosing a person’s biometric identifiers or information without their consent or knowledge, therefore, necessarily violates that person’s right to privacy in biometric information. Accordingly, the allegation that Krisha shared biometric identifiers and information with the third-party vendor alleged a potential violation of the right to privacy within the purview of West Bend’s policies.

Having made all these findings, the Court concluded that West Bend had a duty to defend. This did not, however, end the Court’s inquiry in that West Bend asserted the policies’ violation of statutes exclusion barred coverage because the exclusion applies to statutes that prohibit the communicating of information and BIPA limits the communication of information. The exclusion, however, specifically listed certain statutes to which the West Bend policies do not apply – the TCPA (which regulates the use of certain methods of communication), CAN-SPAM (which regulates electronic mail) and statutes “other than” the TCPA or CAN-SPAM that prohibit or limit the communication of information. The Court construed the violation of statues exclusion to apply only to statutes like the TCPA and the CAN-SPAM act, i.e., those which regulate methods of communication. BIPA, however, does not regulate methods of communication but rather the collection, use, safeguarding, handling, storage, retention, and destruction of information, which is fundamentally different from the two statutes mentioned in the policies’ exclusion. The exclusion, therefore, is inapplicable.

The opinion underscores the unique features of the protections offered by BIPA in the context of the already broad duty to defend. It remains to be seen whether more and more policies will include BIPA-specific exclusions.

West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2021 IL 125978 (May 20, 2021).

Missouri Court of Appeals Holds Trial Court Properly Refused To Allow Plaintiff's Counsel to Cross-Examine a Defense Expert on Subject Matter Outside His Area of Medical Expertise

July 13, 2021 | John Mahon, Jr.

In Dalbey v. Heartland Regional Medical Center, the Missouri Court of Appeals, Western District, affirmed a defense verdict in favor of an emergency room doctor and hospital in a medical negligence suit alleging that the doctor failed to diagnose a brain aneurysm that ruptured, hemorrhaged, and caused permanent brain injury. At the conclusion of a nine-day jury trial, the plaintiff’s attorney asked the jury to consider more than $9 million in damages. 

On appeal, one of the plaintiff’s claims of error was that the trial judge improperly prohibited his attorney from cross-examining a defense neuro-critical care expert about his opinion whether the emergency room doctor breached the standard of care.  But the Court of Appeals applied Missouri Supreme Court precedent and ruled that although a physician practicing one specialty might be qualified to offer a standard care opinion concerning the conduct of a physician practicing in another specialty, a trial court need not admit testimony from a physician expert who denies knowledge of the standard of care for another specialty practice area.

A brief synopsis of the underlying medical events provides context for the trial and appellate issues that followed.  During the ER encounter at issue, the ER doctor diagnosed the plaintiff with gastritis or a peptic ulcer, prescribed Prilosec, and discharged him with the recommendation to pursue a follow-up endoscopy.  The plaintiff reported a history of nausea, decreased appetite, and passing out after vomiting blood.  On physical exam, the ER doctor found plaintiff neurologically normal, and he concluded plaintiff fainted because of a vasovagal episode triggered when he saw his own blood after vomiting.

Less than one month later, the plaintiff returned to the same hospital by ambulance with severe headache and altered mental status.  While in the ER, he suffered a seizure.  The same ER doctor was on duty and ordered a head CT scan that revealed a ruptured intracranial aneurysm with intracerebral hemorrhage.  The plaintiff was life flighted to a tertiary care center for neurosurgical intervention.

The central claim at trial was that the ER doctor was negligent in failing to order a head CT scan on the first encounter, as earlier diagnostic testing would have revealed the brain aneurysm and/or a small bleed, and timely treatment would have prevented the rupture and large hemorrhage that followed.  The claim against the hospital was based solely on vicarious liability for the ER doctor’s alleged negligence.

The defense case included testimony from a neuro-critical care expert, not on the standard of care for the ER doctor, but in support of the defense position that the aneurysm had not likely ruptured until the time of the second encounter and was not preceded by a bleed that could have been identified on CT imaging during the first encounter.  The neuro-critical care expert testified the plaintiff’s presentation during the first encounter, including a history of syncope and vomiting blood, a normal neurological examination, and no report of pain, was not consistent with an active brain hemorrhage.

Plaintiff’s counsel attempted to cross-examine the neuro-critical care expert to elicit standard of care opinions against the defendant ER doctor.  Defense counsel objected, contending that the expert practiced in a different specialty area than the defendant ER doctor, the defense had not disclosed the physician as an expert on the standard of care for an ER doctor, and that plaintiff's counsel's questioning was outside the scope of the defense’s direct examination.  The court permitted plaintiff's counsel to conduct a voir dire examination outside the presence of the jury, during which the expert testified he had no intention of offering standard care testimony, as he was unfamiliar with the standard care for an ER doctor.  Ultimately, before the jury, the neuro-critical care expert admitted that, if consulted during the first encounter, he would have ordered a head CT, assuming the plaintiff’s version of events were true (which differed significantly from the defense’s description as documented in the medical records).

Citing Missouri Supreme Court case law, the Court of Appeals held the trial court did not err in prohibiting plaintiff’s counsel from cross-examining the defense expert about the standard of care for an ER doctor.  The rule is that while a physician practicing in one specialty might be qualified to offer a standard of care opinion concerning the conduct of a physician practicing in a different specialty area, this does not mean the trial court is required to admit testimony from a physician, like the neuro-critical care expert here, who denies knowledge of the applicable standard of care.  The court found the plaintiff suffered no prejudice because the jury did not hear the expert’s “expression[] of agnosticism.”  The court permitted plaintiff's counsel to elicit testimony from the expert that, if plaintiff’s version of events were true, he would have been concerned about an intracranial problem and potential hemorrhage and would have undertaken further neurological investigation.  But the jury apparently did not agree with the plaintiff’s version of the underlying facts.

 This case demonstrates some of the practical considerations involved in presenting expert medical testimony at trial from multiple experts in different specialty practice areas.  For example, it is not difficult to find an expert witness who is willing to testify outside his/her own specialty area and criticize another physician with another specialty board certification, which can raise credibility questions.  However, even when a defense expert is unwilling to testify outside his practice “lane,” there is still a danger that an effective plaintiff attorney could cause the witness to concede points that are not helpful to the defense position at trial.  This is particularly true when, as here, the expert has additional specialty training and more narrowly focused experience (for example, with neurological issues) beyond that of the defendant physician whose practice is more generalist (such as emergency medicine).      

Hey Now, You're an All Star, Get Your Punitives, Get Paid. Missouri Court of Appeals Finds Punitive Damages Cap Unconstitutional

July 8, 2021 | Richard Woolf

The Missouri Court of Appeals, Western District, recently held, in a case involving an employee’s breach of his duty of loyalty to his employer, that a statutory cap on punitive damages was a violation of the prevailing plaintiff’s constitutional right to trial by jury. Referring back to the establishment of the Missouri Constitution, the court of appeals reexamined the constitutionality of the punitive damages cap.

All Star Awards v. Halo involved an employee at All Star who decided to leave his employer to work for a competitor. Before leaving All Star, however, the employee poached a few clients from his former employer by telling the clients that All Star was experiencing cash flow and ownership issues. Finding this behavior reprehensible, the trial court stated that “taking business from a small mom-and-pop awards and promotions shop with supposed cash-flow issues while its sales manager was still in its employ is the definition of evil motive and reckless indifference.” The jury, like the trial court, also upset with the defendants, awarded actual damages of $512,000, and punitive damages of $5.5 million. However, the trial court reduced the punitive damages by almost half ($2,627,709) on the basis of Section 510.265, which imposed a punitive-damages cap, because All Star’s claims “were not common law claims.”

On appeal, All Star contended that the trial court misapplied the section on the punitive-damages cap, violating All Star’s right to a jury. Citing the case of Lewellen, the court of appeals stated that they would review constitutional challenges de novo, without regard to the trial court’s decision.

The Missouri Constitution states that the right to a jury trial “as heretofore enjoyed shall remain inviolate.” In other words, any changes to the rights to a jury as existed when the constitution was adopted in 1820 are unconstitutional. Halo contended that there were no claims like the breach of duty of loyalty in Missouri before the Constitution was signed and, therefore, it would not have been recognized. All Star argued to the contrary that it does not matter if Missouri recognized the cause of action in 1820, but rather whether this claim for relief existed in English common law prior to the signing of the Missouri constitution.

The Court of Appeals agreed with All Star finding these types of loyalty and tortious interference claims have been recognized under English common law since at least 1621. Therefore, the date that the Missouri courts recognized a particular common law cause of action is irrelevant. Rather, the more important question to ask is, “did the action or an analogous action exist at common law when our constitution was adopted?”  Finding the answer in the affirmative here, the court found the punitive damage cap to be unconstitutional.

Although Halo raised a concern that this ruling could radically expand Lewellen, the Court disagreed, concluding that Missouri’s common law is based on the common law of England as of 1607 - the common law claims of England became a part of Missouri common law when the state constitution was adopted; and that its refusal to apply the damages cap was therefore consistent with Lewellen. In the back and forth on the application of a cap on punitive damages, this is a win for the “no-cap” folks. Whether this Court of Appeals decision is the last word on this subject remains to be seen.

* Avery Goodman, a summer law clerk in the firm's St. Louis office, assisted in the research and drafting of this post. Goodman is a rising 3L student at Washington University School of Law.

Related Services: Appellate and Employment & Labor

Attorneys: Richard Woolf

Do You Have a Record? From Conviction History to EEO-1 Reports, Illinois Imposes New Requirements on Employers

July 6, 2021

Every year, it seems as though the Illinois legislature imposes more and more requirements on employers for the protection of employees, and 2021 is no exception. This spring, Governor J.B. Pritzker signed into law amendments to the Illinois Human Rights Act (IHRA), the Illinois Business Corporation Act, and the Illinois Equal Pay Act under Senate Bill 1480. The new law provides protections to individual with criminal convictions, and adds requirements on employers to report employee demographic and payroll information to the Illinois Secretary of State.

As a refresher, the IHRA protects employees from discrimination and harassment on the basis of sex, race, color, national origin, religion, age, etc. in the workplace. Now, the IHRA protects employees (and potential employees) with criminal convictions. In essence, employers are now restricted from using an individual’s criminal record to disqualify an individual from employment or act adversely against an individual with a criminal record unless: (1) there is a substantial relationship between the criminal offense and the employment position sought or held; or (2) an unreasonable safety risk to a person or property exists. The test to determine whether a “substantial relationship” exists requires the employer to consider “whether the employment position offers an opportunity for the same or similar offense to occur” or whether circumstances exist that would lead to similar conduct

Factors that must be considered by the employer when determining if there is a “substantial relationship” or “unreasonable safety risk” include: (1) the amount of time that has passed since the conviction; (2) the number of convictions the individual has; (3) the nature and severity of the conviction in conjunction with the safety and security of others; (4) the facts and circumstances regarding the conviction; (5) the employee’s age when convicted; and (6) evidence regarding the individual’s rehabilitation efforts. 

If it is determined that a “substantial relationship” exists or there is an “unreasonable safety risk,” the employer may preliminary disqualify the individual from employment based on the conviction. If disqualified, the individual must receive written notice of the decision, which should include the conviction that disqualified the individual, the conviction history report obtained by the employer, and information for the individual to respond to the employer’s position on disqualification. The employer must provide the individual with five business days to respond to the written notice.

If the employer decides to stand on the disqualification after receiving the individual’s response, the employer is required to do the following: (1) provide the individual with its final decision regarding the disqualification in writing; (2) state the conviction that led to the disqualification, including the reasoning behind the decision; (3) inform the individual of any other avenues the individual can take to challenge the employer’s decision (if applicable); and (4) advise the individual of his or her right to file a charge of discrimination with the Illinois Department of Human Rights (IDHR).

Not only does the new law amend the IHRA, but it also amends the Illinois Business Corporation Act. In essence, the amendment provides that corporations are required to provide substantially similar information that is contained in EEO-1 reports to the Illinois Secretary of State. This requirement is for those corporations that are required to submit an EEO-1 report with the EEOC. Corporations who are required to provide this information in annual reports must include this information beginning January 1, 2023.

To ensure females and minorities receive compensation that is not consistently below the wages of white males, the new law amends the Illinois Equal Pay Act of 2003, which requires non-public employers with more than 100 employees to obtain an “equal pay registration” certificate from the Illinois Department of Labor (IDOL) on or before March 23, 2024. To obtain a certificate, employers need to provide an EEO-1 report to the IDOL, as well as proof of all wages paid to its employees over the prior year. Employers covered by this amendment are required to obtain a recertification every two years after its first submission. This amendment to the Equal Pay Act also provides protections to whistleblowers and the imposition of civil penalties against employers who do not comply with the certification requirements.

Undoubtedly, these new amendments impose additional burdens on employers and subject employers to additional liability. Conformance with these new laws is critical to ensure that employers are not subject to penalties or liability under the IHRA and the Equal Pay Act.

FHFA Structure Declared Unconstitutional by SCOTUS

July 1, 2021 | Megan Stumph-Turner

In an action initiated by certain shareholders of Fannie Mae and Freddie Mac, the United States Supreme Court issued its Opinion holding that the single-director, terminable only-for-cause structure, violated the separation of powers clause of the United States Constitution.

The Federal Housing Finance Agency (FHFA) was created in 2008 and instilled with authority to oversee Fannie Mae and Freddie Mac under the 2008 Housing and Economy Recovery Act. The underlying action relates to a Purchasing Agreement wherein the Treasury provided billions of dollars in capital in exchange for shares of Fannie and Freddie, following the 2008 housing and financial crisis. The lawsuit originated in the United States District Court for the District of Texas, where certain shareholders of Fannie and Freddie brought an action seeking relief following recent action by the FHFA Director that the shareholders alleged exceeded the Director’s authority and caused them financial injury. Two of the shareholder claims were analyzed by the Supreme Court in its recent holding.

First, the Supreme Court dismissed the shareholders’ statutory claim seeking to reverse the FHFA Director’s third amendment to the Purchasing Agreement. The shareholders claimed the FHFA Director exceeded his authority in amending the Purchase Agreement, but the Supreme Court held this statutory claim must be dismissed, noting that the Recovery Act (12 U.S.C. § 4617(f)) prohibited any court from restraining or affecting the powers or functions of the FHFA as a conservator or receiver.

Second, with respect to the shareholders’ constitutional claim, the Supreme Court first addressed the issue of standing, finding that the Fannie and Freddie shareholders had standing because they had suffered an injury in fact where their property rights in Fannie and Freddie were transferred by the FHFA Director to the Treasury. Moving on to the merits, the Supreme Court cited to its year-old opinion in Seila Law concerning the unconstitutional structure of the CFPB in holding that the FHFA was likewise unconstitutional in its current form, particularly because the Recovery Act restricted the President’s removal powers as to the Director. More information regarding the Seila Law holding may be found in our July 2020 blog post.

In its Opinion, the Supreme Court rejected an argument that the CFPB was somehow distinguishable from the FHFA due to the relative breadth of each agency’s authority. The Court also soundly rejected the argument that the “for cause” removal restriction gave the President more removal authority than some other provisions reviewed by the Court; for instance, the CFPB director had been removable only for “inefficiency, neglect of duty, or malfeasance in office.” This distinction did not matter to the Supreme Court, which noted that it had already held that even “modest restrictions” on the President’s power to remove a single-director were unconstitutional. The case was affirmed in part, reversed in part, and remanded to the lower court to address whether the unconstitutional structure of the FHFA caused the shareholders’ alleged injury.

Just hours after the ink was dry on the Supreme Court’s Opinion, President Biden fired previous FHFA Director Calabria and named the new acting director, Sandra Thompson. Ms. Thompson has previously served as the FHFA deputy director of the Division of Housing and Mission Goals.

Promises, Promises in Arbitration of Employment Disputes

June 29, 2021 | Nicholas Ruble

Employers frequently adopt arbitration programs for resolving disputes with their employees. Arbitration is generally cost-effective and efficient compared with litigation in court. Benefits include reduced discovery costs, shorter time to resolution, and arbitrators willing to make compromise decisions, potentially reducing an employer’s overall exposure. But there has also been a corresponding increase in arbitration-related litigation in recent years, and much of it relates to employers’ desire to retain the right to modify their arbitration programs.

In Harris v. Volt Mgmt. Corp., the Missouri Court of Appeals for the Eastern District reaffirmed that under Missouri law, an arbitration agreement that vests in one party the unfettered right to modify the arbitration program lacks consideration and will not be enforced. The Court affirmed a decision of the circuit court overruling an employer’s motion to compel arbitration, finding that the arbitration agreement lacked consideration because Volt’s promise to arbitrate disputes with its employees was illusory. Language in the arbitration agreement, which reserved for Volt the unfettered right to unilaterally modify the terms of the arbitration program, was not a promise at all. As a result, the circuit court would not compel the employee to arbitrate her claims, instead her lawsuit to proceed.

As a matter of law, an arbitrator’s jurisdiction over a dispute requires that a valid contract exists between the parties to refer their disputes to an arbitrator for resolution. Because an arbitration agreement is a contract, the essential elements of a valid contract – offer, acceptance, and consideration – must be present. In the employment context, arbitration agreements are generally bilateral. Consideration for the agreement is a mutual exchange of promises between the employer and the employee to arbitrate any disputes that arise from the employment relationship. In a bilateral agreement, mutuality requires that both the employer and employee agree to refer their disputes to arbitration.

The circuit court generally has exclusive authority to decide whether a dispute is procedurally arbitrable, that is, whether a valid arbitration agreement exists. Challenges to the existence of a valid arbitration agreement may include an employee’s claims to have never signed the agreement, duress, unconsionability, or any other challenges to contract formation. However, parties may agree to delegate this authority to the arbitrator, as long as the delegation is “clear and unambiguous.” This “delegation” clause is a separate agreement within the arbitration agreement, which must also be supported by consideration. Often, parties will incorporate by reference the rules of the American Arbitration Association (“AAA”) into the arbitration agreement. Section 6.a. of the AAA Employment Rules states that “The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” [EmploymentRules_Web_2.pdf (adr.org)]. Missouri courts have held that incorporation of this rule into an arbitration agreement can be a valid delegation.

In Harris, an employee was terminated, allegedly in retaliation for her seeking orders of protection against her co-workers and for other illegal reasons. Harris subsequently filed a lawsuit asserting claims of wrongful termination, retaliation, and related claims. After the suit was filed, the defendants moved to compel arbitration, asserting that the parties had agreed to arbitrate any disputes arising from the employment relationship. The defendants also claimed that the parties had delegated arbitrability issues to the arbitrator.

The arbitration agreement at issue was contained in an “Employee Guide” provided to all new employees at hiring. The Employee Guide provided employees with “general information about Volt’s rules, policies, plans, procedures and practices concerning the terms and conditions” of their employment. The Employee Guide contained a section entitled “Travel expense policy | Arbitration,” which stated that “[a]ny dispute, controversy or claim which arises out of, involves, affects or relates in any way to your employment” must be referred to arbitration. The arbitration would be conducted “in accordance with the applicable rules of the American Arbitration Association (AAA).” The next page of the Employee Guide contained an “Acknowledgement,” which employees were required to sign, that contained the following crucial provision: “Volt has the right to change, interpret or cancel any of its rules, policies, benefits, procedures or practices at Volt’s discretion, upon reasonable notice where practicable. […] Except as otherwise stated, I agree to arbitrate any and all disputes related to my employment or assignment(s) with Volt, as discussed in this Guide.”

The Court held that the employer retained the right to modify any part of the Employee Guide, including the arbitration agreement and the delegation clause. Because that provision purported to give the employer an “unfettered right” to unilaterally modify the arbitration provision at any time, Volt’s promise to arbitrate was illusory. The Court echoed concerns from prior cases that an employer could sense that an arbitration case was going badly, revoke their arbitration agreement, and get a second bite at the apple in court.

The Court also rejected Volt’s argument that Harris did not separately attack the delegation clause. Generally, a party opposing arbitration must challenge the delegation clause and the arbitration agreement separately. Here, however, the Court permitted Harris to challenge both the delegation clause and the arbitration agreement together, as the challenge to both agreements were premised on the same argument; and Harris explained in her brief that the delegation clause lacked consideration for the same reason as the entire arbitration agreement.

Takeaways

  • Arbitration is a matter of contract. Missouri courts have long emphasized that employers should not treat an arbitration agreement as a policy to be unilaterally imposed on employees.
  • When drafting arbitration agreements, employers should use care to ensure that modification rights apply only prospectively. The courts have recognized that "limiting an employer's unilateral right to amend an arbitration agreement to amendments that [(1)] are prospective in application and [(2)] about which employees have been afforded reasonable advance notice may prevent an employer's mutual promise from being rendered illusory." Patrick v. Altria Grp. Distribution Co., 570 S.W.3d 138, 144 (Mo. App. 2019).

Related Services: Appellate and Employment & Labor

Attorneys: Nicholas Ruble

A Question of Separation of Powers: The Battle Over Missouri Civil Discovery Rules

June 22, 2021

The Missouri legislature passed a bill to amend certain rules of court, including civil discovery rules 56.01, 57.01, 57.03, 57.04, 58.01, 59.01, and 61.01, in 2019, via Senate Bill 224. These particular rules relate to the scope of discovery, interrogatories, and requests for production of documents and things.  The governor signed the bill on July 10, 2019.  Pursuant to Article III, § 20 of the Missouri Constitution, the General Assembly’s regular session terminates on May 30 of each year.  “A law passed by the general assembly takes effect ninety days after the adjournment of the session at which it is enacted.”  Mo. Rev. Stat. § 1.130.  This equates to August 28 of the year in which the law is passed.  Accordingly, SB 224 should have become effective on August 28, 2019. 

We believe that it did. However, the Missouri Supreme Court resisted the General Assembly’s amendment of the rules of civil procedure.  The court initially noted that SB 224 “purports to amend” the rules, subsequently failed to acknowledge SB 224 at all, and ultimately, in March 2021, adopted its own version of the affected rules to take effect September 2, 2021. This leaves civil litigators in something of a limbo state as to what are the current versions of rules 56.01, 57.01, 57.03, 57.04, 58.01, 59.01, and 61.01. As discussed herein, the legislature had the legal authority to enact modifications to the court rules, including the rules of civil procedure, and the Missouri Supreme Court’s March 2021 order does not invalidate the General Assembly’s law under well-settled principals of the separation of powers. Indeed, the Supreme Court’s order makes no reference at all to SB 224. It is not a finding that SB 224 was enacted without authority.

The Supreme Court’s own precedent admonishes against the approach it has taken with respect to SB 224. “It is essential that the bench, the bar, and the public be clearly advised as to the procedural rules that are actually in effect at a given time.” State ex rel. K.C. v. Gant, 661 S.W.2d 483, 485 (Mo. 1983). Rather than any express order addressing the status of SB 224, the Supreme Court dropped a footnote on its rules website, designating the law as one that “purports” to amend the rules, without clearly advising the bench, the bar, or the public as to what the rules are post-SB 224 and before the effective date of the court’s own rule amendments ordered as of March 2, 2021. Indeed, there will be a two-year period between the effective date of SB 224 and the Supreme Court’s own amendment of Rules 56.01, 57.01, 57.03, 57.04, 58.01, 59.01, and 61.01, in which there is an unsettled dispute as to what the rules of civil procedure even are.

Article V, § 5 of the Missouri Constitution expressly authorizes the General Assembly to amend court rules: “The supreme court may establish rules relating to practice, procedure and pleading for all courts . . . Any rule may be annulled or amended in whole or in part by a law limited to the purpose.” Accordingly, the General Assembly had the authority to amend, in whole or in part, court rules, by a law “limited to the purpose.”

Was SB 224 “limited to the purpose” of amending the court rules? Absolutely. SB 224, in its entirety, was a bill “to amend supreme court rules 25.03, 56.01, 57.01, 57.03, 57.04, 58.01, 59.01, and 61.01, relating to discovery.” “For a statute to qualify as one ‘limited to the purpose’ of annulling or amending a rule, it ‘must refer expressly to the rule’ and be limited to the purpose of amending or annulling it.” City of Normandy v. Greitens, 518 S.W.3d 183, 201 (Mo. 2017). SB 224 expressly refers to the rules to be amended, and is limited to the purpose of amending these rules. On the face of SB 224, it addresses no matter other than changes to the listed court rules.

The counterargument on whether SB 224 was “limited to the purpose” of amending court rules is the claim that, because multiple rules were amended in one bill, the bill was not limited to the purpose of amending “any rule.” The judicial doctrine adopted by the Missouri Supreme Court in case law is simply that the bill must identify the rule to be amended and do nothing but amend the rule. No prior case has held that the constitution requires a separate bill for each rule to be amended, nor is that interpretation compelled by Article V, § 5. The only circumstances in which the Missouri Supreme Court has previously found that the General Assembly failed to properly exercise its constitutional authority to amend court rules are (1) where the bill fails to explicitly identify the rule amended, and (2) where the bill was a “massive piece of legislation” that enacted or modified statutes other than the court rules. See State ex rel. Collector of Winchester v. Jamison, 357 S.W.3d 589, 593 (Mo. 2012).

To the extent that opponents of SB 224 might argue that there was insufficient time between the signing of SB 224 and its effective date on August 28, 2019, Article V, § 5 prevents court-established rules from taking effect sooner than six months after its publication by the Supreme Court. There is no corresponding restriction in the Constitution on actions by the General Assembly to annul or amend court rules. Indeed, it would be highly impractical for this to be the case, as the General Assembly is only in general session between “the first Wednesday after the first Monday in January” and May 30. Missouri Constitution, Article III, § 20. Any bills enacted during this approximately four-month session take effect by August 28 of the same year. Mo. Rev. Stat. § 1.130.

The Missouri Supreme Court has repeatedly recognized that, in adopting procedural rules, it may be “overruled” by the General Assembly if it chooses to annul or amend the Court’s rules. See State v. Reese, 920 S.W.2d 94, 95 (Mo. 1996); Ostermueller v. Potter, 868 S.W.2d 110, 111 (Mo. 1993); see also State ex rel. Kinsky v. Pratte, 994 S.W.2d 74, 76 (Mo. App. E.D. 1999) (“the constitution did not make its grant of rule making power to the judiciary exclusive.  . . .  The legislature continues to have the power to establish procedures”). “The constitution does not make this power the exclusive province of the judiciary.” In re Marriage of Chastain, 1996 Mo. LEXIS 67, at *7 (Mo. Oct. 21, 1996). The court recognizes that Article V, § 5 strikes a balance between the legislature and the court, with express limitations on the court’s authority. See, e.g., Goldsby v. Lombardi, 559 S.W.3d 878, 881 (Mo. banc 2018) (recognizing that the section carves out authority for each branch).

The Constitution of 1945 introduced an innovative distribution of power between the General Assembly and this Court in the formulation of rules of practice and procedure for the courts of the state. Procedural requirements, historically, had been prescribed by statute. This Court now may adopt rules of practice and procedure, and rules so adopted, with a few exceptions not here material, may even go to the point of modifying existing statutory requirements. The apparent purpose of the new constitutional procedure is to relieve the legislature of the burden of continuous surveillance of details of judicial procedure, while preserving its ultimate authority through the power to amend or annul any rule adopted by the Court by means of "a law limited to the purpose."

State ex rel. K.C. v. Gant, 661 S.W.2d 483, 485 (Mo. 1983) (emphasis added). 

“The constitutional prescription of the manner in which the General Assembly must act is of pristine importance.” Id. (emphasis added).  “The constitution, therefore, in no way ‘limit[s] or constrict[s] the power of the General Assembly. Its power is plenary, so long as it follows the constitutional procedure.’” State ex rel. Collector of Winchester v. Jamison, 357 S.W.3d 589, 592 (Mo. banc 2012) (quoting Grant).

The most developed area of Missouri Supreme Court precedent is with respect to rules that it enacts that conflict with pre-existing statutes. The Supreme Court has created a doctrine whereby its rules can purportedly invalidate statutes unless the General Assembly acts to invalidate the court rule. “Where such a rule adopted by this court under the express authority of the constitution is inconsistent with a statute and has not been annulled or amended by later enactment of the legislature, the rule supersedes that statute.” State ex rel. Peabody Coal Co. v. Powell, 574 S.W.2d 423, 426 (Mo. 1978). Although this is now a decades-old common law rule, it is unclear how this approach is properly reconciled with the Missouri Constitution’s separation of powers. However, it is an acknowledgement that the legislature has the authority to countermand the Supreme Court’s rules of procedure.

It is worth noting that, while Article V, § 5 of the Missouri Constitution authorizes the Missouri Supreme Court to enact court rules, “The rules shall not change substantive rights, or the law relating to evidence, the oral examination of witnesses, juries, the right of trial by jury, or the right of appeal.” There is a branch of the Missouri government that has the authority to change substantive rights and the laws relating to evidence and competence of witnesses – the General Assembly. Indeed, unlike in many other jurisdictions, Missouri has no rules of evidence, but has many statutes pertaining to evidence and witnesses, including a statute regarding the admissibility of expert testimony. The separation of powers contemplated by the Missouri Constitution evidences an intent to temper the authority of the Missouri Supreme Court, and for the General Assembly to occupy the same sphere of power with respect to amendment of court rules.

Article II, § 1 provides:

The powers of government shall be divided into three distinct departments—the legislative, executive and judicial—each of which shall be confided to a separate magistracy, and no person, or collection of persons, charged with the exercise of powers properly belonging to one of those departments, shall exercise any power properly belonging to either of the others, except in the instances in this constitution expressly directed or permitted.

The General Assembly is expressly permitted to exercise power to amend court rules by Article V, § 5. Accordingly, it is unclear on what basis the Missouri Supreme Court’s skepticism of SB 224 has any legal force or effect. There is no provision in the Missouri Constitution for a “pocket veto” of legislation by the Missouri Supreme Court. There is no precedent for the Court to simply ignore or refuse to implement legislation without a specific order making findings that the General Assembly acted without authority.

We are of the belief, therefore, that the 2019 General Assembly amendments to Rules 56.01, 57.01, 57.03, 57.04, 58.01, 59.01, and 61.01 took effect on August 28, 2019, and will remain in effect until September 2, 2021. A redline comparison of the court rules, per the Supreme Court’s March 2, 2021 order, compared to the provisions of SB 224, can be found here.

Are Jury Instructions "At-Will?" Not Under the Missouri Human Rights Act

June 15, 2021

Practically every employee handbook has one: a statement that the employee’s employment is at-will. Many times, employers require employees to sign an acknowledgment, affirming that the employees know and understand that their positions may be terminated with or without cause. However, is at-will employment a lawful reason to modify a Missouri approved jury instruction at one’s will? No dice, says Missouri’s Western District Court of Appeals.

In Kelly v. City of Lee’s Summit, the court examined whether the trial court erred in overruling the plaintiff-employee’s objection to a modified jury instruction presented by the defendant-employer regarding the plaintiff’s at-will employment status and the lawful reason for her termination. The plaintiff sued under the Missouri Human Rights Act (MHRA), claiming she was terminated by her employer in violation of the MHRA, on account of her race, age, and gender.

Like many employers, the defendant-employer required the plaintiff to sign an agreement indicating that she understood that her employment was at-will, and that she could be terminated without cause. Plaintiff was terminated, and in a dismissal letter, the employer stated that, although plaintiff was being terminated without cause, the “reason for [her] termination was overall unacceptable performance,” including “[f]ailure to understand policies, procedures, ordinances, laws, and processes…[i]naccurate and late work product…[f]requent shifting of responsibility for assigned work…and [i]neffective leadership” (Huh? Kinda sounds like cause to me, but IDK…). At trial, the employer presented evidence of the plaintiff’s poor work performance, but during closing argument, maintained that the plaintiff’s job performance was essentially irrelevant in the jury’s determination (I don’t get it employer…why bring it up then?).

In general, every employee’s employment is deemed to be at-will. A fundamental exception to this rule comes into play, however, if an employee is terminated based on her race, color, religion, national origin, sex, ancestry, age, or disability, as spelled out in the MHRA, Title VII, and other anti-discrimination statutes.

If an employee claims that her termination was improper under the MHRA, the employer can present evidence that the employee was terminated for a lawful reason. An employer that has presented such evidence can request the “lawful justification” jury instruction (i.e., MAI 38.02), which (in essence) provides that the verdict must be for the employer if the employer terminated the plaintiff because of a specific lawful reason, and in doing so, the improper reasons under the MHRA were not contributing factors in the decision to terminate.[1] The rules are clear that if the aforementioned “lawful justification” instruction is utilized, it must not be amended.

In Kelly, the employer requested the “lawful justification” jury instruction (I mean, which employer wouldn’t?), but changed the verbiage of the instruction, deleting the word “because” from the instruction. The employer’s jury instruction was modified to read as “Defendant terminated Plaintiff under the Management Agreement “without cause” and “in doing so, neither race, age, nor sex/gender was a contributing factor.” The employer maintained that the “lawful reason” for the termination was its at-will policy (Wait…but the MHRA is an exception to the at-will employment doctrine…not following you employer…).

The court emphasized a familiar point:  if an MAI instruction applies to a case, the MAI instruction must be used. The court determined that the employer modified the instruction, as counsel deleted the word “because” from the instruction. Further, the court determined that the employer’s proffered reason for termination (i.e., its ability to do so under the at-will agreement) was not an actual reason for plaintiff’s termination; rather, it was a statement that the employer did not act for specified reasons. According to the Court, the fact that the employer “did not act for certain reasons, or that it acted for ‘no reason,’ are not themselves statements of a ‘lawful reason’ for…termination.”

Having found that the modifications to the jury instruction were improper, the court next looked to whether the employer could demonstrate that there was no prejudice as a result of the modification. The court determined that the employer’s modified instruction “did not allow the jury to get to the question of whether there was an underlying lawful reason, not in violation of the MHRA, why [plaintiff] was terminated”; rather, the modified instruction “kept the jury from getting to the question of whether there was a lawful reason for discharge” (sounds prejudicial to me). According to the court, “the intention of the instruction was thwarted by asking the jury to answer an entirely different question: was [plaintiff] an at-will employee.” Accordingly, the court held that the employer had not met its burden of demonstrating a lack of prejudice.

Next, the court determined if any prejudicial effect occurred as a result of the modification. The court determined that the modification was prejudicial, as a non-discriminatory reason for the plaintiff’s termination was not stated in the instruction. Rather, the modified instruction allowed the jury to conclude that it could find for the employer if it believed that plaintiff was terminated from employer pursuant to its “at-will”/”without cause” policy. According to the court, “[w]here, as here, the defendant is provided the benefit of the [lawful justification instruction], yet is able to sidestep the need to provide any lawful reason at all and submit a wholly different, contractually-based cause for termination, prejudice occurs.” Further, the court noted that the employer introduced evidence at trial related to the plaintiff’s poor performance, but during closing argument, essentially advised the jury that plaintiff’s performance was irrelevant for determining the reason for employee’s termination. According to this court, such an assertion ignored a powerful circumstantial evidence tool for plaintiffs in discrimination cases, as stated reasons for an employee’s discharge can be determined to be pretexual. In essence, by arguing that the performance issues were irrelevant, the employer “virtually suggested to the jury that only direct evidence of discriminatory animus could support a verdict in [employee’s] favor.” Accordingly, the appellate court reversed the decision of the trial court and remanded the case for further proceedings.

Lessons Learned: (1) an at-will/no-cause agreement is not a lawful reason for terminating an individual when faced with MHRA violations; and (2) you can’t change an approved Missouri instruction at-will in a MHRA case unless you want to risk re-trying the case.



[1] Kelly's termination occurred before the August 2017 amendments to the MHRA, which raised a plaintiff’s burden of proof in a discrimination case. A plaintiff now must show that her race, gender/sex, or age was a determining (rather than merely "contributing") factor in the employment decision. MAI was changed accordingly, and for cases arising after August 28, 2017, new MAI 38.06 directs that a plaintiff must show that her protected classification "played a role and was a determinative factor" in the employment decision.

Policyholders Cannot Prevail with Pollution Exclusion | Western District of Missouri Grants Motion to Dismiss in Favor of Insurer on Claims of Losses from the COVID-19 Pandemic

June 10, 2021

The Western District of Missouri’s recent ruling in Zwillo provides yet another basis for insurers to deny coverage due to alleged losses incurred purportedly from the COVID-19 pandemic — certain pollution and containment exclusions.

The issue before the Court was whether or not a policyholder met its burden to show it suffered a “direct physical loss of or damage to property" so as to trigger coverage under the policy. The Court granted the insurance company’s motion to dismiss because the policyholder could not prove actual, demonstrable loss of or harm to some portion of the premises itself. The Court found that even if the policyholder could allege direct physical loss or damage as a result of the COVID-19 shutdown orders, the pollution and contamination exclusion would bar coverage because the provision expressly excluded damage or loss of value and even loss of use of property caused by a virus, like COVID-19.

Loss of Use Does Not Amount to Physical Damage

The policyholder in the case owned and operated the Westport Flea Market and Grill in Kansas City, and brought this putative class action against their insurance provider, Lexington Insurance, based on their allegations of wrongful denial of coverage under a commercial property insurance policy. The policyholder alleged that the COVID-19 pandemic interrupted business, which yielded an 80 percent loss of revenue. Essentially, they argued that their loss of the ability to access the physical property constituted “physical loss.” More specifically, they alleged that because the virus can be spread through respiratory droplets that can infect a person, leave the virus on surfaces, and/or remain in aerosols in the air, COVID-19 prevented them from being able to conduct their business. The Court amounted this to “loss of use” rather than the Policy’s coverage of a loss due to physical alteration or damage of the property.

Pollution and Contaminant Exclusion Barred Coverage 

More importantly, the Court also reasoned that even if the Policyholder’s claims could fall within “direct physical loss of or damage to property,” the “Pollution and Contaminants Exclusion” ultimately barred coverage. The Exclusion stated the following:

“This Policy does not cover loss or damage caused by, resulting from, contributed to or made worse by actual, alleged or threatened release, discharge, escape or dispersal of CONTAMINANTS or POLLUTANTS, all whether direct or indirect, proximate or remote or in whole or in part caused by, contributed to or aggravated by any physical damage insured by this Policy....

CONTAMINANTS or POLLUTANTS means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste, which after its release can cause or threaten damage to human health or human welfare or causes or threatens damage, deterioration, loss of value, marketability or loss of use to property insured hereunder, including, but not limited to, bacteria, virus, or hazardous substances as listed in the Federal Water, Pollution Control Act, Clean Air Act, Resource Conservation and Recovery Act of 1976, and Toxic Substances Control Act or as designated by the U. S. Environmental Protection Agency. Waste includes materials to be recycled, reconditioned or reclaimed.” (emphasis added.)

The Policyholder argued that the exclusion was inapplicable for five different reasons; however, the Court found that these reasons merely misread the Policy and/or created ambiguity in the plain language. For example, one of the policyholder’s reasons was that the purpose of the exclusion was based on environmental and industrial pollutions. However, the Court applied Missouri precedent that there is no requirement that the insured be in violation of an environmental law for a pollution exclusion to apply because the policy language must be enforced as written. Another reason the policyholder argued was that the risk industry has developed a “virus-specific exclusion” that would preclude coverage; however, the Court did not entertain the argument because the policy, as stated above, expressly excluded damages caused by a virus.

The Court distinguished the recent holdings in the Western District where policyholders survived a motion to dismiss. (Studio 417, Inc. et al., v. The Cincinnati Ins. Co., No. 20-cv-03127, 2020 WL 4692385 (W.D. Mo. Aug. 12, 2020), K.C. Hopps, Ltd. v. The Cincinnati Ins. Co., No. 20-cv-00437, 2020 WL 6483108 (W.D. Mo. Aug. 12, 2020), and Blue Springs Dental Care, LLC et al., v. Owners Ins. Co., No. 20-cv-00383, 2020 WL 5637963 (W.D. Mo. Sept. 21, 2020)). The Court reasoned that the main distinction between this case and Studio 417, K.C. Hopps, and Blue Springs is the pollution and contamination exclusion.

While we have seen cases denying coverage based on the policyholder’s loss from COVID-19 not meeting a policy’s definition direct physical loss of direct physical loss, this case instructs that pollution and contamination exclusions may also bar coverage for COVID-19 claims, depending on the exclusions plain meaning. 

Prejudgment Interest Has Hit Illinois

June 3, 2021

Governor Pritzker has signed into law SB72 (PA102-0006), which imposes a 6% prejudgment interest on personal injury and wrongful death actions effective July 1, 2021.

The prejudgment interest has been a threat since HB3360 was first proposed on January 13, 2021. The first proposal, a 9% per annum interest with unlimited scope and running from the date of the accident, was vetoed on March 25, 2021.  After the veto, the General Assembly made amendments to SB72 and those modifications became PA102-0006 on May 28, 2021.

The effects of this new law will be vast.  The law applies a 6% per annum interest to personal injury or wrongful death actions arising out of any theory of tort liability. The prejudgment interest applies to most categories of damages, including non-economic and future damages, and is effective July 1, 2021. For current claims, the interest begins to accrue from the time of the accident or the enactment of the statute, whichever is later. Otherwise, the interest starts accumulating at the time the cause is filed. 

The law does have some limitations for the prejudgment interest, such as limiting the total years for it to run to five. Settlement offers will also play a part in limiting the amount of prejudgment interest.  The interest can be cut off by the highest written settlement offer made within 12 months of the suit being filed and not accepted within 90 days or rejected by the plaintiff.  If the judgment is greater than the highest offer, then the plaintiff only gets prejudgment interest on the difference between the highest offer and the judgment.  If the judgment is less than or equal to the highest offer, then the plaintiff gets no prejudgment interest. 

There are many issues with the statute that cannot be answered.  Such as what happens to defendants who are added after the suit is filed, at what point does their time start running to make a qualified offer or how do you deal with third-party plaintiffs. Who gets taxed with discovery deadlines and compliance delays?  It will also bring up coverage interest and could expose insurers to pay covered damages in excess of the limits. 

Defendants need to be mindful of the prejudgment interest and its ramifications to the case as well as the vast number of unanswered questions regarding the full effect of the new law.   If you have questions about how this new law will impact you or your organization, please contact the author or Baker Sterchi.

COVID Liability Bill Heads to Governor's Desk

June 1, 2021

On May 14, less than one-half an hour before the 6:00 p.m. constitutional deadline, the Missouri House passed a COVID liability bill that now heads to Governor Mike Parson for signature. Should he sign the bill (SB 51), it will have an effective date of August 28, 2021. The bill contains protections for healthcare providers, manufacturers, and businesses from tort liability related to the COVID-19 pandemic.

As discussed in our December 21, 2020 blog post, Governor Parson has encouraged lawmakers to author this sort of tort liability legislation since at least November 2020, when he issued a written proclamation on the topic. SB 51 passed the Missouri Senate in February 2021. A key benefit of the bill to defendants is protection from suits stemming from COVID-19 exposures unless a plaintiff can show clear and convincing evidence of recklessness or willful misconduct. If/when the Governor signs this legislation, we will provide additional analysis. 

SB 51 comes in the wake of the filing of thousands of COVID-related lawsuits nationally. One potential unintended consequence of this legislation could be a sharp rise in COVID-related suits filed hastily in Missouri courts during the several weeks leading up to the August 28 effective date to circumvent the new law. Should this occur, many of these suits could be meritless and lacking adequate pre-suit investigation. 

Assuming SB 51 becomes law, Missouri would not be alone in considering COVID-19 tort liability protections. Other states have provided this through executive order and/or legislative action. In addition, federal liability protections are already available under the 2005 Public Readiness and Emergency Preparedness (PREP) Act, which provides immunity to certain defendants, including healthcare provider defendants in certain situations.

The appropriateness of COVID-19 tort liability protections has been hotly debated among the various stakeholders, including the Missouri Chamber of Commerce, the American Medical Association, and various trial lawyer organizations. We will continue to monitor this legislation and its impact in Missouri, both inside and outside its courtrooms.   

An Inconvenient Forum? Move to Dismiss Before It's Too Late

May 20, 2021

The Eighth Circuit Court of Appeals recently reversed a District Court’s dismissal on forum non conveniens grounds, finding that the motion to dismiss was untimely. The Court of Appeals held that the Defendants undermined their own inconvenience arguments by litigating in the forum for 18 months before filing their motion.

The doctrine of forum non conveniens arose out of due process concerns that defendants from across the country (or indeed the world) can be hauled into federal court in far-flung jurisdictions having no significant connection to the case. Courts are also concerned that attractive districts will face the undue financial burden of supporting litigation of claims of no significant interest to the district. Practitioners in the Eastern District of Missouri are no doubt well-versed on these concerns.

Defendants can obtain dismissal of a lawsuit filed in an inconvenient forum. But forum non conveniens is mentioned neither in Rule 12 nor anywhere else in the Federal Rules of Civil Procedure, and courts have often held that such motions can be filed at any time, even on the day of trial. If there is no set deadline for when the motion to dismiss must be filed, how can such a motion ever be untimely?

The Court of Appeals attempted to answer that question in Hersh v. CKE Restaurants, Holdings, Inc., No. 19-2794 (Apr. 28, 2021). It held that those seeking to dismiss on forum non conveniens grounds must show that it is actually inconvenient to litigate in the current forum and such a showing should be made at a reasonably early time, lest defendants inadvertently undermine the purported “inconvenience” of litigating in the forum.

The Court of Appeals found that the District Court abused its discretion in granting a motion to dismiss on forum non conveniens grounds. To dismiss on forum non conveniens grounds, the movant must establish that an adequate alternative forum exists. This is essentially any forum in which the defendant can be served. Then the court weights private-interest factors (e.g., location of the parties, attorneys, evidence, and witnesses) and public-interest factors (e.g., choice of law issues, court resources, and strains on the jury pool) to determine whether dismissal is appropriate. The overriding goal is to ensure that the forum is convenient.

 The Hersh case involved a little boy who was playing in a restaurant playground in Amman, Jordan, and was tragically electrocuted by an exposed wire. The case was filed in the Eastern District of Missouri, the restaurant holding company’s home. Yet, the Plaintiffs, several of the Defendants, and most of the witnesses were located in Jordan. Plaintiffs’ attorneys were located in Michigan. Other potential defendants to implead were located in Jordan and not subject to personal jurisdiction in Missouri. Jordanian law would govern the wrongful death claims and the standard of care. Documents and testimony would have to be translated from Arabic. On these grounds, and others, the District Court granted defendants’ motion to dismiss for forum non conveniens. At first blush, the District Court’s ruling appeared completely reasonable. However, the Court of Appeals held that the District Court abused its discretion and reinstated the case in St. Louis.

According to the Court of Appeals, 18 months was just too long to wait to file a motion to dismiss based on forum non conveniens, because all of the factors supporting dismissal were available to the defendants much earlier on in the case. In fact, virtually all of the factors identified by the District Court were apparent or ascertainable from the face of the Complaint. The Court of Appeals did not decide whether timeliness is a public- or private-interest factor, or a separate independent consideration, and did not elaborate further on what constitutes a reasonable amount of time.

The Court of Appeals cited In re Air Crash Disaster near New Orleans, 821 F.2d 1147, 1165 (5th Cir. 1987), but did not explicitly adopt its straightforward and well-articulated rule: “a defendant must assert a motion to dismiss for forum non conveniens within a reasonable time after the facts or circumstances which serve as the basis for the motion have developed and become known or reasonably known to the defendant.” Had the Court adopted this guideline, it might better serve practitioners in evaluating the timeliness of their motions.

 Takeaways:

Although most cases will not have the forum non conveniens issues set out as dramatically as in Hersh, practitioners can take a few lessons from the Court of Appeals opinion.

First, if you have considered a motion to dismiss for lack of personal jurisdiction, or if the court has personal jurisdiction only because of a long-arm statute, then you should consider forum non conveniens.

Second, evaluate how discovery is progressing early on. If you find that every interview, deposition, accident site visit, or expert consultation involves an associate flying across the country, the current forum may be inconvenient. Go ahead and file your motion now.

Third, nothing in the Court of Appeals’ opinion precludes a motion to dismiss where new information turns up in discovery. However, act quickly once new information arises.

Finally, evaluate the alternative forum. In most cases, as in Hersh, the movant is precluded from challenging jurisdiction in the new forum.

Here, the District Court’s opinion seemed quite persuasive. If not for the passage of 18 months, the Court of Appeals likely would have upheld the dismissal. However, for the Court of Appeals, by litigating in the forum for 18 months, defendants apparently proved that the forum was not inconvenient, after all.

Supreme Court of Missouri Affirms Jury Award of Punitive Damages Against Healthcare Provider

May 17, 2021

In March 2021, the Supreme Court of Missouri, in Rhoden v. Mo. Delta Med. Ctr., affirmed a jury award of $300,000 in punitive damages against a healthcare provider defendant. The majority held that the facts – which arose before Missouri’s punitive damages statute was amended - met the plaintiff’s burden of proving the defendant “showed a complete indifference to or conscious disregard for the safety of others.” Fortunately, this case should have limited impact, because 2020 changes to Missouri law on punitive damages in § 538.210.8, RSMo., made clear the legislature’s intent that a higher standard applies to healthcare provider defendants.  Rather than dwell on the underlying facts of Rhoden, we will instead focus on the debate among the majority, concurring, and dissenting opinions regarding the appropriate standard for the imposition of punitive damages against healthcare providers. 

In Rhoden, the Court applied a pre-amendment version of § 538.210 that permitted punitive damages against a healthcare provider only “upon a showing by a plaintiff that the healthcare provider demonstrated willful, wanton or malicious misconduct.”  As discussed in our July 30, 2020 blog article, that statutory standard was undefined and has proved problematic in its application.  The Rhoden Court followed opinions from lower appellate courts finding that, for purposes of punitive damages, acting “willfully, wantonly or maliciously” is the legal equivalent to acting with “a complete indifference to or conscious disregard for the rights or safety of others.”  Thus, the Court held it was not a misstatement of the law or otherwise error for the trial court to have given a jury instruction with the “complete indifference to or conscious disregard for the safety of others” standard as opposed to § 538.210.8’s standard of “willful, wanton or malicious misconduct,” as the two standards were equivalent and not in conflict.

Two separate dissenting opinions criticize the majority’s position.  The first focuses on the fact that punitive damages are imposed not to compensate plaintiffs, but for the purpose of punishment and deterrence, and they should rarely be recoverable in medical negligence actions and reserved solely for truly extraordinary cases.  One judge observed that the healthcare provider's conduct might have been a negligent error, as the jury determined, but there was no credible claim that the physician’s conduct was tantamount to intentional wrongdoing or that the patient’s death was the natural and probable result of the physician’s treatment decisions. 

A second dissenting opinion focuses on the legislative intent to establish a higher standard for healthcare provider defendants.  With the 1986 amendments to § 538.210, the General Assembly intended for a higher standard for punitive damages claims against healthcare providers than the lesser standard applicable to defendants generally.  In this judge’s opinion, it was unfortunate that the Missouri intermediate appellate courts (and the Supreme Court majority) failed to recognize the General Assembly’s intentional modification of the common law by holding the two standards equivalent.  As mentioned above, this confusion led the General Assembly to further clarify its intent by amending § 538.210 in 2020, and state specifically that “evidence of negligence including, but not limited to, indifference to or conscious disregard for the safety of others shall not constitute intentional conduct or malicious misconduct” sufficient for punitive damages.

The 2020 amendments to § 538.210 should limit the precedential value of Rhoden.  However, the robust discussion in this opinion underscores the former confusion about the proper standard for punitive damages in medical negligence cases and the need for greater clarity.  The 2020 amendments should bring that clarity, with a return to the original common law concept of intentional misconduct being a prerequisite for an award of punitive damages.  The new law should bring into focus the heretofore blurred line between merely negligent conduct and conduct that justifies an award of punitive damages.  This new law appears to offer significant protections for healthcare provider defendants, while also allowing for the possibility of a punitive damages claim, but only in the rare circumstance where the evidence would support it. 

Kansas and Missouri Federal Courts Raise the Stakes on Employers' Tip Pooling Practices

May 5, 2021

In separate cases, the U.S. District Courts for the Districts of Kansas and the Western District of Missouri recently certified classes under the Fair Labor Standards Act (“FLSA”) to pursue claims against Boyd Gaming and Pinnacle Entertainment, Inc. regarding tip-pooling arrangements and notice issues at local casinos, and other casino locations.

In James v. Boyd Gaming Corp. the District of Kansas certified classes relating to the tip pooling policies of Boyd Gaming at the Kansas Star Casino. And in Lockett v. Pinnacle Entm’t the Western District of Missouri certified similar classes related to tip pooling policies at Ameristar Council Bluffs, Ameristar Casino, Cactus Pete’s, Boomtown New Orleans, L’Auberge Baton Rouge, Boomtown Bossier City, L’Auberge Lake Charles, River City, Ameristar Vicksburg, and The Meadows casinos. In both cases the Court certified classes challenging both the tip splitting policies and the employers’ notice to employees.

The FLSA requires that employees receive a minimum wage of $7.25 an hour. Section 203(m) of the FLSA allows employers to pay tipped employees below the Federal minimum wage so long as the employees retain all tips, subject to permitted tip pooling arrangements, and the employer provides proper notice of the provisions of §203(m). 

If you walk into one of these casinos, you would likely find yourself, unwittingly, at the epicenter of the issue in both cases. Table games, such as blackjack and roulette, have dealers who play the games with customers and pit-bosses who supervise the casino floor. Table dealers receive pooled tips, where the casino collects the tips and equally redistributes them to all dealer, and wages below the Federal Minimum Wage. The pay for pit-bosses exceeds the minimum wage, but the supervisory positions do not get tips. Many casinos, including those above, have employees who work in dual roles covering both the pit-boss position and table dealer position on different day. All employees accrued Paid Time Off (PTO) based on their seniority and hours worked. When a tipped employee took PTO they received tips from the pool as if they had actually worked that shift.

Plaintiffs sought class certification of FLSA violation claims relating to the tip pooling practices applied to dual-role dealers. Plaintiffs allege that the casinos violated two FLSA provisions: first, a requirement to redistribute tips to employees “who customarily and regularly receive tips,” and second, a provision precluding the employers from keeping any portion of the tips collected. More specifically, Plaintiffs allege that when a dual-role employee took PTO, that pay necessarily occurred at the dealer’s rate, including tip shares, regardless of whether the employee earned the PTO working as a dealer or supervisor.

The FLSA allows an employee to bring wage/hour claims on behalf of himself and others, in a so-called “collective action”. Unlike class action suits, FLSA collective actions require claimants to opt-in rather than opt-out to participate in pursuing claims against the employer. Federal courts generally utilize a two-step approach to determining whether claims can be pursued on a class-wide basis. Under the two-stage approach, the court must first determine if the plaintiff has sufficiently alleged that all potential claimants are victims of a single policy. At the initial stage, the court can look to the allegations of the Complaint, supporting affidavits or declarations, but the court does not weigh evidence, resolve factual disputes, or rule on the merits until the second stage. If the court determines that a single policy has affected multiple “similarly situated” employees, it may issue a conditional class certification, which then enables plaintiffs to send out notice to all potential class members.

Both the Lockett and James courts conditionally certified the plaintiffs’ tip pooling class, as well as classes regarding the employers’ compliance with the FLSA’s notice requirements regarding tip withholdings. 

So what happens next?

Plaintiffs and defendants in both cases will get together to work out issues related to language and timing for the notice and opportunity to opt-in to the cases. After discovery, the courts will be called upon to make a final determination regarding whether the employees’ have similarly situated claims.  

We will keep our eyes on these cases to anticipate any impacts the decisions may have for all employers in tipping industries. 

Does an Arbitration Clause Have to Provide for Equivalent Rights and Remedies to Both Sides, in Order to Be Enforceable?

April 30, 2021

The Missouri Court of Appeals for the Southern District recently reversed a Circuit Court decision that denied a corporate defendant’s motion to compel arbitration, in Keeling v. Preferred Poultry Supply, LLC. Plaintiff Brandon Keeling sued Preferred Poultry Supply, alleging breach of contract, fraudulent misrepresentation, and negligent misrepresentation. Preferred Poultry and Keeling entered into a written contract in May of 2016. Preferred Poultry agreed to construct six broiler chicken buildings on Keeling’s poultry farm in Newton, Missouri in exchange for a payment of $2,048,321.00.

Following construction of the buildings, Keeling sued Preferred Poultry. Keeling alleged that he discovered defects related to the construction and repairs would cost in excess of $745,516.00. Keeling also alleged Preferred Poultry made false and misleading representations to Keeling. In response, Preferred Poultry filed a combined dispositive motion: a motion to dismiss, or in the alternative, motion to order arbitration. Preferred Poultry attached the contract between Keeling and Preferred Poultry to its motion and highlighted the arbitration clause of the contract, titled “BINDING ARBITRATION”:

All claims, disputes and matters in question arising out of or relating to this Contract or any claimed breach of this Contract shall be decided by binding arbitration in accordance with the Uniform Arbitration Act in force in Arkansas . . . . This agreement to arbitrate shall be specifically enforceable under the Federal Arbitration Act since this Contract involves interstate commerce. . . . The location of the arbitration proceedings shall be in Fayetteville, Arkansas. . . . Any award of arbitration may be entered in the Circuit Court for Washington County, Arkansas and will have the force of a judgment from that court.

The contract provided that Arkansas law would govern disputes between Keeling and Preferred Poultry. The trial court denied Preferred Poultry’s motion to compel arbitration. Preferred Poultry appealed that denial. Missouri law allows the right to an immediate appeal of an order denying a stay of proceedings relating to a matter that may be arbitrable.  If Preferred Poultry had not appealed, the case would have continued in Newton County Circuit Court through the completion of a trial.

On appeal, Keeling first challenged Preferred Poultry’s appeal as premature. Typically, a party may only appeal a final judgment which disposes of all issues in a case. But Missouri law (§ 435.440.1(1), RSMo.), federal law (9 U.S.C.A. § 16(a)(1)(C)), and Arkansas law (Ark. Code Ann. § 16-108-228(a)(1)) all specifically allow an appeal from an order denying an application to compel arbitration. The appellate Court applied Missouri law and deemed the appeal timely.

Keeling also argued that his tort claims for negligent misrepresentation and fraudulent misrepresentation should not be arbitrated because under Arkansas law, tort claims are not subject to arbitration. The appellate Court disagreed. The Court cited Riley v. Lucas Lofts Investors, LLC, 412 S.W. 3d 285, 290 (Mo. App. E.D. 2013), as well as Arkansas case law, and concluded that Keeling’s claims all related to the contract with Preferred Poultry.

Even though Keeling characterized his some of his claims as tort claims, the Court determined that he could not avoid the arbitration provision. The Court noted that Keeling’s tort claims both sought damages, as opposed to rescission of the contract. Under Missouri law, when damages are sought for claims of poor workmanship, those claims are typically subject to arbitration.

Finally, the Court reviewed the arbitration clause in the contract to determine whether it was enforceable. Keeling argued that the arbitration agreement was invalid because the arbitration clause allowed Preferred Poultry to pursue all available rights under any state law, including filing a lien upon Keeling’s property. Keeling, however, was limited to arbitration as a remedy. Keeling argued this clause created a non-mutual obligation.

The appellate Court rejected this argument. The appellate Court noted that the Federal Arbitration Act does not require mutual obligations to arbitrate. Furthermore, the Court reviewed both Arkansas law and Missouri law, and noted that both states allow non-identical obligations in contracts as a whole, as long as the contract contains sufficient consideration. The appellate Court cited Eaton v. CMH Homes, Inc., 461 S.W.3d 426, 431 (Mo. banc 2015), where the Missouri Supreme Court found that the trial court erred in denying the defendant’s motion to compel arbitration. The appellate Court noted that the arbitration clause in Eaton similarly allowed only the contractor the option to pursue other remedies beyond arbitration, including foreclosure. In Eaton, as here, there was sufficient consideration on both sides: the contractor in Eaton (and Preferred Poultry) agreed to provide a building, and the buyer (and Keeling) agreed to pay a set amount for the building.

Accordingly, the appellate Court reversed and remanded the case to the trial court, with directions to refer the case to arbitration, because the parties’ arbitration agreement was valid and enforceable.

The key takeaway from the Court’s decision is that arbitration clauses are enforceable under Missouri law, even where they are more favorable to one party, provided there is consideration on both sides. Arbitration is often less expensive than a trial because the rules of evidence are more informal and there is no jury panel. A party in arbitration can spend less time preparing for trial and navigating written discovery. The appellate Court’s decision here emphasizes that when both parties agree to arbitration as the forum for resolving their disputes, that contractual agreement will ordinarily be enforced. Keeling and Preferred Poultry agreed to arbitration, and Preferred Poultry was able to successfully enforce arbitration.

OK, Boomer…Does Your Employee Have an Age Discrimination Claim?

April 27, 2021

We’ve all heard it (and in my case, I am publishing it – sorry, HR!): OK, Boomer. This phrase has risen in popularity over the years as a way of suggesting that Baby Boomers (i.e., those born between 1946 and 1964) have mindsets or attitudes that may be at-odds with those of younger generations. The “OK Boomer” phrase has shown up in viral Internet memes and GIFs, as a way of portraying Boomers as out-of-touch. The Supreme Court has even discussed the meme, when Chief Justice Roberts asked an attorney during oral argument if saying to an applicant “OK, boomer” is enough to qualify as age discrimination.

As discussed in my last post, the Age Discrimination in Employment Act (ADEA), Illinois Human Rights Act (IHRA), and Missouri Human Rights Act (MHRA) prohibit discrimination against employees who are 40 years old or older in any aspect of employment. Similarly, it is unlawful for an employer to harass an employee because of the worker’s age, if 40 or older. Such harassment can include derogatory or offensive remarks regarding an individual’s age, to the point where such comments are so frequent and severe that they create a hostile work environment. These laws clearly protect Boomers from age discrimination in the workforce.

As things stand, using the word “Boomer” in a derogatory fashion is likely not in and of itself enough to establish age discrimination. According to the Seventh Circuit, “isolated comments that are no more than ‘stray remarks’ in the workplace are insufficient to establish that a particular decision was motivated by discriminatory animus.” Merillat v. Metal Spinners, Inc., 470 F. 3d 685, 694 (7th Cir. 2006) (citing Cullen v. Olin Corp., 195 F. 3d 317, 323 (7th Cir. 1999)). With that being said, “this general rule may give way where particular remarks in fact support an inference that unlawful bias motivated the decision-maker, such as when those remarks are made by the decision-maker or one having input in a decision, and are made ‘(1) around the time of, and (2) in reference to, the adverse employment action complained of.’” Id. (quoting Hunt v. City of Markham, 219 F. 3d. 649, 652-53 (7th Cir. 2000)).

Let me sock it to you with what this means. If a 30 year-old employee refers to a 60 year old employee as a Boomer in a derogatory manner, without more, the 60 year old can hardly be said to have suffered age discrimination or a hostile work environment on account of the errant remark. However, if the 30 year-old employee is the 60 year-old’s supervisor and routinely refers to the 60 year-old as a Boomer and the employee suffers some adverse employment action at the hands of the supervisor, the Boomer may have a case under the ADEA or other state anti-discrimination law. Similarly, if the supervisor terminates the 60-year old employer, and near or at the time of the termination refers to the employee as a Boomer, the Boomer may also have a discrimination case. With all that being said, employers should caution their employees at all levels of employment on language that can be perceived as discriminatory. By allowing such language to infiltrate the workplace, employers are simply setting themselves up for a discrimination claim – regardless if the claim has merit.

And finally, Millennials and Gen Z: let’s remember that Boomers deserve respect, and even praise, for your culture today. Millennials – known for their usage of acronyms – should thank Boomers, as acronyms gained popularity in the 1960s during the Cold War and space race between the U.S. and Soviet Union, laying the groundwork for Millennial acronyms, such as OMG, LOL, BTW, FBF, and IMO.    While Millennials use many (some would say ridic) slang terms and phrases., such as “on fleek,” “slay,” and “turnt,” let’s also not forget that Boomers are responsible for such slang words and phrases as “groovy,” “gimme some skin (my FAVE!),” and “outta sight.” So maybe there is more in common between Millennials and Boomers than we think? So don’t flip your wig, you dig?

Kansas Merchants May Soon Impose Surcharges on Credit Card Transactions

April 22, 2021

For the past 35 years, merchants in Kansas have been prohibited from charging a surcharge to customers on purchases made by credit card. With a recent court decision and pending legislation, that ban is almost surely to be lifted in the near future.

Passed in 1986, the Kansas “no-surcharge” statute provided that “no seller or lessor in any sales or lease transaction or any credit or debit card issuer may impose a surcharge on a card holder who elects to use a credit or debit card in lieu of payment by cash, check or similar means.” K.S.A. 16-a-2-403.

In February 2021, the United States District Court for the District of Kansas granted summary judgment in favor of CardX, LLC against the State of Kansas, declaring the state’s ban on credit card surcharges to be unconstitutional. In CardX, LLC v. Schmidt, the Court held that the no-surcharge statute was a violation of the plaintiff’s First Amendment right to commercial speech. In so doing, the Court applied United States Supreme Court precedent from Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm’n of New York, 447 U.S. 557, 561 (1980). In Hudson, the Supreme Court set forth a three-factor test to determine the constitutionality of a statute that restricts commercial speech: (1) Does the State have a substantial interest in restricting commercial speech? (2) Does the challenged statute advance those interests in a direct and material way, and (3) Is the restriction of reasonable proportion to the interests served? Applying the Hudson test, the Court for the District of Kansas found the Kansas no-surcharge statute failed on all three bases.

The Court also cited to the need for surcharges to protect businesses with small profit margins from bearing the cost and burden of transaction fees imposed by credit card providers. The Court further reasoned that the restriction on surcharges placed an undue burden on merchants in light of the heightened demand for credit card transactions in the era of COVID, where consumers have insisted on contact-free transactions.

The CardX decision was limited to the plaintiff and transactions at issue in that case. However, during the time the CardX opinion was written, HB 2316 was introduced, which would statutorily lift the surcharge ban. The bill swiftly passed in the Kansas House of Representatives and has been referred to committee in the Senate. In the unlikely event that the bill does not pass, additional challenges to the existing no-surcharge statute can be expected.

Illinois Courts Begin Weighing in on COVID-19 Exposure Claims

April 19, 2021

As discussed in a prior blog post, one consequence of the COVID-19 pandemic may be a wave of lawsuits arising from exposure to the virus. Now that we have passed the one-year anniversary of the pandemic outbreak, perhaps not surprisingly, court opinions in COVID-related litigation are increasingly being issued. Below, we discuss several opinions recently issued in this litigation, including in some cases discussed in the firm’s prior blog post on this issue.

Direct Exposure Claims

Since the pandemic outbreak, multiple lawsuits against nursing homes have been filed in Illinois related to residents contracting COVID-19. As previously discussed, one such case was filed against a Bloomington, Illinois nursing home. In that case, the plaintiff alleged that the defendant failed to properly monitor residents’ medical conditions and, consequently, her mother contracted and died from COVID-19. On December 29, 2020, the defendant removed the case to the District Court for the Central District of Illinois. The defendant also moved to dismiss the complaint, arguing that it is immune from liability under the Public Readiness and Emergency Preparedness Act for Medical Countermeasures Against COVID-19 (“the PREP Act”). Recall, the PREP Act makes “covered persons” immune from suits under federal and state law for all claims, except for willful misconduct claims, caused by, arising out of, relating to, or resulting from the administration or use of a “covered countermeasure” to diseases, threats, and conditions, including COVID-19. In response, the plaintiff argues that she is not alleging liability based upon the administration or use of a countermeasure, but rather, based upon the nursing home’s alleged failure to act to prevent the spread of COVID-19. At this point, the court has yet to rule on the motion to remand or motion to dismiss. Any ruling on the motion to dismiss could be consequential because there is currently limited guidance on how courts will interpret the scope of the PREP Act’s immunity provision.      

In addition to the PREP Act, courts also face questions over the extent to which Governor Pritzker’s Executive Order No. 17 shields nursing homes from liability against COVID-19 litigation. According to Section 3 of that Order, during the pendency of Governor Pritzker’s disaster proclamation related to COVID-19, health care facilities shall be immune from civil liability for any injury or death alleged to have been caused by any act or omission by the health care facility, if the injury or death occurred at a time when the health care facility was engaged in the course of rendering assistance to the State by providing health care services in responsive to the COVID-19 outbreak, unless the injury or death was caused by gross negligence or willful misconduct. On April 1, 2021, the District Court for the Northern District of Illinois declined to dismiss a lawsuit based upon Executive Order No. 17 immunity. In Claybon v. SSC Westchester Operating Co., 20-cv-04507, 2021 U.S. Dist. LEXIS 64067 (N.D. Ill. Apr. 1, 2021), the plaintiff alleged that while the decedent resided at the defendant’s nursing home, members of the home’s nursing staff began to show symptoms of COVID-19, one member tested positive, and one member was hospitalized for the virus. According to the plaintiff, despite these developments, the defendant instructed its employees to report to work. Eventually, the decedent passed away after developing a dry cough, fever, and shortness of breath. In the lawsuit, the plaintiff alleged that the defendant was responsible for the decedent’s death, claiming that the defendant required symptomatic employees to report to work, failing to provide PPE, and failing to implement pandemic-related guidelines issued by the Center for Medicare & Medicaid Services. 

The defendant argued it was immune from liability pursuant to Section 3 of Executive Order No. 17. The court explained that the “problem” with the defendant’s argument was that whether it was assisting the State in response to the pandemic when it committed the allegedly tortious conduct was a question of fact that could not be resolved at the pleadings stage. Moreover, the plaintiff died on March 30, 2020, but the Executive Order was not filed until April 1, 2020. The court noted that it was unclear whether the Order applied retroactively and declined to make that determination at the pleadings stage.

In a related case, the District Court for the Northern District of Illinois again declined to dismiss a complaint against Westchester based upon immunity under Executive Order No. 17. In Brady v. SSC Westchester Operating Co., 20CV4505, 2021 U.S. Dist. LEXIS 68920 (N.D. Ill. Apr. 9, 2021), the court explained that Section 3 immunity applies when a healthcare facility is engaged in the course of rendering assistance to the State; thus, immunity applies where a facility spreads COVID-19 while affirmatively treating or trying to prevent its spread, but does not apply where a facility allows the virus to spread through inaction. The court determined that it was unclear from the face of the plaintiffs’ complaint, which alleged that Westchester failed to protect its residents from infected nursing staff spreading the virus, whether plaintiffs’ claim triggered the immunity provision.

The court also found that the plaintiffs’ claim survived because they sufficiently alleged a willful and wanton misconduct claim. The Executive Order expressly notes that its immunity provision does not apply to claims arising from death or injuries caused by a facility’s willful misconduct. The court found the plaintiffs sufficiently alleged willful misconduct through their claims that the defendant knew about the risks of exposing its residents to infected nursing staff by mid-March 2020 and, despite that knowledge, required employees who had tested positive for, or were displaying symptoms of, COVID-19 to report to work. The plaintiffs further alleged that Westchester failed to provide PPE to its staff in March 2020. Finally, the court rejected Westchester’s argument that it could not have known the symptoms of COVID-19 so early in the pandemic. According to the court, by March 2020, at least two of the defendant’s employees had tested positive for the virus, so it had objective knowledge that members of its staff were carrying the virus. The court also relied on the plaintiffs’ allegations that official guidance issued by mid-March 2020 listed symptoms of a respiratory infection (e.g., fever, cough, shortness of breath, or sore throat) as signs of the virus, that members of Westchester’s staff reported those symptoms to management, and Westchester still required its staff to report to work.

Recently, the District Court for the Southern District of Illinois allowed a COVID-related lawsuit to proceed beyond an initial review. In Brown v. Watson, 21-cv-00138-JPG, 2021 U.S. Dist. LEXIS 65560 (S.D. Ill. Apr. 5, 2021), the plaintiff alleged he had been subjected to unconstitutional conditions while confined in the St. Clair County Jail. Among other things, the plaintiff claimed he developed COVID-19 due to conditions at the jail, including being forced to sleep in proximity to COVID-positive inmates. According to the complaint, jail staff were provided with masks and gloves to prevent infection, but inmates were not. Additionally, incoming inmates were not tested for COVID-19, separated from one another, or allowed to use protective gear. The plaintiff alleged that a COVID-19 outbreak occurred due to conditions at the jail, resulting in 300 inmates testing positive for the virus. Finally, the plaintiff claimed that he was denied adequate testing and medical care for COVID-19. The plaintiff asserted claims against the St. Clair County Sheriff and the jail’s doctor.

Under federal law, the court was required to conduct what is known as a preliminary review to filter out non-meritorious claims. See, 28 U.S.C.§ 1915A. The court determined that the plaintiff satisfied the conditions necessary to survive a preliminary review by setting forth allegations suggesting that each defendant acted objectively unreasonable or deliberately indifferent to the conditions of his confinement and/or medical condition. 

Outside of the healthcare realm, as discussed in our prior post, several McDonald’s employees and their relatives filed suit against McDonald’s, alleging negligence and public nuisance arising from its decision to remain open during the pandemic without taking implementing certain health and safety standards. The plaintiffs sought injunctive relief in the lawsuit, including that McDonald’s provide its employees with certain protective equipment and implement various workplace safety measures. McDonald’s subsequently filed suit against its insurer Austin Mutual, arguing that it owed a duty to defend McDonald’s in the underlying lawsuit. On February 22, 2021, the District Court for the Northern District of Illinois denied Austin Mutual’s motion to dismiss, finding that the complaint in the underlying lawsuit potentially gave rise to coverage. McDonald’s Corp. v. Austin Mut. Ins. Co., No. 20C5057 (N.D. Ill. Feb. 22, 2021). The primary issue in that case was whether the underlying lawsuit sought “damages because of bodily injury.” Austin Mutual argued that the underlying case did not trigger coverage because the plaintiffs sought injunctive, not monetary relief. In response, McDonald’s argued that if it was forced to expend money to comply with injunctive relief granted in the underlying case, such damages would constitute “damages” that would only arise because the plaintiffs in the underlying case contracted COVID-19, a “bodily injury.” Noting that the case was a “very close call,” the District Court concluded that if the plaintiffs in the underlying lawsuit succeeded in obtaining injunctive relief, it would be only because they contracted a bodily injury. The court found that an alternative avenue for coverage existed; namely, that exposure to COVID-19 is itself a bodily injury that McDonald’s would be forced to expend “damages” to remedy.

Secondary Exposure Claims

Following our prior blog post, there have been significant developments in two cases discussed in that post. Specifically, in the two secondary exposure cases, the courts have ruled on the defendants’ motions to dismiss. In Erika Iniguez v. Aurora Packing Co., 20-L-372, the Circuit Court of Kane County dismissed the plaintiff’s complaint with prejudice. In that case, the plaintiff alleged that the decedent’s husband worked for the defendant, contracted COVID-19 at work, and passed the disease on to the decedent, resulting in her death. The court found that the defendant did not owe a duty of care to the decedent. In reaching that conclusion, the court explained that the decedent and the defendant did not stand in a “special relationship” that would give rise to a duty of care. According to the court, the decedent’s relationship to the defendant was no different from the relationship of any other citizen of the world who might encounter an employee of the defendant who had contracted COVID-19 while at work. 

The court also found it important that the Illinois legislature and Illinois Appellate Court have refused to extend the duty owed by employers and physicians to third parties that are not part of the employer-employee and physician-patient relationships. As to employers, the court explained that in its most basic sense, the plaintiff’s claim was based on the defendant’s alleged failure to protect its employees from contracting COVID-19 at work. According to the court, Illinois policy regarding employee exposure to dangerous workplace conditions is reflected by the Illinois Workers’ Compensation Act, which provides that the statutory remedies afforded by the Act serve as an employee’s exclusive remedy for compensable injuries. Thus, the court questioned whether Illinois policy would be served by imposing upon employers a common law duty owed to an unlimited pool of potential claimants, “mediated only by the travels and uncontrolled contacts of employees outside the workplace[.]” As to physicians, the court relied upon prior court opinions in which plaintiffs filed suit against physicians, alleging that they developed communicable diseases due to the physicians’ failure to diagnose third-party patients. In those cases, the Illinois appellate court refused to extend the physicians’ duty beyond their patients. See, Britton v. Soltes, 205 Ill. App. 3d 943 (1st Dist. 1990); Heigert v. Riedel, 206 Ill. App. 3d 556 (5th Dist. 1990).

Finally, the court distinguished the plaintiff’s claim from “take home asbestos” cases (i.e., where plaintiffs allege that they developed cancer due to asbestos exposure they experienced through the work clothes of a spouse or relative). The court reasoned that in those cases, the alleged injuries resulted from contact with a byproduct of the defendant’s very business, the use or manufacturing of asbestos or asbestos-containing products, whereas the plaintiff in this case based her claim on the relationship between the defendant and its employee. 

By contrast, the Circuit Court of Will County recently allowed a plaintiff’s secondary exposure case to proceed beyond the pleadings stage. In Miriam Reynoso v. Byrne Schaefer Electrical, No. 20-L-620, the plaintiff alleged that she developed COVID-19 from her husband after he contracted the virus through his employment with the defendant. In ruling on the defendant’s motion to dismiss, the court denied the motion as to Count I of the plaintiff’s complaint, while granting the motion as to Count II. The court, however, granted the plaintiff leave to amend Count II of her complaint.

Baker Sterchi will continue tracking developments in this litigation. Please monitor our blog for updates on this and many other legal issues. 

What is Open and Obvious? Time to Ask the Jury.

April 14, 2021

Open and obvious: "both the condition and the risk are apparent to and would be recognized by a reasonable man . . . exercising ordinary perception, intelligence, and judgment."

The Missouri Court of Appeals for the Western District reversed and remanded Michael Lee v. Missouri Department of Transportation, a wrongful death lawsuit, back to the Circuit Court of Boone County, Missouri. Michael Lee appealed a dismissal by the trial court of his Third Amended Petition, alleging wrongful death claims for the death of his daughter against the Missouri Highway and Transportation Commission (MHTC). 

The claims arose from a tragic accident involving Mr. Lee’s daughter and his grandchild who were ultimately unable to escape a flooded area on a road where they were driving one early morning. Mr. Lee’s granddaughter was following another vehicle just before the tragic incident, she stopped, just as the other vehicle did, to examine the flooded portion of the road, before unsuccessfully attempting to drive through the flooded area.

Mr. Lee alleged that the portion of the roadway at issue was known to MHTC as a flood hazard, that MHTC failed to provide adequate barriers or guardrails to keep vehicles from being swept off the roadway, and failed to provide adequate warnings that the road would flood. 

The Court dismissed Plaintiff’s Petition, after MHTC filed a combined dispositive motion, seeking alternative forms of relief (Motion for Judgment on the Pleadings; Motion to Dismiss; Motion to Strike), arguing that that the flooded roadway was an open and obvious condition and that Mr. Lee’s daughter had a duty to exercise reasonable care for her own safety. The trial court ruled that dismissal was proper due to Plaintiff’s own pleadings and the reasonable inferences therefrom indicating that Mr. Lee’s daughter “saw the danger, examined the danger and decided to proceed anyway.”

On appeal, Mr. Lee first asserted the trial court failed to consider the facts pleaded and the reasonable inferences from the Petition in the light most favorable to Mr. Lee, as the non-moving party.   The appellate Court focused on whether the Petition adequately set forth the elements to support a claim of imposing liability on a possessor of land (MHTC) for injuries sustained by an invitee (Mr. Lee’s daughter) due to conditions on that land, i.e.:

(a) MHTC knows or by the exercise of reasonable care would discover the condition, and should realize that it involves an unreasonable risk of harm to such invitees, and

(b) MHTC should expect that they will not discover or realize the danger or will fail to protect themselves against it, and

(c) Invitee (Mr. Lee’s daughter) fails to exercise reasonable care to protect them against the danger. 

The ultimate question for the Court thus became whether Mr. Lee’s daughter should have realized the danger posed by the flooded condition of the roadway. The trial court ultimately concluded the cause of action fell under a case called Harris v. Niehaus, 857 S.W.2d at 224, which involved another tragic accident in which a mother lost her three children to drowning after her vehicle, parked on a sloped roadway, rolled down the street and into a lake that was plainly visible (aka open and obvious) to the mother.

The appellate Court in Lee, however, found the case to be distinguishable from Harris, concluding that evidence that needed to be considered could be presented at trial and a juror could infer whether it was reasonable or safe to cross the roadway. In other words, the Court ruled in favor of Mr. Lee on Point 1, finding that what is reasonable is for a jury to decide.

Mr. Lee’s second point on appeal focused on the trial court failing to properly construe and apply the meaning of section 343A of the Second Restatement of Torts. Specifically, he argued the Petition properly alleged that MHTC should have anticipated the harm despite any knowledge or obviousness that may have existed on the part of his daughter.

As explained by the Court, even if the flooded roadway was open and obvious, if the jury determined that MHTC should have anticipated the harm, then it would still be liable. The Court found that the Petition adequately alleged that MHTC was aware of certain issues of flooding with the roadway, as well as ingress and egress of local residents on that roadway. Agreeing with the Plaintiff, the Court found reasonable minds could differ on the facts surrounding roadway flooding, and it was up to the jury to determine whether the possessor of land should have anticipated harm to an invitee despite the open and obvious hazard.

So what does this all mean?

As defense lawyers, we are generally pleased to see successful trial court outcomes in cases of this type. Frankly, however, the Court of Appeals ruling in this case did not come as much of a surprise.

When considering a motion to dismiss in Missouri, the trial court reviews the Petition and the facts stated within its four corners in a light most favorable to the non-moving party (typically the Plaintiff), also giving all reasonable inferences in favor of the non-moving party. However, in this case, the trial court appeared to give the inferences to the defendant, ultimately finding that the open and obvious doctrine supported dismissal at the pleading stage. While we are aware of cases that were ultimately resolved in favor of the defendant based on the open and obvious doctrine, including the appellate case the trial court relied on to support dismissal, such cases typically have a greater developed factual record that has been before the Court and/or the jury.

The procedural posture of this case was somewhat unusual. The Plaintiff, Michael Lee, appears to have had two separate cases – one for his grandchild and the present case for his daughter. The case brought for the death of Michael Lee’s grandchild was dismissed (affirmed on appeal) for various reasons. Curiously, however, in this case, MHTC did not raise the open and obvious issue as an affirmative defense to prior amended Petitions, which made the same allegations. It was only when Mr. Lee amended to fix another problem with his prior Petitions that MHTC raised this argument along with other defenses. In addition, there appears to have been discovery, depositions, and more motions, but none of that was part of this appellate record, because the defendant sought to have the case disposed of via a Motion to Dismiss, rather than a Motion for Summary Judgment (which focuses on undisputed facts elicited in discovery, rather than the legal sufficiency of Plaintiff’s Petition).

In any event, Michael Lee v. Mo. Dept. of Transp. is back before the trial court, and it remains to be seen what will happen next. Unless the case is settled, a jury may well get to decide what is “open and obvious” and reasonable. 

Illinois' Predatory Loan Prevention Act Takes Effect

April 9, 2021

On March 23, 2021, Illinois Governor J.B. Pritzker signed into effect the Predatory Loan Prevention Act (the “PLPA”), which caps interest on consumer loan transactions at a rate of 36 percent. The PLPA essentially expands the interest rate caps set forth in the Military Lending Act, which is a federal law that protects active service members from usurious interest rates, to apply to all consumer loan transactions taking place in Illinois. Illinois is now one of eighteen jurisdictions to implement such a cap.

The PLPA is part of an omnibus economic equity reform bill introduced by the Illinois Legislative Black Caucus. Other aspects of the bill include cannabis and agriculture equity reforms, as well as changes in how criminal convictions may be used in housing and employment decisions.

Prior to passage of the PLPA, the average APR for payday loans in Illinois was 297%, and 179% for car title loans. Illinois residents were estimated to have paid more than $500 million per year in payday and title loan fees, and advocates of the PLPA state that these high-interest loans targeted communities of color, as well as the elderly.

Critics of the PLPA argue that the law will eliminate jobs and make credit less accessible to Illinois citizens. Proponents of the Act counter that increased consumer spending on goods and services will actually grow jobs. The true economic impact of the new law remains to be seen.

Lenders and financial service providers who provide credit in Illinois must take caution under the PLPA. The new law has teeth. Failure to comply with the PLPA carries statutory penalties of up to $10,000, renders the loan null and void, and requires the return of payments made toward the principal, interest, fees, or charges related to the loan. Furthermore, a violation of the PLPA may also give rise to a private right of action under the Illinois Consumer Fraud and Deceptive Business Practices Act, subjecting lenders to liability for actual damages, punitive damages, and attorney’s fees.

In passing the PLPA, Illinois joins seventeen other states and the District in Columbia that have passed similar interest rate caps on consumer transactions.

Should you Shovel that Snow? The Massachusetts Rule is still the Rule in Missouri.

April 6, 2021

The Missouri Court of Appeals has ruled that although abandoned by Massachusetts in 2010, the “Massachusetts Rule” is still the general rule in Missouri. So what is the Massachusetts Rule? First applied in Missouri in 1954, the Massachusetts Rule is actually an exception to the general premises liability principles that apply to owners or occupiers of property. Until 1954, the rule had only applied to municipalities. Under the Massachusetts Rule, an owner or possessor of property has “no duty to remove snow or ice that accumulates naturally and is a condition general to the community.” Richey v. DP Props., LP, 252 S.W.3d 249, 251-52 (Mo. App. E.D. 2008). This is especially true when snow or ice is actively falling. That is not to say the Massachusetts Rule is absolute. As with any rule, there are exceptions and even exceptions to the exceptions. Missouri courts have recognized two exceptions to the Massachusetts Rule: 1) where the property owner or operator assumed a duty through its course of conduct or 2) assumed a duty by agreement.     

The plaintiff in Colleen O’Donnell v. PNK (River City), LLC, et al. slipped and fell on a patch of ice on the sidewalk of the River City Casino during a winter ice storm. The plaintiff had arrived at the Casino before the ice storm began and fell as she was leaving. The ice on the sidewalk had not been shoveled, scraped, salted, or altered in any way by the Casino. Shortly before plaintiff fell, the Casino had been monitoring the freezing rain and had requested Total Lot Maintenance, who the Casino had a contract with for snow removal, to treat and remove the ice. The Casino even warned some customers of the ice, helped some customers to their vehicles and tried to protect others from falling before plaintiff’s fall. 

The Casino filed a motion for summary judgment asserting they had no duty to remove the ice that had accumulated on its property under the Massachusetts Rule, which the trial court granted. In affirming the trial court’s ruling, the Missouri Court of Appeals revisited the Massachusetts Rule and the recognized exceptions to it. Plaintiff argued that both exceptions to the Massachusetts Rule applied to the Casino. 

Plaintiff first argued that the Casino assumed a duty based on its conduct leading up to her fall, pointing to the fact that the Casino was aware of the accumulating ice and was monitoring the conditions, that they specifically warned other customers of the ice, even assisted some patrons to their vehicles, and also requested Total Lot Maintenance treat the ice. However, the Casino’s knowledge of the condition and warning and assisting its customers was not enough to trigger the exception. For the exception to apply in Missouri, the condition must be altered in some way by the landowner (or occupier), such as by shoveling, spreading salt or by some other means. 

As a practical matter, although Missouri courts require willful action to alter the condition of the snow or ice to trigger the exception, Missouri courts have found that active removal of snow or ice in a different area of the premises from where an incident occurred is at least enough to preclude summary judgment and may be enough to trigger the exception. Otterman v. Harold’s Supermarkets, Inc., 65 S.W.3d 553, 555 (Mo. App. W.D. 2001). The take away is, if the snow or ice has changed in some way since it first accumulated naturally, the exception is likely triggered and the landowner (or occupier) must then exercise ordinary care to remove the snow or ice and make the area reasonably safe. Willis v. Springfield General Osteopathic Hosp., 804 S.W.2d 416, 419 (Mo. App. S.D. 1991).    

The Court of Appeals also rejected plaintiff O’Donnell’s argument that the Casino assumed the duty to remove the ice by virtue of its agreement with Total Lot Maintenance because plaintiff did not put forth evidence of the contract or its terms. Of note, the Court of Appeals did confirm that the mere existence of a snow removal policy is not enough to trigger the exception.   

The trial court granted a similar motion for summary judgment filed by Total Lot Maintenance. However, the Court of Appeals reversed, noting an issue of fact existed as to whether the assumed by agreement exception was triggered. The agreement required Total Lot Maintenance to clear snow and ice at the Casino after a certain amount of accumulation and the Court of Appeals found that this, coupled with the fact that the Casino had contacted them twice to remove the ice called into question whether their duty had been triggered.    

Importantly, the Missouri Court of Appeals rejected plaintiff’s argument that the Massachusetts Rule should be abrogated entirely or, at a minimum, should not apply to hotel owners and operators. In Missouri, while hotel owners and operators may owe a heightened duty of care to its guests to warn of dangerous conditions in certain circumstances, this does not allow for circumvention of the Massachusetts Rule. The Rule is applied broadly and encompasses hotel owners and operators. Richey, 252 S.W.3d at 251. 

The Court of Appeals did acknowledge that the Massachusetts Rule in certain circumstances could incentivize owners and occupiers of property to not address dangerous conditions of snow or ice.  However, they declined to void the rule, stating that is for the Missouri Supreme Court to decide.

Jurisdictional Expansion: Specific Personal Jurisdiction Just Got Broader

March 31, 2021

Courts around the country have held a defendant is not subject to specific personal jurisdiction in a forum unless the claims asserted arose out of the defendant’s contacts with the forum. In product liability cases, typically unless the product arrived in the forum through the defendant’s actions, the courts found no specific personal jurisdiction existed.  However, the United States Supreme Court has broadened the scope of contacts sufficient for a court to exercise personal jurisdiction over a defendant.  In doing so, it has weakened a powerful defense. 

There are two types of personal jurisdiction—general and specific.  Where general personal jurisdiction applies, a court may hear any claims against a defendant, even those unrelated to the forum.  Barring an exceptional case, corporations are subject to general personal jurisdiction in any state in which they are incorporated or their principal place of business is located.  Specific personal jurisdiction is more limited.  A court may only exercise specific personal jurisdiction if the claims brought arise out of or relate to a defendant’s contacts with the forum.  The new decision focuses on specific personal jurisdiction. 

In two related cases - Ford Motor Co. v. Montana Eighth Judicial District Court, et al. and Ford Motor Co. v. Bandemer -the plaintiffs brought product liability claims against Ford arising from auto accidents that occurred in Montana and Minnesota respectively.  The plaintiffs were residents of those states.  However, the vehicles at issue were not originally sold by Ford in Montana or Minnesota.  The cars were designed in Michigan, manufactured in Kentucky and Canada, and first sold in Washington and North Dakota.  The cars arrived in the forum states through the actions of third-parties.

Ford argued the states lacked personal jurisdiction over it because Ford did not first sell the vehicles in the forums.  Ford claimed there must be a causal link between the contacts and the claims. The plaintiffs asserted that Ford’s vast connections with the states, including dealerships, advertising and repair shops, provided a sufficient connection to the forums establishing that Ford purposefully availed itself of the privilege of conducting business there.

In a majority opinion authored by Justice Kagan, the Supreme Court rejected Ford’s causal link argument.  The Court held the case law did not require solely a causal link but also allowed jurisdiction when the claims “relate to the defendant’s contacts with the forum.” The Court noted the significant advertisements used by Ford to urge residents of Montana and Minnesota to buy its products, including the same type of vehicles at issue.  Similarly, the number of authorized dealers in the states along with Ford sending replacement parts to those dealerships and independent repair shops throughout the forums demonstrated Ford had purposefully availed itself of benefits of doing business there. 

Justices Alito, Gorsuch and Thomas concurred in the judgment with Justice Barrett taking no part in the consideration or decision of the case.  Justice Gorsuch, joined by Justice Thomas, lamented the majority opinion’s failure to provide adequate guidance to lower courts regarding what amount of contacts would support a forum exercising personal jurisdiction over a defendant, and a lack of clarity as to whether any causal link is necessary. 

Justice Gorsuch further questions why national corporations would not be subject to personal jurisdiction in every state in which they do business.  He notes “the Constitution has always allowed suits against individuals on any issues in any State where they set foot.”  Id. n.5.  He posits, why should corporations receive more jurisdictional protections than individuals?

So, how will this decision impact cases?  First, the decision reaffirms that a nonresident plaintiff may only file suit in a forum in which there is a connection to the claims asserted.  The majority suggests that had plaintiffs tried to file suit in some other state unrelated to the incident or the vehicles in question, personal jurisdiction would be improper.  This reaffirmation should continue to help limit forum shopping by plaintiffs.  However, nonresident plaintiffs may still file suit in a corporation’s home states where it is subject to general personal jurisdiction.

Second, regional companies would still be protected from suits in other jurisdictions in which they do not conduct their businesses.  However, the decision will likely expand the scope of permissible jurisdictional discovery allowed by trial courts particularly in those states where plaintiff bears the burden of proving personal jurisdiction exists.

Third, national companies may essentially be subject to personal jurisdiction in any state in which a resident plaintiff is injured.  However, it is unclear from the opinions what limitations, if any, exist.  For example, if a manufacturer sells its products through a national retailer, does this fact mean the manufacturer is subject to personal jurisdiction everywhere the national retailer is?  Would the exercise of personal jurisdiction depend on how the product gets to the retailer—i.e. does the manufacturer send the product to a third-party distributor who then sends it to the individual stores or does the manufacturer deliver the products to the stores directly? 

Similarly, how much advertisement is sufficient? Will it matter if the advertisement is directed to the state or nation as a whole—such as television commercials or billboards—or if it is narrowly tailored to a specific type of audience such as sponsorship signs on team uniforms, at a ballpark, or in a trade magazine?  What if the advertising is purchased in a national magazine rather than a local newspaper? 

Finally, there was no guidance issued for e-commerce sales.  Will a single sale to a forum be sufficient? Is it a number of sales or the percentage of the overall business’s sales that are relevant? Will a critical factor be whether the website accessed was the manufacturer’s or a third-party’s?

Unfortunately, the opinion leaves these questions to be sorted out in future cases with little guidance to the lower courts.  As a result, this will not be the last time we hear from the Supreme Court on personal jurisdiction.  

Governor Pritzker Vetoed HB3360 but HA2 which imposes a 6% prejudgment interest is already close on its tail.

March 26, 2021

The saga continues over prejudgment interest in Illinois. Although Governor Pritzker vetoed HB 3360, which would have imposed a 9% prejudgment interest on person injury and wrongful death action, a modified version of the bill is already speeding its way through the system.  See letter from JB Pritzker in support of his Veto.

HA2 is in front of the Senate and would soften the blow to defendants.  However, it still penalizes defendants for exercising their right to trial. For instance, in HA2 prejudgment interest would be 6% instead of 9% per annum and would not apply to punitive damages, sanctions, statutory attorneys’ fees, statutory costs, and the amount of the highest timely written settlement offer. Further, it would cut off interest at 5 years and toll interest if the case is voluntary dismissed. These are all improvements from the prior bill but still would penalize defendants who defend themselves and the interest rate is still arbitrary. 

In Governor Pritzker’s letter he urges the sponsors of HB 3360 to negotiate a compromise which adds protection for health care providers while still encouraging a quick resolution to a case. HA2 seems to be just that, a compromise which still punishes only the defendant for a slow moving case, not considering the back log of the courts or what actions plaintiffs may take to delay a case just to make its value go up.

Defendants need to be mindful of the pre-judgment interest accrual that results from delays in litigation caused by either side or the court. If you have questions about how this development might impact you or your organization, please contact the author or Baker Sterchi.

Order for Permanent Injunction Not Open for Interpretation

March 25, 2021

On March 2, 2021, the Missouri Court of Appeals, Eastern District, in Chemline Inc. v. Mauzy, affirmed in part and reversed and remanded in part, a St. Louis County Circuit Court’s order finding a sales representative in contempt of the court’s permanent injunction order expressly prohibiting contact with his former employer’s customers. The trial court assessed a compensatory fine, despite plaintiff’s failure to demonstrate that it suffered actual damages as a result of the contemptuous conduct, and attorneys’ fees.

The case involved restrictive covenants, including a non-compete and non-solicitation agreement, between Chemline Inc. and its former sales representative Timothy Mauzy.  Mauzy left Chemline and began working for IXS Coatings in a sales capacity.  Seven months later, Chemline filed a petition for injunctive relief, claiming Mauzy violated the non-compete and non-solicitation provisions of his employment agreement in that he contacted customers with whom he had a relationship during his employment with Chemline.  Both Chemline and IXS coatings are in the business of custom coating for use in industrial and commercial application and, thus, are direct market competitors.

The trial court entered an order of permanent injunction prohibiting Mauzy from contacting five specific customers with whom he had a relationship during his employment at Chemline.  Four months after the injunction was entered, Chemline. file a motion for contempt and to show cause alleging Mauzy’s interactions with an employee from one of the five customers constituted a willful violation of the order.  The trial court found Mauzy engaged in “willful disobedience” of the order and entered a judgment of contempt, awarded Chemline $6,000 in attorney’s fees and $2,000 in compensatory damages for interfering with Chemline’s business relationships. 

Mauzy appealed claiming the trial court erred in: 1) finding him in contempt because the conduct was not clearly, unambiguously, and expressly prohibited by the order; 2) assessing a $2,000 compensatory fine where there was no evidence of actual damage; and 3) awarding Chemline Inc. $6,000 in attorney’s fees because he did not violate the injunction order, willfully or otherwise.

As to Point I regarding whether the order clearly, unambiguously and expressly prohibited Mauzy’s conduct, Mauzy claimed the order only precluded contact with the companies and not their individual employees. Mauzy did not deny being in contact with employees from former clients. He further claimed the order prohibited contacting former clients for “business-related solicitation” and not personal communication, though this distinction was not addressed in the order at issue, nor did Mauzy request clarification of the trial court’s order before directly violating it.  The Court of Appeals found no error in the trial court’s conclusion that the order’s prohibition on “contacting” former clients, encompassed all communications.

As to Point II regarding the court assessing a compensatory fine, the Court of Appeals held the trial court erred in assessing the $2,000 compensatory fine as there was no evidence that Chemline. suffered any actual damage as a result of Mauzy’s conduct.  Because compensatory fines are meant to be remedial in nature, these fines must be related to actual damage suffered.  Chemline could not demonstrate a quantified diminution in business sales for which compensatory damages would be appropriate.  Thus, the trial court erred in assessing and remanded for reconsideration of the compensatory fine. 

As to Point III regarding the award of attorney’s fees, the trial court’s order was affirmed, as the trial court has inherent authority to assess attorneys’ fees in a civil contempt proceeding.  The Court of Appeals will affirm an award of attorneys’ fees unless it constitutes an abuse of discretion, which was not found in this case. 

Moral of the story: don’t try to get cute with interpreting a court’s permanent injunction order.  “No communication” does in fact mean NO communication

U.S. Supreme Court Asked to Review Issue of Jurisdiction for Non-Resident Plaintiffs in Products Cases

March 12, 2021

Johnson and Johnson (“J&J”) has asked the United States Supreme Court to overturn the $2.1 billion verdict entered against it in Ingham, et al. v. Johnson & Johnson, et al., a talcum powder class action filed in Missouri that included numerous non-resident plaintiffs. If review is granted, the Supreme Court will rule on just how far the “arise out of or relate to” prong of the test for specific jurisdiction extends with respect to the claims of a nonresident plaintiff. 

The inconsistent way differing jurisdictions determine the existence of specific jurisdiction for non-resident plaintiffs is readily apparent.  And the litigation involving the talcum powder products at issue in this case is a perfect example of this type of inconsistency.  Two courts, one in Missouri and the other in New Jersey, reached two very different conclusions regarding the exercise of personal jurisdiction over the same claims involving non-resident plaintiffs.  Missouri found that its exercise of jurisdiction was proper, while New Jersey did not.  This did not come as a shock to Missouri practitioners, because Missouri courts have long welcomed and been a favorite for out-of-state plaintiffs.   

Following the United States Supreme Court’s decision in Bristol-Myers Squibb Co. v. Superior Court,137 S.Ct. 1773 (2017), this practice of forum shopping was curtailed.  However, the Missouri Court of Appeals for the Eastern District re-opened the door for a non-resident plaintiff to bring a cause of action in Missouri for alleged damages based upon the use of a product that he did not purchase or use in Missouri, nor suffer damages in Missouri.  See Ingham, et al. v. Johnson & Johnson, et al., 608 S.W.3d 663 (Mo.App. E.D.  2020), trans. denied, 2020 Mo. LEXIS (Nov. 3, 2020).  However, the holding in Ingham regarding the exercise of specific jurisdiction is the diametric opposite of the decision of the United States District Court for the District of New Jersey deciding the same jurisdictional issue on the very same facts in the same week.  See Hannah v. Johnson & Johnson Inc., 2020 U.S. Dist. LEXIS 113284 (D.N.J. June 29, 2020).   

Background

In Ingham, plaintiffs sought recovery against two defendants: Johnson & Johnson Consumer Companies Inc. (“JJCI”) and its parent company, J&J. Twenty-two plaintiffs alleged they developed ovarian cancer after continued use of two of the defendants’ products: Johnson’s Baby Powder and Shower to Shower Shimmer Effects (“Shimmer”).  The parties agreed that defendants were not subject to general jurisdiction in Missouri because they are incorporated and headquartered in New Jersey. Five plaintiffs lived, purchased and used Johnson’s Baby Powder and/or Shimmer, and developed ovarian cancer in Missouri (“Missouri Plaintiffs”). Jurisdiction over JJCI with respect to the Missouri Plaintiffs was not disputed. 

Jurisdiction was disputed with respect to the other seventeen plaintiffs who lived, purchased and used Johnson’s Baby Powder and/or Shimmer and developed ovarian cancer outside Missouri (the “Non-Resident Plaintiffs”). Two of these Non-Resident Plaintiffs only used Baby Powder, while the remaining Non-Resident Plaintiffs used Shimmer or used both Shimmer and Baby Powder. 

The Non-Resident Plaintiffs alleged that defendants were subject to specific jurisdiction in Missouri because JJCI had two long-term contractual relationships with Pharma Tech Industries, a Missouri corporation for the manufacturing, packaging and supply of Shimmer and Johnson’s Baby Powder.   Fifteen of the Non-Resident Plaintiffs asserted that jurisdiction was proper in Missouri because they used Shimmer, which was manufactured, labeled and packaged by Pharma Tech Industries’ sister company, Pharma Tech Union, located in Union, Missouri, under defendants’ direction and control. The other two Non-Resident Plaintiffs claimed the defendants were subject to specific jurisdiction in Missouri because they used Johnson’s Baby Powder that was manufactured, labeled and packaged by Pharma Tech Industries’ sister company, Pharma Tech Royston, located in Royston, Georgia, under Pharma Tech Industries’ direction and control. 

Trial Court’s Findings on Jurisdiction

The trial court held that it could exercise specific jurisdiction over defendants on the Non-Resident Plaintiffs’ claims because their alleged conduct satisfied the Missouri long-arm statute. Specifically, the court opined that defendants transacted business in Missouri, allegedly committed a tortious act in Missouri, owned real estate in Missouri, and contracted with Pharma Tech Industries in Missouri to manufacture packaging materials and to manufacture, label and package both products. The trial court further found that these activities constituted sufficient minimum contacts to subject defendants to specific jurisdiction in Missouri. 

The Appeal

On appeal, the defendants did not challenge the trial court’s finding that the long-arm statute extended to them. Instead, with respect to jurisdiction, the defendants only appealed whether they established sufficient minimum contacts with Missouri that enabled the trial court to exercise specific jurisdiction over them.

The Missouri Court of Appeals recognized that it can only assert specific personal jurisdiction over the defendants if the defendants had certain minimum contacts with Missouri and if plaintiffs’ cause of action arose from those alleged minimum contacts.  Because of this requirement, the question of whether specific jurisdiction exists must be determined separately for each individual plaintiff’s claims. 

The Missouri Court of Appeals’ Holding Regarding Jurisdiction over the Non-Residents’ Claims Related to the Use of Shimmer

Citing the United States Supreme Court decision in Bristol-Myers Squibb Co. (“BMS”), the Missouri Court of Appeals held that the trial court properly exercised specific jurisdiction over JJCI for the claims of the Non-Resident Plaintiffs associated with Shimmer because JJCI “engaged in a host of significant activities in Missouri related to the Non-Resident Plaintiffs’ use of Shimmer.” Specifically, JJCI contracted with Missouri-based Pharma Tech to manufacture, package and label Shimmer pursuant to JJCI’s specification at Pharma Tech’s facility in Missouri. 

Defendants argued that its contract with a Missouri corporation alone was insufficient to subject defendants to personal jurisdiction in Missouri. For as the United States Supreme Court’s held in BMS, “[a] defendant’s relationship with a third party, standing alone, is an insufficient basis for jurisdiction… The bare fact that BSM contracted with a California distributor is not enough to establish personal jurisdiction in this State.” 137 S.Ct. at 1783. (citations omitted.) 

However, the Missouri Court of Appeals, apparently realizing that JJCI’s contract with Pharma Tech was insufficient to confer jurisdiction over JJCI, stretched further to justify its exercise of personal jurisdiction over JJCI in Missouri. To do this, the appellate court held that JJCI’s contacts constituted more than a “mere contractual relationship with a third party.”   Because JJCI engaged in activities related to the manufacture, packaging and labeling of Shimmer in Missouri, the Court of Appeals found that it was reasonable to require JJCI “to submit to the burdens of litigation” in Missouri. Instrumental in this finding is that the Non-Resident Plaintiffs’ claims alleged negligent manufacture, production, packaging and labeling of Shimmer.   Therefore, according to the Court of Appeals, JJCI’s activities with Pharma Tech in Missouri were a “direct link in the production chain of Shimmer’s eventual sale to the public … [and] … firmly connect JJCI’s activities in Missouri to the specific claims of the Non-Resident Plaintiffs” related to Shimmer.

This decision is in stark contrast to holding in Hannah. In Hannah, the United States District Court for the District of New Jersey held that it could not exercise jurisdiction over the J&J defendants for the claims of the non-Missouri residents because J&J’s contracts with Pharma Tech “to produce some of its products does not confer jurisdiction.” 2020 U.S. Dist. LEXIS 113284, at * 103 (D.N.J. June 29, 2020). As the District Court explained:

While those contacts might well constitute purposeful availment of the benefits and protections of the State of Missouri in a contract action, these contacts are irrelevant in this products liability action. Indeed, Plaintiffs have not demonstrated that their injuries in any way arise out of those specific agreements. In other words they neglect to allege a connection between their injuries and those specific distribution agreements.

Id. (citations omitted).

The Missouri Court of Appeals’ Holding Regarding Jurisdiction over the Non-Residents’ Claims Related to the Use of Johnson’s Baby Powder

The Court of Appeals, however, found that the trial court erred in exercising specific jurisdiction over JJCI on the claims of the two Non-Resident Plaintiffs who only used Johnson’s Baby Powder because the Petition “did not sufficiently allege JJCI engaged in significant activities in Missouri related to their use [of] Johnson’s Baby Powder.” Non-Resident Plaintiffs argued that because Pharma Tech in Missouri controlled and directed the manufacturing, processing, bottling, labeling and distribution of Johnson’s Baby Powder in Georgia from its headquarters in Union, Missouri, JJCI was subject to jurisdiction in Missouri for the claims involving Johnson’s Baby Powder. 

The court rejected the Non-Resident Plaintiffs’ claims. Specifically, the Court of Appeals explained that the “record is devoid of evidence that JJCI engaged in any activities related to Johnson’s Baby Powder, beyond the executing of … [the contracts] with a Missouri-based corporation, in Missouri.” Therefore, the contract JJCI executed with Pharma Tech in Missouri regarding Johnson’s Baby Powder was not sufficient to confer jurisdiction over JJCI in Missouri for the claims solely related to Johnson’s Baby Powder. This part of the decision by the Missouri Court of Appeals is in line with the Supreme Court’s holding in BMS because “contracting with an out-of-state party alone cannot automatically establish sufficient minimum contacts in the out-of-state party’s forum.” 

Conclusion

To the surprise of many observers, the Missouri Supreme Court declined to review the Court of Appeals ruling, which upheld an historically large verdict, in a case that seemed to collide rather sharply with the U.S. Supreme Court decision in Bristol-Myers Squibb. The Missouri Court of Appeals holding in Ingham allows a court to exercise jurisdiction over a company that contracts with a third party to make a product according to the company’s specifications. According to the Ingham court, jurisdiction in this situation is based on more than a mere contractual relationship. However, this reasoning was squarely rejected by the United States District Court for the District on New Jersey in Hannah. Should the United States Supreme Court grant review, it should follow the sound reasoning of BMS and Hannah and hold that Missouri courts cannot exercise jurisdiction over the claims of non-resident plaintiffs when they did not purchase, use or suffer injury in the State of Missouri.

Get Woke: Millennials and Age Discrimination

March 4, 2021

Mmmk. Imma spill some tea. Some Millennials are now protected under the Age Discrimination in Employment Act (ADEA), as well as the Illinois Human Rights Act (IHRA), Missouri Human Rights Act (MHRA), and other state laws. Millennials – who are defined as individuals born between 1981 and 1996 – are just beginning to turn 40 years old this year (I’m looking at you, Paris Hilton). Yes – you heard me right. This means some (but not all) Millennials now have standing to sue employers for age discrimination. It’s offish.

So what does this mean? The ADEA, IHRA, and MHRA prohibit discrimination against employees who are 40 years old or older in any aspect of employment. Similarly, it is unlawful for an employer to harass an employee because of the worker’s age, if 40 or older. Such harassment can include derogatory or offensive remarks regarding an individual’s age to the point where such comments are so frequent and severe that they create a hostile work environment.

Millennials account for a majority of the workforce. Majority status notwithstanding, Millennial bashing is definitely a thing. Employers have continually expressed frustration with Millennial employees, believing (rightly or wrongful) that Millennials have a sense of entitlement, need to be spoon-fed, are glued to TikTok, and lack loyalty. Many older employees perceive Millennials as lazy, in part due to many Millennials’ preference for texting and emailing over making phone calls. Some commentators have even suggested that there is a generational war between Millennials and “Boomers.” It should come as no surprise, then, that in a 2019 survey conducted by Glassdoor on diversity and inclusion, 52% of the Millennials surveyed indicated that they had experienced or witnessed age discrimination in their careers. 

Although many Millennials may claim to experience age discrimination in the workplace, employers are allowed to favor older workers over younger workers, even if both employees are over the age of 40. For Millennials who are just turning 40, this means that an employer can favor a “Boomer” over you. Some Millennials may perceive such favoritism as discrimination against them because the Millennials are just that – Millennials…not because the older employee has seniority or is a more experienced employee. Because of the seemingly strong divide between the perceived mindsets of “Boomers” and Millennials, as well as the growing trend of additional employee protections in the workplace, it is possible that a greater push will be made for protections against favoritism against “older employees” over Millennials covered under the ADEA, IHRA, and MHRA. In addition, Millennials protected under the ADEA and state anti-discrimination and harassment laws may argue that they are harassed at work for being Millennials, which implies that the Millennials are being harassed on account of their age. All of this, however, is obv TBD.

BTW Millennials, using the word “Boomer” is throwing shade on an entire generation that is older than you (and who are, therefore, a protected class under federal and state age discrimination laws). Dropping the word “Boomer” is also kinda, sorta, obvs discriminatory. So stay tuned for my next blog on “Boomer” discrimination and harassment…MTF…

Missouri Debates Adding a Statute of Repose

February 22, 2021

A statute of repose is a law that cuts off a right of action after a specified time period has elapsed, regardless of when the cause of action accrues. Most states have such statutes, but they vary widely as to limitation periods, what is covered, and whom the statute protects. A statute of repose differs from a statute of limitation in that a time period specified in a statute of limitations usually does not begin to run until the injury or damage actually occurs, irrespective of when the product was sold.

Missouri took an important first step in creating a statute of repose for product liability claims by debating Senate Bill #7 in committee at the end of January. If it passes the Legislature and is signed by the governor, Senate Bill # 7 would place Missouri among the many states with some type of statute of repose for product liability claims. 

The proposed bill sets a statute of repose of fifteen years and would bar claims for personal injury, property damage, wrongful death, or economic loss. The time period would begin to run when the product is first sold or leased to any person or otherwise placed in the stream of commerce. The catchall of “otherwise placed into the stream of commerce” will be an important for component parts manufacturers and suppliers along with those who sell their products to distributors as it could cut off claims at an earlier date than when the plaintiff first purchased the product.

There are some significant exceptions built into the proposed bill. First, it would not apply to any product that is real property or an improvement to real property. However, Section 516.097, which has a shorter statute of repose, may bar some of those claims. The proposed statute would also not bar any claims for negligent servicing or negligent maintenance of a product.

Second, if the defective or unsafe condition was knowingly concealed or negligence in the construction, manufacture, sale or distribution was knowingly concealed, those claims are not barred. However, the concealed defective or unsafe condition or the concealed negligence must directly result in the claims asserted. Similarly, if the product was subject to a government mandated product recall related to consumer safety, the statute of repose would not bar those claims if the reason for the recall and the subject of the claims are the same. 

The bill would also exempt any product that has an expected useful life exceeding fifteen years. This exception would only apply if the useful life is stated by the manufacturer, seller or lessor in a written warranty or in an advertisement to the public. However, the bill would cut off claims two years after the stated useful life. If a claim arose during the potential useful life of a product, a jury may, in determining whether the product’s useful safe life has expired, consider the amount of wear and tear, deterioration from natural causes including storing conditions, normal practices regarding the product’s use, repairs, renewals and replacements, any stated useful safe life by the manufacturer or modifications made to the product. 

Finally, the statute would impact toxic tort claims. The statute would not apply to any claims where a defective or unsafe condition allegedly caused a respiratory or malignant disease with a latency of more than fifteen years. However, it does bar claims against the sellers of any such products unless the seller is also the manufacturer. 

The proposed bill would have a significant impact on product liability claims in Missouri. The bill would apply to all civil actions commenced on or after August 28, 2021, or to any new causes of action asserted in civil actions pending on or after that date. The proposal also provides a safe harbor provision that any claims that would be barred by the statute that accrued on or before August 28, 2021, must be brought no later than August 21, 2022.

The bill recently passed the Government Accountability and Fiscal Oversight Committee. If the bill passes the full Senate, it will then be sent to the Missouri House of Representatives for potential amendment. If the bill passes both chambers, it will be sent to the governor for signature. We will continue monitoring the bill’s progress through the legislative process and provide updates.

Do Illinois Businesses Face a Wave of Lawsuits Following the COVID-19 Pandemic?

February 16, 2021

To say Illinois has been significantly affected by the COVID-19 pandemic would be a dramatic understatement. According to the CDC, as of February 11, 2021, Illinois ranks fourth among all states for the number of COVID-19 cases and seventh for the number of deaths caused by COVID-19. Given the number of cases and deaths in the state, Illinois businesses should consider whether there will be a corresponding wave of lawsuits related to the pandemic and, if so, whether the businesses are prepared to defend against such lawsuits.  As of this writing, an estimated 365 lawsuits related to COVID-19 have been filed in Illinois. The lawsuits raise a variety of legal theories, including insurance coverage, employment law, commercial disputes, and torts, among others.

Potential Tort Claims

As to tort claims, businesses may face negligence lawsuits premised on theories such as negligently exposing others to COVID-19, failing to take proper measures to protect others from exposure to COVID-19, failing to implement proper screening protocols related to COVID-19, failing to adequately warn of the potential for exposure to COVID-19, or violating a public health statute or ordinance. As a potential preview of future lawsuits, in April 2020, a decedent’s estate filed suit against his former employer in Cook County, alleging that the employer failed to follow CDC and Department of Labor guidelines regarding COVID-19 and maintaining a safe workplace. Similarly, on November 20, 2020, a decedent’ daughter filed suit against a nursing home located in Bloomington, Illinois, alleging that the nursing home failed to provide proper care to her mother, who died of complications from COVID-19. In the lawsuit, the plaintiff claims that the nursing home failed to implement appropriate infection control and prevention measures related to the virus.

In another tort action, five McDonald’s employees and four of their relatives filed suit against the company in Cook County, alleging the company failed to adopt proper safety protocols to protect against COVID-19.  Interestingly, the plaintiffs in that case avoided dismissal under the Illinois Workers’ Compensation Act’s exclusivity provision, which generally prohibits employees from filing civil suits against employers for employment-related injuries, by alleging that McDonald’s violated public nuisance laws. The judge, in granting the plaintiffs’ request for a preliminary injunction, ruled that a failure to have employees social distance and wear masks could spread COVID-19, which might constitute a public nuisance.

Another type of claim already filed against Illinois businesses related to COVID-19 arises from what is sometimes referred to as “secondary” or “take-home” exposure to the virus. This theory of liability emerged from asbestos litigation. Specifically, a common claim made in asbestos litigation is that a plaintiff or decedent was exposed to asbestos fibers through contact with the work clothes of a relative, who was directly exposed to those asbestos fibers through his or her employment. See, e.g., Simpkins v. CSX Transp., Inc., 2012 IL 110662. In the context of COVID-19, two lawsuits based on this theory already have been filed in Illinois. In one case, the plaintiff alleged that her mother died of COVID-19 after her father contracted the virus through his employment at a meat processing plant. In the other case, the plaintiff alleged that she contracted COVID-19 from her husband, who she alleged contracted the virus through his employment with an electrical components manufacturer.

Potential Statutory-Based Claims

A related claim may involve negligence based upon a violation of a statute or ordinance. Under Illinois law, a plaintiff can assert such a claim if the statute or ordinance violated was designed to provide a standard of conduct for the safety of a particular person or class of persons and the injury suffered was of the type the statute or ordinance intended to protect against. See, Ney v. Yellow Cab Co., 2 Ill.2d 74 (Ill. 1954); Bitner v. Lester B. Knight & Associates, Inc., 16 Ill. App. 3d 857 (3rd Dist. 1974). A potential claim under this theory might be that the Illinois Emergency Management Agency Act qualifies as such a statute and, therefore, violations of it, or any executive orders or regulations issued pursuant to the Act, constitute negligence.  According to the Act, one of its purposes is to “preserve the lives and property of the people of [Illinois] and protect the public…health.” 20 ILCS 3305/2. The Act further indicates that to fulfill this purpose, “it is found and declared to be necessary…[t]o confer upon the Governor…the powers provided herein”, which includes the power to issue executive orders. 20 ILCS 3305/2(a)(2). Accordingly, plaintiffs may argue that the Governor’s executive orders issued in response to the pandemic and related Illinois Department of Health regulations constitute laws designed to protect the safety of Illinois residents against COVID-19 and that violations of such orders or regulations amount to negligence.  

Potential Workers’ Compensation and Employee Claims

Illinois businesses also should anticipate workers’ compensation claims related to COVID-19. Perhaps in anticipation of an increase in occupational exposure to COVID-19, on June 5, 2020, Illinois enacted House Bill 2455, which creates a rebuttable presumption that where a “front-line worker” is exposed to and contracts COVID-19, the illness arises out of and in the course of employment and is casually related to the hazards or exposures of employment.  Front-line workers include individuals that are employed by essential businesses, as defined by executive order 2020-10, so long as the employees are required by their employment to encounter members of the general public or to work in employment locations of more than 15 employees.  Employers can rebut this presumption by establishing: 1) the employee was working from home and/or on leave for a period of 14 or more consecutive days immediately prior to their illness; or 2) the employer was engaging in and applying to the fullest extent possible industry-specific workplace sanitation, social distancing, and health and safety practices based upon updated guidelines from the CDC or Illinois Department of Public Health, or was using a combination of various administrative controls, engineering controls, or personal protective equipment to reduce the transmission of COVID-19 to all employees for at least 14 days before the employee became ill.

As with tort claims, employers also should expect and be proactive to avoid employment law claims related to COVID-19. Already, one plaintiff has filed an employment law claim in Illinois related to the pandemic. In Watts v. Estes Express, No. 1:20-cv-07046 (N.D. Ill. 2020), the plaintiff alleges that he was terminated for refusing to continue working after he learned that two colleagues who had recently been on-site were infected with COVID-19. According to the plaintiff, his employer instructed him to continue working despite the plaintiff’s purported safety concerns. Given the number of COVID-19 diagnoses in Illinois, and with the Governor continuing to ease restrictions on business operations, employers may very well face similar situations in the immediate future. Thus, employers should be familiar with laws related to refusal to work, including OSHA’s right to refuse standard and the National Labor Relations Act’s protection of “Protected Concerted Activities.” 

Potential Vaccine-Related Liability and Claims

In addition to exposure-related claims, businesses also may face claims related to COVID-19 vaccines.  While the EEOC recently indicated that mandatory COVID-19 vaccines do not constitute medical examinations under the Americans With Disabilities Act (“ADA”), employers should understand their legal obligations if employees seek an exemption to a mandatory vaccination policy based upon a disability or a religious belief. If the request is based on a disability, the employer should be prepared to engage in the “interactive process” with the employee and, possibly, show that the policy is job-related, that the policy is a business necessity, and that the risk posed by not requiring the vaccine cannot be eliminated or reduced by a reasonable accommodation. If the request is based on a religious belief, the employer should understand what is required under Title VII of the Civil Rights Act. Generally, if an employee requests a reasonable accommodation based on a sincerely held religious belief, the employer must provide the accommodation unless doing so would pose an undue hardship.   

Similarly, if employers implement mandatory vaccination programs, they will need to consider where the vaccines will be administered. If the vaccines are administered by the employer, on the employer’s property, or by a third-party pursuant to a contract with the employer, the pre-screening questions asked before the vaccine is administered likely constitute a disability-related inquiry as defined by the ADA. Additionally, the pre-screening questions may implicate the Genetic Information Nondiscrimination Act, which prohibits employers from asking employees about the medical history of their family members. 29 C.F.R. § 1635.3(c). Most likely, the safest option for employers is to have the vaccines administered offsite, by an unaffiliated entity, and to merely ask for proof of vaccination from employees.    

For employers that plan to encourage, rather than require, COVID-19 vaccines, employers should be familiar with the legal requirements governing wellness program incentives. In January 2021, the EEOC forwarded to the Federal Register Notices of Proposed Rulemakings on wellness programs. Under the proposed rules, employers would be allowed to offer no more than de minimis incentives to employees to encourage participation in wellness programs, with the exception of health-contingent wellness programs, which, under HIPAA, allows an employer to offer up to 30 percent of the total cost of health insurance as an incentive.

Another potential legal issue related to COVID-19 vaccines relates to whether businesses have a duty to require their employees to be vaccinated. For example, if a customer or co-worker contracts COVID-19 from a business’ unvaccinated employee, can the business be held liable? In other words, do businesses owe a duty of care to protect employees and customers from COVID-19 by requiring employees to be vaccinated? While the answer is unsettled at this point, businesses should be mindful of OHSA’s General Duty Clause, which requires employers to furnish employees a place of employment that is free from recognized hazards that cause or are likely to cause death or serious physical harm.    

By contrast, if businesses require employees to be vaccinated, they should consider whether they could be liable if an employee suffers an adverse reaction to the vaccine. This situation may implicate workers’ compensation coverage. The Illinois Workers’ Compensation Act contains a provision governing employer liability for injuries arising from vaccines. See, 820 ILCS 305/11. It is unclear, however, whether this provision applies to COVID-19 vaccines, but employers certainly should be aware of it and the fact that it could create liability under the Act for employee injuries arising from the vaccine. 

Further adding to the uncertainty over potential vaccine liability is the extent to which the Public Readiness and Emergency Preparedness Act (“Prep Act”) may provide immunity from liability for vaccine-related injuries.  The Prep Act limits legal liability for losses arising from the administration of medical countermeasures, such as vaccines. Generally, to qualify for immunity under the Act, an entity must show that it is a “covered person,” facing a claim that qualifies as a “loss,” the loss has a “causal relationship” with the administration or use of a covered countermeasure, and the medical product at issue must qualify as a “covered countermeasure.” Prior HHS Secretary Alex Azar declared COVID-19 to be a public health emergency warranting liability protections under the Act. Secretary Azar also indicated that immunity under the Act should extent to liability claims relating to the management and operation of a countermeasure distribution program or site, such as a slip-and-fall injury at a vaccine site. Thus, if faced with a claim arising from a COVID-19 vaccine, employers should consider asserting a defense based on immunity under the Prep Act.  

Conclusion

Ultimately, the legal landscape surrounding COVID-19 is likely going to continue evolving. While there are many legal issues related to the pandemic for which there are currently no clear answers, employers and businesses should, to the extent possible, stay apprised of developments and guidance by monitoring for new announcements from government agencies such as the EEOC, CDC, OSHA, Department of Labor, and similar state organizations. Moreover, given the rapidly changing legal landscape and numerous bases for potential liability, when determining whether to adopt policies or programs related to the pandemic, employers and businesses should strongly consider consulting legal counsel. 

The Kansas City Area Saw Trials Plummet in 2020 Due to the Pandemic

February 8, 2021

Little about 2020 was normal, and the number of trials in the Kansas City area was no exception. Data released by the Greater Kansas City Jury Verdict Service shows that the total number of jury trials in the Kansas City area was down over 65% in 2020 when compared to 2019.

In 2020, 29 trials were reported, compared to 86 trials in 2019, and 104 in 2018. The numbers were significantly impacted by the fact that many Kansas City area courts, especially state courts, had to postpone civil jury trials due to the Coronavirus.

The Percentage of Jury Verdicts Favoring Defendants Remained Constant from 2019

In the Kansas City area, juries decided a total of 29 cases in 2020. Within those 29 cases, the Jury Verdict Service reports on the number of claims in each case which totaled 73 overall claims. Of the verdicts reported on the 73 claims, 41% (30 out of 73 claims) resulted in some amount of recovery to the plaintiff(s), while 59% (43 out of 73 claims) were defense verdicts. Similarly, in 2019 41% (75 out of 181 claims) of claims resulted in some amount of recovery for the plaintiff, while 59% (106 out of 181 claims) were defense verdicts. This put an end to a recent upward trend in defense verdicts, from 51% in 2017, to 52% in 2018, to 59% in 2019.

The Overall Average Monetary Award for Plaintiff Verdicts Drastically Decreased

In 2020, when plaintiffs were awarded damages by juries, the awards were significantly smaller than in recent years. The overall average of plaintiff verdicts in the Kansas City area in 2020 was $502,261, which included two outlier trials resulting in larger verdicts of $4.9 million and $7 million. In 2019 the average Plaintiff verdict was $2,255,380; however, this was due to one outlier verdict of $117,921,154. 2018’s average Plaintiff’s verdict was $1,810,693; however, there was an outlier verdict that year of $76,000,000. 

When the outliers from each year were set aside the average jury award for 2018 was $882,500. 2019’s average was $692,000.  And 2020’s average was $45,000. In 2020, 77% of jury awards were below $100,000, with an average jury award of approximately $45,000. Despite this, the proportion of six-figure jury awards to plaintiffs held steady at about 16% (12 out of 73 claims in 2020, compared to 31 out of 181 claims in 2019, and 29 out of 168 claims in 2018). Nonetheless, the average jury verdict awarded in 2020 decreased sharply from the previous years.

Juries in Missouri Federal Courts Prove Most Generous in 2020

To add to the anomalies of 2020, juries in Federal Courts accounted for all five of the jury verdicts in excess of $1,000,000 in 2020. The U.S. District Court for the Western District was responsible for one of these verdicts, and the other four came out of U.S. District Court for the District of Kansas. In 2019 there were 10 verdicts that exceeded $1 million, 30% of which originated in federal courts. In 2018 there were 14 verdicts over $1 million, 14% of which originated in federal courts.

The number of state court trials fell dramatically in 2020 while the percentage of federal court trials greatly increased.  In 2020 state court verdicts accounted for 53% of claims, whereas federal court verdicts accounted for 47% of claims. This was a stark change from 2019 and 2018 where state court claims accounted for 83% of verdicts, and federal court claims accounted for 17% of verdicts in both years.

The likely explanation is that federal courts continued conducting civil trials throughout most of the year, while state courts postponed numerous trials due to the ongoing pandemic. Once state courts begin to conduct civil jury trials again that will likely reverse the current trend, and restore the old adage that federal courts are better for Defendants, and state courts more hospitable toward Plaintiffs.

If Illinois' Governor signs HB3360 it would impose a 9% pre-judgment interest.

January 25, 2021

On January 13, 2021, less than 48 hours after amendments to HB 3360 were introduced, the amended bill passed and is ready to go to Governor Prizker’s desk to be signed into law. If Governor Pritzker signs HB 3360, as amended, it would impose a “litigation penalty” on civil defendants by taxing them with a 9% per annum interest on personal injury and wrongful death cases. Under current Illinois law, plaintiffs are not entitled to pre-judgment interest in personal injury cases. If this bill is signed into law personal injury and wrongful death cases in Illinois would be subject to 9% per annum pre-judgment interest accruing from the date the defendant has notice of the injury from the incident itself or a written notice. Notably, the bill would impose prejudgment interest on past injuries and previously filed actions to run from the later of the effective date of the bill or notice of injury to the defendant.  

What constitutes “notice of the injury” is not defined and will likely cause debate. This is in contrast to the very few states that allow pre-judgment interest on personal injury judgments, some of which specify that accrual does not begin until formal written notice of a claim is tendered or until a complaint is filed. Further, other states with pre-judgment interest also do not calculate in future damages unlike this bill.  

This bill would impose interest on damages, such as plaintiff’s medical care costs, that may not have been calculated in advance and liability is uncertain. For example, there are many situations, in litigation, when a defendant has notice of an injury but the medical treatment has not been completed and/or is ongoing so the damages cannot be determined. Further, a defendant may have notice of an injury while liability is unknown. This kind of “litigation penalty” would force the hand of many defendants to settle in order to avoid the tax on their right to jury trial. 

If HB 3360 is enacted, defendants should be mindful of the pre-judgment interest accrual that results from delays in litigation caused by either side or the court, which during the Pandemic, have essentially closed down our court system. Defendants should also be ready to litigate when “notice of an injury” occurred, as it is unclear from the bill when and how that is memorialized.

HB 3360 will amend 735 ILCS 5/2-1303 as follows: 

(c) In all actions brought to recover damages for personal injury or wrongful death resulting from or occasioned by the conduct of any other person or entity, whether by negligence, willful and wanton misconduct, intentional conduct, or strict liability of the other person or entity, the plaintiff shall recover prejudgment interest on all damages set forth in the judgment. Prejudgment interest shall begin to accrue on the date the defendant has notice of the injury from the incident itself or a written notice. In entering judgment for the plaintiff in the action, the court shall add to the amount of the judgment interest on the amount calculated at the rate of 9% per annum. 

It is unclear when Governor Prizker plans to act on the legislation. If you have questions about how this development might impact you or your organization, please contact the author or Baker Sterchi Cowden & Rice.

City of St. Louis and Multiple Illinois Counties Again Distinguish Themselves as "Judicial Hellholes"

January 20, 2021

The 2020/2021 “Judicial Hellholes Report” from the American Tort Reform Foundation has arrived and certain Missouri and Illinois jurisdictions again find themselves on this infamous list. The City of St. Louis comes in at #7 on the list while the trio of Cook, Madison, and St. Clair Counties in Illinois wins the #8 spot. The silver lining? Both of these rankings are down from the previous slots of #5 and #7 held by these counties, respectively, in the previous Judicial Hellholes Report.

Since 2002, the American Tort Reform Foundation has identified and documented places “where judges in civil cases systematically apply laws and court procedures in an unfair and unbalanced manner, generally to the disadvantage of defendants.” The stated goal of the Foundation’s program is “to shine a light on imbalances in the courts and thereby encourage positive changes by the judges themselves and, when needed, through legislative action or popular referenda.”

Coming in at #7 on the list, the City of St. Louis, Missouri, is singled out as being notorious for blatant forum shopping and excessive punitive damage awards, helping to earn Missouri the “Show-Me-Your-Lawsuit” nickname. The report also asserts that the court fails to ensure that cases are guided by sound science, citing instances where Plaintiff’s experts, whose testimony has been determined to not be based in science by other state court, have been permitted to testify in City of St. Louis courts. The report does see some hope for the City and the State of Missouri in general with the 2020 legislative enactment of several reforms intended to curb unreliable expert testimony and reduce litigation tourism, but cautions that true future success is contingent on the City of St. Louis Court’s compliance with the new statutes. The report notes that “some St. Louis judges have a history of ignoring both state law and U.S. Supreme Court precedent with regard to expert evidence standards, personal jurisdiction and venue, and damage awards.”

Number 8 on the list is the grouping of Cook, Madison and St. Clair Counties in Illinois. The report singles out these three counties as continuing to be preferred jurisdictions for plaintiffs’ lawyers “thanks to no-injury lawsuits, plaintiff-friendly rulings in asbestos litigation, and the promise of a liability-expanding legislative agenda each and every year.” The report calls Illinois ground zero for no-injury lawsuits, thanks in large part to the Biometric Information Privacy Act and the numerous expansive judicial interpretations of that law. The report finds some encouraging news in the Illinois Supreme Court’s June 2020 ruling in Rios v. Bayer Corp., where the court dismissed the claims of out-of-state plaintiffs for lack of jurisdiction because Bayer is not located in Illinois and does limited business there, the product was not manufactured in Illinois, and the plaintiffs experienced their injuries outside of Illinois.

The report also gives a dishonorable mention to the Missouri Court of Appeal thanks to a recent opinion addressing Section 537.065. This section permits a defendant to allow a plaintiff to obtain a judgment against it in court so long as the plaintiff agrees to only seek to collect the award from the defendant’s insurer. The Missouri legislature amended Section 537.065 in 2017 to require that parties give notice to the insurer that they have entered such an agreement so that the insurer can intervene and protect its interests, if needed. The report interprets a Missouri appellate court decision from 2020 as limiting an insurer’s ability to contest the policyholder’s liability or the plaintiff’s damages when it intervenes after the entry of arbitration award.

While there are some potential future bright spots for these Missouri and Illinois jurisdictions and their individual rankings are moving in the right direction, there seems to be a long way to go before we no longer see these local courts on the “Judicial Hellholes” list.

City of St. Louis and Multiple Illinois Counties Again Distinguish Themselves as "Judicial Hellholes"

January 20, 2021

The 2020/2021 “Judicial Hellholes Report” from the American Tort Reform Foundation has arrived and certain Missouri and Illinois jurisdictions again find themselves on this infamous list. The City of St. Louis comes in at #7 on the list while the trio of Cook, Madison, and St. Clair Counties in Illinois wins the #8 spot. The silver lining? Both of these rankings are down from the previous slots of #5 and #7 held by these counties, respectively, in the previous Judicial Hellholes Report.

Since 2002, the American Tort Reform Foundation has identified and documented places “where judges in civil cases systematically apply laws and court procedures in an unfair and unbalanced manner, generally to the disadvantage of defendants.” The stated goal of the Foundation’s program is “to shine a light on imbalances in the courts and thereby encourage positive changes by the judges themselves and, when needed, through legislative action or popular referenda.”

Coming in at #7 on the list, the City of St. Louis, Missouri, is singled out as being notorious for blatant forum shopping and excessive punitive damage awards, helping to earn Missouri the “Show-Me-Your-Lawsuit” nickname. The report also asserts that the court fails to ensure that cases are guided by sound science, citing instances where Plaintiff’s experts, whose testimony has been determined to not be based in science by other state court, have been permitted to testify in City of St. Louis courts. The report does see some hope for the City and the State of Missouri in general with the 2020 legislative enactment of several reforms intended to curb unreliable expert testimony and reduce litigation tourism, but cautions that true future success is contingent on the City of St. Louis Court’s compliance with the new statutes. The report notes that “some St. Louis judges have a history of ignoring both state law and U.S. Supreme Court precedent with regard to expert evidence standards, personal jurisdiction and venue, and damage awards.”

Number 8 on the list is the grouping of Cook, Madison and St. Clair Counties in Illinois. The report singles out these three counties as continuing to be preferred jurisdictions for plaintiffs’ lawyers “thanks to no-injury lawsuits, plaintiff-friendly rulings in asbestos litigation, and the promise of a liability-expanding legislative agenda each and every year.” The report calls Illinois ground zero for no-injury lawsuits, thanks in large part to the Biometric Information Privacy Act and the numerous expansive judicial interpretations of that law. The report finds some encouraging news in the Illinois Supreme Court’s June 2020 ruling in Rios v. Bayer Corp., where the court dismissed the claims of out-of-state plaintiffs for lack of jurisdiction because Bayer is not located in Illinois and does limited business there, the product was not manufactured in Illinois, and the plaintiffs experienced their injuries outside of Illinois.

The report also gives a dishonorable mention to the Missouri Court of Appeal thanks to a recent opinion addressing Section 537.065. This section permits a defendant to allow a plaintiff to obtain a judgment against it in court so long as the plaintiff agrees to only seek to collect the award from the defendant’s insurer. The Missouri legislature amended Section 537.065 in 2017 to require that parties give notice to the insurer that they have entered such an agreement so that the insurer can intervene and protect its interests, if needed. The report interprets a Missouri appellate court decision from 2020 as limiting an insurer’s ability to contest the policyholder’s liability or the plaintiff’s damages when it intervenes after the entry of arbitration award.

While there are some potential future bright spots for these Missouri and Illinois jurisdictions and their individual rankings are moving in the right direction, there seems to be a long way to go before we no longer see these local courts on the “Judicial Hellholes” list.

Evidence surrounding an earlier sale of equipment is relevant to a later purchaser's claim for punitive damages in a product liability action

January 15, 2021

Missouri manufacturers, distributors, sellers, and resellers of equipment have scored an important victory in the Missouri Court of Appeals. In Ormsby v. Central Mine Equipment Co, the Missouri Court of Appeals, Southern District, affirmed admission of evidence regarding the design, manufacture, and first sale of a commercial drilling rig as relevant to the defense of a strict liability claim arising from a subsequent sale when punitive damages are claimed. 

Generally, a plaintiff can recover under a strict product liability claim if he can prove the product was inherently defective when sold and that the defect in the product caused the injury or damage, regardless of whether the defendant did everything possible to prevent the defect. In Ormsby, the Plaintiff sought to preclude evidence of the initial design, manufacture, and sale of a commercial drilling rig as irrelevant to whether the rig had an inherent defect when the second sale occurred. The trial court admitted the evidence as relevant to the defense, primarily because Plaintiff sought punitive damages on the strict liability claim. 

Plaintiff lost fingers and mangled his hand after reaching into a running drill rig. The incident occurred, and the underlying lawsuit arose, after a subsequent second sale of the mining drill by the CME.

Central Mine Equipment Company (“CME”) built and sold a commercial drilling rig to the U.S. Army Corp of Engineers in 1976. CME built the drill to design specifications provided by the Corps, and the Corps inspected and accepted the drilling rig pursuant to the Corps’ quality-assurance procedures. After using the drill for 25 years, the Corps traded the drilling rig back to CME for a credit on a replacement.  CME then sold it to Plaintiff’s employer, who inspected, purchased and relocated the pre-owned unit in 2001, without CME ever seeing, inspecting, or taking possession of the used unit.

In 2013, Plaintiff and a helper picked up the drill rig from a mechanic who had repaired the rig’s throttle cable. After starting the engine to check the mechanic’s work, Plaintiff could not shut the rig off. Plaintiff reached into the motor compartment in an attempt to maneuver the throttle linkage and governor to idle the engine to a stop. Before Plaintiff’s helper could get the motor shut down, Plaintiff caught his hand in the mechanism causing the loss of multiple fingers. 

Plaintiff filed a lawsuit against CME alleging claims for negligence and strict liability, and requesting a punitive damages award under both theories. On the eve of trial, hoping to preclude evidence regarding design, manufacture and first sale of the drill, Plaintiff dismissed his negligence claim, but did not withdraw his request for punitive damages. Nevertheless, Plaintiff sought to preclude evidence that CME designed the drill pursuant to specifications provided by the Corps, and that the Corps inspected the drill to ensure it passed quality assurance standards before taking possession.

Plaintiff sought to preclude the evidence as irrelevant to the litigation, claiming that because strict liability claims do not require proof of knowledge as an element to recovery. But the trial court allowed CME to present evidence of the original design, manufacture, and sale because compliance with an industry standard evidences that a party did not act with a culpable state of mind, which is required to support punitive damages.

The Missouri Court of Appeals affirmed the trial court’s decision to admit the disputed evidence, finding Plaintiff did not meet his burden in demonstrating the trial court ruled incorrectly. The Court found that so long as punitive damages were alleged, compliance with industry standard and custom goes to prove whether defendant acted with a nonculpable state of mind, hence, to negate an inference of complete indifference and conscious disregard for the safety of others – proof punitive damages requires.

The Court’s decision is a positive development for Missouri manufacturers, designers, sellers, and resellers in defending against claims for punitive damages in product liability cases.

Missouri Court of Appeals holds an employer may not reserve the right to litigate claims against an employee in court while simultaneously restricting the employee to arbitrate her employment claims.

January 11, 2021

The question of whether an arbitration agreement is enforceable is an oft-disputed issue prone to be volleyed between the courts and an arbitrator; such was the case in Caldwell v. UniFirst Corporation, No. ED108409, 2020 Mo. App. LEXIS 1328 (Ct. App. Oct. 27, 2020).

This case involves a contract within a contract within a contract: a delegation provision contained in an arbitration agreement, which was contained in an employment contract. This not-uncommon scenario requires a court to look at the three contracts and analyze each independent of the others. 

In Caldwell, a former at-will employee sued his former employer (UniFirst) under the Missouri Human Rights Act alleging disability discrimination and retaliation claims.  UniFirst moved to compel arbitration based on the arbitration clause in Caldwell’s employment contract.  UniFirst also asserted the employment contract contained a binding delegation clause that rendered the threshold issue of whether the case was arbitrable a matter to be determined by an arbitrator rather than by the court.  The district court denied UniFirst’s motion holding the arbitration clause lacked adequate consideration in two aspects: first, Caldwell’s at-will employment was insufficient consideration to support the arbitration agreement, and second, the arbitration clause lacked mutuality because UniFirst unilaterally reserved for itself the ability to assert certain claims against Caldwell in court while Caldwell was required to arbitrate all potential claims.

The case made its way to the Missouri Supreme Court, which transferred the case back to the Court of Appeals with the direction to reconsider the case in light of the Supreme Court’s decision in Soars v. Easter Seals Midwest, 563 S.W.3d 111 (Mo. banc 2018).  In Soars, the court held a delegation clause is severable and should be reviewed independent of any underlying arbitration clause.  But in Caldwell, the parties conceded the delegation provision was not at issue, so on reconsideration, the Court held that because the subject delegation provision – standing alone – was valid, the question of whether the arbitration agreement as a whole was valid was for the arbitrator to decide. 

Under Missouri law, an arbitration clause requires its own consideration.  Accordingly, the arbitrator ruled that while Caldwell’s at-will employment may have supplied sufficient consideration to support the employment agreement, it could not also provide adequate consideration to support the arbitration clause.  UniFirst moved to vacate the arbitration order arguing the arbitrator exceeded his power.  The trial court denied the motion and affirmed the arbitration order, which UniFirst then appealed. 

On appeal, in relevant part, only the question of whether the arbitration agreement was supported by consideration was before the Court.  At the outset, the Missouri Court of Appeals (Eastern District) held that Missouri contract law principles – including consideration – govern whether an arbitration agreement is valid.  Under Missouri law, a promise by one party to a contract is sufficient consideration in exchange for a promise by the other party.  But when one party retains the unilateral right to sidestep its obligations, that party’s promise is considered “illusory” and thus unenforceable.  Here, because only one party was bound to arbitrate its claims both the trial court and the Court of Appeals concluded that the arbitration agreement lacked mutuality of promise and therefore lacked consideration.  Thus, the arbitration provision was held unenforceable and the arbitrator’s order was affirmed. 

A little over a year ago, BSCR published a blog that describes a case in which the Eighth Circuit reminds employers to go back to the basics when administering arbitration clauses.  The Eighth Circuit held an employee’s tacit acknowledgement of an arbitration provision by, for example, clicking through the pages of an employment contract on the computer, is not evidence that an employee accepts an arbitration provision contained therein.  Last month, Caldwell v. UniFirst Corporation became another example, this time in state court, of the importance of focusing on contracts fundamentals – here, on the language of the arbitration provision itself. 

The enforceability of an arbitration clause, particularly in the employment context, has become the well-traveled subject of recent litigation.  Which begs the question: why all the fuss when so many employers include arbitration clauses, often coupled with delegation clauses, in employment contracts – aren’t these employers well-equipped to draft arbitration clauses and, in fact, don’t the employers intentionally include these provisions for the very purpose of avoiding litigation?  In other words, why are employers including and administering these routine provisions in ways that provide employees paths to the courtroom?  The simplest explanation is that too many employers don’t know they’re doing it wrong.  Notwithstanding these apparent pitfalls, there are relatively simple solutions to tackling arbitration agreement drafting and administration.  The BSCR employment & labor law team are willing and able to assist you as you navigate your employment arbitration agreement development and implementation needs.

Court Holds COVID-19 Government Closures Do Not Trigger Business Interruption Coverage

January 6, 2021

A recent ruling from the U.S. District Court for the Eastern District of Michigan has provided more guidance in predicting how COVID-19 related losses and litigation will be handled.

In Turek Enterprises, Inc., d/b/a Alcona Chiropractic v. State Farm Mut. Auto. Ins. Co., et al, the Court ruled that State Farm Mutual Automobile Insurance Co. did not have to cover a chiropractic office’s losses alleged from government-ordered closures due to COVID-19. The Court held that the insured failed to allege physical loss and that the virus exclusion bars coverage.

This class action lawsuit seeking business interruption coverage was denied because the entire case focused on the definition of “direct physical loss;” however, did not demonstrate any “tangible damage to covered property” that was required as a condition precedent to coverage.

The chiropractor sued State Farm in June alleging the insurer wrongfully applied a virus exclusion to deny coverage. The insured argued the virus exclusion did not relate to the claimed losses, which were solely caused by government-closure orders. To support its position, the insured also argued COVID-19 was not present on its property, negating the “virus” related exclusion.

In Judge Ludington’s Order, the Court noted that even if the chiropractor alleged that the government-mandated closures were the cause of loss, “closure orders” were in response to curbing the spread of COVID-19 and the virus that causes it. Accordingly, the chiropractor’s business losses were barred by the policy’s virus exclusion. The chiropractor’s position disregarded “the anti-concurrent causation clause, which extend[ed] the virus exclusion to all losses where a virus is part of the causal chain.”

Plaintiff argued the exclusion applied only to decontamination costs and State Farm misrepresented that provision of the policy. In reviewing the applicable policy, Judge Ludington found that “[b]y its terms, the policy does not limit the virus exclusion to contamination, and plaintiff has failed to show that the virus exclusion is ambiguous.”  Furthermore, “[e]ven if defendants misrepresented the purpose and extent of the virus exclusion in 2006, the plain, unambiguous meaning of the virus exclusion today negates coverage.”

In another creative argument, Plaintiff argued it had experienced “tangible” damage because the business was suspended by government closure orders; therefore, the business necessarily incurred ongoing “passive depreciation,” instead of a direct physical loss.  The “passive depreciation” damage argued that all business equipment was continuing to lose value based on age and non-use.  The Court rebuffed this argument by reasoning “[t]he plain meaning of direct physical loss to covered property requires that there be a loss to covered property, and not just any loss.”

Ultimately, counsel and the plaintiff’s bar are both becoming more creative looking for special policy terms which ambiguity could open the door to such an argument as pleaded in this matter. Carriers should be addressing each claim and litigated coverage file on the individual claim’s separate and distinct terms, facts and application. No two COVID-19 claims are the same, and each coverage issue must be individually reviewed in order to fairly and accurately determine coverage and its application. 

Single-Insurer MDLs Are Among Us - JPML Allows Centralization of COVID-19 Insurance Coverage Cases

December 30, 2020

The U.S. Judicial Panel on Multidistrict Litigation initially ruled centralization was not appropriate for businesses seeking business interruption insurance coverage because of varying policy language. See our post here.  At that time, more than 450 cases were pending in Federal Courts—now there are over 700.

While the JPML rejected total centralization, in the same ruling the Panel suggested that the creation of smaller “single-insurer” MDLs could be efficient to centralize those actions.  Cases argued against one insurer or insurance group were “more likely to involve insurance policies utilizing the same language, endorsements, and exclusions” that would make sharing common discovery and pretrial motion proceedings more efficient.

Policyholders followed the JPML’s suggestion, as there were 300 lawsuits against The Hartford, Cincinnati Insurance Co., Society Insurance Co., Travelers and various underwriters at Lloyd’s of London that sought centralization into single carrier MDLs.  The JPML had to decide whether to create five separate “single-insurer” MDLS to centralize all of the COVID-19 coverage actions against these specific carriers.  On October 2, the JPML ruled that centralization was appropriate for cases against Society Insurance Co., but declined to centralize actions against The Hartford, Cincinnati Insurance Co., Travelers, and Lloyd’s of London.

Opponents of Centralization Argued Varying Policy Language and State Law Made MDL Inappropriate.

The insurers argued to the JPML, as they had previously ruled, that the varying policy language would be inappropriate for centralization.  More specifically, the insurers argued that business interruption policy language can vary even among the policies issued by the same insurance company.

Additionally, Lloyd’s underwriters argued that the phrase “single-insurer MDL” was a misnomer as they are not the same insurer, but rather forty separate insurance carriers selling various policies to business through the Lloyd’s marketplace.

Policyholders opposing centralization echoed the insurer’s arguments about the policy language and focused their arguments on the differences among states’ laws interpreting the prerequisites for business interruption coverage.  For example, the requirement that a business interruption loss stem from a “direct physical loss of or damage to” its property.  A group of Chicago-area businesses argued that decisions in Illinois (and some other states) do not require a tangible alteration or damage to a property to be considered direct physical loss.

Proponents of Centralization Argued COVID-19 Pandemic Itself Triggering their Losses Gave Rise to Common Factual Issues.

The policyholders supporting centralization argued that the cases filed against the same or related insurers would give rise to numerous common and overlapping factual questions because they all related to the COVID-19 pandemic.  Furthermore, the language of the policy was a standard form used by the respective insurer.

For example, a Florida restaurant argued that Lloyd’s underwriters commonly provided business interruption coverage on standard forms that are approved by the Insurance Services Office; therefore, they shared many common terms and a single court could determine “in one stroke” if the COVID-19 pandemic triggered standard terms in the policies, including the direct physical loss or damage requirement.

The Florida restaurant also addressed the issue of any uncommon questions, e.g., whether or not state and/or municipal civil authority orders prohibited access to covered property.  They argued the questions “may turn to some extent on common issues, and the resolution of all common and uncommon questions by one judge will allow the just and expeditious resolution of all actions to the overall benefit of the parties.”

Another group of policyholders added that “the sheer volume of similar cases across the country implicating common issues” made centralization appropriate.  They argued that an insurer “consistently utilizes a small subset of template policy forms” and has “uniformly denied” business interruption claims.  Furthermore, “[w]hether an insurance policy provides coverage cannot be separated from the factual predicate that gives rise to coverage in the first place.  Here, the related actions all share the same or similar triggering events: the losses of business income occasioned by COVID19 and/or related stay-at-home orders.”

The JPML’s Most Important Factor for Centralization was the Geographic Scope of Action

What set Society’s policies apart from the other insurers, were the “defined geographical scope of these actions” implicating the insurance laws of only six states. Judge Chang stated that any potential differences among the cases could be resolved with a number of pretrial techniques including state-specific tracks or a bellwether process.

The JPML emphasized that centralization involving Hartford, Cincinnati, and Travelers would not promote efficient resolution because of the sheer number and geographic scope of the cases. Especially when many of the policyholder plaintiffs “are on the brink of bankruptcy as a result of business lost due to the COVID-19 pandemic and the government closure orders.”

For Lloyd’s underwriters, the JPML said that centralization was not appropriate because it was not a single insurance company but rather a group of several dozen distinct insurers with varying policies. “The inclusion of non-standard and non-common forms and policy language would hinder the ability of the transferee court to organize the litigation and quickly reach the common factual and legal questions,” the JPML wrote.

Nevertheless, the JPML encouraged the insurers to engage in “informal cooperation and coordination” to be efficient and avoid duplication.

Once again, we see creative arguments utilized successfully to support centralization.  Regardless of whether or not an insurer uses standard forms, each claim is unique, and insurers must continue to approach all COVID-19 interruption claims, in addition to all claims, thoroughly and cautiously. 

U.S. Supreme Court to Review FCRA Class Action Jury Verdict

December 28, 2020

The United States Supreme Court recently granted certiorari to TransUnion on a multimillion-dollar jury verdict arising out of a class action in the Ninth Circuit.

In Ramirez v. TransUnion, a case filed in the Northern District of California,the jury assessed $60 million in damages against TransUnion for three FCRA violations: (1) willful failure to follow reasonable procedures to assure accuracy of terrorist alerts in violation of 15 U.S.C. § 1681e(b); (2) willful failure to disclose to class members their entire credit reports by excluding the alerts from the reports in violation of § 1681g(a)(1); and (3) willful failure to provide a summary of rights in violation of § 1681g(c)(2). The facts relating to the alleged injury suffered by the named class member are compelling. When applying for a car loan, Mr. Ramirez was denied financing by the dealership because he was incorrectly listed a match on an OFAC Advisor “terrorist list” alert that came up when his credit report was pulled, based on information obtained through a third party vendor. Notably, the dealership did not conduct any further independent investigation to determine whether Mr. Ramirez was in fact a match but instead sold the car to Mr. Ramirez’ wife.

Mr. Ramirez thereafter requested and obtained his credit report from TransUnion, which did not contain the OFAC alert. However, a letter he received from TransUnion a day later notified him that he was listed as a “prohibited SDN (Specially Designated National)”. After speaking with an attorney, Mr. Ramirez learned of the procedure to dispute the OFAC data associated with his credit file and did so. The alert was removed. The record revealed that more than 8,000 other consumers’ credit files had also been falsely labeled as prohibited SDNs from January and July 2011 and that they received a letter similar to Mr. Ramirez’ when they requested their credit reports during that time. Mr. Ramirez subsequently brought the above class action on behalf of himself and those other consumers, who apparently did not suffer any actual injury for which damages could be awarded. The jury verdict amounted to roughly $1,000 in statutory damages per class member and $6,300 each in punitive damages.

After the jury verdict, TransUnion appealed to the Ninth Circuit Court of Appeals. The Ninth Circuit held that the class members had standing sufficient to be certified as a class under Rule 23, but found that the punitive damages award was excessive and cut the punitive damage award in half.

On review, the U.S. Supreme Court must consider and rule upon two critical issues: (1) Whether either Article III or Rule 23 permits a damages class action where the vast majority of the class suffered no actual injury, and (2) whether a punitive damages award violates a defendant’s due process rights where it is exponentially larger than any class-wide actual damages and multiples greater than the statutory damages awarded for the defendant’s violations.

The Ramirez case comes before the High Court at the end of another record-setting year for FCRA claims. But its implications far exceed FCRA litigation. With a historically conservative Court hearing this case, there is at least a possibility that class actions may be more heavily scrutinized in the future.

Baker Sterchi will continue to monitor the Ramirez case for important updates.

Parson's Pandemic Protections for Providers - Governor Parson Encourages Tort Liability Legislation During COVID-19 State of Emergency

December 21, 2020

Introduction

On November 12, Governor Parson issued a written proclamation encouraging lawmakers to author new tort liability legislation insulating defendants from lawsuits arising out of the COVID-19 state of emergency that has existed since March. This effort is designed to allow these individuals and entities to continue to serve the public without threat of unnecessary and frivolous litigation. We have since learned that the Missouri legislature is not likely to address this issue until early 2021. Governor Parson seems to have reconsidered the timing for the agenda and directed the legislature to address this, not during the ongoing special session, but during the regular January session. The bill will be titled SB1.   

In the statement, the Governor explained one of the main purposes of this action is to assist healthcare providers who have gone well beyond normal duty to provide exceptional care to Missourians despite great personal risk to their own health and well-being by amending and expanding upon § 44.045, RSMo, to afford liability protections for healthcare workers who provide necessary care during a declared state of emergency.  Though not dealt with here, the Governor’s proclamation also identifies other organizations instrumental to COVID-19 response efforts, including product manufacturers and premises owners like schools and churches that provide fundamental societal functions. This potentially includes a new Section in Chapter 537, RSMo, to provide products liability protection for product manufacturers, designers, distributors, and sellers involved in bringing products to market in direct response to a state of emergency. It also potentially includes a new section to provide premises liability protection for exposure claims arising from a declared state of emergency. 

Why Is This Necessary?

The threat of COVID litigation is real. There have been an estimated 10,000 COVID-related lawsuits filed nationally. This includes hundreds of healthcare specific suits and is almost certain to continue well into the next year and beyond.    

The risk to healthcare workers is real too. As of December 21, there were almost 17.8 million COVID cases and more than 315,000 deaths in the U.S. Healthcare workers make up a significant portion of nationwide COVID-19 infections. As of July, there were 100,000 cases of COVID-19 infecting healthcare workers. By September 2020, more than 1,700 U.S. healthcare workers had died from COVID-19. Per the CDC, healthcare workers make up approximately 6% of adults hospitalized with COVID-19. Among those, 36% were in the nursing field, and 28% were admitted to an ICU. Sixteen percent required invasive mechanical ventilation, and 4% died. 

None of this is surprising considering healthcare workers are on the frontline of battling this global pandemic and, in doing so, expose themselves to great personal risk each shift providing exceptional care for their communities. They must deal with the challenge not only of exposing themselves to the virus, but also observing terrible suffering and outcomes of their patients, and doing this with limited resources, equipment and healthcare staff. The author of this blog believes prudent legislative action is necessary under the circumstances and likely to be helpful in mitigating some litigation risk for healthcare professionals. 

A National Approach to Liability Protections

Missouri is not the only state to consider such liability protections. Other states have provided this through executive order and/or legislative action. For example, the neighboring states of Arkansas, Iowa, Illinois, Kansas, Kentucky, and Oklahoma have already passed COVID liability protections. Many of these states’ protections afford immunity from civil damages for licensed healthcare providers but carve out exceptions for injuries or death caused by gross negligence, willful and criminal misconduct and intentional infliction of harm, and fraud. 

Although there was much discussion during negotiations for a federal COVID-19 relief package as to whether it would include liability protections for healthcare providers and other businesses, in the end, no such provision was included in the $900 billion program. Though not dealt with in detail here, federal liability protections are already available under the 2005 Public Readiness Emergency Preparedness (PREP) Act, which authorizes the Secretary of the US Department of Health and Human Services to issue a declaration in response to a public health emergency. On March 10, 2020, Secretary of HHS Alex Azar issued such a declaration, effective February 4, 2020, which provides immunity to “covered persons,” such as healthcare providers, using certain “covered countermeasures,” including masks, respirators, and vaccines, that are necessary to combat the public health emergency.      

The Missouri Chamber of Commerce and industry stakeholders overwhelmingly support these protections. The American Medical Association has pushed for states to pursue liability protections for healthcare professionals during the COVID-19 emergency. However, this is not without criticism, with some suggesting such policies would protect irresponsible businesses from accountability and fail to protect the public.   

It is important to note that the anticipated liability protections parallel “good Samaritan” laws that have existed throughout the country for decades and afford qualified immunity from civil liability for healthcare professionals who volunteer their services as a generous compassionate act unless they engage in willful or intentional misconduct. 

We will continue to follow this issue and look for activity during the January 2021 general legislative session. 

Parson's Pandemic Protections for Providers - Governor Parson Encourages Tort Liability Legislation During COVID-19 State of Emergency

December 21, 2020

Introduction

On November 12, Governor Parson issued a written proclamation encouraging lawmakers to author new tort liability legislation insulating defendants from lawsuits arising out of the COVID-19 state of emergency that has existed since March. This effort is designed to allow these individuals and entities to continue to serve the public without threat of unnecessary and frivolous litigation. We have since learned that the Missouri legislature is not likely to address this issue until early 2021. Governor Parson seems to have reconsidered the timing for the agenda and directed the legislature to address this, not during the ongoing special session, but during the regular January session. The bill will be titled SB1.   

In the statement, the Governor explained one of the main purposes of this action is to assist healthcare providers who have gone well beyond normal duty to provide exceptional care to Missourians despite great personal risk to their own health and well-being by amending and expanding upon § 44.045, RSMo, to afford liability protections for healthcare workers who provide necessary care during a declared state of emergency.  Though not dealt with here, the Governor’s proclamation also identifies other organizations instrumental to COVID-19 response efforts, including product manufacturers and premises owners like schools and churches that provide fundamental societal functions. This potentially includes a new Section in Chapter 537, RSMo, to provide products liability protection for product manufacturers, designers, distributors, and sellers involved in bringing products to market in direct response to a state of emergency. It also potentially includes a new section to provide premises liability protection for exposure claims arising from a declared state of emergency. 

Why Is This Necessary?

The threat of COVID litigation is real. There have been an estimated 10,000 COVID-related lawsuits filed nationally. This includes hundreds of healthcare specific suits and is almost certain to continue well into the next year and beyond.    

The risk to healthcare workers is real too. As of December 21, there were almost 17.8 million COVID cases and more than 315,000 deaths in the U.S. Healthcare workers make up a significant portion of nationwide COVID-19 infections. As of July, there were 100,000 cases of COVID-19 infecting healthcare workers. By September 2020, more than 1,700 U.S. healthcare workers had died from COVID-19. Per the CDC, healthcare workers make up approximately 6% of adults hospitalized with COVID-19. Among those, 36% were in the nursing field, and 28% were admitted to an ICU. Sixteen percent required invasive mechanical ventilation, and 4% died. 

None of this is surprising considering healthcare workers are on the frontline of battling this global pandemic and, in doing so, expose themselves to great personal risk each shift providing exceptional care for their communities. They must deal with the challenge not only of exposing themselves to the virus, but also observing terrible suffering and outcomes of their patients, and doing this with limited resources, equipment and healthcare staff. The author of this blog believes prudent legislative action is necessary under the circumstances and likely to be helpful in mitigating some litigation risk for healthcare professionals. 

A National Approach to Liability Protections

Missouri is not the only state to consider such liability protections. Other states have provided this through executive order and/or legislative action. For example, the neighboring states of Arkansas, Iowa, Illinois, Kansas, Kentucky, and Oklahoma have already passed COVID liability protections. Many of these states’ protections afford immunity from civil damages for licensed healthcare providers but carve out exceptions for injuries or death caused by gross negligence, willful and criminal misconduct and intentional infliction of harm, and fraud. 

Although there was much discussion during negotiations for a federal COVID-19 relief package as to whether it would include liability protections for healthcare providers and other businesses, in the end, no such provision was included in the $900 billion program. Though not dealt with in detail here, federal liability protections are already available under the 2005 Public Readiness Emergency Preparedness (PREP) Act, which authorizes the Secretary of the US Department of Health and Human Services to issue a declaration in response to a public health emergency. On March 10, 2020, Secretary of HHS Alex Azar issued such a declaration, effective February 4, 2020, which provides immunity to “covered persons,” such as healthcare providers, using certain “covered countermeasures,” including masks, respirators, and vaccines, that are necessary to combat the public health emergency.      

The Missouri Chamber of Commerce and industry stakeholders overwhelmingly support these protections. The American Medical Association has pushed for states to pursue liability protections for healthcare professionals during the COVID-19 emergency. However, this is not without criticism, with some suggesting such policies would protect irresponsible businesses from accountability and fail to protect the public.   

It is important to note that the anticipated liability protections parallel “good Samaritan” laws that have existed throughout the country for decades and afford qualified immunity from civil liability for healthcare professionals who volunteer their services as a generous compassionate act unless they engage in willful or intentional misconduct. 

We will continue to follow this issue and look for activity during the January 2021 general legislative session. 

You Better Watch Out… for Scammers

December 10, 2020

As we approach the holidays, financial institutions, retailers, and consumers alike are all well-advised to be on the lookout for financial scams.

Just days ago, the Kansas City Police Department stopped gift card scammers that had defrauded an elderly woman, inducing her to purchase and send them gift cards, and threatening to harm her and her family if she did not comply. But much damage was already done, as authorities believe the scammers had already made purchases in excess of $75,000. The police became involved after Target employees notified them of the suspicious transactions.

Given the unique financial hardships presented by COVID-19, fraud is of particular concern this year. According to recent TransUnion financial hardship studies, 35% of consumers report they have been targeted by e-commerce fraud scams.

The FTC reports there are several versions of the recently popular gift card scams, including false IRS threats; callers pretending to be utility companies; sellers of cars, motorcycles boats, and expensive electronic devices on online auction or e-commerce sites; and buyers promising to pay more than the purchase price but then seeking reimbursement for the difference. They all have one thing in common – they demand payment be made in the form of gift cards from various retailers, which is surely never a requested form of payment for a legitimate transaction. Typically, the scammer will ask the victim to provide the gift card number and its pin number located on the back of the card.

So, what are consumers to do if they believe they are the victim of a gift card scam? The victim should tell trusted loved ones and report the incident to local authorities, the retailer, as well as to the FTC here.

There are steps retailers can take as well, including strengthening security by setting additional PIN numbers, limiting maximum gift card amounts, and educating employees to detect signs of gift card fraud, such as the purchaser requesting large amounts, or texting/talking on their phone through the transaction, since the scammers often demand the victim stay on the phone with them during the transaction. And it is key that retailers educate their consumers by including preventative tips near gift card racks and cash registers. Amazon, a frequent involuntary party to these scams, has published such guidance on its website.

Gift card fraud pertains to not only retail gift cards, but also prepaid cards from financial institutions. Banks and other financial institutions are reminded of their obligation to report suspicious transactions to the Financial Crimes Enforcement Network (FinCEN) and also encouraged to educate their account holders about gift card scams as the holidays approach. These efforts could save the financial institution and the consumer from substantial loss, as well as heartache, during the season of giving.

Missouri enacts significant changes affecting punitive damages and consumer protection claims

October 26, 2020

Missouri defendants will welcome several recently enacted changes to the manner in which punitive damages can be sought and awarded in most civil actions. SB 591 raises the bar for both pleading and proving punitive damages and provides additional protections to employers who might otherwise have been exposed to punitive damages for the unlawful conduct of low-level employees.

Most damages in civil lawsuits are intended to compensate plaintiffs for their losses, whether economic or noneconomic. But punitive damages, also called “exemplary damages” in Missouri, are different in that they are intended to punish civil wrongdoing and to serve as a deterrent to others who may be tempted to engage in similar conduct. SB 591, which became law on August 28, 2020, significantly changes how these damages can be awarded in Missouri.

Most notably, punitive damages in most cases now must be based on “clear and convincing evidence that the defendant intentionally harmed the plaintiff without just cause or acted with a deliberate and flagrant disregard for the safety of others.” This is a heightened standard from previously existing Missouri law, which required a showing of “complete indifference or conscious disregard for the safety of others.” Under the new standard, punitive damages are appropriate only if the defendant intentionally injured the plaintiff or did so by deliberately and flagrantly disregarding risk of injury.

The new law also bars plaintiffs from seeking punitive damages in their initial pleadings, a change intended to curb premature or frivolous punitive damages allegations.  Instead, a party seeking to assert a claim for punitive damages now must first file a motion for leave to do so, which will be granted only if the judge finds that admissible evidence exists upon which a jury could reasonably conclude that the punitive damages standard has been met. This roughly mirrors the procedures for asserting punitive damages in Kansas and Illinois state courts.

Employers are also protected under the bill from liability for punitive damages arising out of the conduct of their employees. Where plaintiff seeks to hold an employer vicariously liable for the wrongful acts of an employee or other agent, punitive damages will be awarded against the employer only if: (1) the employer authorized both the wrongful act and the manner in which it was done; (2) the employee was unfit to such a degree that it was reckless for the employer to hire and/or retain the employee; (3) the employee alleged to have committed the wrongful act held a management position and was acting within the scope of his or her managerial duties; or (4) the employer ratified or approved the wrongful act after it was committed.

MMPA Reform

The Missouri Merchandising Practices Act was originally intended to protect Missouri consumers from businesses that employ unfair and deceptive commercial practices. But thanks to Missouri courts’ expansive interpretation of statutory language that was often vague to begin with, the MMPA has been misused and stretched far beyond its original purpose. SB 591 makes a number of changes designed to reverse those trends.

Some of the changes are simple. For example, to prevail on MMPA claims, plaintiffs now must prove that they acted “as a reasonable consumer” would have acted under similar circumstances. Additionally, all MMPA claimants (or, in the case of class actions, all class representatives) must support their claimed damages with evidence that is “sufficiently definitive and objective” to allow their losses to be calculated to a reasonable degree of certainty. These changes—which should be part of any consumer protection statute—should provide at least some level of protection to businesses by deterring the assertion of frivolous claims and by offering a path to dismissal when those claims are filed.

The amendments also provide that any award of attorneys’ fees must “bear a reasonable relationship to the amount of the judgment” awarded to an MMPA claimant. Prior to SB 591, the act allowed prevailing plaintiffs to recover their attorneys’ fees, even where their recovery was nominal and any actual harm suffered was trivial. This allowed MMPA claimants to use the threat of ballooning attorney fees to deter defendants from litigating in earnest and to extract settlements wildly disproportionate to their actual losses (if any).   This change looks to curb those abuses of the MMPA.

The amendments also expressly exclude certain types of claims that are intended to be governed by other bodies of law. For example, the amended MMPA excludes claims arising out of the rendering or failure to render healthcare services, a change intended to stop the assertion of medical malpractice claims under the guise of this consumer protection statute. Similarly, a new provision in the law excludes certain new home warranties from the definition of “merchandise,” so long as the warranty documents contain and prominently display specified disclaimer language.

The changes enacted under SB 591—both to punitive damages claims and to the MMPA—will apply only to cases governed by Missouri law and filed after August 28, 2020. Any case filed before that date will be subject to the previously existing standards. We will continue to monitor how these important changes are implemented and interpreted by Missouri courts.

Western District of Texas provides insureds with "out" to skirt federal jurisdiction in COVID-19 business interruption coverage cases

October 20, 2020

Like many businesses during the COVID-19 pandemic, Texas dentist Louis Orsatti’s practice suffered significant lost business income as a result of the local government’s shelter-in-place order in the spring and early summer of 2020. And also like many other businesses, Orsatti made a claim on his practice’s insurance policy issued by Allstate. Allstate assigned a claims adjuster, Blesssing Sefofo Wonyaku, who allegedly summarily denied Orsatti’s claim without performing any kind of investigation whatsoever.

Orsatti filed a bad faith suit in Texas state court against Allstate after his claim was denied, joining Wonyaku as a defendant. Allstate removed the case to the United States District Court for the Western District of Texas arguing that Wonyaku, a citizen of Texas, had been fraudulently joined solely for the purpose of defeating federal diversity of citizenship jurisdiction. Finding that a claim was properly asserted against Wonyaku, the federal magistrate judge recommended the case be remanded back to state court (as of the date of this posting, the district judge has neither accepted nor rejected the recommendation).

Despite recognizing that many cases have held a claims adjuster cannot be individually liable for bad faith claims made against an insurer, the court here held that the allegations here implicated Wonyaku based on “her conduct as an individual adjuster.” Specifically, the court focused on Wonyaku’s allegedly pre-textual, results-oriented investigation, her failure to request additional information from the insured, and her “immediate” issuance of a denial letter. Consequently, the court held the complaint asserted a valid cause of action against Wonyaku and the case was accordingly remanded for lack of subject matter jurisdiction. The case is Orsatti v. Allstate Ins. Co., No. 5-20-CV-00840-FB-RBF, 2020 U.S. Dist. LEXIS 185935 (W.D. Tex. Oct. 7, 2020), and the magistrate’s report and recommendation can be found here.  

Policyholders may be tempted to stretch the Orsatti case to its limits to avoid federal jurisdiction when a non-diverse claims adjuster is involved. This may be especially true if the judicial panel on multidistrict litigation opts to create carrier-specific MDLs,[1] since struggling business may be looking for some much-needed quick money rather than being bogged down in protracted MDL proceedings. This may be particularly worrisome in jurisdictions such as Missouri, where the waters get murky when it comes to an adjuster’s personal liability in first-party claims. While Missouri generally bars such liability in third-party bad faith claims (Shobe v. Kelly, 279 S.W.3d 203 (Mo. App W.D. 2009)), first-party bad faith claims fall within the ambit of Missouri’s vexatious refusal to pay statutes (RSMo §§ 375.296 and 375.420) which generally displace other causes of action arising from an insurer’s denial of coverage. On its face, the vexatious refusal statute only permits a suit to be filed “against any insurance company,” which would seem to preclude individual liability on the adjuster’s part. However, some courts have recognized that despite the vexatious refusal statute’s exclusivity, other torts may still be viable where they are not based strictly on the insurer’s denial of coverage. In fact, United States District Court for the Eastern District of Missouri specifically held that conduct “which may have occurred during the insurer’s investigation or claims handling” can support a cause of action against an individual adjuster independent from a vexatious refusal claim. (Travelers Indem. Co. of Am. v. Holtzman Props., L.L.C., No. 4:08-CV-351 CAS, 2008 U.S. Dist. LEXIS 63966 (E.D. Mo. Aug. 21, 2008)).     

The Orsatti case provides another arrow in policyholders’ quivers to remain in state court by joining an individual adjuster as a defendant. It specifically brings deficiencies in claims handling to the forefront of the analysis, which prior Missouri precedent demonstrates may be sufficient to support an independent claim aside from a vexatious refusal claim against the carrier.  

The case also highlights the need not to be too quick to deny a COVID-related business interruption claim. While it may be tempting after reviewing dozens or hundreds of similar claims involving similar policy language to issue a form denial letter without giving it a second thought, Orsatti illustrates how this may expose the adjuster to personal liability and prevent coverage counsel from litigating in their preferred court.



[1] As of the date of this writing, requests to create five “single-insurer” MDLs were under advisement by the JMPL. The carriers in question are The Hartford, Cincinnati Insurance Co., Society Insurance Co., Travelers, and various underwriters at Lloyd’s of London. A request to create a single MDL encompassing all carriers was previously denied, which was discussed in another post found here.

Discovery Is Not a Game | Illinois Appellate Court Overturns $50 Million Dollar Birth Injury Verdict

October 13, 2020

Florez v. Northshore Univ. Healthsystem, 2020 IL App (1st) 190465; 2020 Ill. App. LEXIS 560

The First District Appellate Court of Illinois recently held that the trial court abused its discretion by barring any reference to a child’s autism diagnosis at trial. As a result of this trial court error, the appellate court overturned a $50 million jury verdict involving the child’s alleged brain injury sustained at birth.

Plaintiff alleged the defendant failed to diagnose and treat the child’s oxygen deprivation during birth, allegedly leading to a severe brain injury. The plaintiff’s counsel argued throughout the case and at trial that the child’s brain injury occurred at or near the time of his birth. The defendant countered that other factors caused the child’s condition with no causal connection to the birth treatment.

Fifty-six days before trial, the plaintiff supplemented his answers to written discovery with a copy of a behavioral report and psychological evaluation from his expert neuropsychologist, who found that the plaintiff met the full diagnostic criteria for Autism Spectrum Disorder. Upon receiving the neuropsychologist’s report, the defendant’s experts found that the plaintiff’s autism diagnosis supported their conclusion that the plaintiff's disabilities were from a chronic condition rather than an acute birth injury.

Pursuant to Illinois Rule 218(c), the defendant filed supplemental disclosures on this evidence and moved to disclose the neuropsychologist as a witness at trial. In response, the plaintiff moved to strike the supplemental disclosures and witness arguing that the defendant was improperly attempting to inject a new issue into the case. The court granted the plaintiff’s motion to strike and found the defendant’s supplemental disclosures untimely because the disclosures were not filed at least 60 days before trial.

However, the appellate court reasoned that the mechanical application of the 60-day deadline under these circumstances would encourage “tactical gamesmanship” because the plaintiff filed his expert’s evaluation less than 60 days before the trial. Essentially, the defendant could not have met the deadline even if it responded the very day it received the report.

Though the plaintiff’s experts opined that the defendant’s negligence led to oxygen deprivation and plaintiff’s injuries and cognitive deficits, the defendant’s experts opined that plaintiff’s injuries were chronic. For example, the defendant’s experts opined that a seizure that occurred five hours after birth was a chronic issue rather than something caused by birth-related treatment.

Accordingly, the appellate court held that barring evidence of an autism diagnosis was an abuse of discretion because the evidence was probative of the causation issue, defendant’s experts could not use it to support their conclusions, and it was not available for the jury to consider in resolving conflicting expert opinions.

Aside from the causation issue, the appellate court found that the autism diagnosis was also relevant to damages issues including plaintiff’s future medical needs, school requirements, and employment prospects.

Ultimately, this case demonstrates how discovery rules should be applied on a case by case basis, as a mechanical application of the rules may not always yield the most just result. 

Discovery Is Not a Game | Illinois Appellate Court Overturns $50 Million Dollar Birth Injury Verdict

October 13, 2020

Florez v. Northshore Univ. Healthsystem, 2020 IL App (1st) 190465; 2020 Ill. App. LEXIS 560

The First District Appellate Court of Illinois recently held that the trial court abused its discretion by barring any reference to a child’s autism diagnosis at trial. As a result of this trial court error, the appellate court overturned a $50 million jury verdict involving the child’s alleged brain injury sustained at birth.

Plaintiff alleged the defendant failed to diagnose and treat the child’s oxygen deprivation during birth, allegedly leading to a severe brain injury. The plaintiff’s counsel argued throughout the case and at trial that the child’s brain injury occurred at or near the time of his birth. The defendant countered that other factors caused the child’s condition with no causal connection to the birth treatment.

Fifty-six days before trial, the plaintiff supplemented his answers to written discovery with a copy of a behavioral report and psychological evaluation from his expert neuropsychologist, who found that the plaintiff met the full diagnostic criteria for Autism Spectrum Disorder. Upon receiving the neuropsychologist’s report, the defendant’s experts found that the plaintiff’s autism diagnosis supported their conclusion that the plaintiff's disabilities were from a chronic condition rather than an acute birth injury.

Pursuant to Illinois Rule 218(c), the defendant filed supplemental disclosures on this evidence and moved to disclose the neuropsychologist as a witness at trial. In response, the plaintiff moved to strike the supplemental disclosures and witness arguing that the defendant was improperly attempting to inject a new issue into the case. The court granted the plaintiff’s motion to strike and found the defendant’s supplemental disclosures untimely because the disclosures were not filed at least 60 days before trial.

However, the appellate court reasoned that the mechanical application of the 60-day deadline under these circumstances would encourage “tactical gamesmanship” because the plaintiff filed his expert’s evaluation less than 60 days before the trial. Essentially, the defendant could not have met the deadline even if it responded the very day it received the report.

Though the plaintiff’s experts opined that the defendant’s negligence led to oxygen deprivation and plaintiff’s injuries and cognitive deficits, the defendant’s experts opined that plaintiff’s injuries were chronic. For example, the defendant’s experts opined that a seizure that occurred five hours after birth was a chronic issue rather than something caused by birth-related treatment.

Accordingly, the appellate court held that barring evidence of an autism diagnosis was an abuse of discretion because the evidence was probative of the causation issue, defendant’s experts could not use it to support their conclusions, and it was not available for the jury to consider in resolving conflicting expert opinions.

Aside from the causation issue, the appellate court found that the autism diagnosis was also relevant to damages issues including plaintiff’s future medical needs, school requirements, and employment prospects.

Ultimately, this case demonstrates how discovery rules should be applied on a case by case basis, as a mechanical application of the rules may not always yield the most just result. 

Where There Has Been No Genuine Opportunity to Conduct Relevant Discovery, a Motion for Summary Judgment is Premature

October 8, 2020

The Missouri Court of Appeals recently held that a trial court abused its discretion when it granted summary judgment to the defendants before the plaintiff deposed a witness whose testimony could not be secured by affidavit. The appeals court in Traweek v. Smith disagreed with a trial court’s dismissal of the plaintiff’s amended petition only two weeks after leave had been granted to add a claim for reformation, and before the plaintiff could present evidence to oppose the defendants’ motion for summary judgment. Having complied with Rule 74.04(f)’s requirement of presenting an affidavit specifying the discovery that was needed and why it was needed, the appeals court held that two weeks was not enough time for the plaintiff to conduct the discovery specified in the affidavit and reversed the trial court’s decision.

Traweek involved an automobile accident in which the plaintiff was injured while riding in a vehicle driven by someone else. The plaintiff spent two months in a coma and suffered severe head trauma, loss of memory, and loss of cognitive skills. The plaintiff entered an out-of-court policy limits settlement with the fault driver then filed suit against the driver and owner of the other vehicle involved in the accident. In exchange for a policy limits payment, the plaintiff executed a release prepared by the fault driver’s insurer.

The defendants moved for summary judgment on the basis of the release which contained language releasing the fault driver, its insurer, “and all other persons, firms or corporations liable, or who might be claimed to be liable.” The defendants argued that the plaintiff’s claims against them were barred because she had already released them from any claims arising out of the accident. In opposition, the plaintiff invoked Rule 74.04(f) and argued that summary judgment would be premature because she had just been granted leave to amend the petition to add a claim for reformation of the release. The plaintiff presented evidence that she did not intend to release the defendants and that the fault driver’s insurance adjuster had admitted to her lawyer that the insurer intended to release only the fault driver. On this basis, the plaintiff argued that there was a mutual mistake that warranted reformation of the release to reflect the parties’ true intent. However, because the adjuster was unwilling to sign an affidavit attesting to that, the plaintiff contended that she needed to take his deposition to elicit this information.

The appeals court acknowledged that a trial court generally has discretion to either permit or deny additional time to conduct discovery before ruling on a pending summary judgment motion, but ruled that granting summary judgment only two weeks after allowing the plaintiff to add a claim for reformation of the settlement agreement was an abuse of discretion because the plaintiff had met Rule 74.04(f)’s requirement.

For a trial court to consider a request under Rule 74.04(f), the party requesting time to conduct discovery must present an affidavit specifying the additional evidence sought and explain how it will support the existence of a factual dispute. In Traweek, the plaintiff’s lawyer filed an affidavit detailing his contacts with the insurance adjuster and the adjuster’s unwillingness to cooperate to correct the release. The affidavit also stated that the plaintiff intended to depose the adjuster to elicit this information and how it pertained to the plaintiff’s argument that there was a mutual mistake in the release. Also, the appeals court noted there was evidence in the record that the plaintiff did not intend to release the defendants from liability by entering a settlement with the fault driver. Taken together, the adjuster’s testimony and the evidence already in the record would create a genuine dispute of fact on the existence of mutual mistake which would justify reformation of the release. Accordingly, the appeals court found that the trial court acted hastily in entering summary judgment, and the case was remanded to the trial court to allow the plaintiff enough time to depose the adjuster.

Limiting Logo Liability for Motor Carriers

September 29, 2020

While questions remain under Missouri law as to whether and under what circumstances the presumption of “logo liability” for motor carriers applies, and is rebuttable, the Missouri Court of Appeals recently affirmed that the doctrine only applies when there is evidence that the motor carrier operates as a carrier-lessee.

The plaintiffs in Hearns v. ABF Freight System, Inc., were involved in a motor vehicle accident with a tractor trailer displaying the ABF signage. The tractor-trailer failed to stop following the accident and left the scene. The driver of the truck was never identified. 

At trial, the plaintiffs moved for a directed verdict under the logo liability doctrine. They contended that the only evidence in the case proved the accident truck displayed ABF signage. ABF contested the motion by arguing logo liability was inapplicable because it did not use leased drivers—all of its drivers are employees. ABF contended the traditional agency and vicarious liability principles applied. The Court treated plaintiffs’ motion as one for summary judgment and denied the motion. 

The issue returned during the instruction conference when plaintiffs tendered instructions based on logo liability. The Court rejected the instructions and found that there was no evidence in the case that a carrier-lessee relationship existed. The Court instructed the jury that in order to find for the plaintiffs, it must first find that the driver was acting in the course and scope of his employment with ABF. The jury returned a defense verdict. 

The Missouri Supreme Court identified the elements for logo liability under Missouri law as requiring: (1) that a sign or identifying legend was furnished by the carrier in connection with a lease; (2) that the sign was on the truck at the time of the accident; and (3) the truck was hauling regulated freight at the time of the accident. Johnson v. Pac. Intermountain Express Co., 662 S.W.2d 237, 245 (Mo. banc. 1983).

At issue in Hearns is the first element. The trial court, in rejecting plaintiffs’ proposed jury instruction on logo liability, determined that there was no evidence supporting that the unidentified driver was a leased driver. In fact, the only evidence demonstrated that all of ABF’s drivers were employees. 

The plaintiffs argued the jury should have been instructed on logo liability. The Court of Appeals noted the application of logo liability would have shifted the burden of proof. Under logo liability, it would be ABF’s burden to prove that unidentified driver was on a personal mission not connected to hauling regulated freight. However, under vicarious liability, plaintiffs bear the burden of proving the unidentified driver was acting in the course and scope of his employment with ABF. The Court of Appeals found the record was completely devoid of any evidence that ABF ever operated as carrier-lessee.

Plaintiffs asserted logo liability is not limited to carrier-lessee situation and applies in any situation when a commercial vehicle is displaying a motor carrier’s placard. The Court of Appeals rejected this argument. It noted plaintiffs’ failure to cite any Missouri case in which logo liability had been applied in cases where a lease was not at issue. It refused to extend the doctrine to cases where there was no evidence that the motor carrier operated using leased drivers. It r-iterated the first element of logo liability, as directed by the Missouri Supreme Court, required the plaintiffs to prove the placards were provided in connection with a lease. 

The Court also discounted plaintiffs’ public policy arguments that applying logo liability only in carrier-lessee situations runs counter to the reasons the doctrine was created. Plaintiffs asserted the doctrine was designed to address motor carriers attempting to avoid liability by hiring independent contractors to haul freight. The Court held:

Without question, the public policy supporting the creation of the logo-liability doctrine stemmed from a concern over a very specific issue that had arisen—and not to supplant the general rules of vicarious liability as developed under common law.

In affirming the defense verdict, the Court of Appeals confirmed that the mere presence of a motor carrier’s placard on a vehicle alone is insufficient to invoke logo liability. Plaintiffs must satisfy all of the required elements of logo-liability including that the placard was furnished in connection with a lease. Without evidence demonstrating the motor carrier utilized some leased drivers, plaintiffs cannot rely on logo liability. 

While questions remain whether the presumption created by logo liability is truly rebuttable, and if so, what evidence is sufficient to rebut the presumption, motor carriers now have excellent case law barring the application of the doctrine when the only evidence is that the motor carrier’s placard was on the accident truck. The Court of Appeals affirmed that the doctrine applies only if there is evidence that the motor carrier operated as a carrier-lessee.

Missouri Court of Appeals Upholds Limitations on Stacking of Uninsured Motorist Coverage

September 23, 2020

In Johnson v. State Farm Mutual Automobile Insurance Co., the Missouri Court of Appeals, Southern District, enforced insurance policy language to limit the extent of stacking of uninsured motorist coverage (“UM”) under multiple personal auto policies. The decision allows insurers with appropriate exclusionary language to limit “stacking” to the $25,000 limit of the Missouri Motor Vehicle Financial Responsibility Law (“MVFRL”) as to each additional vehicle insured that was not directly involved in the accident.

Plaintiff Tim Johnson appealed the trial court’s granting of summary judgment to State Farm, which limited UM stacking. The State Farm policies contained owned-vehicle exclusions with respect to the UM coverage that provided for no coverage in excess of the amount required by the MVFRL for an insured who sustains a bodily injury while “occupying a motor vehicle owned by you if it is not your car or a newly acquired car.” At issue on appeal was the definition of “your car” in the policy language and whether the owned-vehicle exclusion was applicable in this case.

Johnson owned three vehicles, all of which were insured by State Farm under separate policies that included UM coverage. Each of the policies stated a UM limit of $100,000 per person, and included the above-referenced owned-vehicle exclusion which allowed the insurer to reduce the amount of UM coverage with respect to insured vehicles that were not directly involved in the collision to the amount required under Missouri’s Financial Responsibility Law, or $25,000. Johnson was in one of his three insured vehicles when he was involved in a collision with an uninsured motorist. The insurer provided Johnson with the full limit of UM coverage pursuant to the policy on the vehicle he was driving, $100,000, and the minimum amount of UM coverage required by the MVFRLor  on the other two policies, $25,000 per policy, pursuant to the policies’ owned-vehicle exclusion.

Subsequently, Johnson sued State Farm claiming breach of contract and vexatious refusal to pay for failing to pay the maximum $100,000 UM policy limits stacked by each of  his two insured vehicles that were not involved in the accident. Johnson moved for partial summary judgment arguing that the owned-vehicle exclusion did not apply, was ambiguous, and conflicted with public policy and Missouri law. State Farm filed a motion for summary judgment arguing that the owned-vehicle exclusion did apply and that its $25,000 payment per policy was proper in accordance with the policy’s language and Missouri statutory requirements. The trial court granted State Farm’s motion for summary judgment.

On appeal, Johnson raised similar issues and the appellate court affirmed the lower court’s decision to uphold the owned-vehicle exclusion, limiting the Plaintiff’s recovery to $25,000 per policy for Johnson’s additional insured vehicles that were not involved in the collision.

In his first point on appeal, Johnson claimed that the owned-vehicle exclusion did not apply because the vehicle he was occupying was “your car” as listed on the Declarations Page in any of his three policies at the time of the collision. However, the policies’ Declarations Page listed only one vehicle under “your car” in each policy, and Johnson was only in one “your car” at the time of the crash. The Court, citing the Missouri Supreme Court’s Floyd-Tunnell v. Shelter Mutual Insurance Co. 493 S.W.3d 215 (Mo. banc 2014), upheld the unambiguous policy language as written, finding that Johnson was not in a “your car” as defined by the policy’s language for the two vehicles not involved in the accident and, therefore, the owned-vehicle exclusion applied on those two policies.

Points two and three asserted that the trial court erred in granting summary judgment in the insurer’s favor because of ambiguities in the policies that should be resolved in Johnson’s favor. The Court ruled that both of Johnson’s arguments were effectively foreclosed by Floyd-Tunnel, 493 S.W. 3d at 221, wherein the Missouri Supreme Court found similar policy language clear and unambiguous. 

In his final point on appeal, Johnson argued that the owned-vehicle exclusion reduced the amount of UM coverage available to the insured and was therefore void as against public policy and Missouri law. The court denied Johnson’s point. State Farm provided Johnson with the full amount of UM coverage for the insured vehicle he was occupying during the collision, as well as the MVFRL- required amount of coverage on the other two policies, in accordance with the plain owned-vehicle exclusion language of the policies’ UM coverage.

The Court of Appeals decision in Johnson reaffirms the Missouri judiciary’s commitment to upholding the plain meaning of insurance policy exclusions as written. Moving forward, insurers should consider checking the language of the owned-vehicle exclusions under their policies’ UM clauses and ensure that whatever language is used clearly indicates which vehicle the policy applies to and which vehicles qualify under the owned-vehicle exclusion.  

* Hannah Chanin, Law Clerk in the St. Louis office of Baker Sterchi, assisted in the research and drafting of this post. Chanin is a 3L student at the Washington University St. Louis School of Law.

Federal Court Denies Motion to Dismiss Action for COVID-19 Related Losses under an All-Risk Policy

September 14, 2020

On August 12, 2020, the United States District Court for the Western District of Missouri, Southern Division, in Studio 417, Inc., et al. v. The Cincinnati Insurance Company, denied defendant Cincinnati Insurance Company’s Motion to Dismiss Plaintiffs’ First Amended Complaint. Plaintiffs alleged losses due to COVID-19 and resulting from COVID-19 county Closure Orders in the Springfield and Kansas City metropolitan areas. Plaintiffs filed suit against Defendant after Defendant denied coverage for Plaintiffs’ COVID-19 related losses.

Plaintiff Studio 417, Inc. operates hair salons in the Springfield, Missouri metropolitan area. The remaining plaintiffs own and operate full-service restaurants in the Kansas City metropolitan area. Plaintiffs purchased “all-risk” property insurance policies from Defendant. The policies provided payment for direct loss unless the loss was excluded or limited. Under the policies, a “Covered Cause of Loss” was defined as an “accidental [direct] physical loss or accidental [direct] physical damage.” None of the policies included any exclusion for losses caused by viruses or communicable diseases.

Plaintiffs alleged that their businesses were rendered unusable by the presence of COVID-19 and the issuance of Closure Orders forcing them to either suspend or reduce their business, causing a direct physical loss or damage to their premises. Plaintiffs sought a declaratory judgment against Defendant and sued Defendant for breach of contract based on the following policy provisions: Business Income coverage; Extra Expense coverage; Dependent Property coverage; Civil Authority coverage; Extended Business Income coverage; Ingress and Egress coverage; and Sue and Labor coverage. Plaintiffs also sought class certification for 14 nationwide classes and a Missouri subclass for Defendant’s Missouri policyholders that were denied coverage due to COVID-19 losses.

Defendant filed its Motion to Dismiss primarily arguing that the policies only provide coverage for “income tied to physical damage to property[.]” Plaintiffs emphasized that the policy expressly covered for “loss” or “damage”, distinguishing the two terms for use of the disjunctive. Neither “physical loss” nor “physical damage” was defined by the policy.

The Court found, based on the record, that Plaintiffs adequately stated a claim for direct physical loss, relying on the plain and ordinary meaning of the phrase. In so finding, the Court relied on other court cases that recognized a physical loss may occur when the property has been determined to be uninhabitable or unusable. The Court did, however, acknowledge that case law exists to support Defendant’s proposition that physical damage is required to show a physical loss. However, the Court found that those cases were distinguishable from the present case in that the cases cited by Defendant were decided at the summary judgment stage and the Plaintiffs here adequately plead the existence of physical and active substances, whether on surfaces or in the air, to have plausibly met their burden. The Court denied Defendant’s Motion to Dismiss in its entirety, but the Court made clear that it was not holding that physical loss would be found whenever a business suffers any economic harm, rather under the circumstances this case.

Though Defendant’s Motion to Dismiss was denied, the Court’s ruling is not the final determination in this case on the issue of whether Plaintiffs’ COVID-19 losses will be covered by the policy. Here, the Court emphasized that to survive a Motion to Dismiss, Plaintiffs must have merely pled enough facts (which are accepted as true) to proceed to discovery. The Court found that they did. Defendant will likely take another bite at the apple and file a motion for summary judgment later in the case.

One [Insurance] Policy Does Not Fit All - JPML Limits Centralization of COVID-19 Insurance Coverage Cases...At This Time

September 2, 2020

Hundreds of businesses seeking centralization of litigation for insurance coverage for losses from the COVID-19 pandemic have to file their cases elsewhere.

On August 12, 2020, in a much-anticipated ruling, The U.S. Judicial Panel on Multidistrict Litigation rejected two petitions to centralize hundreds of cases filed by the policyholders of businesses suffering losses from the Pandemic; however, the panel did indicate that centralization may certainly be appropriate for cases against single insurer policies.

Attempts to centralize the COVID-19 cases date back to April, when two groups of policyholders asserted that the insurance coverage cases pending in numerous Federal Courts across the country were more suited as an MDL. At the time, there were fewer than twenty cases pending in Federal Courts. As of August 12, 2020, there are more than 450 with countless others anticipated in the coming year. Insurance companies were uniformly opposed to creation of any type of MDL; whereas, policyholders’ positions varied.

Policyholders sought centralization in the Northern District of Illinois in Chicago, and in the Eastern District of Pennsylvania in Philadelphia, respectively. The policyholders argued the common fact issues included: whether government closure orders trigger coverage, what satisfies business interruption policies’ standard requirement of “direct physical loss or damage” to property, and whether any exclusions apply, (i.e., “contamination” and/or “virus” related losses.)

Reasoning that the cases involved hundreds of insurers and a wide variety of different policy forms, the JPML found that the movants actually presented very few common questions of fact, and such few facts were outweighed by the efficiency challenges of centralizing the litigation across an entire insurance industry. The panel found that even smaller regional or state-based MDLs would suffer from the same common fact issues, because no two policies are necessarily identical and each claim (while similar) will necessarily have different facts.

Ultimately, the JPML ruled that an industry wide multidistrict litigation would “not promote a quick resolution” of cases where “time is of the essence.”

Pivoting, the JPML did suggest that the creation of smaller “single-insurer” MDLs could be efficient to centralize those actions. They found that cases argued against one insurer or insurance group were “more likely to involve insurance policies utilizing the same language, endorsements, and exclusions” that would make sharing common discovery and pretrial motion proceedings more efficient.

Attorneys sought centralization hoping that some procedural mechanism would be found to prevent the chaos. Ultimately, maintaining separate and distinct claims and cases will allow carriers to better address individual cases and claims handling on a much smaller, more controlled scale.

Carriers should continue to thoroughly and cautiously approach all claims, including COVID-19 interruption claims. 

* Kelly M. “Koki” Sabatés assisted in the research and drafting of this post. Sabatés earned her J.D. from the University of Missouri-Columbia this Spring and is a current candidate for admission to the Missouri Bar.

August Sees a Flurry of Illinois Biometric Act Rulings

August 26, 2020

As previously discussed here, here, and here, 2020 has proven to be a consequential year for biometric privacy litigation in Illinois. In perhaps the most active month of the year thus far, seven Illinois District Court Judges issued rulings related to the Illinois Biometric Information Privacy Act (“BIPA”) in August. The rulings address a variety of issues implicated by BIPA, including subject matter jurisdiction, waiver, the statute of limitations for filing a BIPA claim, personal jurisdiction, and the constitutionality of BIPA. 

In Frisby v. Sky Chefs, Inc., Judge Matthew Kennelly of the District Court for the Northern District of Illinois ruled that the court lacked subject matter jurisdiction over the plaintiff’s BIPA claims. In that case, the plaintiff alleged that Sky Chefs, an airline catering business and the plaintiff’s former employer, violated BIPA by collecting his fingerprints without first issuing required disclosures, failing to obtain written consent to acquire the prints, and failing to publish protocols for the retention and destruction of employee fingerprints. 

In response, Sky Chefs moved to dismiss, arguing that the court lacked subject matter jurisdiction. Specifically, Sky Chefs contended that the plaintiff’s claim was preempted by the Railway Labor Act (“RLA”). The RLA applies to “common carrier[s] by air” and requires that any dispute regarding the interpretation or application of a collective bargaining agreement must be adjudicated by an adjustment board, not a court. Relying on precedent from the Seventh Circuit Court of Appeals, Judge Kennelly explained that disputes regarding how a common air carrier acquires and uses employee fingerprint information falls within the scope of the RLA. The parties, however, disputed whether Sky Chefs constituted a common air carrier. The court ultimately determined that Sky Chefs’ business activities satisfied the definition of a common air carrier because catering for in-flight food service has consistently been treated as a function traditionally performed by air carriers. In 1988, the National Mediation Board made such a determination specific to Sky Chefs. The court concluded that the plaintiff presented no evidence suggesting that Sky Chefs had changed its business since the 1988 determination. Thus, the court held that the plaintiff’s BIPA claim was preempted by the RLA and that it lacked subject matter jurisdiction.

On August 7th, the Northern District Court addressed the statute of limitations for BIPA claims. In Cothron v. White Castle Sys., the plaintiff, a White Castle employee, alleged that her employer violated BIPA through its practice of collecting employees’ fingerprints. White Castle began collecting the plaintiff’s fingerprints in 2007. Although BIPA was passed in 2008, White Castle continued collecting the plaintiff’s fingerprints but did not provide the plaintiff with the disclosures, or obtain her consent, as required by BIPA. White Castle did not provide her with the necessary disclosures or obtain her consent until October 2018. The plaintiff filed suit against White Castle in December 2018.

White Castle argued that the plaintiff’s claim was untimely. According to White Castle, the plaintiff’s claim accrued in 2008 when BIPA was enacted, as White Castle was allegedly in violation of the Act at the time of its passage. By contrast, the plaintiff argued that at least a portion of her claim did not arise until 2018 because White Castle did not comply with BIPA until that time. The plaintiff’s theory was premised on the “continuing tort” doctrine, which holds that for a tort involving a continuous or repeated injury, the statute of limitations period does not begin to run until the date of the last injury or the date the tortious acts cease. The plaintiff claimed that the statute of limitations did not begin to run until White Castle’s final violation under BIPA (i.e., the last time White Castle collected and disseminated her biometric information without having obtained the plaintiff’s consent or giving her the notice required by the Act). 

The court rejected the plaintiff’s argument regarding the continuing tort doctrine. The court reasoned that the continuing tort doctrine applies to claims that arise from a series of acts collectively, while it does not apply to a series of discrete acts, even if those acts form an overall pattern of wrongdoing. As to BIPA, the Illinois Supreme Court has explained that the Act imposes obligations that are violated through discrete individual acts, not accumulated courses of conduct. Stated differently, Illinois courts treat a single violation of BIPA as a concrete injury giving the aggrieved party the right to file suit.

The court next analyzed when the defendant’s alleged violations occurred. According to the court, a party violates BIPA each time it collects a person’s biometric information without obtaining consent or providing the required disclosure. The court explained that this is true the first time an entity collects a person’s fingerprint and with each subsequent scan or collection. Thus, the court concluded that the plaintiff alleged multiple violations of BIPA; namely, each time White Castle collected her fingerprint information after the enactment of BIPA and before it provided the required disclosures and obtained her consent in October 2018. Importantly, however, the court reserved ruling on what constitutes the applicable statute of limitations for a BIPA claim because the defendant requested additional time to brief the issue.

Also on August 7th, Judge Robert Dow of the Northern District Court denied a motion to dismiss a BIPA suit. In Lenoir v. Little Caesar Enters., the plaintiffs filed suit against their former employer, Little Caesars, alleging that it violated BIPA through a fingerprint collection system. The defendant argued that one of the plaintiffs waived her right to file suit because six months after she began working for Little Caesars, she allegedly consented to the “past, present and future collection, use, and storage of [her] fingerprint data” by registering her fingerprint scan in a program called Caesar Vision. The court rejected Little Caesars’ argument, noting that the plaintiff’s consent made no mention of BIPA or any other right to sue, nor did it acknowledge that Little Caesars had already collected the plaintiff’s biometric information. Since BIPA requires an entity to obtain consent before collecting a person’s biometric data, the court did not believe it was appropriate to dismiss the case based on the plaintiff’s generalized consent to Little Caesars’ past collection of her biometric information. Finally, consistent with prior opinions, the court rejected Little Caesars’ argument that the plaintiffs’ BIPA claims were barred by the exclusive remedy provision of the Illinois Workers’ Compensation Act because an injury under BIPA is not considered a “compensable injury” under the Workers’ Compensation Act.

On August 12th, the Northern District Court examined whether it could exercise personal jurisdiction over a defendant in a BIPA suit. In Mutnick v. Clearview AI, the plaintiffs filed suit against Clearview and the two founders of Clearview. The defendants argued that they were not subject to personal jurisdiction because they never targeted businesses in Illinois or travelled to Illinois. In determining that the defendants were subject to personal jurisdiction, the court first noted that whether or not the defendants had ever travelled to Illinois was largely irrelevant, as it “is an inescapable fact of modern commercial life that a substantial amount of business is transacted solely by mail and wire communications across state lines.” 

The court also found unavailing Clearview’s argument that it did not exclusively target Illinois because it collected the biometric information of millions of other Americans from different states. According to the court, it was not necessary that Clearview exclusively target Illinois residents. Instead, the defendants must have maintained contacts with Illinois that gave rise or directly related to the cause of action. The court determined that the defendants maintained such contacts by entering into hundreds of agreements with Illinois entities allowing defendants to collect the biometric information of Illinois citizens, marketing its biometric collection technology to the Illinois Secretary of State, and selling licenses for the use of the biometric information to entities located in Illinois.  

Finally, on August 19th, the District Court for the Southern District of Illinois addressed the constitutionality of BIPA. Specifically, in Stauffer v. Innovative Heights Fairview Heights, LLC, one of the defendants argued that BIPA is unconstitutional because it amounts to “special legislation” in that it imposes strict compliance requirements on some employers, but then “arbitrarily” exempts the financial industry and state and local government contractors. The Illinois Constitution prohibits a “special or local law” when a general law is or can be made applicable. This provision prohibits the Illinois General Assembly from conferring a special benefit or privilege upon one person or group and excluding others that are similarly situated. 

Regarding BIPA’s exemption for financial institutions, the court explained that the exemption applies only to those institutions subject to Title V of the Gram-Leach Bliley Act of 1999. Thus, the exemption does not apply to all financial institutions. Moreover, the financial institutions that are exempt from BIPA are subject to similarly stringent reporting requirements under federal law. The court also noted failing to exempt those institutions might have resulted in federal preemption of BIPA. Accordingly, the court did not find the financial institution distinction to be “artificially narrow” such that it amounted to unconstitutional special legislation. 

As to the defendant’s argument that the BIPA exemption for government employers, the court accepted the plaintiff’s argument that BIPA was enacted to regulate the private sector, not government entities. Additionally, the court found it important that in the nearly 12 years since BIPA’s enactment, no court has found the Act unconstitutional. For those reasons, the court determined that the plaintiff alleged sufficient facts to conclude that BIPA is not special legislation and, therefore, not unconstitutional.

With the increase in BIPA lawsuit filings since early 2019, we should expect courts to continue providing guidance on the scope of BIPA, the merits of both plaintiff and defense theories in these cases, and when dismissal or summary judgment are appropriate in these cases. As always, we at Baker Sterchi will continue monitoring for developments related to BIPA and how those developments might impact our clients.

Missouri Upholds Principle That Plaintiffs Need Not Sue All Tortfeasors in a Single Action

August 18, 2020

In the recent decision of State Ex rel. Woodco, Inc. v. Phillips, the Missouri Supreme Court upheld the long-standing principle that joinder of all tortfeasors in a single suit is not required under Missouri’s compulsory joinder rule. On a writ of prohibition, the Supreme Court considered the application of Missouri’s compulsory joinder rule, Mo. R. Civ. P. 52.04, in a construction defect case arising from the construction of a senior living facility. In the underlying case, the general contractor sued all but one of the subcontractors for breach of contract and negligence. The circuit court allowed the other subcontractors to add the subcontractor that had not been sued by the plaintiff. But the Supreme Court ruled that Rule 52.04 did not require the addition of unnamed subcontractor, and prohibited the circuit court from allowing the defendants to join as a defendant the subcontractor that had not been sued by the plaintiff.

The lawsuit came about as a result of a settlement reached between the project’s general contractor and owner after discovering defects in the construction of the project. Pursuant to the settlement agreement, the project owner assigned its claims against the subcontractors to the general contractor. Subsequently, the general contractor filed suit against the project’s architect, structural engineer, construction company, supplier, and framer, asserting breach of contract and tort claims, but did not include the masonry company. The architect, structural engineer, and construction company moved to join the masonry company as a defendant, arguing that its joinder was required under Rule 52.04, which the trial court allowed.

The general contractor sought a writ of prohibition to direct the trial court to remove the masonry company from the action, which the Court of Appeals denied. The case proceeded to the Supreme Court, where the general contractor argued that Rule 52.04 did not require that the masonry company be added as a party defendant to the lawsuit. This time, the general contractor’s writ was granted, and the Supreme Court directed the trial court to remove the masonry company as a defendant.

Missouri’s compulsory joinder rule, found in Rule 52.04, requires joinder of a party in either of two situations: when complete relief for parties to the action cannot otherwise be obtained, or when either the absent party’s interest would be prejudiced or when the parties before the court would be subject to inconsistent obligations due to the absent party’s claimed interest. The subcontractor defendants argued that the masonry company’s joinder was required under Rule 52.04 because complete relief for the other parties was not possible in its absence, and there would be a risk of inconsistent obligations to the existing parties without the masonry company. The Supreme Court disagreed.

The Supreme Court found that joinder of the masonry company was not required under either scenario set forth in Rule 52.04. First, the masonry company was not a party to any of the contracts upon which the general contractor was suing the other defendants. Thus, although the contractual disputes at issue might concern work performed by the masonry company, the masonry company would not be affected by the outcome and the breach of contract claims could be fully resolved among the existing defendants. 

* Hannah Chanin, Summer Law Clerk in the St. Louis office of Baker Sterchi, assisted in the research and drafting of this post. Chanin is a rising 3L student at the Washington University St. Louis School of Law.

Court Reaffirms Reach of Vexatious Refusal to Pay Statute

August 10, 2020

On June 26, 2011, Farzad Qureshi was rear-ended by a hit and run driver while traveling westbound on Interstate 270 in Ferguson, Missouri. Mr. Qureshi filed a claim with his insurance company, American Family, the following day reporting back, neck and head injuries. He provided American Family the license plate number of the other driver, but they could not locate the driver or the owner. Thereafter, without advising him about his Uninsured Motorists (“UM”) benefits, American Family told Mr. Qureshi it would be closing his file.

Nevertheless, Mr. Qureshi repeatedly updated American Family regarding his treatment, instead of accepting the claim denial. And, after treating for years and receiving a surgery recommendation estimated at approximately $200,000, he made a UM policy limits demand through his attorney for $75,000. Ultimately, after being provided all his medical and employment records, American Family made a $20,000 counteroffer, which Mr. Qureshi rejected as insufficient. Thereafter, he filed suit against American Family for (1) breaching the UM provision of his insurance policy and (2) vexatious refusal to pay pursuant to §375.420, RSMo., asserting that American Family, without reasonable cause or excuse, refused to pay him the available UM limits.

After a three-day jury trial, the court entered judgment on the jury’s verdict in favor of Mr. Qureshi for $75,000 on his UM claim, $18,000 in penalties on his §375.420 vexatious refusal to pay the claim, in addition to awarding $96,828 in attorney’s fees. American Family appealed.

On appeal in the Missouri Court of Appeals, Eastern District, American Family claimed there was insufficient evidence to support the jury’s finding of vexatious refusal to pay under § 375.420. American Family made evidentiary challenges stating that: (1) the trial court erred in admitting its corporate representative’s testimony (2) the trial court erred in admitting evidence of its coverage limits of the policies and the settlement offers and demands exchanged between Mr. Qureshi and American Family while the suit was pending, and (3) the trial court erred in permitting Mr. Qureshi’s expert witness to opine that American Family vexatiously handled Qureshi’s UM claim.

The Court of Appeals affirmed the trial court judgment in Mr. Qureshi’s favor finding that when Mr. Qureshi made reasonable demands during settlement negotiations, his demands went unanswered by American Family, and ultimately resulted in a low-ball settlement offer. Unfortunately for American Family, its refusal to pay or offer a reasonable amount during settlement negotiations was presented to the jury and admitted into evidence.

The appellate court reiterated the breadth of §375.420 noting that the evidence that American Family sought to omit from trial was admissible to prove vexatious refusal to pay under §375.420. In other words, §375.420 allows a jury to consider all evidence, testimony, circumstances and facts that an insurer had up until trial for purposes of determining whether an insurer accepted reasonably in denying or failing to pay a claim. Under §375.420’s standards, the jury need only find (a) that Mr. Qureshi had an insurance policy with American Family, (b) that American Family refused to pay his losses, and (c) that American Family’s refusal was without reasonable cause or excuse.

In three other ancillary issues, the court held that the excerpts of deposition testimony of two claims adjusters of American Family who were assigned to Mr. Qureshi’s claim were properly admitted into evidence to show vexatious refusal to pay citing Missouri law, which allows depositions to be used “for any purpose.” Moreover, the court decided that American Family’s low settlement offer, and Mr. Qureshi’s settlement demands, were properly admitted into evidence to show vexatious refusal to pay, a clear exception to the general rule that evidence of settlement negotiations are not admissible at trial.

Finally, the court confirmed that both the policy limits of UM coverage in his American Family policy and Mr. Qureshi’s expert’s testimony regarding American Family’s actions were properly admitted into evidence to show vexatious refusal to pay.

Qureshi stands as a cautionary tale to insurers that their investigations into and evaluations of claims must be fair, thorough and reasonable. Otherwise, §375.420 not only allows for damages and penalties but also attorney’s fees, which will almost assuredly be approved where the insured is successful.

* Kameron Fleming, Summer Law Clerk in the St. Louis office of Baker Sterchi, assisted in the research and drafting of this post. Fleming is a rising 3L student at the Washington University St. Louis School of Law.

Supreme Court Bostock Ruling Confirms Scope of Title VII Includes Protections for Homosexuals, Invalidating Prior Eighth Circuit Precedent

August 4, 2020

In Horton v. Midwest Geriatric Mgmt., LLC, Mark Horton filed a Title VII sex discrimination case against Midwest Geriatric Management, LLC (“MGM”) following withdrawal of an employment offer, after Midwest Geriatric Management became aware that Horton was gay and had a partner.

Horton was the Vice President of Sales & Marketing for Celtic Healthcare. He was recruited by a job search firm for the position of Vice President of Sales and Marketing for a company named Midwest Geriatric Management. After applying for the job, he received an offer of employment pending a background check and further confirmation of his educational history. Horton signed the job offer to work for Midwest Geriatric and resigned from his position at Celtic.

Because one of his former colleges no longer existed (it had been sold to another university), the company retained to complete Horton’s background check informed him that the background check would take four to six weeks to complete. Horton communicated this delay to all the parties involved including Midwest Geriatric CEO Judah Bienstock and his wife Faye, who was involved in the hiring process.  None voiced any concern. In a subsequent email to Bienstock about the status of obtaining his educational records, Mark stated, “My partner has been on me about [my MBA] since he completed his PHD a while back.” A few days later, Mark received an email stating, “Mark—I regret to inform you that due to the incompletion of the background check of supportive documentation—we have to withdraw our offer letter for employment at MGM. We wish you much luck in your future endeavors. Judah and Faye.” Even after Mark obtained his college records and contacted MGM while the position was still vacant, Faye said, “At this time—we are considering other candidates.”  

Horton filed a Charge of Discrimination with the Equal Employment Opportunity Commission, alleging sex discrimination and religious discrimination under Title VII. After receiving his right-to-sue notice from the EEOC, Horton sued in the U.S. District Court for the Eastern District of Missouri.

Horton’s lawsuit alleged Midwest Geriatric unlawfully discriminated against him on the basis of sex when his offer of employment was withdrawn after learning he was homosexual. Specifically, Horton argued: 1) they treated him less favorably because of his sexual orientation, or based on his sex; 2) they treated him less favorably because of his association with a person of a particular sex, i.e. the same sex; and 3) they treated him less favorably on the basis of his nonconformity with sex stereotypes and MGM’s preconceived definition of how males should behave.

In granting Defendant’s motion to dismiss, the District Court relied on the Eighth Circuit’s 1989 holding in Williamson v. A.G. Edwards & Sons that had concluded “Title VII does not prohibit discrimination against homosexuals.” Williamson v. A.G. Edwards & Sons, Inc. 876 F.2d 69, 70 (8th Cir. 1989). The District Court further held that sexual orientation is not an explicitly protected characteristic under Title VII. The Court acknowledged numerous federal courts had recently held otherwise, but noted the Eighth Circuit had not changed its position on the issue, so they were bound by Williamson

Additionally, because Horton’s claim of sexual stereotyping was admittedly based solely on his sexual orientation, the District Court concluded sexual stereotyping alone could not be the alleged gender non-conforming behavior giving rise to a Title VII claim in Horton’s case, because “[t]o hold otherwise would be contrary to well-settled law that Title VII does not prohibit discrimination on the basis of sexual orientation.”

Horton appealed to the Eighth Circuit, but the appeal was stayed pending the United States Supreme Court’s consideration of the “scope of Title VII’s protections for homosexual and transgender persons,” in Bostock v. Clayton County, and other related cases. In its Bostock ruling, the Supreme Court declared plainly that it “defies” Title VII for “an employer to discriminate against employees for being homosexual or transgender,” because to do so, it “must intentionally discriminate against individual men and women in part because of sex.” The Eighth Circuit therefore reversed, based on the Bostock decision, reasoning that because the Supreme Court has held sexual orientation to be a class protected under Title VII, the Williamson case relied upon by the Eastern District in dismissing Horton’s claim, was no longer good law. The case was remanded to the district court for further proceedings in light of the Bostock holding.
 

* Kameron Fleming, Summer Law Clerk in the St. Louis office of Baker Sterchi, assisted in the research and drafting of this post. Fleming is a rising 3L student at the Washington University St. Louis School of Law.

Missouri Senate Bill 591 - Punitive Damages (A Health Care Perspective)

July 30, 2020

Introduction

On July 1, 2020, Governor Mike Parson signed Senate Bill 591 (SB 591). The new law states it will apply to all suits filed on or after August 28, 2020. SB 591 makes significant changes to the framework for punitive damages in tort actions filed in Missouri state courts or filed in other courts but based on Missouri state law tort claims. The discussion that follows is limited solely to medical negligence cases. Though not dealt with here, SB 591 also includes significant changes to actions under Missouri's consumer protection statute, the Merchandising Practices Act (“MMPA,” § 407.025, et seq., RSMo. (2020)).

Clarifying the Proper Standard

SB 591 is intended to bring much-needed clarity to punitive damages in medical negligence cases. This is not the first time the Legislature has addressed the issue, however. Since 1986, Chapter 538 of the Missouri Revised Statutes has included a definition for punitive damages as those “intended to punish or deter willful, wanton or malicious misconduct.” § 538.205(11) (1986). Consistent with this definition, the Legislature intended that punitive damages may be awarded against a health care provider only “upon a showing by a plaintiff that the health care provider demonstrated willful, wanton or malicious misconduct . . . .  § 538.210.8 (1986).

Unfortunately, this statutory definition has proved problematic in its application. For example, in one medical negligence case involving a substantial punitive damages award, the trial court approved (over the defendants’ objection) a jury instruction submitted by the plaintiffs that used the standard “complete indifference or conscious disregard” instead of the “willful, wanton or malicious” standard mandated by § 538.210.8. See, Koon v. Walden, 539 S.W.3d 752, 773 (Mo. App. E.D. 2017). That meant the jury was not instructed using the statutory language, and the jury did not specifically find that the defendants engaged in “willful, wanton or malicious misconduct.” The Missouri Court of Appeals, Eastern District, affirmed, concluding that for purposes of punitive damages, acting with “complete indifference or conscious disregard for the safety of others” is the legal equivalent of engaging in “willful, wanton or malicious misconduct.” Id. at 774-75. In a concurring opinion, one appellate judge stated: “I agree that the common understanding of the words ‘willful, wanton or malicious’ mean something different than ‘complete indifference to or conscious disregard for the safety of others’,” and that the instructional issue merited further review by the Supreme Court. Id. at 775-76. Despite this invitation, the Supreme Court of Missouri denied the appellants’ application for transfer.

SB 591 takes this issue head on and requires that a jury find “the evidence clearly and convincingly demonstrated that the health care provider intentionally caused damage to the plaintiff or demonstrated malicious misconduct that caused damage to the plaintiff.” § 538.210.8, RSMo. (2020). Further, and apparently in response to the Koon decision, SB 591 explicitly states that: “Evidence of negligence including, but not limited to, indifference to or conscious disregard for the safety of others shall not constitute intentional conduct or malicious misconduct.” Id. This change reflects a return to the original common-law standard of intentional misconduct and is an effort to clarify for the courts the proper standard and prohibit the use of lesser standards.

As mentioned above, as part of this new, heightened standard, SB 591 includes the “clear and convincing” burden of proof for punitive damages. This concept is not new, however, as the Supreme Court of Missouri adopted this evidentiary standard for all tort cases in Rodriguez v. Suzuki Motor Corp., 936 S.W.2d 104, 106 (Mo. 1996). Now, SB 591 codifies this standard into the statutory framework. Unchanged is § 510.265, RSMo. (2005), which limits punitive damages in most civil cases to $500,000, or five times the net amount of the judgment awarded to the plaintiff, whichever is greater. The Lewellen v. Franklin, 441 S.W.3d 136 (Mo. 2014) decision, in which the Supreme Court of Missouri reasoned that applying the punitive damages cap to a common law cause of action violated the constitutional right to a trial by jury, does not prohibit the Legislature from capping damages for a statutory cause of action such as medical negligence. See § 538.210, RSMo. (2015) (creating statutory cause of action for all medical negligence actions and replacing common law claims).

Significant Procedural Hurdles

Though not solely applicable to medical negligence actions, SB 591 also includes a series of procedural hurdles that a plaintiff must overcome before a court may allow a plaintiff to plead a claim for punitive damages and submit such a claim to a jury. These changes are included in Chapter 510. Under the new law, a plaintiff may not plead a claim for punitive damages until after a court has determined, based on available evidence, that a jury could reasonably conclude that the burden of proof and standard of liability have been met. § 510.261.5, RSMo. (2020). This will be important, as it has become increasingly common for Missouri plaintiff attorneys to include in a medical negligence petition a prayer for punitive damages along with compensatory damages as a matter of course, regardless of the nature of the facts of the specific case. This should no longer be tolerated unless the court grants a motion for leave filed no later than 120 days before the final pretrial conference or trial. No pleading or discovery shall be permitted on punitive damages unless a plaintiff first clears this procedural hurdle.

Vicarious Liability Issues

SB 591 also includes a “Complicity Rule” that limits vicarious liability for punitive damages against an employer/principal for employee/agent conduct. The new law permits such an award against an employer for the conduct of an employee only if the employee was a managerial employee acting in the course and scope of his employment; the employer authorized or later ratified the employee’s conduct; or the employee was “unfit” for the job making it “reckless” for the employer to hire or retain the employee. § 510.261.3, RSMo. (2020). It remains to be seen how courts will apply this rule to health care providers, but § 538.210.4, RSMo. (2020) is unchanged and continues to prohibit health care provider vicarious liability for the conduct of a non-employee agent.

Conclusion

SB 591 represents a return to the original common law concept of intentional misconduct being a prerequisite for an award of punitive damages. It is a robust effort designed to bring into focus the blurred line between mere negligent conduct and conduct that justifies an award of punitive damages, along with a procedural framework to weed out frivolous claims and ensure plaintiffs are held to the appropriate standard and burden of proof. The provisions outlined above appear to offer significant protections for health care provider defendants, while also allowing for the possibility of a punitive damages claim, but only in the rare circumstance where the evidence would support it.   

*Baker Sterchi Member Lisa A. Larkin assisted in the research for this post. 

Let's Be Specific About Personal Jurisdiction: Missouri and Illinois Address Bristol-Myers Squibb v. Superior Court of California

July 27, 2020

The Supreme Courts of Missouri and Illinois have recently addressed the constitutional limitations on the exercise of specific personal jurisdiction. In both states, the Courts held that due process prohibits the exercise of specific personal jurisdiction over out-of-state defendants in cases where the defendant does not have sufficient minimum contacts with the forum state and in cases where the alleged injury does not arise from those contacts.

In State ex rel. LG Chem, Ltd. v. The Hon. Nancy Watkins Laughlin, 2020 Mo. LEXIS 193 (Mo. banc June 2, 2020), Plaintiff Peter Bishop brought suit against Defendant LG Chem, a Korean company, in St. Louis County Circuit Court. Bishop alleged he was injured when a lithium-ion battery manufactured by LG Chem exploded in his pocket. Bishop also alleged LG Chem sold the battery to an intermediate distributor, which independently sold the battery to a retailer of electronic cigarettes in Missouri from whom Bishop purchased the battery.

LG Chem moved for dismissal based on lack of personal jurisdiction. In opposing LG Chem’s motion, Bishop relied on Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017). In Bristol-Myers, the United States Supreme Court held that a state court could not exercise specific personal jurisdiction over an out-of-state defendant unless there was “an affiliation between the forum and the underlying controversy, principally…an occurrence that takes place in the forum state.” Id. at 1781. Bishop argued there was a sufficient “affiliation” between Missouri and the underlying controversy to justify the exercise of specific personal jurisdiction over LG Chem because the battery had made its way to Missouri through the third-party distributor and caused injury in Missouri. LG Chem’s motion to dismiss was denied. Ultimately, the Missouri Supreme Court found Bishop’s application of Bristol-Myers to be overbroad and held the actions of a third party, standing alone, cannot be used to satisfy the due process requirement of the specific personal jurisdiction analysis. Since the subject battery had been sold to the Missouri retailer by an independent third party, the Court directed the circuit court to vacate its order overruling LG Chem’s motion to dismiss for lack of personal jurisdiction.

Two days later, the Supreme Court of Illinois also issued an opinion addressing the exercise of personal jurisdiction over an out-of-state defendant, but unlike the Missouri case, the case involved claims brought by out-of-state plaintiffs. In Rios v. Bayer Corp., 2020 IL 125020 (June 4, 2020), the Court held that due process did not allow Illinois courts to exercise specific personal jurisdiction over an out-of-state defendant as to the claims of out-of-state plaintiffs for personal injuries suffered outside of the state from a device manufactured outside of the state. At issue were two cases, both filed in Madison County, Illinois, in which 180 women from more than twenty states alleged injuries related to the use of a permanent birth control device called Essure. The out-of-state plaintiffs had not had the Essure device prescribed or implanted in Illinois and had not sought treatment for their alleged injuries in Illinois. Bayer moved for dismissal of the out-of-state plaintiffs’ claims based on lack of personal jurisdiction. In response to Bayer’s motion, the out-of-state plaintiffs argued the trial court could exercise specific personal jurisdiction over Bayer for their claims because Bayer had developed, labeled, marketed and worked on gaining regulatory approval for Essure in Illinois, and the plaintiffs’ claims arose, in part, from those “minimum contacts” between Bayer and the State of Illinois. 

While Bayer’s motion was pending in the trial court, the United States Supreme Court issued its opinion in Bristol-Myers. Despite the new guidance provided in Bristol-Myers, the trial court denied Bayer’s motion, relying on M.M. v. GlaxoSmithKline LLC, 2016 IL App (1st) 151909, wherein the Illinois Court of Appeals had found the exercise of personal jurisdiction over an out-of-state defendant did not violate the due process clause in product liability cases brought by out-of-state plaintiffs where clinical trials had been conducted in Illinois. Bayer appealed. The appellate court held the exercise of personal jurisdiction over Bayer by the trial court was constitutional because the out-of-state plaintiffs’ claims arose, at least in part, from Bayer’s marketing, clinical trials and physician accreditation programs related to Essure in Illinois.

Ultimately, the Illinois Supreme Court reversed the appellate and trial courts. The Court determined Bristol-Myers had foreclosed the plaintiffs’ theory of specific personal jurisdiction and concluded that the out-of-state plaintiffs’ claims did not arise out of Bayer’s activities in Illinois; therefore, due process did not allow the trial court’s exercise of specific personal jurisdiction over Bayer as to the out-of-state plaintiffs’ claims.  

These cases represent the first application of the limitations on specific personal jurisdiction expressed in Bristol-Myers by each state’s Supreme Court. The conclusion reached by both Courts emphasizes the importance of conducting a comprehensive evaluation of a defendant’s contacts with the forum state immediately upon service of the summons in every instance.

Let's Be Specific About Personal Jurisdiction: Missouri and Illinois Address Bristol-Myers Squibb v. Superior Court of California

July 27, 2020

The Supreme Courts of Missouri and Illinois have recently addressed the constitutional limitations on the exercise of specific personal jurisdiction. In both states, the Courts held that due process prohibits the exercise of specific personal jurisdiction over out-of-state defendants in cases where the defendant does not have sufficient minimum contacts with the forum state and in cases where the alleged injury does not arise from those contacts.

In State ex rel. LG Chem, Ltd. v. The Hon. Nancy Watkins Laughlin, 2020 Mo. LEXIS 193 (Mo. banc June 2, 2020), Plaintiff Peter Bishop brought suit against Defendant LG Chem, a Korean company, in St. Louis County Circuit Court. Bishop alleged he was injured when a lithium-ion battery manufactured by LG Chem exploded in his pocket. Bishop also alleged LG Chem sold the battery to an intermediate distributor, which independently sold the battery to a retailer of electronic cigarettes in Missouri from whom Bishop purchased the battery.

LG Chem moved for dismissal based on lack of personal jurisdiction. In opposing LG Chem’s motion, Bishop relied on Bristol-Myers Squibb Co. v. Superior Court of California, 137 S. Ct. 1773 (2017). In Bristol-Myers, the United States Supreme Court held that a state court could not exercise specific personal jurisdiction over an out-of-state defendant unless there was “an affiliation between the forum and the underlying controversy, principally…an occurrence that takes place in the forum state.” Id. at 1781. Bishop argued there was a sufficient “affiliation” between Missouri and the underlying controversy to justify the exercise of specific personal jurisdiction over LG Chem because the battery had made its way to Missouri through the third-party distributor and caused injury in Missouri. LG Chem’s motion to dismiss was denied. Ultimately, the Missouri Supreme Court found Bishop’s application of Bristol-Myers to be overbroad and held the actions of a third party, standing alone, cannot be used to satisfy the due process requirement of the specific personal jurisdiction analysis. Since the subject battery had been sold to the Missouri retailer by an independent third party, the Court directed the circuit court to vacate its order overruling LG Chem’s motion to dismiss for lack of personal jurisdiction.

Two days later, the Supreme Court of Illinois also issued an opinion addressing the exercise of personal jurisdiction over an out-of-state defendant, but unlike the Missouri case, the case involved claims brought by out-of-state plaintiffs. In Rios v. Bayer Corp., 2020 IL 125020 (June 4, 2020), the Court held that due process did not allow Illinois courts to exercise specific personal jurisdiction over an out-of-state defendant as to the claims of out-of-state plaintiffs for personal injuries suffered outside of the state from a device manufactured outside of the state. At issue were two cases, both filed in Madison County, Illinois, in which 180 women from more than twenty states alleged injuries related to the use of a permanent birth control device called Essure. The out-of-state plaintiffs had not had the Essure device prescribed or implanted in Illinois and had not sought treatment for their alleged injuries in Illinois. Bayer moved for dismissal of the out-of-state plaintiffs’ claims based on lack of personal jurisdiction. In response to Bayer’s motion, the out-of-state plaintiffs argued the trial court could exercise specific personal jurisdiction over Bayer for their claims because Bayer had developed, labeled, marketed and worked on gaining regulatory approval for Essure in Illinois, and the plaintiffs’ claims arose, in part, from those “minimum contacts” between Bayer and the State of Illinois. 

While Bayer’s motion was pending in the trial court, the United States Supreme Court issued its opinion in Bristol-Myers. Despite the new guidance provided in Bristol-Myers, the trial court denied Bayer’s motion, relying on M.M. v. GlaxoSmithKline LLC, 2016 IL App (1st) 151909, wherein the Illinois Court of Appeals had found the exercise of personal jurisdiction over an out-of-state defendant did not violate the due process clause in product liability cases brought by out-of-state plaintiffs where clinical trials had been conducted in Illinois. Bayer appealed. The appellate court held the exercise of personal jurisdiction over Bayer by the trial court was constitutional because the out-of-state plaintiffs’ claims arose, at least in part, from Bayer’s marketing, clinical trials and physician accreditation programs related to Essure in Illinois.

Ultimately, the Illinois Supreme Court reversed the appellate and trial courts. The Court determined Bristol-Myers had foreclosed the plaintiffs’ theory of specific personal jurisdiction and concluded that the out-of-state plaintiffs’ claims did not arise out of Bayer’s activities in Illinois; therefore, due process did not allow the trial court’s exercise of specific personal jurisdiction over Bayer as to the out-of-state plaintiffs’ claims.  

These cases represent the first application of the limitations on specific personal jurisdiction expressed in Bristol-Myers by each state’s Supreme Court. The conclusion reached by both Courts emphasizes the importance of conducting a comprehensive evaluation of a defendant’s contacts with the forum state immediately upon service of the summons in every instance.

Can You Compel Arbitration? You May Have the Right to Ask Your Arbitrator

July 9, 2020

Do you have a valid and enforceable arbitration agreement? Is your arbitration provision unconscionable? Have you waived your right to arbitration? Missouri litigants may have the right to submit these threshold legal questions to an arbitrator.

In TD Auto Finance, LLC v. Bedrosian, the Missouri Court of Appeals, Eastern District, reversed the circuit court’s denial of a motion to compel arbitration, finding that the threshold issues of arbitrability were delegated to an arbitrator under the parties’ agreement and the circuit court erred in finding a lack of consideration for the arbitration agreement.

Bedrosian purchased a vehicle from a Missouri dealership. In seeking to finance her purchase, Bedrosian executed a Credit Application through TD Auto Finance, LLC (“TD Auto”). Bedrosian ultimately defaulted on her loan payments. TD Auto repossessed and sold the vehicle and then sued Bedrosian to the collect the deficiency. Bedrosian answered and filed a counterclaim. TD Auto moved to compel arbitration.

The credit application contained a section titled: “IMPORTANT CONTRACT OF ARBITRATION.” (Capitalized text in original) The arbitration provisions that provided “If any of us chooses, any dispute between or among us will be decided by arbitration and not in court” and “Any claim or dispute, whether in contract … (including any dispute over the interpretation, scope, or validity of this Important Contract of Arbitration or the arbitrability of any issue)… shall, at the election of any of us… be resolved by neutral, binding arbitration and not by a court action.”

Bedrosian opposed arbitration claiming: (1) the purported arbitration agreement was never formed or concluded because it lacked mutual promises and thus lacked consideration; (2) even if the arbitration agreement had been formed, the agreement was unconscionable; and (3) event if the agreement was valid and enforceable TD Auto had waived its right to arbitration by repossessing the vehicle and initiating a lawsuit against her. The trial court agreed with all three points raised by Bedrosian and denied the motion to compel arbitration.

On appeal, TD Auto contended: (1) the claims addressed by the circuit court were reserved for an arbitrator to decide, including the threshold issues of arbitrability; and (2) the court erred in finding a lack of consideration because the arbitration provision was part of the credit application which did have mutual obligations.

The Court of Appeals found that the circuit court erred in evaluating separate consideration for the arbitration provision because under Eaton v. CMH Homes, Inc., mutuality of the whole agreement satisfies the consideration for an arbitration provision. 

The Court of Appeals also found that like arbitration in general, the question of who decides threshold arbitrability questions is a matter of contract and that the parties can agree by contract that an arbitrator will resolve threshold arbitrability questions as well as the underlying disputes. 

The Court of Appeals thus concluded that threshold questions of arbitrability, concerning unconscionability and waiver by litigation were “reserved for the arbitrator. The circuit court should not have ruled on these matters.”

U.S. Supreme Court Rules CFPB Structure Unconstitutional

July 2, 2020

The long-awaited Opinion from the United States Supreme Court has been rendered: The structure of the Consumer Financial Protection Bureau (the “CFPB”), and specifically its appointment of a single director, removable only for cause, is unconstitutional. The Court rendered its 5-4 Opinion, authored by Chief Justice Roberts, earlier this week. The Supreme Court held that the CFPB’s current structure violates the Separation of Powers clause of the U.S. Constitution. The Supreme Court reasoned that the CFPB “lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential Control.” The Opinion went on to provide for the longstanding history of the U.S. President’s powers to remove executive officials, with very limited exception.

Defenders of the CFPB’s statutory structure cited to other agencies that have operated under a similar structure, including the Social Security Administration and the Federal Housing Finance Agency. But, the Court held, the former is distinguishable because it does not have the authority to conduct enforcement actions. And the latter is subject to ongoing criticism and constitutional challenges. The Court noted that the Fifth Circuit recently held the FHFA to be unconstitutional in Collins v. Mnuchin, 938 F. 3d 553, 587-588 (2019).

While the High Court was split over first issue, a more overwhelming 7-2 majority ruled on the second issue at hand that unconstitutional “removal” clause of the statutes creating the CFPB are severable from the other statutory provisions. Therefore, the Court held, the CFPB can continue to operate under the existing statutes.

Justice Kagan authored a dissent to the majority opinion, arguing that the President had ample power under the existing structure to remove the CFPB Director when appropriate. She cautioned about why the CFPB was created in the first place and that by undermining its independence, the majority Opinion would send “Congress back to the drawing board.”

Going forward, we now know that the CFPB is not going anywhere, but current and future Presidents will exercise more control over who will be in charge of the Bureau. What is not clear from the Opinion is the impact that it will have on enforcement actions ratified by “unconstitutionally insulated” directors. Because Mick Mulvaney was an acting director terminable-at-will, actions ratified by him are likely protected under the Opinion. But any actions ratified by the first-appointed director, Richard Cordray, or current director Kathleen Kraninger, may face legal challenges going forward.

Telehealth and Cybersecurity Amid the Pandemic

June 30, 2020
“The New Normal.” “Social distancing.” “Stay home.” “Unprecedented.”
 
You’ve probably heard the above phrases more than once, twice, or fifty times over the past couple of months during the COVID-19 pandemic.  Almost all aspects of life are changing and/or have changed, including the way in which we are seeking medical care.

Indeed, telehealth is rapidly becoming a new normal” for routine healthcare visits, a market predicted to reach more than $130 billion worldwide by 2025 and $10 billion by the end of 2020. What is telehealth? According to the U.S. Department of Health and Human Services, Office for Civil Rights, it is “the use of electronic information and telecommunications technologies to support and promote long-distance clinical healthcare, patient and professional health-related education, and public health and health administration.” 

Examples of telehealth and its technologies include: mobile and/or wireless health platforms, real-time interactive services, such as teleconsultation and telenursing, and remote patient monitoring (such as for diabetes, weight gain/loss, and dementia), which are available via the internet, video, steaming media, webcam, live chat and/or video conference.

While innovative, convenient, and helpful to our society, especially in these challenging times, such telehealth programs have also raised concerns about cybersecurity risks to healthcare organizations and the public as healthcare organizations continue to speed toward implementing these programs. Examples of such cybersecurity risks include hacking and data breaches, phishing attacks, ransomware threats, loss or theft of equipment, data loss, and medical device attacks. These threats are especially concerning considering HIPAA privacy requirements. However, during the COVID-19 pandemic, organizations implementing telehealth programs will not likely be penalized by the HHS, Office of Civil Rights for HIPAA violations should the programs fail to comply with the required regulations, as long as they are using non-public facing remote communications in good faith. This leniency is not likely to last forever though.

What makes these threats possible? The fact that these telehealth systems heavily rely on the Internet. Further vulnerabilities of such systems include weak passwords, insecure network services, lack of secure updates, lack of privacy protection, outdated antivirus software, lack of secure data transfer and storage, and lack of device management.

However, to provide some protection, the following non-public facing remote communications are currently permitted: Apple FaceTime, Facebook Messenger video chat, Google Hangouts video, Whatsapp video chat, Zoom and Skype. These types of communications use end-to-end encryption, allowing only the person or persons communicating on each end to see what is transmitted, require personal accounts, logins, and passwords, and provide the users some control over how the communication occurs (i.e. video, sound, etc.). Not included in this list are Facebook Live, Twitch, TikTok, and similar video communication applications, as they are public facing. Such public facing forms of remote communication are not secure for such telehealth programs due to being open to the public and permitting more open and uninhibited access to the communications taking place.

Telehealth is likely here to stay, which is why it is so important that organizations and individuals ensure that steps are continuously taken to protect the platforms from breaches and protect users’ private information. There are many other organizations providing continuing recommendations of how to mitigate and otherwise address cybersecurity risks and actual breaches. See American Hospital Association and National Institute of Standards and Technology.  To learn even more about cybersecurity risks and practical approaches to effectively defending against and/or addressing breaches, BSCR previously did a three part series on cybersecurity risks, which can be accessed here, here, and here.
 

Seventh Circuit Paves the Way for Illinois Biometric Law Suits in Federal Courts

June 24, 2020

In Bryant v. Compass Grp. USA, Inc., 958 F.3d 617 (7th Cir. 2020), the federal court of appeals for the Seventh Circuit answered in the affirmative the question of whether, for federal-court purposes, a person aggrieved by a violation of Illinois’ Biometric Information Privacy Act (BIPA) has suffered the kind of injury-in-fact that supports Article III standing.

Plaintiff Christine Bryant’s workplace installed “Smart Market” vending machines owned and operated by the defendant Compass Group U.S.A., Inc. Rather than accept cash, users had to establish an account using a fingerprint. During orientation, plaintiff’s employer instructed her and others to scan their fingerprints into the Smart Market system to establish a payment link to create user accounts. In violation of section 15(a) of BIPA, Compass never made publicly available a retention schedule and guidelines for permanently destroying the biometric identifiers and information it was collecting and storing. In addition, in violation of section 15(b) of BIPA, Compass (1) never informed Bryant in writing that her biometric identifier was being collected or stored, (2) never informed Bryant in writing of the specific purpose and length of time for which her fingerprint was being collected, stored, and used, and (3) never obtained Bryant’s written release to collect, store, and use her fingerprint. Plaintiff asserted that Compass’s failure to make the requisite disclosures denied her the ability to give informed written consent as required by BIPA, leading to the loss of the right to control her biometric identifiers and information. Seeking redress for this alleged invasion of her personal data, Bryant brought a putative class action against Compass pursuant to BIPA’s provision providing a private right of action in state court to persons “aggrieved” by a violation of the statue.

Compass removed the case to federal court on the basis of diversity of citizenship. Plaintiff Bryant moved to remand to state court, claiming that the federal district court did not have subject-matter jurisdiction because she lacked the concrete injury-in-fact necessary to satisfy the federal requirement for Article III standing. The district court agreed with plaintiff and remanded to the state court.

On appeal, the Seventh Circuit noted that for Bryant to have Article III standing, she must satisfy three requirements: (1) she must have suffered an actual or imminent, concrete and particularized injury-in-fact; (2) there must be a causal connection between her injury and the conduct complained of; and (3) there must be a likelihood that this injury will be redressed by a favorable decision. Only the first of these requirements was at issue in the case in that the second and third requirements were clearly satisfied.

The appellate court ultimately concluded that Bryant has Article III standing as to her action for violations of section 15(b), but not for violations of section 15(a). Compass’s failure to abide by the requirements of section 15(b) before it collected users’ fingerprints denied Bryant and others like her the opportunity to consider whether the terms of that collection and usage were acceptable given the attendant risks. Going beyond a failure to satisfy a purely procedural requirement, Compass withheld substantive information to which Bryant was entitled and thereby deprived her of the ability to give informed consent as mandated by section 15(b). The appellate court found this deprivation is a concrete injury-in-fact that is particularized to Bryant and others like her, thereby meeting the Article III requirement for standing.

In contrast, the section 15(a) claim involves a duty owed to the public generally: the duty to make publicly available a data retention schedule and guidelines for permanently destroying collected biometric identifiers and information. This provision is not part of the informed consent regime of the statute, and Bryant alleges no particularized harm to herself or others that resulted from the alleged violation of section 15(a). Thus, she lacks standing to pursue that claim in federal court.

This opinion finally answers the BIPA standing question but does so differently than many federal district courts that have remanded BIPA suits as alleging mere procedural violations without concrete, particularized harm. While this ruling is in line with the Ninth Circuit’s ruling in Patel v. Facebook, Inc., which we reported on here, it is at odds with other rulings, including one from the Second Circuit. This may open the door for U.S. Supreme Court review as it potentially affects a large number of lawsuit across the country. 

Illinois Supreme Court Ruling Emphasizes Necessity of Post-Trial Motion in the Preservation of Trial Court Error

June 18, 2020

In Crim v. Dietrich, 2020 IL 124318, the Illinois Supreme Court found that in a health care liability case, the lower appellate court’s mandate remanding the case for a new trial did not include a new trial on the professional negligence claim. The plaintiffs, who filed both a professional negligence claim and a claim alleging failure to obtain informed consent, failed to file a post-trial motion after a jury verdict on the professional negligence claim. While the lower appellate court issued just a general mandate for a new trial and the appellate court later clarified that it intended that mandate to allow for a retrial of both claims, the Supreme Court held the plaintiffs forfeited their right to a retrial on the professional negligence claim. In other words, the mandate could not have included a mandate for a new trial on the professional negligence claim because the right to appeal that claim had already been lost by failure to file a post-trial motion. 

The Crims, acting on behalf of their biological son, filed a medical malpractice claim against defendant Dr. Gina Dietrich alleging two claims: (1) that she failed to obtain Mrs. Crim’s informed consent to perform a natural birth despite possible risks associated with her son’s large size; and (2) that defendant negligently delivered the baby, causing him injuries. The trial court granted defendant’s motion for directed verdict on the issue of informed consent on the basis that the plaintiffs needed, but lacked, expert testimony that a reasonable patient would have pursued a different form of treatment. Thereafter, following additional evidence, the jury returned a verdict in defendant’s favor and against plaintiffs on their remaining claim of professional negligence. The plaintiffs did not file any post-trial motions, and instead filed a timely notice of appeal. 

In their brief before the Appellate Court for the 4th District, the plaintiffs framed their appeal as a review only on whether the circuit court erred in issuing a directed verdict on the informed consent claim, expressly stating that their appeal is not based upon the verdict of the jury. The 4th District ruled that the trial judge incorrectly issued the directed verdict and granted a new trial. The appellate court entered a general mandate reversing and remanding to the circuit court for such other proceedings as required by the order of the appellate court. 

Plaintiffs claimed that this general mandate of remand and retrial entitled them to a new trial on not only the informed consent claim, but also on the professional negligence claim. According to plaintiffs, they should be allowed to retry both claims because the claims were intertwined, and the trial court tainted the rest of their case when it erroneously granted defendant a directed judgment. 

The Illinois Supreme Court, however, disagreed, stating that “the trouble with [plaintiff’s] argument is the simple fact that they never filed a post-trial motion pursuant to section 2-1202.” Section 2-1202 of the state Code of Civil Procedure requires litigants to challenge a jury’s verdict with post-trial motions even when the trial court enters a partial directed verdict as to other issues in the case. “The failure by plaintiffs to file a post-trial motion challenging the jury’s verdict deprived the circuit court of an opportunity to correct any trial court errors involving the jury’s verdict and undermined any notion of fairness to defendant on appeal.” 

Notably, this Supreme Court ruling came after the appellate court answered a certified question by saying it had intended the plaintiffs’ negligence claims to be retried when it reversed and remanded the trial court’s directed judgment. 

In a dissenting opinion, Justice Thomas Kilbride wrote that the majority’s holding confuses a party’s forfeiture of an argument with a reviewing court’s power to grant relief. He also felt that the Court should not have entertained the appeal at all because it was too case-specific and not “of general importance.” 

The case emphasizes the importance of post-trial motions in preservation of error for purposes of appeal. Prudent practitioners should raise in post-trial motions all issues which might be the basis for arguments of trial court error later.

U.S. Supreme Court Rules that Title VII Protects LGBTQ Workers

June 16, 2020

In a high-profile and much anticipated ruling, the U.S. Supreme Court held that the prohibition against sex discrimination in Title VII of the Civil Rights Act of 1964 applies to discrimination based on a worker’s sexual orientation or gender identity.

In a 6-3 decision authored by Justice Gorsuch, the Court pointed to the “plain meaning” of the language of Title VII and held that "Because discrimination on the basis of homosexuality or transgender status requires an employer to intentionally treat individual employees differently because of their sex, an employer who intentionally penalizes an employee for being homosexual or transgender also violates Title VII." Justices Kavanaugh, Alito, and Thomas dissented. 

The Court reasoned that “Today, we must decide whether an employer can fire someone simply for being homosexual or transgender. The answer is clear. An employer who fires an individual for being homosexual or transgender fires that person for traits or actions it would not have questioned in members of a different sex. Sex plays a necessary and undisguisable role in the decision, exactly what Title VII forbids.”

The decision covered three related cases. It resolves a long brewing split among the federal circuits and affirms a Seventh Circuit ruling allowing a lesbian professor’s wrongful termination lawsuit to move forward.   The Justice Department argued against the workers in these cases, in a shift from the previous administration’s position supporting the rights of LGBTQ workers.

The ruling is of particular importance in those states where state civil rights laws have been held not to apply to discrimination based on sexual orientation or gender identity.

Federal District Court in Illinois Requires Plaintiffs to Arbitrate Biometric Privacy Lawsuit

June 15, 2020

Recently, the District Court for the Northern District of Illinois again addressed an issue related to the Illinois Biometric Information Privacy Act. As previously discussed in this blog post, this court has issued other rulings on issues arising under the Act. In Miracle-Pond v. Shutterfly, Inc., the plaintiff, Vernita Miracle-Pond, registered for a Shutterfly account using the Shutterfly Android mobile app in August 2014.  In order to install the app, the plaintiff was required to accept Shutterfly’s terms of use.  In the version of the terms of use accepted by the plaintiff, Shutterfly reserved the right to revise the terms of service without notice to Shutterfly users. Shutterfly was merely required to post the new terms. In May 2015, Shutterfly revised its terms of use, adding an arbitration provision. Every version of Shutterfly’s terms of use since May 2015, including the most recent version at the time of the court’s ruling, included an arbitration provision. Each version’s arbitration clause stated:

NOTE: THIS TERMS OF USE CONTAINS AN ARBITRATION CLAUSE AND CLASS ACTION WAIVER PROVISION IN THE ‘ARBITRATION’ SECTION BELOW THAT AFFECTS YOUR RIGHTS UNDER THE TERMS OF USE AND WITH RESPECT TO ANY DISPUTE BETWEEN YOU AND US AND OUR AFFILIATES.

***

[Y]ou and Shutterfly agree that any dispute, claim or controversy arising out of or relating in any way to the Shutterfly service, these Terms of Use and this Arbitration Agreement, shall be determined by binding arbitration.

In June 2019, Ms. Miracle-Pond and another plaintiff filed suit against Shutterfly, individually and on behalf of proposed class members, alleging that Shutterfly violated the Illinois Biometric Information Privacy Act by using facial-recognition technology to extract biometric identifiers for “tagging” individuals and by selling, leasing, trading, or otherwise profiting from the plaintiffs’ and proposed class members’ biometric identifiers. 

Nearly three months after the plaintiffs filed suit, Shutterfly sent an email to all of its users nationwide, notifying its users that Shutterfly’s terms of use had been updated. The email further stated that Shutterfly had updated its terms of use to clarify users’ legal rights in the event of a dispute and how disputes would be resolved in arbitration. Finally, the email instructed users that if they did not close their accounts by October 1, 2019, or if they otherwise continued to use Shutterfly’s app and/or website, they would be deemed to have accepted Shutterfly’s terms of use.  Shutterfly’s records indicated that Ms. Miracle-Pond opened Shutterfly’s email and that her account remained open as of October 2, 2019.

In response to the lawsuit, Shutterfly filed a motion to compel arbitration. The plaintiffs filed a motion for curative measures related to Shutterfly’s September 2019 email to all users. In ruling on the motion to compel arbitration, the court first examined whether a valid arbitration agreement existed. In addition to Illinois’s general contract principles, the court examined factors specific to Internet agreements to determine if a valid arbitration agreement existed. Specifically, the court analyzed whether the: 1) web pages presented to the plaintiff adequately communicated all the terms and conditions of the agreement, and 2) circumstances supported the assumption that the plaintiff received reasonable notice of those terms.

The plaintiffs argued that Ms. Miracle-Pond merely agreed that her use of Shutterfly’s website and services would comply with Shutterfly’s terms of use, not that she would be bound by the term of use. In other words, she claimed that Shutterfly improperly used what is known as a “browsewrap” agreement, rather than a permissible “clickwrap agreement.” A browsewrap agreement is an agreement where users are bound by a website’s terms by merely navigating or using the website; the user is not required to sign an electronic document or explicitly click an accept or agree button. By contrast, a clickwrap agreement requires users to click a button or check a box that explicitly affirms that the user has accepted the terms of use. In rejecting the plaintiff’s argument, the court explained that Shutterfly presented the terms of use to the plaintiff for viewing and provided an “accept” and “decline” button. Thus, the court concluded that Shutterfly’s terms of use constituted a valid clickwrap agreement, and that Ms. Miracle-Pond agreed to be bound by the terms of use.

The plaintiffs further argued that the terms of Shutterfly’s arbitration agreement were illusory because they were subject to unilateral modification. The court rejected this argument, explaining that Illinois law allows for arbitration provisions that may be changed unilaterally. Shutterfly’s terms of use contained a valid change-in-terms provision that informed users that Shutterfly had the right to unilaterally modify its terms, that modified terms would be posted to its website, and that continued use of Shutterfly products constituted an acceptance of the modified terms. The court explained that Ms. Miracle-Pond’s continued use of Shutterfly after it introduced the arbitration agreement to its terms of use constituted an acceptance of the agreement.

The plaintiffs also claimed that Shutterfly was attempting to improperly apply the arbitration agreement on a retroactive basis, given Shutterfly’s September 2019 email to all of its users regarding arbitration of disputes. The court found that Shutterfly was not attempting retroactive application of the arbitration agreement, finding that the plaintiff accepted the agreement when she continued using Shutterfly after it introduced the arbitration agreement in 2015.

Ultimately, this case illustrates the importance of valid arbitration agreements. As discussed in prior Baker Sterchi blog posts, there has been a significant increase in litigation arising under the Illinois Biometric Information Privacy Act since 2019. This litigation is extremely risky for companies due to the manner in which courts have interpreted the Act’s standing requirement and the penalties imposed by the Act. If used properly, arbitration agreements give companies an opportunity to avoid the costs and uncertainty of litigating these claims in court. Therefore, if your company is named in a biometric lawsuit, it is imperative to determine if there are any grounds to require arbitration of the dispute. Additionally, to the extent companies that utilize biometric technology do not currently have arbitration agreements in place, they should consider implementing such an agreement.    

The complete citation for this case is Miracle-Pond v. Shutterfly, Inc., 2020 U.S. Dist. Lexis 86083 (N.D. Ill. May 15, 2020).   

COVID-19 and Possible Changes to Workers' Compensation Laws in Illinois and Missouri

June 9, 2020

As employees slowly begin to return to work in “the new normal” following mandatory stay-at-home orders across the country, employers in Illinois and Missouri are busy establishing policies in compliance with opening orders and guidelines. To mitigate the risk of potential workers’ compensation claims, employers should be aware of possible changes to workers’ compensation laws due to COVID-19 exposure in the workplace.

On April 13, 2020, the Illinois Workers Compensation Commission passed an emergency rule in response to the COVID-19 pandemic.  This rule created a rebuttable presumption of compensability in favor of employees classified as first responders and essential front-line workers during the COVID-19 state of emergency.  For those individuals, the rule imposed a rebuttable presumption that the individual’s exposure arises out of and in the course of employment and is causally connected to their employment. 

In response, the Illinois Manufacturers Association and Illinois Retail Merchants Association requested a Temporary Restraining Order, which was granted on April 24, 2020.  The emergency rule was thereafter withdrawn by the IWCC.  COVID-19 may still be considered a compensable occupational disease under the Illinois Workers’ Compensation Act, but there is no longer a rebuttable presumption of compensability following withdrawal of the rule. 

In Missouri, Governor Mike Parson directed the Department of Labor and Industrial Relations to implement an emergency rule that will provide workers compensation benefits to first responders who contract COVID-19.  On April 7, 2020, the Department of Labor and its Division of Workers’ Compensation filed an emergency rule creating a presumption that First Responders infected by or quarantined due to COVID-19 are deemed to have contracted a contagious or communicable occupational disease arising out of and in the course of the performance of their employment.  “First Responders” include law enforcement officers, firefighters or an emergency medical technicians.  

The presumption created by the rule is rebuttable in the event a subsequent medical determination establishes by clear and convincing evidence that (1) the First Responder did not actually have COVID-19, or (2) the First Responder contracted or was quarantined for COVID-19 resulting from exposure that was not related to the First Responder’s employment.

The Labor and Industrial Relations Commission voted unanimously to approve the emergency rule on April 8, 2020, with an effective date of April 21, 2020.  However, the rule is retroactive.  The full text of 8 CSR 50-5.005 can be found here.

Unlike the emergency rule attempted in Illinois, only First Responders are provided with a presumption of an occupational disease under the Missouri emergency rule.  To date,  no further amendments  have been introduced to expand the presumption created by the emergency rule to  non-First Responders, however, as more and more businesses slowly open following the lifting of the stay-at-home orders issued through Missouri, employers may find themselves receiving COVID-19-related workers’ compensation claims.  COVID-19 has been classified as a communicable disease by the State of Missouri and communicable diseases are included in the definition of “occupational disease” under Missouri Workers’ Compensation Law.

As in all states, laws and regulations related to the COVID-19 pandemic are ever-changing in Illinois and Missouri.  The area of workers’ compensation is no exception and additional changes and expansions to the current laws are possible.    Employers in both states should remain aware of those changes in order to better anticipate potential claims, mitigate risk and create workplaces that protect employees from exposure to the best of their ability.

COVID-19 and Possible Changes to Workers' Compensation Laws in Illinois and Missouri

June 9, 2020

As employees slowly begin to return to work in “the new normal” following mandatory stay-at-home orders across the country, employers in Illinois and Missouri are busy establishing policies in compliance with opening orders and guidelines.  To mitigate the risk of potential workers’ compensation claims, employers should be aware of possible changes to workers’ compensation laws due to COVID-19 exposure in the workplace.

On April 13, 2020, the Illinois Workers Compensation Commission passed an emergency rule in response to the COVID-19 pandemic.  This rule created a rebuttable presumption of compensability in favor of employees classified as first responders and essential front-line workers during the COVID-19 state of emergency.  For those individuals, the rule imposed a rebuttable presumption that the individual’s exposure arises out of and in the course of employment and is causally connected to their employment. 

In response, the Illinois Manufacturers Association and Illinois Retail Merchants Association requested a Temporary Restraining Order, which was granted on April 24, 2020.  The emergency rule was thereafter withdrawn by the IWCC.  COVID-19 may still be considered a compensable occupational disease under the Illinois Workers’ Compensation Act, but there is no longer a rebuttable presumption of compensability following withdrawal of the rule. 

In Missouri, Governor Mike Parson directed the Department of Labor and Industrial Relations to implement an emergency rule that will provide workers compensation benefits to first responders who contract COVID-19.  On April 7, 2020, the Department of Labor and its Division of Workers’ Compensation filed an emergency rule creating a presumption that First Responders infected by or quarantined due to COVID-19 are deemed to have contracted a contagious or communicable occupational disease arising out of and in the course of the performance of their employment.  “First Responders” include law enforcement officers, firefighters or an emergency medical technicians.  

The presumption created by the rule is rebuttable in the event a subsequent medical determination establishes by clear and convincing evidence that (1) the First Responder did not actually have COVID-19, or (2) the First Responder contracted or was quarantined for COVID-19 resulting from exposure that was not related to the First Responder’s employment.

The Labor and Industrial Relations Commission voted unanimously to approve the emergency rule on April 8, 2020, with an effective date of April 21, 2020.  However, the rule is retroactive.  The full text of 8 CSR 50-5.005 can be found here.

Unlike the emergency rule attempted in Illinois, only First Responders are provided with a presumption of an occupational disease under the Missouri emergency rule.  To date,  no further amendments  have been introduced to expand the presumption created by the emergency rule to  non-First Responders, however, as more and more businesses slowly open following the lifting of the stay-at-home orders issued through Missouri, employers may find themselves receiving COVID-19-related workers’ compensation claims.  COVID-19 has been classified as a communicable disease by the State of Missouri and communicable diseases are included in the definition of “occupational disease” under Missouri Workers’ Compensation Law.

As in all states, laws and regulations related to the COVID-19 pandemic are ever-changing in Illinois and Missouri.  The area of workers’ compensation is no exception and additional changes and expansions to the current laws are possible.    Employers in both states should remain aware of those changes in order to better anticipate potential claims, mitigate risk and create workplaces that protect employees from exposure to the best of their ability.

Inaccurate Background Reports Concerning Job Applicants May Give Rise to Employer Liability under FCRA

June 4, 2020

The Missouri Court of Appeals recently reversed a trial court’s order for summary judgment in favor of an employer in a case brought under the Fair Credit Reporting Act (“FCRA”) for lack of standing, where the employer withheld an offer of employment based on inaccurate information obtained through a criminal background check.

In Courtright, et al. v. O’Reilly Automotive, three applicants filed suit asserting, among others, adverse-action claims against O’Reilly after their conditional job offers were revoked based upon information obtained from consumer reports and background checks. Plaintiffs alleged that O’Reilly committed procedural violations of FCRA by failing to disclose the contents of each applicants’ background reports and providing them the opportunity to cure any inaccuracies in the reports before taking adverse action against them – i.e., revoking each of their conditional offers of employment. The trial court entered summary judgment in favor of O’Reilly, and the three applicants appealed. The judgments against two of the three applicants were affirmed due to their failure to allege sufficient injuries to establish standing to bring a claim under FCRA, as the allegations in the complaint did not establish that the procedural violations of FCRA were the cause of their alleged harm.

However, the Court of Appeals for the Western District of Missouri found that the third applicant, Mr. Bradley, did state sufficient injuries caused by the procedural violation. Bradley demonstrated that he was not provided the background check results before his offer of employment was revoked. He instead had to request the background report from the third party vendor used by O’Reilly and to correct the issues directly with that vendor. He learned that the report erroneously stated that Mr. Bradley had been convicted and sentenced for stealing leased or rented property. After Mr. Bradley disputed the report in writing, the vendor corrected the report and provided it to O’Reilly. O’Reilly then hired Mr. Bradley, but not until after he had gone approximately two months without a paycheck.

The trial court had held that the alleged injury was caused by the inaccurate information provided by the third party vendor and entered judgment in favor of O’Reilly on that basis. But the Court of Appeals reversed the judgment, reasoning that if O’Reilly had furnished the report to Mr. Bradley before revoking the job offer, as required under FCRA, Mr. Bradley would have had the opportunity to resolve the error and avoid his period of unemployment.

Based upon this Court of Appeals holding, Missouri employers are strongly advised to promptly inform job applicants of any negative, material information found in background checks before taking any adverse action against the applicant, regardless of where and how the information was obtained.

Ban the Box Legislation to Take Effect in the City of St. Louis in 2021

June 1, 2020

Beginning January 1, 2021, employers with ten or more employees, located within the City of St. Louis will be prohibited from inquiring about an applicant’s criminal history on the employment application. Once the law takes effect, employers may not base a hiring or promotional decision on the criminal history, or sentence, of an applicant unless(1) the history is found to be reasonably related to, or bearing upon, the duties and responsibilities of the position; and (2) the employer can demonstrate that the decision is based on all available information.

Employers will be prohibited from inquiring about an applicant’s criminal history until such time as the applicant is otherwise determined to be qualified and has been interviewed for the position. The prohibition extends to employers seeking publicly available information about criminal history during the initial job application stage. Employers remain able to inquire about an applicant’s criminal history if all applicants in the final stage of selection will be similarly asked.

The prohibition further extends to employment advertisements containing exclusionary language based on criminal history. These prohibitions do not include employers hiring for positions where federal or state laws would otherwise exclude individuals with certain criminal histories. In such circumstances, employers can still publish these requirements and restrictions in advertisements and seek to determine an applicant’s compliance with these regulations during the initial application process.

The City of St. Louis joins 35 states, and over 150 cities and counties nationwide that have adopted “ban the box” legislation. This provides a marked change for local employers going forward once the ordinance takes effect. This will provide opportunity for employers in the City of St. Louis to evaluate their hiring procedures in order to determine compliance with the new requirements. Employers will also need to address policies concerning when criminal history inquiries are made of applicants, revise standard applicant paperwork required, and note that the requirements apply to decisions regarding promotions as well as new hires. 

Eighth Circuit Reverses ADA Class Certification in "Fitness for Duty" Challenge

May 27, 2020

The U.S. Court of Appeals for the Eighth Circuit reversed a ruling of the United States District Court of Nebraska, which granted class certification to a group of Union Pacific employees, past and present, who alleged that the railroad’s “fitness-for-duty” policy violates the Americans with Disabilities Act (“ADA”), 42 U.S.C. § 12101 et seq. The appellate court granted interlocutory review of the class certification pursuant to Federal Rule of Civil Procedure 23(f), and concluded that plaintiffs failed to meet the cohesiveness, predominance and superiority requirements under Rules 23(b)(2) and (b)(3). This is a potentially important ruling for companies who consider “fitness-for-duty” evaluations important for managing their operations and maintaining a safe workplace.

Six named plaintiffs moved to certify a class of over 7,000 current and former employees of Union Pacific, under the ADA. The district court granted the hybrid class certification which defined to include all employees who have been or will be subject to a “fitness-for-duty” evaluation because of a reportable health event used by Union Pacific. Examples of a reportable health event are heart attack, stroke, seizure and eye injury, just to name a few. The “fitness-for-duty” applies to all 650 position within the company. “Fitness-for-duty” evaluation is used to determine if the reportable health event in which the employee reports effects their ability to safely do their job or if they need accommodations because of the reportable health event in order to safely do their job.

By granting this hybrid class certification under subparts (b)(2) and (b)(3) of Rule 23, the Court allowed the plaintiffs to proceed as a class and then try the case in two phases, consistent with the framework set out in International BHD of Teamsters v United States, 431 U.S. 324 (1977). In the first phase, the jury would determine whether Union Pacific engaged in a pattern or practice of disability discrimination on a class-wide basis. In the second stage, individual hearings would take place to determine damages as to each individual class member. Union Pacific appealed the class certification on the basis the plaintiffs did not satisfy cohesiveness, predominance and superiority requirements required under Rule 23(b)(2) and 23(b)(3). 

The Eighth Circuit opinion first focused on whether the class was cohesive, noting that the six named plaintiffs each had different conditions. These conditions, which would be reportable health events, included: a heart condition that required a pacemaker; epilepsy; lightheadedness; cardiomyopathy; post-traumatic stress disorder; and a seizure disorder. The court observed that not only are the conditions different, but that each condition then had to be assessed with respect to the 650 positions within in the company. An accountant with seizure disorder is different from a train engineer with a seizure disorder. To answer the predominant question of whether a policy is unlawfully discriminatory requires asking subsidiary questions of whether the policy is consistent with business necessity. The analysis of business necessity is highly individualized, requiring separate analysis for each different medical condition. And for each such condition, it must be determined how it impacts the affected employee’s ability to perform different jobs throughout the company.   

In the Court’s view, the individualized inquiries needed to determine if the fitness-to-work policy is unlawfully discriminatory under ADA is not consistent with Rule 23. Because these individualized questions defeated both predominance and cohesiveness, the lower court abused its discretion by certifying the class under Rule 23(b)(2) & (b)(3). 

The Eighth Circuit acknowledged, however, that if the plaintiffs’ claim had focused more narrowly on employees with the same or similar medical conditions, involving the same or similar job categories, a hybrid class could potentially be certified under Rule 23. 

Companies should, of course, always take care that policies which may limit employees’ access to certain jobs, based on health and safety concerns, are appropriately tailored to business necessity, and consistent with the ADA and its “reasonable accommodation” requirements. But the Harris opinion should prove extremely useful to corporate defendants seeking to stave off overly broad class certification demands, in cases challenging company “fitness-to-work” or other health or safety policies. 

Got A Product Problem? Go To The Origin.

May 19, 2020

Got a problem? Go to the source. Got a product problem? Go to its origin.

At least that is what Plaintiff Timothy Farkas, and his expert, should have done to avoid dismissal of Farkas’ product liability claims.

In Farkas v. Addition Manufacturing Technologies, LLC, the U.S. Court of Appeals for the Eighth Circuit affirmed an Eastern District of Missouri judgment, finding that Farkas failed to establish that the product at issue, a tube-end forming machine, was inherently defective or dangerous. The Court’s ruling centered on Farkas’ failure to provide evidence of a defect that existed when the product entered the stream of commerce.

Farkas sued Addition Manufacturing after his fingers were severely injured by a tube-end forming machine, which uses a hydraulic clamp to crimp metal tubes. Addition was the machine designer’s successor. The predecessor company sold the machine in 1992 with a point-of-operation guard, which prevented the operator’s fingers from fitting in the clamps that went around the tube to shape the end of the tube when there was a tube in the machine. The specific guard present at the time of sale, however, only applied to a single size of tubing, which was specified by the original customer. The machine, however, was technically capable of crimping multiple sizes of tube. 

Various companies bought and sold the machine over the years. In 2014, Farkas’ employer purchased the machine, whose guard was still configured only for a single size of tubing. Because Farkas’ employer wanted to process multiple sizes of tubing, it hired a company to alter the guard, to accommodate multiple sizes of tube. Farkas was subsequently injured when he used the machine to crimp a piece of tube that was smaller than the guard.

Farkas brought his lawsuit against Addition for strict liability for the product’s design defect and failure to warn about the defect and for negligently manufacturing the product.   Addition, as the legal successor to the manufacturer who made the machine in its original configuration, moved for summary judgment on the grounds that Farkas was required to and failed to provide evidence that the original guard on the machine was inadequate at the time of the machine’s initial sale.

To succeed on the strict liability claim for product defect, Farkas had to offer proof that:

  1. The machine was in an unreasonably defective condition when put to a reasonably anticipated use;
  2. The machine was used in a manner reasonably anticipated; and
  3. The machine was damaged as a direct result of such defective condition as existed when the product was sold.

To succeed on a strict liability failure-to-warn claim, Farkas had to prove that:

  1.  Addition sold the machine in question in the course of its business;
  2. The machine was unreasonably dangerous at the time of sale when used as reasonably anticipated without knowledge of its characteristics;
  3. Addition did not give adequate warning of the danger;
  4. The machine was used in a reasonably anticipated manner; and
  5. Farkas was damaged as a direct result of the machine being sold without an adequate warning.

The common link? Both claims require Farkas to go back to the machine’s (and the guard’s) beginnings. Farkas’ expert, however, relied on the wrong guard on the machine. Indeed, the expert relied on the guard present at the time of the injury, not the guard present at the time Addition’s predecessor sold the machine in 1992. As such, there was no evidence of the original guard’s appropriateness and relevant industry standards.

In other words, Farkas was required to offer proof that the machine was defective or dangerous at the time of sale by the predecessor of Addition to the original customer – not at the time of the sale to Farkas’ employer or the time of Farkas’ injury.  However, Farkas’ failure to go back to the machine’s origin cost him his lawsuit and his appeal. 

Missouri House Approves Stricter Standards for Punitive Damages Claims

May 13, 2020

In an update to our below post, Senate Bill 591 (which seeks to impose stricter standards for the application of punitive damages) cleared the Missouri House on May 12, 2020 in a 98-51 vote. The Bill, now on its way to Governor Parson for his signature, will likely go into effect on August 28, 2020. Governor Parson is expected to sign the measure without veto. 


Missouri Senate Approves Stricter Standard for Punitive Damages Claims

March 20, 2020 | Jonathan Benevides

A bill that would impose stricter standards for the application of punitive damages was swiftly advanced by the Missouri Senate late last month. Senate Bill 591 would establish new procedural and substantive restrictions on punitive damages. Currently, to recover punitive damages in Missouri, a plaintiff must show by clear and convincing evidence that the defendant acted with either “indifference to or conscious disregard for the safety of others.” Schroeder v. Lester Cox Medical Center, Inc., 833 S.W.2d 411, 413 (Mo. Ct. App. 1992). Senate Bill 591, would increase the plaintiff’s burden of proof and require a plaintiff to prove that the defendant either “intentionally harmed the plaintiff without just cause” or acted with “deliberate and flagrant disregard for the safety of others.”

In addition to increasing the plaintiff’s burden of proof, the Bill also changes the procedure for prosecuting punitive damages claims. Under current Missouri law, a plaintiff may seek punitive damages in his/her initial pleading. Senate Bill 591 would prohibit a plaintiff from including a claim for punitive damages in his/her initial pleading, and require that the plaintiff first seek leave of court to assert a claim for punitive damages. The court shall grant leave only if it concludes that based on the evidence to be admitted at trial, the trier of fact could “reasonably conclude, based on clear and convincing evidence, that the standards for a punitive damages award … have been met.”

According to Senate Majority Leader and Columbia Republican, Caleb Rowden, “the punitive damages legislation is the top priority for Republicans among various proposals targeting liability lawsuits.” The Bill’s sponsor, Republican Bill White stated, “the Bill is intended to prevent punitive damage claims from being used as leverage to get bigger settlements from businesses in cases that might involve negligence but not intentionally malicious actions.”

Eighth Circuit Holds Federal Question Jurisdiction Can Be Found in the Details

May 11, 2020

A recent opinion from the U.S. Court of Appeals for the Eighth Circuit reminds practitioners that federal jurisdiction is born from the substance of the claims made and relief sought, not by the titles given to each cause of action. In Wullschleger v. Royal Canin U.S.A., Inc., 2020 U.S. App. LEXIS 8038 (8th Cir., March 13, 2020), the plaintiffs sought to represent a class of Missouri plaintiffs who purchased prescription pet foods at premium prices from defendants Royal Canin and Purina PetCare. Plaintiffs alleged they were deceived into believing the products were approved by the United States Food and Drug Administration. The U.S. District Court for the Western District of Missouri remanded the case to the Jackson County, Missouri, Circuit Court, finding it lacked subject matter jurisdiction. The Eighth Circuit granted defendants’ petition for review of the order of remand, limiting its review to the issue of federal question jurisdiction. Upon review of the plaintiff’s Petition, the court concluded federal question jurisdiction in fact did exist and vacated the district court’s remand order.

The case involved the defendants’ “prescription” pet foods, which require the purchaser to consult with a veterinarian and obtain a prescription before purchase. The defendants represented that the pet foods are therapeutic formulas for specific health issues and may not be tolerated by all pets. Defendants did not, however submit these pet foods for evaluation by the FDA and, as such, a prescription is not required by law. Plaintiffs’ Jackson County Petition alleged only state law claims, including violations of the Missouri Merchandising Practices Act, Missouri antitrust laws, and Missouri unjust enrichment law. 

On review, the Eighth Circuit noted that federal jurisdiction exists only when a federal question is presented on the face of a plaintiff’s properly pleaded complaint. In this way, a plaintiff controls whether federal jurisdiction exists, and he may avoid federal question jurisdiction by relying exclusively on state law. Plaintiffs here argued they merely asserted claimed violations of federal law as elements of their state causes of action, which the United States Supreme Court in Merrell Dow Pharm. Inc. v. Thompson, 478 U.S. 804, 814 (1986), has held insufficient on its own to confer federal question jurisdiction. 

The appellate court disagreed with plaintiffs. While the Merchandising Practices Act claim, as alleged, could likely be resolved without depending on federal law, plaintiffs chose to premise their Missouri antitrust and unjust enrichment claims on violations and interpretations of federal law. Plaintiffs alleged that defendants violated the Federal Drug and Cosmetics Act and were non-compliant with FDA guidance. The antitrust and unjust enrichment claims, therefore, cannot be adjudicated without reliance on and explication of federal law. The court also noted that plaintiffs’ prayer for relief requires the interpretation and application of federal law. Specifically, plaintiffs prayed for judgment finding defendants violated both state and federal law and compelling them to comply with all federal and Missouri provisions applicable to pet food as a “drug.” In this way, according to the court, the face of the plaintiffs’ Petition gave rise to federal question jurisdiction, and plaintiffs’ isolated focus on their state law claims was nothing more than an apparent attempt to avoid federal jurisdiction. 

The opinion underscores a plaintiff’s power to avoid federal question jurisdiction through his or her own pleadings. It also serves to remind defendants seeking removal of the importance of looking beyond the presence of purely state law claims to find allegations which might support federal question jurisdiction.

COVID-19 Healthcare Heroics May Ironically Lead to Future Confrontations - Causation Issues (Part 4)

May 7, 2020

In part four of our series of blog articles delving into potential dangers for healthcare providers related to the COVID-19 global pandemic, we consider causation issues for healthcare associated COVID-19 infections.

General Infection Causation Issues

While every corner of American commerce, including food suppliers and sellers, financial institutions, childcare providers and fitness centers, may face increasing liability claims from customers and third parties claiming to have been exposed to COVID-19 during a visit to their premises, in most cases, proving that an infected person caught COVID-19 from a specific source should be a difficult task, especially considering the known virus viability outside the body and incubation time (the time between contracting the virus and onset of symptoms).

According to a study published in the New England Journal of Medicine, SARS-CoV-2, the virus that causes COVID-19, can live in the air and on surfaces between several hours and several days. The study found that the virus is viable for up to 72 hours on plastics, 48 hours on stainless steel, 24 hours on cardboard, and 4 hours on copper. It is also detectable in the air for three hours. After interaction with an infection source, most estimates of the incubation period for COVID-19 range from 1-14 days, with most infected individuals exhibiting symptoms around five days. Given the difficulty tracking all interactions of an infected person during the combined length of time between virus viability outside the body and incubation, narrowing the source of infection to one source and effectively ruling out all other possible acquisition more likely than not to a reasonable degree of certainty will likely be a difficult task. 

Causation Issues for Healthcare Associated COVID-19 Infections

Nosocomial or healthcare associated infections are infections acquired during care which are not present or incubating at admission or treatment start. Nosocomial infections have been a reality since the origin of medicine and have been the object of litigation for some time. Undoubtedly, the COVID-19 pandemic will result in numerous lawsuits alleging that a healthcare provider’s negligence led to infection during treatment. However, given that most infections are asymptomatic for some time after their onset, it can be very difficult to identify with precision whether the infection was indeed contracted after admission or whether the patient was infected before admission but asymptomatic. Several agencies and authorities have attempted to identify time parameters for establishing what generally constitutes a nosocomial infection. For example, the World Health Organization (“WHO”) “usually” considers infections occurring more than 48 hours after admission to be nosocomial. However, the “usual” qualifier in the WHO’s definition allows a case-specific analysis of whether an infection can be deemed nosocomial. Thus, the WHO’s 48-hour cutoff, or any other third-party’s definition is not likely to apply to alleged COVID-19 infections given the longer incubation time discussed above.  

For long-term care facilities, although a complete causation defense may be complicated by a resident’s likely admission predating the COVID-19 outbreak, providers should still attempt to establish a causation defense that a resident cannot prove virus transmission to a reasonable degree of certainty after the facility knew or should have known of the risk of COVID-19 transmission and before the recommended precautions were instituted. In support of this strategy, the Centers for Disease Control (“CDC”) has recognized that long-term care residents with COVID-19 may not report common symptoms like fever or respiratory symptoms, and some may not report any symptoms at all. The CDC acknowledges that unrecognized asymptomatic and pre-symptomatic infections likely contribute to transmission in long-term care facilities. These two CDC-recognized factors should strengthen a causation defense utilizing the above strategy.

Our prior posts in this series can be found here (part 1), here (part 2), and here (part 3).

COVID-19 Healthcare Heroics May Ironically Lead to Future Confrontations - State Executive Orders (Part 3)

May 5, 2020

In part three of our series of blog articles delving into potential dangers for healthcare providers related to the COVID-19 global pandemic, we consider the American Medical Association’s push for states to pursue liability protections for healthcare professionals during the COVID-19 emergency.

In the wake of the COVID-19 Nationwide Public Health Emergency, the Centers for Disease Control and other federal, state and local agencies have published guidelines and recommendations for healthcare providers dealing with patient care in the midst of this crisis and resulting limitations on available resources, equipment, and healthcare staff. Indeed, the evolving response to the national emergency raises many concerns, including concerns for the health of the courageous and dedicated providers themselves.

By mid-April 2020, more than 9,000 U.S. healthcare workers had contracted coronavirus, with 27 U.S. deaths, and data suggests healthcare providers may account for approximately 11% of all COVID-19 infections. The authors of this blog series cannot fathom what these providers are going through, especially those caring for COVID patients throughout an entire shift, day after day, observing terrible suffering and outcomes, even with the best care and with healthy patients. These providers cannot help but feel that everything around them, especially in the hospital, could be a source of infection.

In addition to very real concerns for the health and wellbeing of these front-line healthcare providers, another significant concern is the risk of potential legal liability arising out of adherence to published guidelines and recommendations while also endeavoring to provide quality care. This is especially important in those areas of the U.S. hit hardest by COVID-19 that have experienced unprecedented patient load and corresponding limitations on supplies and healthcare personnel. Of particular concern are those healthcare professionals providing direct care to COVID-19 patients, those who have shifted their practices to telemedicine, and those guided in treatment decisions by governmental directives.

Thus, while federal and state laws provide existing protections to healthcare professionals, the American Medical Association has encouraged each state to consider whether additional protections should be extended to address the potential liability of healthcare providers affording care in response to COVID-19, as well as treatment decisions based on government or healthcare facility COVID-19 directives. For example, the CDC has published crisis standard of care recommendations for decontamination and reuse of filtering facepiece respirators which are not approved for routine decontamination and reuse.

To that end, the AMA has recommended states provide healthcare providers immunity from civil liability and adverse action by state medical boards for injury or death:

  1. caused while providing medical services in response to the COVID-19 outbreak;
  2. caused by volunteer physicians acting in good faith for care provided in response to COVID-19; and
  3. resulting from a federal, state, or local directive, including but not limited to those to cancel, delay, or deny care as a result of the COVID-19 pandemic.

In addition to the above recommendation, the AMA has provided recommendations on the appropriate mechanisms to formalize these protections, including through new laws, the expansion of existing laws, and/or by executive order. Some states have issued executive orders or proclamations to provide protections to allow for alternative standards of care. For instance, we have thus far identified executive orders in AL, AR, AZ, CT, GA, IL, MA, MI, MS, NC, NJ, NY, RI, VT. There are pending requests/proposals in other states to issue executive orders. Many of these parallel “good Samaritan” laws existing throughout the country that have for decades afforded qualified immunity from civil liability for healthcare professionals who volunteer their services as a generous compassionate act unless they engage in willful or intentional misconduct.   

Thus far, one state that has followed the AMA’s recommendation is Illinois, which extended by executive order from the governor immunity to healthcare facilities, professionals, and volunteers from civil liability for any injury or death that occurs at a time when the facility or provider was providing healthcare services in response to COVID-19, except injuries or death caused by gross negligence or willful misconduct. Likewise, the governor of New Jersey issued an executive order providing immunity from civil damages for licensed healthcare providers for damages alleged to have been sustained as a result of their acts or omissions “undertaken in good faith” in connection with the State’s COVID-19 response.  That immunity does not extend to acts or omissions that “constitute a crime, actual fraud, actual malice, gross negligence or willful misconduct.” For another example, the New York State Senate and Assembly passed the Emergency Disaster Treatment Protection Act that grants immunity from civil and criminal liability to healthcare facilities, professionals, and volunteers for the purpose of, “promot[ing] the public health, safety and welfare of all citizens” during the pandemic.  Though the immunity does not apply to acts or omissions caused by “willful or intentional criminal misconduct, gross negligence, reckless misconduct, or intentional infliction of harm,” the Act expressly excludes unavoidable resource or staffing shortages as evidence of such conduct. 

Though the authors of this blog series believe executive orders and laws like those described above are necessary in the current climate and likely helpful in mitigating some litigation risk for healthcare professionals, they will not necessarily end all litigation. These laws have not yet had to withstand scrutiny of the courts in terms of applicability, enforceability and scope. Moreover, even if some consider healthcare professionals likely to win lawsuits or that juries are likely to be sympathetic towards them, we should remember they must still defend themselves and undergo the stress, expense, and other burdens of litigation and threatened litigation in already difficult and truly unprecedented times. See here for more information on the recommendations of the American Medical Association.

Watch for our next post in this series, which considers COVID-19 causation issues. Our prior posts in this series can be found here (part 1) and here (part 2).

COVID-19 Healthcare Heroics May Ironically Lead to Future Confrontations – Crisis Standard of Care? (Part 2)

May 1, 2020

In part two of our series of blog articles delving into potential dangers for healthcare providers related to the COVID-19 global pandemic, we consider the “standard of care” for healthcare providers. Specifically, we consider whether the “standard of care” may not be so “standard” during this global pandemic. Medical negligence cases are won and lost after a determination of whether a healthcare provider met or failed to meet the standard of care. In these lawsuits, a jury decides whether the healthcare provider was negligent based upon the “standard of care.” In Missouri, the “standard of care” means to use that degree of skill and. learning ordinarily used under the same or similar circumstances by members of the defendant's profession.

During the COVID-19 pandemic, the “same or similar circumstances” portion of this definition have drastically changed considering the shortages of masks, face shields, other personal protective equipment (PPE), ventilators, swab kits, and testing capacity, all of which are critical for frontline caregivers and patients.

The Institute of Medicine Committee on Guidance for Establishing Standards of Care for Use in Disaster Situations defines “crisis standards of care” as:

“a substantial change in usual healthcare operations and the level of care it is possible to deliver, which is made necessary by a pervasive (e.g., pandemic influenza) or catastrophic (e.g., earthquake, hurricane) disaster. This change in the level of care delivered is justified by specific circumstances and is formally declared by a state government, in recognition that crisis operations will be in effect for a sustained period. The formal declaration that crisis standards of care are in operation enables specific legal/regulatory powers and protections for healthcare providers in the necessary tasks of allocating and using scarce medical resources and implementing alternate care facility operations.”

The medical community is working to establish guidelines for the “crisis standard of care.” The American Medical Association created an ethics resource page titled “Crisis Standards of Care: Guidance from the AMA Code of Medical Ethics” to offer guidance to healthcare institutions and providers on these issues during the pandemic. The Code does not offer specific clinical protocols, but instead provides foundational guidance for the development of ethically sound crisis standard of care guidelines.

“The goal is to make the decisions that happen at the bedside less ad hoc, so that they're more consistent, fairer and more objective,” said Elliott Crigger, PhD, Director of Ethics Policy at the AMA. “By having a set of standards, we’re not leaving it to somebody who, say, hasn’t slept in 48 hours or someone with a subtle bias against a patient."

The National Academies of Sciences, Engineering, and Medicine published a 200 page report in 2013 entitled “Crisis Standards of Care: A Toolkit for Indicators and Triggers” which addresses the standard of care during natural disasters, pandemics, and other catastrophic events.

At this stage, crisis measures are already being implemented in healthcare facilities across the U.S. Many of the recommendations involve the preservation and reuse of PPE due to the lack of resources. Outside the pandemic context, medical negligence cases commonly involve liability theories of medication errors, inadequate staffing, and ineffective infection prevention policies. These theories are likely to remain, but published “standard of care” guidelines in these situations during a public health crisis will likely be a moving target.

Other medical sources, committees and colleges have published on the crisis standard of care, including the American College of Emergency Physicians, the Institute of Medicine, and the Board on Health Sciences and Policy, among others. Litigators can only speculate how the standard of care for cases that arise during the COVID-19 pandemic will take shape. The only thing that is certain is that the crisis standard of care will be hotly contested and at the center of controversy in suits involving the care of patients with COVID-19 and the care of non-COVID-19 patients during the time of crisis.

Watch for our next post in this series, which considers the American Medical Association’s push for states to pursue liability protections for healthcare professionals during the COVID-19 emergency. Our prior post in this series can be found here.

Tips for Small Businesses Considering PPP Loan Relief

April 30, 2020

In just 2 short weeks, the first round of Paycheck Protection Program (“PPP”) funding under the CARES Act was exhausted. And it is not difficult to see why – after all, so long as the employer receiving those funds uses at least 75% of the loan proceeds for payroll costs during the eight-week covered period, the loan amount allocated toward each of the following expenses can be forgiven:

  • Payroll costs
  • Payment of interest on covered mortgage obligations
  • Payment on any covered rent obligations, and
  • Covered utility payments.

But many small businesses have expressed frustrations about the loan process and lack of access to funding. Adding to those frustrations are the growing reports of not-so-small businesses, or companies with access to other financing, receiving loans and exhausting available funding.

With many parts of the country either closed down or reopening in phases, now is still the time to take advantage of PPP loans. Some tips for small businesses considering applying for a PPP loan are provided below:

  • Act swiftly and decisively. The application period is open through June 30, 2020, but since these loans are given on a first-come, first-served basis, it is best to apply as quickly as possible. 
  • Even if you already submitted an application during the first round of PPP loans, be vigilant in communicating with your lender.If you have not received an approval or denial, stay in frequent contact with your lender in order to ensure that your application packet is complete and that additional information is not needed. If your lender asks for additional documentation, make that a first priority and get it promptly submitted in order to ensure you have the best chance at receiving funds. 
  • Try working with smaller local banks and community lenders. Most people have learned by now that working with a bank with whom you have an established relationship can give you priority in the PPP Loan application process. But if you have not had luck in this regard, consider working with a new community-based lender for a better chance at receiving funding –local business tends to sympathize and collaborate with other local business. 
  • What if my business is in a high-turnover industry? While the PPP loan program seems like a “no-brainer” for many businesses, some high-turnover industries may worry about whether or not they can maintain the appropriate headcount in order for most or all of their loan to be forgiven. This can be especially concerning, given the short two-year maturity period on PPP loans for unforgiven portions. The Amount of forgiveness is determined by multiplying the base forgiveness amount by one of the following fractions, to be selected by the borrower: 

(Average # of full-time employees per month employed during covered period)
(Ave. # of full-time employees per month employed from Feb. 15, 2019 – June 30, 2019) 

*or* 

(Average # of full-time employees per month employed during covered period)
(Ave. # of full-time employees per month employed during January and February of 2020) 

Small business owners who are not confident in employee retention are well-advised to use loan proceeds only for payroll costs and to keep any remaining funds on hand, where possible, in case some repayment is required. And since the CARES Act does not appear to make a distinction between employees who are let go versus those who leave voluntarily, job vacancies should be filled during the covered period to the extent possible. The PPP loan program does carry some risk for high-turnover industries but given that a personal guarantor or collateral is not required, the program is still less risky than traditional loans in most circumstances.

The full text of the CARES Act is available here. Sections 1102 and 1106 provide specific guidance regarding the PPP Loan program and PPP loan forgiveness.

COVID-19 Healthcare Heroics May Ironically Lead to Future Confrontations - Introduction (Part 1)

April 29, 2020

It has been more than a century since a truly all-enveloping, global pandemic has cut deep into the day-to-day lives of so many people. Discussions of the coronavirus or COVID-19 invariably include at least brief references, if not substantive comparisons, to the global pandemic of 1918-1919, in which more than 600,000 Americans perished. The world-wide death toll is still uncertain, with estimates of 20,000,000, to 50,000,000. Fortunately, at least for now, the current pandemic is not expected to be so devastating. Still, these two pandemics share many features, including the boundless heroism and courage of healthcare providers, both in the high-profile, as well as the seemingly small roles in combatting the virus and saving lives.

As the United States makes its way into the third month of dealing with COVID-19, there are already signs of concern for our healthcare providers being attacked in the future. As much as it seems wrong to have to consider this specter, several states have not only been anticipating it, they have taken action to shield certain healthcare providers from legal liability. For example, on April 1, 2020, Illinois Governor JB Pritzker entered an order to protect state employed healthcare workers and state-directed healthcare workers from civil liability for claims arising out of care provided to COVID-19 patients. Other states taking similar action include AL, AR, AZ, CT, GA, IL, MA, MI, MS, NC, NJ, NY, RI, VT.

Some might say such action is unnecessary – after all, who would sue these brave healthcare providers who risked and continue to risk their own health? The fact is that there are already COVID-19 solicitations on the websites of numerous plaintiff lawyers. Many of those focus on long term care facilities, but there is every reason to think that plaintiff lawyers’ groups and think tanks around the country are already working on different strategies to bring legal actions for COVID-19 care.

Much continues to be written about how to prevent or lessen the spread of COVID-19. Over the coming few days we will instead be providing a series of blog articles that delve into potential dangers for healthcare providers and offer observations about possible defense strategies.

Watch for our next post in this series, which considers the “standard of care” for healthcare providers during this global pandemic.

Long-Term Effects on Long-Term Care Facilities: Potential Increased Litigation Due to COVID-19

April 23, 2020

Long-term care facilities face many challenges, and the COVID-19 pandemic appears to be yet another significant challenge for these facilities. Their resident population includes those most vulnerable to illness or death from coronavirus because of advanced age and compromised immune systems. Plaintiffs’ attorneys are advertising their services to the families of those exposed to coronavirus in long-term care facilities. Each day the numbers of cases and deaths rise, increasing the litigation potential. 

There are over 1 million residents in long-term care facilities in the United States, with millions more receiving hospice care and long-term care from home health agencies. As of March 30, more than 400 of approximately 15,000 long-term care facilities in the United States reported coronavirus outbreaks amongst residents, staff or both. On April 2, the Associated Press reported approximately 2,300 confirmed coronavirus cases in long-term care facilities and 450 deaths, a mortality rate of nearly 20 percent.

Some are blaming a lack of supplies, poor staffing, inadequate policies and procedures, and the failure to follow guidelines published by the Centers for Disease Control and Prevention (CDC) and Center for Medicare & Medicaid Services (CMS) as contributing factors for the spread of the virus and resulting deaths. Medical experts are sure to disagree about the standard of care during this public health crisis and the feasibility of mitigating the spread of coronavirus in long-term care facilities. 

So, what can long-term care facilities do to prepare for potential litigation or avoid it altogether? There may be no foolproof way to prevent litigation, but certain strategies, when employed correctly, may help to mitigate risk.

  • To the extent feasible, follow CMS and CDC published recommendations and guidelines for pandemic response, for example:
    • Restricting all visitors, with exceptions for compassionate care, such as end-of-life situations;
    • Restricting volunteers and nonessential health care personnel and other personnel (i.e. barbers);
    • Cancelling group activities and communal dining; and
    • Implementing active screening of residents and health care personnel for fever and respiratory symptoms;
  • Ensure adherence to pandemic policies and response plans whenever possible;
  • When practical, separate residents who have tested positive for coronavirus and care for them in a separate area of the facility;
  • When practical, limit the staff caring for those who have tested positive and do not allow the same staff caring for those who have tested positive to care for those who are well;
  • Maintain resident records, staffing and scheduling records, and visitor records in accordance with facility policies and procedures;
  • Keep resident family members apprised of the condition of residents who are ill; and
  • Keep residents and their family members informed of changing facility policies and procedures, posting and providing copies of any changes to residents and their family members whenever practical.

*A full list of CDC guidance to nursing homes can be found here.

Though numerous states are currently considering or have already passed legislation shielding health care workers and facilities from civil liability for their efforts to treat COVID-19 patients and prevent the spread of coronavirus, it is not yet clear whether these bills will apply to long-term care facilities and the care provided at those facilities. No matter the implications of proposed immunity legislation on long-term care facilities, facilities should continue to do their best to keep residents and staff safe during this extraordinary pandemic and review and amend policies and protocols as new issues arise.

HHS Relaxes Enforcement of HIPAA Noncompliance in Telehealth and Mobile Testing

April 22, 2020

The U.S. Department of Health and Human Services (“HHS”) has announced a plan of enforcement discretion regarding telehealth communications and testing sites during the COVID-19 Nationwide Public Health Emergency. As a result, HHS will not impose penalties for covered healthcare providers’ noncompliance with HIPAA in connection with the good faith provision of telehealth during the emergency. Roger Severino, Director of the HHS Office for Civil Rights (“OCR”), explained the decision was motivated by a desire to, “empower[..] medical providers to serve patients wherever they are during this national public health emergency.  We are especially concerned about reaching those most at risk, including older persons and persons with disabilities.”

As a result, any covered healthcare provider may use any non-public facing remote communication product, including Apple FaceTime, Facebook Messenger video chat, Google Hangouts video, Zoom, or Skype, to provide telehealth to patients. Notably, Facebook Live, Twitch, TikTok, and similar video communication applications are considered by OCR to be public facing, and should not be used in the provision of telehealth.

HHS’s exercise of discretion applies to telehealth provided for any reason, regardless of whether the telehealth service is related to the diagnosis and treatment of health conditions related to COVID-19. Providers are encouraged, however, to enable all available encryption and privacy modes when using technology, as well as notify patients that the use of technology in the provision of telehealth potentially introduces privacy risks.

As an example, a provider could, in the exercise of professional judgement, utilize a cell phone video chat application to examine a patient exhibiting COVID-19 symptoms. This practice would permit the provider to evaluate a larger number of patients while also limiting the infection risk associated with in-person consultation.  During the public health emergency, the provider could provide those same telehealth services to assess or treat medical conditions unrelated to COVID-19.

HHS has published a bulletin advising covered entities of further flexibilities available to them as well as obligations that remain in effect under HIPAA as they respond to crises or emergencies.

In addition to its decision regarding telehealth, HHS has announced it will exercise enforcement discretion for violations committed by covered healthcare providers in their work with community-based testing sites during the emergency. As part of the overall effort to increase mobile testing sites across the country, Director Severino explained enforcement discretion in this area “supports these critical efforts to test and diagnose patients during this nationwide emergency." 

Unlike the decision regarding telehealth, OCR’s position on mobile testing sites applies only to certain health care providers, including some large pharmacy chains, that are only offering COVID-19 specimen collection or testing. During the emergency, OCR will not penalize healthcare providers for HIPAA violations stemming from "good faith uses and disclosures of protected health information by business associates for public health and health oversight activities.”

Covered healthcare providers should be cognizant, however, of the potential interplay between the HHS’s decision on enforcement discretion and Missouri law addressing the fiduciary duty of confidentiality and nondisclosure of protected health information. Thus, absent federal or state legislation shielding healthcare providers from civil liability for COVID-19 related services or other services during the public health emergency, providers could still face potential litigation for claimed monetary damages stemming from improper disclosure of protected health information.

Insurance Claims in the time of COVID-19

April 20, 2020

Business interruption insurance is a hot topic in insurance coverage law. Most policies afford coverage for lost income only if the business has sustained “property damage.” Property damage is typically defined to mean direct physical injury to tangible property. Policyholders seeking to obtain coverage for COVID-19 stay-home orders may seek to leverage a recent Pennsylvania Supreme Court decision in a case not related to insurance to advance the argument that COVID-19, and/or governmental stay-home orders, has caused “property damage.” In that case, the Pennsylvania Supreme Court found that any location, including an individual business, is within a disaster area. We expect policyholders to argue that their business have, thus, arguably sustained “property damage,” triggering their coverage. 

In Friends of DeVito, et al. v. Tom Wolf, Governor, et al. 2020 WL 1847100 (PA, April 13, 2020), the Pennsylvania Supreme Court shot down a lawsuit challenging Gov. Tom Wolf’s authority under state law to order “non-life-sustaining” businesses to shut down as a means of reducing the spread of COVID-19. The challengers in the case included Republican state legislative candidate, a public golf course, and a licensed realtor. They all argued that Gov. Wolf lacked authority to issue his Executive Order because the COVID-19 pandemic did not fall under the list of natural disasters outlined in the State’s emergency code.

The Pennsylvania Emergency Code defines “natural disaster” as:

Any hurricane, tornado, storm, flood, high water, wind-driven water, tidal wave, earthquake, landslide, mudslide, snowstorm, drought, fire, explosion or other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.

While this code points to specific disasters (i.e., hurricane, tornado, storm etc.…), it also includes a catchall phrase for any “other catastrophe which results in substantial damage to property, hardship, suffering or possible loss of life.”

The challengers argued that pandemics could not be classified as a “natural disaster” under this code because they are too dissimilar to the natural disasters specifically listed. However, the Pennsylvania Supreme Court disagreed, noting that there was no commonality among the listed natural disaster in the code as some were weather-related and others, were not.

Most importantly, and the interesting language we are tracking, the Pennsylvania Supreme Court went on to hold that COVID-19 is a “natural disaster” because it “results in substantial damage to property, hardship, suffering or possible loss of life.” Because the virus is spread from person-to-person contact, has an incubation period of up to fourteen days and can live on surfaces for up to four days, any location, including an individual business, is within a disaster area and is thus damaged. Additionally, the Pennsylvania Supreme Court rejected the argument that the actual presence of the disease at a specific location was required before it could be shutdown, thus holding that all properties were damaged because of the manner in which the disease spreads. This could have implications in policy interpretation regarding physical damage.

In enforcing the governor’s authority, the court held that the “COVID-19 pandemic is, by all definitions, a natural disaster and a catastrophe of massive proportions.” We expect that policyholders may argue that the Pennsylvania Executive Order, like many other State’s orders, is a declaration that business property has been damaged and is unsafe due to the Coronavirus. Because policyholders have the burden of proving that a loss is within a policy’s insuring agreement, we expect to see a multitude of approaches to try to bring COVID-19 business disruptions within the ambit of “property damage,” and the Pennsylvania Supreme Court, while addressing right-to-assemble claims, may have provided one argument that we could see advanced in the skirmishes over coverage for business interruption losses.

It should be noted that Pennsylvania, New York, Massachusetts, Ohio, and New Jersey have proposed legislation prohibiting insurers from denying business interruption claims for losses caused by COVID-19 to small business in their respective states. However, Congress is also considering legislation that would cap the insurance industry’s exposure to COVID-19 pandemic claims. We will continue to monitor this ever changing, fluid situation.

Timing is Everything: Missouri Appellate Court Reminds Us Evidence Cannot be Excluded as "Subsequent Remedial Measures", Where the Remedies Preceded the Accident

April 15, 2020

In Patricia Watson v. City of St. Peters, the plaintiff alleged she was riding her bicycle along a stretch of sidewalk in the City of St. Peters, Missouri in late August 2014 where she had never ridden before. After cresting a hill the plaintiff testified she saw “something bizarre in the middle of the sidewalk” which turned out to be a sump inlet designed to funnel storm water from the street into a storm sewer at the bottom of the hill.  The inlet extended into the sidewalk, creating an opening and narrowing the traversable portion of the sidewalk.

At the same time, a witness happened to drive past plaintiff as she rode down the hill and also saw the inlet jutting into the sidewalk.  The witness later testified that he was concerned that the plaintiff might not see the opening in the sidewalk and thus checked his rearview mirror.  When he did, the witness saw the front wheel of the plaintiff’s bicycle go into the inlet, causing her to flip head-first onto the sidewalk and resulting in multiple facial fractures.  The plaintiff subsequently sued the City of St. Peters for negligence, alleging the inlet was an unreasonably dangerous condition that was not open and obvious, and sought monetary damages for her personal injuries. 

At trial, the City introduced evidence that the traversable portion of the sidewalk was four feet wide and that it had been constructed in compliance with local and state requirements, as well as the federal Americans with Disabilities Act. 

In response, the plaintiff sought to introduce evidence of a 2012 bicycle accident involving a sump inlet in a sidewalk at a different location in the City and the City’s resulting program to retrofit or bridge all of the sump inlets to make the City’s sidewalks safer.  Outside of the hearing of the jury, a representative of the City testified the City began retrofitting its sump inlets after learning of the 2012 bicycle accident and before the plaintiff’s accident in 2014.  He also confirmed the City had planned to retrofit all the sump inlets citywide, but had not erected any warning signs or painted the curbs around the sump inlets while the retrofitting was ongoing.

The trial court subsequently refused plaintiff’s offer of proof and excluded evidence of the 2012 bicycle accident and the City’s sump inlet retrofitting program.  The trial court also excluded references in a written statement from the witness describing the inlet as extending “extremely” into the sidewalk and constituting a “hazard,” while admitting a prior inconsistent statement attributed to the plaintiff from a police report that she had ridden on the stretch of sidewalk “every day”.  The jury returned a verdict attributing one hundred percent of the fault to the plaintiff and finding in favor of the City.

On appeal, the plaintiff asserted the trial court erred by excluding evidence that the City had notice of a problem with the sump inlets and had taken steps to make the design safer before the plaintiff’s accident.    

The Missouri Court of Appeals for the Eastern District agreed with the plaintiff and held that the trial court abused its discretion in excluding as subsequent remedial measures the evidence that the City had notice of a problem with the sump inlets and had taken steps to make the design safer before the plaintiff’s accident.  The Appellate Court commented that the public-policy rationale for the general rule excluding post-accident remedial measures did not apply to a defendant like the City who was aware of a problem and had already proposed remedial measures before an accident like the one at issue had occurred.   

The appellate court further noted that the exclusion of the “clearly material and probative evidence” of the City’s retrofitting program prejudiced the plaintiff by hindering her ability to prove an essential element of the case regarding the City’s knowledge of the condition.  Thus, the appellate court reversed the trial court’s exclusion of the evidence and remanded the case for a new trial.

The appellate court’s decision in Watson was limited to the specific facts of the case concerning the defendant’s knowledge and actions before the accident.  While it did not abrogate the longstanding rule in Missouri that a trial court should exclude evidence of subsequent remedial measures in a negligence case, defense counsel should remain wary of efforts to cite the decision in future cases to avoid application of the rule under dissimilar circumstances.   

Experts Have Feelings Too?

April 13, 2020

In Revis v. Bassman (ED107663), Missouri’s Eastern District Court of Appeals recently reversed and remanded the trial court’s ruling barring Plaintiff from cross examining the defense expert on his tort reform activity.

In the underlying case, Revis alleged Dr. Bassman was medically negligent in delaying surgery for her fractured heel. At trial, Plaintiff made an offer of proof that Dr. Bassman’s orthopedic surgery expert, Dr. Brett Grebing, served as the President of the Madison County Medical Society from 2012 to 2013, during which time he advocated for enforcement of Illinois’ statute of limitations for certificates of merit and reinstating damage caps. Plaintiff further showed that, despite Dr. Grebing’s prior deposition testimony where he testified it was “fair to say” he had engaged in tort reform activities, Dr. Grebing would deny such activities at trial. This discrepancy could have impacted his credibility with jurors. Plaintiff argued this evidence was necessary to show Dr. Grebing’s general and personal bias against plaintiffs in medical malpractice cases. The trial court barred the evidence, but the appellate court ruled this was an abuse of discretion.

Missouri law is well-settled that jurors are entitled to information that might affect witness credibility and the weight of witness testimony. Missouri courts have consistently held that the bias or interest of a witness is never irrelevant and cross-examination on such issues, while within the discretion of the court, should generally be permitted.

The Court of Appeals relied on Koelling v. Mercy Hospitals East Communities, in which the trial court barred the cross-examination of a defense expert about his prior deposition testimony regarding his anger, frustration, and bias against medical malpractice claims, arising from his personal experience of being sued in medical malpractice suits, and a judgment against him. 558 S.W.3d 543 (Mo. App. E.D. 2018).  The Koelling trial court barred the evidence, which the appellate court ruled was an abuse of discretion because it showed the expert’s bias against medical malpractice claims.

Here, the appellate court was unconvinced that any factual differences between Revis and Koelling were consequential. The Court reasoned that Dr. Grebing’s denial of tort reform activities, despite earlier deposition testimony to the contrary, may have impacted his credibility with the jury. Additionally, his advocacy as a medical professional in favor of damage caps could be viewed by jurors as a direct financial interest in medical malpractice reform.  Jurors could thus conclude Dr. Grebing’s efforts to limit monetary awards against all doctors could play a role in his testimony in this case. 

The Eastern District Court of Appeals ultimately held the trial court abused its discretion in barring Plaintiff’s cross examination of Dr. Grebing regarding his tort reform activities because  it should have been up to jurors to determine if his tort reform efforts were a source of potential bias or prejudice.

The Revis ruling was not unanimous. In his dissent, Judge Odenwald wrote that the factual distinction between Revis and Koelling was important. The evidence at issue in Koelling was of a personal nature. In Revis, Plaintiff was allowed to thoroughly cross examine Dr. Grebing regarding his personal litigation history. The issue on appeal was the questioning of Dr. Grebing regarding his professional activities, which the trial court found was simply too tangential and remote to show bias and could confuse the jury, was well within the trial court’s discretion.

The Eastern District Court of Appeals may provide further clarification and parameters on this issue in future cases. Until that time, counsel may deem it prudent to consult with their current and future experts regarding their feelings related to personal litigation experience and tort reform activities to avoid any surprises at trial. 

Illinois Implements Mandatory Sexual Harassment Prevention for Employers to be Completed by December 31, 2020

April 9, 2020

Public Act 101-0221, the Workplace Transparency Act, amended the Illinois Human Rights Act (“IHRA”) and now requires Illinois employers to provide annual sexual harassment prevention training by December 31, 2020, followed by annual training thereafter. Sexual harassment prevention training is required by any employer with one or more employees and all employees must be trained regardless of full-time, part-time or intern status.

Minimum training standards are outlined in Section 2-109(B) and include:

  • An explanation of sexual harassment consistent with the IHRA;
  • Examples of conduct that constitutes unlawful sexual harassment;
  • A summary of relevant Federal and State statutory provisions concerning sexual harassment, including remedies available to victims of sexual harassment; and
  • A summary of responsibilities of employers in the prevention, investigation, and corrective measures of sexual harassment.

While the Illinois Department of Human Rights (“IDHR”) has developed a model sexual harassment prevention training program to be made available by April 30, 2020, employers are welcome to develop their own sexual harassment prevention training program provided it meets or exceed the minimum standards set forth by the IHRA as set forth in Section 2-109(B) above.

In addition to the training standards outlined in Section 2-109(B), restaurants and bars must also provide employees with supplemental training that meets or exceeds the minimum training standards outlined in Section 2-110 (C) of the IHRA. These minimum supplemental training standards include:

  • Specific conduct, activities, or videos related to the restaurant or bar industry;
  • An explanation of manager liability and responsibility under the law; and
  • English and Spanish language options.

Section 2-110(B) further requires every restaurant and bar to have a sexual harassment prevention policy that includes:           

  • A prohibition on sexual harassment;
  • The definition of sexual harassment under the IHRA and Title VII of the Civil Rights Act of 1964;
  • Details on how an individual can report an allegation of sexual harassment internally, including options for making a confidential report to a manager, owner, corporate headquarters, human resources department, or other internal reporting mechanism that may be available;
  • An explanation of the internal complaint process available to employees;
  • How to contact and file a charge with the Illinois Department of Human Rights (“IDHR”) and United States Equal Opportunity Commission (“EEOC”);
  • A prohibition on retaliation for reporting sexual harassment allegations; and
  • A requirement that all employee participate in sexual harassment prevention training.

Pursuant to Section 2-110(B), a written copy of the sexual harassment prevention policy must be provided to all employees within the first calendar week of the employee’s employment. The policy must also be made available in English and Spanish.

The deadline for employers to comply with the changes to IHRA is December 31, 2020. However, employers are encouraged to train employees as soon as possible as employers are liable for the sexual harassment conduct of new employees upon their hire.  

Employers are required to keep a record of all trainings which must be made available for IDHR inspection upon request. Failure to comply will result in a notice to show cause giving the employer 30 days to comply. Failure to comply within 30 days will result in IDHR petitioning the Illinois Human Rights Commission for entry of an order imposing a civil penalty against the employer, including a $500 penalty to businesses with less than 4 employees, or a $1,000 penalty to those with more than 4 employees. Subsequent violations can rise to a $5,000 penalty per violation.

Illinois employers should review their current policies to ensure compliance with the recent changes to state law and implement annual training schedules to avoid future fines. 

Additional information regarding these sexual harassment prevention training requirements is available at the Illinois Department of Human Rights website. And if you need assistance or have questions concerning your company’s training program, please get in touch with one of Baker Sterchi’s labor and employment attorneys.

Missouri Supreme Court Holds That Requesting an Accommodation, Standing Alone, Is Not an Activity Opposing a Practice Prohibited by the MHRA

April 7, 2020

On January 14, 2020, an issue of first impression was presented to the Missouri Supreme Court: whether an employee’s accommodation request is a protected activity under the Missouri Human Rights Act. In a display of sound statutory construction, the Missouri Supreme Court found that an employee’s request to her employer for a work accommodation, standing alone, is not a protected activity under the Missouri Human Rights Act, and that consequently, it cannot provide the basis for a retaliation claim under the MHRA.

The Court reversed the circuit court’s judgment in favor of an employee, Li Lin, ruling her accommodation request was insufficient to support a retaliation claim under the MHRA and she had therefore failed to submit a cognizable claim.

Plaintiff Dr. Lin was a medical researcher at Washington University in St. Louis. During her employment, Dr. Lin began experiencing chronic back pain and was diagnosed with two herniated discs. The University accommodated her requests more than once for a different position, due to her back pain. 

Dr. Ellis informed Dr. Lin that when the grant funding for her research project expired, her position would be eliminated.  After the grant funding ceased later that year, Dr. Ellis was unsuccessful in his efforts to find work for Dr. Lin in another University laboratory that would accommodate her back restrictions. She was let go. 

Dr. Lin filed a charge of discrimination with the Missouri Commission on Human Rights, claiming that both Dr. Ellis and the University discriminated and retaliated against her because she engaged in a protected activity – requesting an accommodation. She then sued both Dr. Ellis and the University.

At trial, a jury found in favor of Dr. Lin, but not as to Dr. Ellis. The University filed a post-trial motion for judgment notwithstanding the verdict. It argued, in part, that Dr. Lin’s sole claim submitted to the jury failed to state a claim under the MHRA because a request for an accommodation is not a protected activity under section 213.070. Therefore, the University asserted, such a request could not serve as the basis for a retaliation claim. The circuit court denied the motion and the University appealed.

The Eastern District Court of Appeals reversed the judgment against Washington University, and remanded the case for a new trial. Dr. Lin ultimately filed an Application to Transfer in the Missouri Supreme Court. 

The Supreme Court granted transfer, and Dr. Lin repeated there her argument that although a request for accommodation does not fall within the literal language of the section, the court should adopt the reasoning from federal courts, which have interpreted an analogous federal provision to provide a cause of action for such requests.

Acknowledging the issue was one of first impression, the Court rejected Dr. Lin’s argument, holding that it was constrained by the plain language in section 213.070, RSMo. A request for an accommodation, standing alone, is not among the protected activities described in either prong of section 213.070: 1) opposition to a practice prohibited by the MHRA; or, 2) filing of a complaint, testifying, assisting, or participating in any investigation, proceeding, or hearing conducted under the MHRA. The Court held that where the statute specifically listed a variety of protected activities, and a request for accommodation was not among them, it could not, in effect, add to the statute another activity that the legislature did not include.

Some concluding thoughts: First, the facts of this case had to have helped the University. As the Court recites, it accommodated Dr. Lin on more than one occasion without requiring her to obtain a physician’s statement about her ability to function.  Although that approach may pose a challenge to an employer, it is, at least early on, a better course most of the time and should be implemented if practicable. Second, focusing on a legal point, the Court held that Plaintiff did not plead anywhere in her charge of discrimination or in her circuit court pleadings that her requests for accommodation were “in opposition to any unlawful practice” by the University. Yet, as the Court observed, this was her attempted characterization on appeal. Thus, the Court, may have been telling the parties, perhaps largely because this was an issue of first impression, that it must take the pleadings at face value.  In an earlier time, such a statement may have signaled the Court’s willingness to entertain the issue again with different results. However, the facts of this case arose before the 2017 amendments to the MHRA, limiting its scope. And those amendments should operate to close that door. The fact that this opinion was issued “Per Curiam” may hint at a lack of unanimity here. 

Sometimes You Just Can't Compete

April 3, 2020

A recent decision by the Missouri Court of Appeals, Southern District, demonstrates the importance of specifically crafted non-compete provisions in employment contracts. Missouri courts generally enforce non-compete provisions if they are reasonable in scope and duration, meaning they are enforced if they are no more restrictive than necessary to protect the legitimate interests of the employer. However, what is reasonable depends upon the facts of each case.

In MFA Oil Co. v. Martin, MFA Oil filed suit against its former employee Martin, claiming he violated a non-compete provision in his employment agreement. In May, 1999, Martin and MFA Oil entered into the employment agreement wherein Martin accepted a position as plant manager for MFA at its plant in Seymour, Missouri. The agreement, which identified Martin as a “MANAGER,” contained a non-compete provision that stated in part as follows:

For a period of three (3) years after MANAGER leaves the employ of MFA OIL, MANAGER agrees not to work for another company engaged in the sale of petroleum products within a thirty five (35) mile radius of the MFA OIL AB7 Seymour plant. For a period of three (3) years after MANAGER leaves the employ of MFA OIL, MANAGER agrees not to individually engage in the sale or delivery of petroleum products within a thirty-five (35) mile radius of the MFA OIL AB7 Seymour plant.

Martin held various positions with MFA at various locations in Missouri from 1999 through 2018. Although he was only employed at the MFA OIL AB7 Seymour plant for a year, all of his positions with MFA Oil were situated within 35 miles of the Seymour plant. After his tenure at the Seymour plant, MFA moved Martin to its plant in Hartville, Missouri, where he served as the plant manager. Martin remained as the Hartville plant manager for a short time and then became the plant manager at MFA’s plant in Mansfield, Missouri.   

Martin served as the Mansfield plant manager for the next 15 years.  Then, however, during a restructuring process at MFA, Martin lost his managerial title and became a “service tech.” Although he earned a similar wage as a service tech, he lost his eligibility for a manager bonus.   In addition, his interaction with customers was limited as a service tech to the time he set or picked up tanks.

A year later, Martin again assumed a managerial position with MFA at the Mansfield plant. He was not reinstated as the plant manager, but instead became the operations manager. MFA then moved Martin to Rogersville, Missouri, to serve as the operations manager at that location.

He worked in Rogersville for the next 20 months, then resigned. Two months after resigning from MFA, Martin organized a new business enterprise, Martin Propane LLC, to engage in retail propane sales. Martin Propane competed with MFA and had a large propane storage tank, plant, propane delivery truck and tank trailer located in Mansfield, Missouri. The storage tank and plant and “most, if not all, of” Martin Propane’s customers were within 35 miles of MFA’s Seymour plant.

MFA filed suit, asking the trial court to prohibit Martin from selling propane within 35 miles of the Seymour plant individually or with another company. The trial court granted injunctive relief to MFA Oil, enforcing the covenant not to compete according to its terms and entered judgment against Martin prohibiting him for three years from selling bulk propane within 35 miles of MFA’s Seymour plant.   It did, however, limit the phrase “petroleum products” to bulk propane not sold for recreational use.

On appeal, Martin argued that (1) the covenant as enforced was overbroad; (2) his acceptance of a demotion after 15 years as plant manager in Mansfield and subsequent placement in a different managerial position effectively nullified the Manager Agreement he had long ago executed, including the covenant not to compete; and (3) the covenant not to compete is a prohibited restraint of trade in violation of R.S.Mo. § 431.202.

The Court of Appeals rejected Martin’s argument that the covenant not to compete was overbroad. In so holding, it relied on prior Missouri cases holding that in appropriate circumstances, two and three year non-compete agreements for employees, sales representatives or office managers were reasonable. 

Further, the Court of Appeals affirmed the trial court’s judgment, stating that Martin agreed in the contract not to compete for three years after he “left the employ” of MFA. Martin did not argue that any of his early transfers to the other MFA locations or his employment as a service technician constituted a termination of his employment. He instead argued that the acceptance of the Mansfield operations manager position, some 17 years after he executed his original employment agreement, terminated that agreement. The Court of Appeals rejected this argument, stating that, because Martin was continuously employed by MFA, he agreed not to compete for a period of time after he “left the employ” of MFA and was a manager at the time of his resignation, the contract was in effect at the time of Martin’s resignation.

The Court of Appeals also rejected Martin’s claim that the covenant not to compete constitutes a restraint on trade in violation of R.S.Mo.  § 431.202 because the statute, by its terms, is limited to covenants “not to solicit, recruit, hire or otherwise interfere with the employment of one or more employees.” The covenant not to compete in Martin’s employment agreement did not promise to do any of those things and, therefore, it was not applicable.

Of particular interest in this opinion is that each of the places where Martin worked was located within 35 miles of MFA’s Seymour plant. However, for the majority of his employment with MFA, he was located in Hartville, Missouri, which is 23 miles away from Seymour. Despite this change in location, the Court of Appeals did not amend the terms of the non-compete to prohibit his actions within 35 miles of Hartville. Instead, the court strictly enforced the terms of the contract as written and held that Martin could not engage in the prohibited activities within the proscribed distance from the Seymour plant, a location at which he had not been employed since 2000. 

This opinion serves as a reminder that when crafting non-compete provisions, employers and employees alike should be careful regarding its terms, including how they define the geographical area where competition is prohibited and under what circumstances the agreement is terminated. While defendant Martin had not been employed in Seymour for almost 18 years and had not been a plant manager for nearly two years, the Court of Appeals nevertheless interpreted the contract strictly according to its terms. This case also serves as the most recent reminder to prospective employers that when recruiting a manager or sales representative who has previously worked in the same industry, in the same geographic area, attention must be paid as to whether there is a noncompete agreement that may preclude his competing with his former employer.

For a discussion of Missouri Supreme Court case law governing the enforceability of noncompete agreements, see our earlier blog post on the Supreme Court’s Copeland and Kennebrew decisions. 

Small Business Covid-19 Primer

April 1, 2020

Covid-19 has caused stress for both business owners and employees. In the past days, I’ve fielded calls from clients who need a general legal lay of the land before asking more specific questions.

Two new benefits are in effect from April 1, 2020 through December 31, 2020: emergency paid sick leave (EPSL) and paid FMLA leave (FMLA+). Both were part of the Families First Coronavirus Response Act.  There is a flyer to post starting April 1, 2020, available to print on the DOL website here.

An employee is entitled to FMLRA+ or EPSL leave if he/she is:

  1. subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
  2. advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  3. experiencing symptoms of COVID-19 and seeking a medical diagnosis;
  4. caring for an individual who either is subject to a quarantine or isolation order related to COVID-19 or has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  5. caring for a child whose school or daycare is closed due to COVID-19; or
  6. experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

Generally, an employer with 50-499 employees must provide:

  • 2 weeks of 100% paid leave (for reasons 1-3),
  • 2 weeks of 2/3 paid leave (for reasons 4, 6)
  • 10 weeks of 2/3 paid leave (for reason 5).
  • 12 weeks of total leave.

None of this leave applies during this government mandated shutdown or for as long as the business is closed due to lack of business.  None of this applies if the business has employees work reduced hours.  Employees whose hours have been reduced may be entitled to file for unemployment benefits, and the employer must tell the employee he/she is entitled to unemployment.

There are additional benefits for the employer as well.

The Paycheck Protection Program is a new SBA loan/grant program, which has a maximum loan amount of 2.5 times your average monthly payroll.  It is forgiven if the employer can document that all loan proceeds were used in the 8 weeks after receiving the loan for payroll, rent, utilities, and healthcare expenses.  The employer must keep the average payroll and average number of employees, or the loan must be repaid.  For example, if you reduce payroll by 25%, then 25% of the loan must be repaid.

If the employer rehires employees that were previously laid off at the beginning of the period, or restores any decreases in wage or salary that were made at the beginning of the period, the employer will not be penalized for having a reduction in employees or wages, as long as this has been done by June 30, 2020. The SBA has not finalized its regulations on the forgiveness.  The Treasury Secretary announced the SBA will have a plan in place by Friday April 3, 2020.

Employers may also apply for an SBA disaster relief loan with a $10,000 advance option (once the SBA updates its forms).  Keep in mind, the employer can't list the same expenses on the Paycheck Protection Program and the Disaster Relief Loan--so if you apply for disaster relief for payroll, you can't later get a Paycheck Protection Program loan for payroll.

Finally, there is a new Kansas City-area small business relief loan fund, maxing out at a $100,000 loan for businesses with fewer than 20 full-time employees and $2.5 million or less in annual revenue that are located in Jackson, Clay, Platte, or Cass counties in Missouri or Wyandotte, Johnson, or Leavenworth counties in Kansas. Businesses may apply here.  

Finally, if the employer must pay FMLA+ or EPSL benefits, the employer will receive a tax credit against payroll taxes.  The credit is also refundable. KPMG created a good bulletin on the specifics, which you can view here.

Provided certain conditions are met, businesses with fewer than 50 employees can exempt themselves from paying benefits for reason 5--when a worker is staying home to care for a child, because the school/daycare is closed.  You may claim this exemption if an authorized officer of the business has determined that:

  1. The provision of paid sick leave or expanded family and medical leave would result in financial obligations exceeding available business revenues and cause you to cease operating at a minimal capacity;  
  2. The absence of the employee or employees requesting paid sick leave or expanded family and medical leave would entail a substantial risk to the financial health or operational capabilities of the small business because of their specialized skills, knowledge of the business, or responsibilities; or  
  3. There are not sufficient workers who are able, willing, and qualified to work as needed for the small business to operate at a minimal capacity.

There is no exemption for reasons 1, 2, 3, 4, and 6, above --if one of your workers is actually sick, quarantined, or caring for a person in quarantine.

Finally, businesses in Kansas should keep in mind that their local disaster relief declaration has been superseded by the Kansas Governor’s Executive Order 20-16, which took effect March 30, 2020 and expires April 19, 2020.

Illinois Appellate Court Finds Insurer Owes Duty to Defend Biometric Lawsuit

March 30, 2020

In what is likely to be one of many court rulings to come regarding the scope of an insurer’s duty to defend an insured in a biometric privacy lawsuit, the Illinois First District Court of Appeals recently weighed in on this issue. In West Bend Mut. Ins. Co. v. Krishna Schaumburg Tan, Inc., 2020 IL App (1st) 191834, the court determined that West Bend Mutual Insurance Company owed a duty to defend its insured in an underlying lawsuit filed under the Illinois Biometric Information Privacy Act (“BIPA”). The complete opinion can be found here

In that case, Krishna, a franchisee of L.A. Tan Enterprises, was sued for allegedly violating BIPA. According to the underlying complaint, Krishna’s customers were required to have their fingerprints scanned to verify their identification. The plaintiff further alleged that after having her fingerprints scanned by Krishna, the company failed to provide her with, or obtain, a written release allowing Krishna to disclose her biometric data to any third party. She claimed that Krishna disclosed her biometric information to a third-party vendor without her consent.

Krishna sought coverage from West Bend for the lawsuit under two insurance policies West Bend had issued to Krishna. West Bend defended Krishna in the underlying lawsuit pursuant to a reservation of rights. Subsequently, West Bend filed a declaratory judgment action seeking a declaration that it owed no duty to defend or indemnify Krishna in the underlying lawsuit. West Bend alleged that the underlying lawsuit did not trigger coverage because the plaintiff’s underlying allegations did not describe a “personal injury,” her allegations did not implicate a data compromise endorsement contained in one of the policies, and coverage was barred by the policies’ violation of statutes exclusion. In response, Krishna filed a counterclaim, arguing that it was entitled to coverage in the underlying lawsuit and damages under Section 155 of the Insurance Code for vexatious and unreasonable delay in providing coverage. Ultimately, the trial court granted Krishna’s motion for summary judgment in part, concluding that West Bend owed a duty to defend Krishna in the underlying lawsuit, but denying the section of the motion seeking damages under Section 155.

On appeal, the court first examined whether the underlying complaint allegations were encompassed by the policies’ definition of “personal injury.” The policies indicated that West Bend would pay “those sums that [Krishna] becomes legally obligated to pay as damages because of *** ‘personal injury’ ***” and that West Bend would have a duty to defend Krishna against “any ‘suit’ seeking those damages.” The policies defined “personal injury” to include any injury arising out of “[o]ral or written publication of material that violates a person’s right of privacy.” Krishna argued that the plaintiff in the underlying lawsuit alleged an injury arising from publication because she claimed that Krishna violated BIPA by providing her fingerprint data to a third-party vendor. West Bend argued that publication required communication of information to the public at large, not just to a single third-party. 

Because the policies did not define the term “publication,” the court gave the term its “plain, ordinary, and popular meaning.” Relying on guidance from the Illinois Second District Appellate Court’s holding in Valley Forge Ins. Co. v. Swiderski Elecs., Inc., 359 Ill. App. 3d 872 (2d Dist. 2005), the Oxford English Dictionary, and Black’s Law Dictionary, the court concluded that the term publication includes both the broad sharing of information to multiple recipients and a more limited sharing with a single third-party. According to the court, had West Bend intended for the term to apply only to communication of information to a large group of people, it could have explicitly defined it as such in its policies. 

West Bend further argued that the policies’ violation of statutes exclusion applied to prohibit coverage. That exclusion indicated that coverage did not apply to “*** ’personal injury’ *** arising directly or indirectly out of any act or omission that violates or is alleged to violate:

  1. The Telephone Consumer Protection Act (TCPA) ***
  2. The CAN-SPAM ACT of 2003 ***
  3. Any statute, ordinance or regulation *** that prohibits or limits the sending, transmitting, communicating or distribution of material or information.”  

According to West Bend, the underlying lawsuit alleged a violation of BIPA, a statute it characterized as prohibiting or limiting the sending of material or information, namely an individual’s biometric information or identifier. Section 14/15(d) of BIPA expressly provides that “[n]o private entity in possession of a biometric identifier or biometric information may disclose, redisclose, or otherwise disseminate a person’s or a customer’s biometric identifier or biometric information” unless at least one of four conditions is met. 

In rejecting this argument, the court cited the full title of the policies’ exclusion, “Violation of Statutes That Govern E-Mails, Fax, Phone Calls or Other Method of Sending Material or Information,” as evidence that the exclusion applied only to statutes that govern certain methods of communication, not to statutes that limit the sending or sharing of information. The text of the exclusion also expressly referred to certain statutes – TCPA and CAN-SPAM – that regulate certain methods of communication. Based upon the exclusion’s title and specific references to TCPA and CAN-SPAM, the court reasoned that the final, “catchall” provision of the exclusion was meant to encompass any state or local statutes, rules, or ordinances that, like the TCPA and CAN-SPAM, regulated methods of communication.  Based upon this interpretation of the exclusion, the court determined that it did not apply to bar coverage for the underlying lawsuit. According to the court, BIPA does not regulate methods of communication, but rather, regulates the collection, use, safeguarding, handling, storage, retention, and destruction of biometric identifiers and information. 740 ILCS 14/5(g).

Because the court found that the underlying complaint allegations triggered West Bend’s duty to defend Krishna, it did not examine whether West Bend owed coverage under an endorsement contained in one of the policies titled “Illinois Data Compromise Coverage.” Krishna, however, relied upon the endorsement to argue that it was entitled to damages under Section 155 of the Illinois Insurance Code. The endorsement provided “Additional Coverage” for “personal data compromise” under certain conditions. The policy defined “personal data compromise” to include disposal or abandonment of personally identifiable information or personally sensitive information without appropriate safeguards such as shredding or destruction, provided that the failure to use appropriate safeguards was accidental and not reckless or deliberate. 

Under Section 155, an insured may collect attorneys’ fees and costs where an insurer creates a vexatious and unreasonable delay in settling a claim. Where a bona fide coverage dispute exists, sanctions under Section 155 are inappropriate.  Krishna argued that the underlying complaint alleged a personal data compromise by disposal of the plaintiff’s personally identifying or personally sensitive information to a third-party without appropriate safeguards. Krishna claimed that appropriate safeguards would have entailed following the data protection requirements of BIPA and that negligent failure to take note of changes in the law was “accidental.” The court concluded that a bona fide coverage dispute existed and, therefore, Krishna was not entitled to Section 155 damages. The court reasoned that Krishna’s argument for coverage hinged on an interpretation of “disposal” as including Krishna’s deliberate sharing of the underlying plaintiff’s information, an interpretation that “safeguards such as shedding or destruction” included following new legal requirements contained in BIPA, and the term “accidental” meant failure to remain informed of changes in the law (i.e., the enactment of BIPA).

As lawsuits continued to be filed under BIPA, courts likely will see an increasing number of insurance coverage disputes concerning the duty to defend and indemnify in BIPA lawsuits. For example, American Family Mutual Insurance Company recently filed a declaratory judgment action in the District Court for the Northern District of Illinois, seeking a declaration that it does not owe a duty to defend certain companies named in an underlying BIPA lawsuit. That case involves some of the arguments raised in the West Bend case, including whether a violation of state statutes exclusion applies, but American Family also raises arguments not addressed in West Bend. The case is American Family Mut. Ins. Co. SI v. Amore Enterprises, Inc., No. 1:20-cv-01659. If courts continue to rule that insurers have a duty to defend companies named in BIPA lawsuits, as in West Bend, the already significant number of BIPA filings is likely to increase as well.  

Illinois District Court Addresses Standing, Pleading Requirements in Illinois Biometric Lawsuits

March 27, 2020

Adding to the confusion businesses face over the Illinois Biometric Information Privacy Act (“BIPA”), two Illinois District Court judges recently issued orders on what is required to maintain a BIPA lawsuit in federal court. In one case, Judge Robert Gettleman remanded a BIPA lawsuit to an Illinois circuit court, concluding that the plaintiff lacked standing to pursue her claim in federal court.  In a separate case, Judge Rebecca Pallmeyer dismissed a BIPA lawsuit, finding that that plaintiff failed to allege sufficient facts to state a claim under the Act.  These opinions seem to impose more stringent requirements on plaintiffs than the Illinois Supreme Court’s take on BIPA in the Rosenbach v. Six Flags Entertainment Corp. opinion, previously addressed by BSCR here.  As discussed below, however, Judge Gettleman’s ruling suggests that an argument commonly made by defendants in BIPA lawsuits could be used against them.

In Hunter v. Automated Health Sys., 2020 U.S. Dist. Lexis 29054 (N.D. Ill. Feb. 20, 2020), the plaintiff filed suit against her former employer, alleging that it violated BIPA by requiring its employees to scan their fingerprints for timekeeping purposes without taking certain measures required by the Act.  Specifically, the plaintiff alleged that the defendant violated the Act by failing to properly inform the plaintiff in writing of the specific purpose and length of time for which her fingerprints were being collected, stored, and used; failing to provide a publicly available retention schedule and guidelines for permanently destroying the plaintiff’s fingerprints; and failing to obtain a written release from the plaintiff to collect, capture, and otherwise retain her fingerprints.  The employer removed the case to federal court and filed a motion to dismiss.

In reviewing the parties’ briefs on the motion to dismiss, Judge Gettleman found a “serious question” existed as to whether the court had subject matter jurisdiction.  Because the defendant removed the case, the court found it bore the burden of establishing jurisdiction by demonstrating that the plaintiff alleged an injury-in-fact.  Relying on the U.S. Supreme Court opinion Spokeo Inc. v. Robins, 136 S. Ct. 1540 (2016), Judge Gettleman explained that for an injury-in-fact to exist, the injury must be “concrete and particularized,” meaning it must be de facto, or actually exist.  In analyzing whether the plaintiff had alleged a concrete and particularized injury, the court relied on Crabtree v. Experian Information Solutions, Inc., 2020 U.S. App. Lexis 2698 (7th Cir. Jan. 28, 2020), a case in which the Seventh Circuit Court of Appeals determined that the mere retention of private consumer information, absent any dissemination, does not constitute a concrete injury for standing purposes.  In Hunter, the plaintiff failed to allege that the defendant disseminated her biometric information or that any data breach, identity theft, or other similar loss resulted from the collection of said information.   

The Hunter defendant argued that jurisdiction existed based upon the Illinois Supreme Court’s holding in Rosenbach.  In rejecting this argument, Judge Gettleman noted that Rosenbach established only that it is the policy of Illinois state courts to allow parties to sue under BIPA even if they cannot demonstrate that they have sustained some compensable injury beyond violation of their statutory rights for which they may seek recourse.  It is the policy of the federal courts, by contrast, that a plaintiff must allege an actual or imminent injury to establish standing in federal court.  According to Judge Gettleman, the Illinois Supreme Court expressly indicated in Rosenbach that BIPA procedural violations are not themselves actual injuries.  Consequently, Judge Gettleman concluded that the plaintiff lacked standing at the time her case was removed because she did not allege any dissemination of her biometric information.  Thus, the court remanded the case to the Circuit Court of Cook County.

In Heard v. Becton, Dickinson & Co., 2020 U.S. Dist. Lexis 31249 (N.D. Ill. Feb. 24, 2020), the plaintiff, a respiratory therapist, filed suit against Becton, alleging that he and members of a putative class were required to use fingerprint scanners to access Becton’s Pyxis MedStation system.  The plaintiff further alleged that Becton violated BIPA because it never informed the plaintiff and putative class members that it was collecting, using, or storing their biometric information; failed to state the purpose and length of time for which it was doing so; failed to obtain executed written releases from them authorizing the collection of their biometric information; never provided them with a publicly available retention schedule for the permanent destruction of their biometric information; and, “upon information and belief,” disclosed their biometric information to “unknown” third parties without obtaining consent.  Becton removed the case to the District Court for the Northern District of Illinois and moved to dismiss the complaint.

In its motion to dismiss, Becton first argued that the biometric information at issue was exempt from the scope of BIPA.  Specifically, Becton claimed that the information fell under the “healthcare exemption” contained in BIPA.  Section 14/10 of the Act states that “[b]iometric identifiers do not include information captured from a patient in a health care setting or information collected, used, or stored for health care treatment, payment, or operations under the federal Health Insurance Portability and Accountability Act of 1996.”  740 ILCS 14/10.  According to Becton, that section applied to the plaintiff’s claims because the biometric information at issue was collected from healthcare workers in order to access medication.  In addressing this argument, Judge Pallmeyer noted that she was aware of only two cases in which defendants had advanced this theory.  In Diaz v. Silver Cross Hosp. & Med Ctrs., No. 2018 CH 001327 (Cir. Ct. Will Cnty. Aug. 29, 2019), the Circuit Court of Will County, Illinois, concluded that BIPA’s healthcare exemption applied to biometric information obtained from a nurse because the information was collected, used, or stored for healthcare treatment.  By contrast, in Bruhn v. New Alberton’s, Inc., No. 2018 CH 01737 (Cir. Ct. Cook Cnty. July 2, 2019), the Circuit Court of Cook County, Illinois, determined that the exemption did not apply to biometric information collected from healthcare workers because their biometric information is not protected under HIPPA.  Judge Pallmeyer found the reasoning in Bruhn more persuasive, noting that it seemed unlikely that the Illinois legislature intended to deprive healthcare workers of a right to privacy and control over their biometric information merely because the information was being used for patient treatment.

The court next addressed what type of action by a defendant regarding the collection of biometric information is required to trigger liability under Section 15(b) of BIPA.  Becton argued that BIPA requires a defendant “actively” collect information, meaning that it did more than possess such information.  The plaintiff argued that BIPA applies when a defendant obtains biometric information, no matter the source or the manner of collection.  Judge Pallmeyer determined that BIPA requires a defendant to, at a minimum, take an “active step” to collect, capture, purchase, receive through trade, or otherwise obtain biometric information.  The judge further concluded that the plaintiff failed to allege that Becton took any such active step.  While the plaintiff alleged that Becton collected his biometric information, he failed to specify how, when, or any other factual detail regarding the collection.  The plaintiff also failed to allege how his fingerprints made their way from the fingerprint scanner on Becton’s medical device into Becton’s systems. 

Judge Pallmeyer then examined whether the plaintiff alleged sufficient facts to trigger liability under Sections 15(a) and (d) of BIPA, which apply to entities in possession of biometric information.  BIPA does not define “possession,” leading the judge to apply the popularly understood meaning of the term.  Specifically, Judge Pallmeyer adopted the definition provided by the Illinois Supreme Court, which found that possession occurs when a person has or takes control of the subject property or holds the property at his or her disposal.  People v. Ward, 215 Ill.2d 317, 325 (Ill. 2005).  The judge determined that the plaintiff failed to adequately plead possession by Becton because he did not allege that Becton exercised any dominion or control over his biometric information.  More specifically, the plaintiff did not allege that Becton could freely access his biometric information or even how Becton allegedly received the information.  Rather, the plaintiff merely alleged that he scanned his fingerprint into Becton’s device and Becton subsequently stored the plaintiff’s fingerprint in its systems.

Finally, the court dismissed the plaintiff’s claim because the plaintiff failed to allege that Becton disclosed his biometric information.  Section 15(d) of BIPA provides that entities in possession of biometric information cannot disclose the information except in limited circumstances.  The plaintiff alleged only “on information and belief” that Becton violation Section 15(d).  Judge Pallmeyer found this allegation insufficient to satisfy the federal pleading standard.  

Overall, these rulings suggest that federal court may be a much better venue than state court for defendants in a BIPA lawsuit depending upon the allegations and factual circumstances of the case.  As these case show, district court judges seem more likely to require more specific pleadings from plaintiffs to survive dismissal and an actual, concrete injury, as opposed to simply alleging a technical violation of a BIPA provision.  However, the Hunter ruling illustrates how a defendant’s argument regarding a lack of injury can be turned against the defendant, such that the case ultimately ends up back in state court.     

UPDATE: Kansas Issues Updated Executive Order Prohibiting Foreclosures and Evictions

March 25, 2020

As we previously reported, last week, Kansas Governor Laura Kelly issued Executive Order 20-06 prohibiting evictions, foreclosures and any related judicial proceedings in the State of Kansas through May 1, 2020. Now, Governor Kelly has issued Executive Order 20-10, which amends and supersedes the previous order and provides additional clarification on certain points.

First, the new order expressly states that pending foreclosures and evictions are not prohibited by the order. This was implicit in the first order but is now clearly stated.

Second, the new order restricts the foreclosure moratorium to financial institutions foreclosing on single-family residences, where the default is caused by financial hardship relating to the COVID-19 pandemic. So, if the default under the terms of the mortgage occurred before March, 2020, a financial institution likely still may proceed with foreclosure. The new order does, however, purport to place a new pleading burden on foreclosing entities, during the effective period, to establish that the default was not caused by the COVID-19 pandemic.

The new order clarifies that the eviction moratorium applies to any landlord, whether it is an individual, entity, financial institution, nursing or long-term care facility, or other entity. But again, the moratorium only applies where the financial hardship leading up to the eviction was substantially caused by hardship relating to the coronavirus.

Excepted from the new order are foreclosures initiated by the United States government. The new order also encourages, but does not require, lenders and landlords to try to work out “payment plans or other agreements” to address defaults caused by COVID-19.

Baker Sterchi will continue to monitor Kansas State policy concerning evictions and foreclosures and will provide updates as they are received.

Kansas Temporarily Prohibits Foreclosures and Evictions

March 20, 2020

In response to the COVID-19 pandemic, Kansas Governor Laura Kelly issued Executive Order 20-06 on March 17, 2020, prohibiting evictions, foreclosures and any related judicial proceedings in the State of Kansas through May 1, 2020.

Specifically, Executive Order 20-06 directs and orders “all financial institutions operating in Kansas to temporarily suspend the initiation of any mortgage foreclosure efforts or judicial proceedings and any commercial or residential eviction efforts or judicial proceedings until May 1, 2020.”

While this prohibitive language could arguably be read to only apply to financial institutions, Baker Sterchi has confirmed with the Governor’s Office that it intends for the prohibition to apply to any landlord, whether a financial institution, other entity, or even individuals. This executive intent is further reflected in the recitals that precede the Executive Order:

WHEREAS, the adverse economic impacts of COVID-19 include the potential for Kansans to miss mortgage or rent payments as a result of lost wages and now is not the time for creditors or landlords to initiate foreclosure or eviction proceedings; and

WHEREAS, this Administration will do whatever it can to assist Kansans in these challenging times, and that includes allowing Kansans to retain their homes and businesses to avoid immediate danger to their health, safety, and welfare.

Accordingly, unless otherwise directed, all landlords in Kansas should refrain from instituting foreclosure or eviction proceedings until May 1, 2020.

While new foreclosure and eviction proceedings are prohibited at this time, it is important to note that Executive Order 20-06 does not suspend any obligation to pay rent. So, tenants are advised to continue paying rent unless they have a written agreement with their landlords to suspend or forbear rent during this time. Moreover, the Executive Order does not impact judicial foreclosure and eviction proceedings that were commenced prior to entry of the Executive Order. Parties to pending eviction or foreclosure proceedings should monitor the policies and dockets of the courts in their respective counties in order to determine the status of each case.

Baker Sterchi will continue to monitor Kansas State policy concerning evictions and foreclosures and will provide updates as they are received.

Illinois Appellate Court Reverses Plaintiffs' Verdict in Asbestos Lawsuit

March 16, 2020

Recently, the Illinois Fourth District Appellate Court issued an opinion reversing the Circuit Court of McLean County in an asbestos lawsuit. In Krumwiede v. Tremco, Inc., the court determined that the plaintiffs failed to establish at trial that the decedent’s work with the defendant’s products was a substantial factor in the cause of the decedent’s illness. This is yet another instance in which the Fourth District has reversed the Circuit Court of McLean County in an asbestos lawsuit. The opinion should give defendants wary of trying an asbestos lawsuit in McLean County optimism about the potential for appellate relief.

In Krumwiede, the plaintiffs alleged that the decedent was exposed, in part, through his work with Tremco caulk and tape. The decedent worked as a window glazier from the mid-1950’s to the early 1990’s. At trial, two of the decedent’s former co-workers testified that they and the decedent used Tremco caulk and glaze in their roles as glaziers. The witnesses, however, could not recall seeing dust emanate from the Tremco products or anything on the products’ packaging indicating that they contained asbestos. 

Plaintiff’s medical expert, Dr. Arthur Frank, testified that a person’s cumulative dose to asbestos contributes to the development of mesothelioma. In elaborating on this opinion, Dr. Frank testified that there is no scientific way to determine what exposure to asbestos caused a person’s illness, but rather, a person’s total exposure is considered the cause of the illness. Dr. Michael Graham, a pathologist, testified for Tremco, opining that there were amosite asbestos fibers found in the decedent’s lung tissue, but that those fibers had nothing to do with the decedent’s work with Tremco products, as those products only contained chrysotile asbestos fibers. Dr. William Longo also testified for Tremco. He explained that he previously tested the Tremco products and found no detectable asbestos fibers, which was because the products were thermoplastic materials.  Dr. Longo admitted, however, that he could not rule out that Tremco products released respirable asbestos fibers. Ultimately, the jury returned a verdict for the plaintiffs.

But the appellate court concluded that the plaintiffs failed to establish that the decedent's work with Tremco products was a substantial factor in the cause of his mesothelioma.  According to the court, simply working around Tremco products did not establish that the decedent had frequent, regular, and proximate contact with respirable asbestos fibers from the products.  The court believed that there was an absence of evidence explaining under what circumstances Tremco's products released respirable asbestos fibers.  In other words, just because the products were capable of releasing asbestos fibers did not mean they actually did so when the decedent worked with the products.  The court also determined that the plaintiff failed to present evidence showing that Tremco's products released more than a de minimis amount of asbestos fibers when the decedent encountered the products.  And while the court found that Dr. Frank's "cumulative exposure" testimony was proper under Illinois law, the court concluded that his testimony did nothing to aid the plaintiffs in meeting the “substantial factor” test under Illinois law because he did not opine that exposure from Tremco products was a substantial factor in bringing about the decedent's illness. 

This is a positive development for Illinois defendants in asbestos litigation. Specifically, defendants should consider relying on this opinion to argue that a plaintiff cannot satisfy his or her burden of proving causation simply by establishing that a defendant’s products can release asbestos fibers.  

Illinois Appellate Court Reverses Plaintiffs' Verdict in Asbestos Lawsuit

March 16, 2020

Recently, the Illinois Fourth District Appellate Court issued an opinion reversing the Circuit Court of McLean County in an asbestos lawsuit. In Krumwiede v. Tremco, Inc., the court determined that the plaintiffs failed to establish at trial that the decedent’s work with the defendant’s products was a substantial factor in the cause of the decedent’s illness.  This is yet another instance in which the Fourth District has reversed the Circuit Court of McLean County in an asbestos lawsuit.  The opinion should give defendants wary of trying an asbestos lawsuit in McLean County optimism about the potential for appellate relief.

In Krumwiede, the plaintiffs alleged that the decedent was exposed, in part, through his work with Tremco caulk and tape.  The decedent worked as a window glazier from the mid-1950’s to the early 1990’s.  At trial, two of the decedent’s former co-workers testified that they and the decedent used Tremco caulk and glaze in their roles as glaziers.  The witnesses, however, could not recall seeing dust emanate from the Tremco products or anything on the products’ packaging indicating that they contained asbestos. 

Plaintiff’s medical expert, Dr. Arthur Frank, testified that a person’s cumulative dose to asbestos contributes to the development of mesothelioma.  In elaborating on this opinion, Dr. Frank testified that there is no scientific way to determine what exposure to asbestos caused a person’s illness, but rather, a person’s total exposure is considered the cause of the illness.  Dr. Michael Graham, a pathologist, testified for Tremco, opining that there were amosite asbestos fibers found in the decedent’s lung tissue, but that those fibers had nothing to do with the decedent’s work with Tremco products, as those products only contained chrysotile asbestos fibers.  Dr. William Longo also testified for Tremco.  He explained that he previously tested the Tremco products and found no detectable asbestos fibers, which was because the products were thermoplastic materials.  Dr. Longo admitted, however, that he could not rule out that Tremco products released respirable asbestos fibers.  Ultimately, the jury returned a verdict for the plaintiffs.

But the appellate court concluded that the plaintiffs failed to establish that the decedent's work with Tremco products was a substantial factor in the cause of his mesothelioma.  According to the court, simply working around Tremco products did not establish that the decedent had frequent, regular, and proximate contact with respirable asbestos fibers from the products.  The court believed that there was an absence of evidence explaining under what circumstances Tremco's products released respirable asbestos fibers.  In other words, just because the products were capable of releasing asbestos fibers did not mean they actually did so when the decedent worked with the products.  The court also determined that the plaintiff failed to present evidence showing that Tremco's products released more than a de minimis amount of asbestos fibers when the decedent encountered the products.  And while the court found that Dr. Frank's "cumulative exposure" testimony was proper under Illinois law, the court concluded that his testimony did nothing to aid the plaintiffs in meeting the “substantial factor” test under Illinois law because he did not opine that exposure from Tremco products was a substantial factor in bringing about the decedent's illness. 

This is a positive development for Illinois defendants in asbestos litigation.  Specifically, defendants should consider relying on this opinion to argue that a plaintiff cannot satisfy his or her burden of proving causation simply by establishing that a defendant’s products can release asbestos fibers.  

Employees Aggrieved Out-of-State Cannot Sue Missouri-based Employers under the Missouri Human Rights Act.

March 11, 2020

On December 24, 2019, the Supreme Court of Missouri issued two opinions concerning claims brought by employees working outside Missouri against their Missouri-headquartered employers for age discrimination.  The Court held the Missouri Human Rights Act (MHRA) did not apply to either employee. Specifically, the Court held the express language of the MHRA coupled with the presumption against extraterritorial application of laws precluded the Supreme Court from applying the MHRA to claims in either case.

First, in Tuttle v. Dobbs Tire & Auto Ctrs., Inc., the Court held the MHRA cannot be applied to claims of an employee who is aggrieved by alleged acts outside Missouri even when the employer is headquartered in Missouri. 

The case was initiated when Dwight Tuttle filed claims for relief under the Missouri Human Rights Act (MHRA) for age discrimination and retaliation against his former employer Dobbs Tire & Auto Centers, Inc., David Dobbs (its president and CEO), and Dustin Dobbs (its director of retail operations). The company operated tire and auto stores in both Missouri and Illinois and employed Tuttle for 28 years in Illinois. Tuttle alleged several acts of age discrimination over a period of three years:

1.       Dustin Dobbs informed Tuttle he would never receive another raise during his employment with Dobbs Tire;

2.       Dobbs Tire transferred a number of illegitimate expenses to the Shiloh store, which distorted the profit numbers of the Shiloh store, and reflected poorly on Tuttle's managerial abilities;

3.       Dobbs Tire transferred Tuttle to its Fairview Heights, Illinois store which had a history of lower sales volume than the Shiloh store;

4.       Tuttle was forced to sign a document accepting his transfer to the Fairview Heights store that also stated Tuttle could be terminated if the Fairview Heights store did not improve its performance;

5.       Younger store managers did not have to sign a similar document when they were transferred to other stores; and

6.       After the profit and loss statement for the Fairview Heights store had been completed for 2016, Tuttle's regional manager told him, "I hope you have your resume out and are looking for another job."

For these reasons, Tuttle considered himself constructively discharged and tendered his resignation.

The Court held that MHRA-prohibited discriminatory practices alone are insufficient to bring a claim. Rather, the practices must result in an adverse impact in Missouri. Tuttle did not dispute that the injuries he alleged occurred in Illinois, those being wage loss, loss of employment benefits, and mental anguish arising from constructive discharge from his Illinois job. In addition, Tuttle’s petition suffered a procedural failure.  Because Missouri is a fact-pleading state, Tuttle may have received a different judgment had he included exactly where each alleged discriminatory action took place showing even one adverse impact that occurred in Missouri. As it was, Tuttle merely alleged, “some of the decisions and actions … took place in Missouri,” which left the Court to divine Tuttle’s logic. The Court rejected Tuttle’s reasoning that because Dobbs was headquartered in Missouri, the decision-making underlying the discriminatory acts took place in Missouri, which invoked application of the MHRA. The Court held it is the claimant being aggrieved by the prohibited practice that gives rise to the cause of action under the MHRA, not the underlying decision.

Dobbs filed a Motion to Dismiss Tuttle’s claims because the petition failed to state a claim upon which relief could be granted on the basis that the MHRA does not apply to an Illinois employee who faced alleged discriminatory acts in Illinois. The circuit court dismissed Tuttle’s petition with prejudice but did not provide justification for the dismissal. Tuttle appealed the circuit court’s dismissal and the court of appeals affirmed the lower court’s judgment in an unpublished memorandum. The Supreme Court of Missouri granted transfer of the case and, like the court of appeals, affirmed the circuit court’s dismissal. 

Second, in State ex rel. Anheuser-Busch, LLC v. Moriarty, Iowa resident and employee John Esser alleged Anheuser-Busch (AB) discriminated against him on the basis of age, over a period of several years. Like Tuttle, Esser had been with the Missouri-based company for more than 25 years. Unlike Tuttle, however, Esser included Missouri-specific discriminatory acts of AB in his first amended petition. Of those, Esser alleged AB decision-makers in St. Louis gave Esser lower performance reviews and made ageist comments during a number of in-person meetings in Missouri. 

As Dobbs did at the circuit court level, AB filed a motion to dismiss Esser’s claims because Esser failed to state a claim upon which relief could be granted because he was not a Missouri employee. The circuit court overruled AB’s motion to dismiss noting that while Missouri recognizes the presumption against extraterritorial application of laws, “the acts alleged did not occur wholly outside of Missouri.” The court of appeals denied writ relief at which time AB sought a writ of prohibition from the Supreme Court of Missouri that would direct the circuit court to vacate the part of its order that overruled AB’s motion to dismiss. The Supreme Court issued a preliminary writ of prohibition. It was on review of this writ that the Supreme Court analyzed and compared the claims of Tuttle and Esser. In Moriarty, the Court held Esser’s claims suffered from the same weakness in that the adverse impacts all occurred outside the state of Missouri. The Court reasoned that the lower performance reviews affected his job in Iowa and that, like Tuttle, Esser’s wage losses, loss of employment benefits, and emotional distress occurred because of actions and demotions related to his job in Iowa.

The Tuttle and Anheuser-Busch decisions make it clear that out-of-state employees who work for Missouri-based companies may not engage in forum-shopping when asserting claims under state anti-discrimination laws.  Missouri-based employers will not be liable under the MHRA for practices that affect employees outside Missouri. 

CFPB Constitutionality Case Submitted to Supreme Court Today

March 3, 2020

The movement to challenge the constitutionality of the Consumer Financial Protection Bureau (“CFPB”) was given life through the PHH Mortgage case, and then seemingly was left without a pulse after the PHH Mortgage en banc hearing. But in Seila Law, LLC v. CFPB, No. 19-7 (U.S.), the argument that the CFPB’s structure is unconstitutional was resurrected, and it has survived all the way to the Supreme Court of the United States. Today, the High Court heard oral argument from the parties.

It is not often that creditors and debt-relief agencies share the same legal argument in similar cases. However, the argument asserted by Seila Law (a consumer debt relief firm) in the case currently before the Supreme Court, PHH Mortgage, a mortgage servicer, are one and the same. Both entities were originally the subject of CFPB enforcement actions. And both argued in defense that the CFPB’s structure violates the Separation of Powers Clause of the United States Constitution, due to its single-director, terminable-only-for-cause structure. More information about the original PHH Mortgage holding, which was reversed by the D.C. Circuit court en banc, is discussed in our previous post.

A second prong has been added to the unconstitutionality argument in Seila: The Supreme Court must first decide whether the structure of the CFPB is constitutional. If the Court finds it is not, then the Court must decide whether the relevant portions of the Dodd-Frank Act, creating its current structure, may be severed from the rest of the Dodd-Frank Act. In other words, is it necessary to abolish the CFPB altogether in the event its structure is unconstitutional, or may the agency itself be preserved with a more balanced model?

Interestingly, one Supreme Court Justice has already rendered an opinion on the first argument. It so happens that Justice Brett Kavanaugh was sitting on the D.C. Circuit at the time of the original PHH holding, as well as when the en banc Court overturned the original PHH decision. In his dissent to the latter, Justice Kavanaugh stated that the CFPB’s unchecked powers violate the constitution, where the director’s power is “massive in scope, concentrated in a single person, and unaccountable to the President.” Justice Kavanaugh did not recuse himself from the current proceedings, despite critics’ insistence that he do so due to his history with the PHH case.

Kavanaugh’s comments during argument today have reportedly echoed his prior opinions. Chief Justice John Roberts is considered the potential swing vote in this case, and his questions during today’s argument were directed toward both sides.

It is highly unlikely that the Supreme Court will hold that the CFPB should be dismantled altogether. The Trump administration has even softened its position on this issue since President Trump was first campaigning. But for the first time since its creation, there is a real possibility that the structure of the agency will be put into check.

Kansas City Area Saw Increase in Defense Verdicts in 2019, According to Annual Jury Data

March 2, 2020

Data released by the Greater Kansas City Jury Verdict Service about jury trials in 2019 shows that results are broadly trending in favor of defendants. Defendants prevailed on almost 60% of the claims decided by KC-area juries last year, representing an improvement over their win rate in 2018. Calendar year 2019 also saw a drop of nearly 30% in the number of verdicts over $1,000,000, despite a modest increase in the total number of claims decided by juries. 

Defendants Are Trying More Claims & Winning More Often

86 different juries in the Kansas City area decided a total of 181 claims in 2019 (with some cases involving multiple claims). 75 of those 181 verdicts (41%) resulted in some amount of recovery to the plaintiff(s), while 106 (59%) ended in defense verdicts.

Compared to 2018, this represents an increase of about 8% in the total number of verdicts handed down. Despite taking more claims to juries, defendants’ win rate improved by about 7% from the prior year, when roughly 52% of jury verdicts were for the defendant(s). This continues a trend from 2017, when defendants won roughly 51% of jury verdicts. From 2014-2016, plaintiffs’ win rate had been on the rise.

  

Big Verdicts Continue to Fall

The data contained other encouraging news for KC-area defendants and defense attorneys. When juries did award damages last year, the figures were generally smaller than they have been in recent years. 

Last year saw 10 only verdicts of $1,000,000 or more in the Kansas City area, compared to 14 in 2018—a decrease of roughly 29%. In terms of percentages of all verdicts, million-dollar awards fell from 8.3% in 2018 to 5.5% in 2019. The proportion of six-figure jury awards held steady at about 17% (31 out of 181 verdicts in 2019, compared to 29 out of 168 in 2018). Awards of less than $100,000 accounted for about 19% of all verdicts in 2019. 


 

Although the Average Amount Awarded Increased, Initial Impressions are Misleading

Although the value of the average plaintiffs’ verdicts grew by almost 25% ($2.26 million in 2019, compared to $1.81 million in 2018), a closer examination reveals that figure to be fundamentally misleading; the increase is entirely attributable to a single verdict of nearly $118 million handed down in a federal-court commercial dispute. While 2018 also had just one very large verdict, 2019’s outlier was roughly $42 million more than the 2018’s ($76 million). When each year’s lone outlier is set aside, the average amount awarded fell by 22%, from roughly $882,500 in 2018 to about $692,000 in 2019.

Keep in mind, too, that the figures above include only claims in which the verdict resulted in some amount of recovery for the plaintiff(s). When defense verdicts are factored into the equation, the average result for all claims decided by area juries in 2019 was an award of $934,000, compared to $873,000 in 2018 (a 7% increase). Once again setting aside each year’s single highest verdict, the average award for all claims decided by area juries in 2019 drops to just $284,624, compared to $423,150 in 2018 (a 32% decrease).

Juries in Missouri State Courts Prove Most Generous

State courts awarded 7 of the 10 million-dollar verdicts in 2019, most of which originated on the Missouri side of the state line: 4 in Jackson County, MO (Kansas City); 1 in Clay County, MO; 1 in Platte County, MO; 1 in Johnson County, KS; 2 in Missouri federal court (W.D. Mo.); and 1 in Kansas federal court (D. Kan.).

Of the 31 six-figure verdicts in the Kansas City area in 2019, 19 came from Jackson County, Missouri—7 in Kansas City and 12 in Independence. The remaining 12 were spread among Clay County, MO (5); Missouri federal court (W.D. Mo.) (3); Johnson County, KS (2); and Kansas federal court (2).

This tracks with the general feeling among local practitioners that Jackson County is by far the most plaintiff-friendly venue in the area, and that state courts tend to hand out bigger verdicts than federal courts.

Supreme Court of Missouri Overturns $2.3 Million Negligent Credentialing Verdict but Grants New Trial

February 25, 2020

In a case of first impression, the Supreme Court of Missouri, in Thomas E. Tharp, et al. v. St. Luke’s Surgicenter-Lee’s Summit, LLC, overturned a $2.3M verdict and granted a new trial after the unusual step of holding a rehearing and vacating an earlier opinion.

In February 2019, the Court overturned a jury verdict in favor of a patient and his wife against a surgery center because there was no proof the surgery center negligently granted staff privileges to a surgeon. Though other Missouri courts had recognized the existence of a negligent credentialing cause of action, this opinion was the first from the Supreme Court of Missouri to address the essential elements of such a claim. 

At the rehearing, the plaintiffs claimed they possessed additional evidence which, if presented upon retrial, would allow them to make a submissible case of negligent credentialing.  This purportedly includes evidence of low scores the surgeon received on continuing medical education exams, thus suggesting an inability to retain essential knowledge necessary to competently perform surgery.  This also purportedly includes evidence of the surgeon's litigation history showing he was sued more frequently as he aged, and expert witness testimony regarding the significance of the statistics.  The Court did not take a position on the admissibility of this proffered new evidence, or its probative value (which is for a jury to decide), but the Court found this sort of evidence could possibly support a finding that the surgeon was incompetent or generally careless, which is the required standard for a negligent credentialing claim.

The Court said it decided to hold a rehearing and order a new trial because it would be manifestly unfair to deny the plaintiffs a new trial when they did not know and could not have known what evidence the Court would require to make a submissible case.  Legal precedent requires remand for a new trial if the plaintiff's legal failure was caused not by a strategic decision, avoidable or invited error, but by an extrinsic factor outside the plaintiff's control.  One such extrinsic factor is ignorance of the evidence necessary to support a cause of action when there is no statute or binding appellate precedent setting forth same.  As mentioned above, though other Missouri courts have recognized the existence of a negligent credentialing cause of action, no court had addressed the essential elements or evidence required.  Thus, the Court found the plaintiffs’ legal failure justifiable and not punishable in the absence of guidance from the Court.  

This is the first ruling of its kind to provide guidance to Missouri lower courts and practitioners prosecuting or defending a negligent credentialing claim.  These claims are difficult to prove, as they require proof beyond that which is required to support a direct medical negligence claim.  Absent credible evidence of a physician’s incompetence generally, and the negligent failure of a healthcare facility to discover the incompetence and act accordingly, courts should dispose of these claims via dispositive motion.  Further, it is not enough to prove that but for the credentialing, the physician could not have performed the conduct that produced the injury.  Rather, a plaintiff must prove the injury was the natural and probable consequence of the physician’s incompetence.

This opinion did not address whether the negligent credentialing theory conflicts with V.A.M.S. § 538.210.4 (2017), which provides, in part, that “[n]o health care provider whose liability is limited by the provisions of this chapter shall be liable to any plaintiff based on the actions or omissions of any other entity or individual who is not an employee of such health care provider . . . .”  Negligent credentialing liability necessarily depends on negligent actions or omissions of a non-employee physician.  In the event this argument is raised, it is unclear how the Court would address the apparent conflict of law.  

Illinois First District Appellate Court upholds $4.8 million asbestos verdict against John Crane.

February 20, 2020

Much to the defense bar’s dismay, in late 2019, the First District Appellate Court affirmed and upheld a $4.6 million verdict against John Crane Inc. in Daniels v. John Crane, Inc., 2019 IL App (1st) 190170.

In that case, the decedent’s estate filed suit, alleging that the decedent developed pleural mesothelioma due to asbestos exposure. The decedent worked as a union pipefitter from 1957 to 1985. Prior to his death, the decedent testified to significant asbestos exposure from valves and gaskets, including gaskets manufactured by John Crane.  

At trial, plaintiff's expert, Dr. Jerrold Abraham, testified that the decedent's asbestos exposure through his work with John Crane products was a substantial contributing factor in his development of mesothelioma. Dr. Abraham did not quantify the decedent's exposure through John Crane products, and he testified that exposure to all types of asbestos fibers can cause mesothelioma. Moreover, according to Dr. Abraham, while mesothelioma is a dose-response disease – meaning the more exposure an individual has the more likely they are to contract the disease – once someone sustains an asbestos-related disease, it does not matter whether they have had a high or low exposure to asbestos. Dr. Abraham conceded that all of the decedent’s exposures, including through friable insulation, were substantial contributing factors to the development of his illness. Essentially, Dr. Abraham opined that if the decedent was exposed to asbestos through John Crane products, such exposure was a substantial factor to the development of his illness, regardless of the dose of the exposure or the dose of the decedent’s exposures through other sources.

Plaintiff also presented William Ewing, a Certified Industrial Hygienist. Ewing testified that the decedent was exposed to asbestos by using picks, chisels, and hammers to remove John Crane packing, and by using brushes and sanders to dislodge or reshape John Crane gaskets. Ewing quantified the duration of the decedent’s exposure (1957 to 1985) and his alleged dosage amount (.05 to 1 fibers per cubic centimeter when removing and installing gaskets; .05 to 2 fibers per cubic centimeter when removing packing). 

At the close of evidence, during the jury instruction conference, the plaintiff presented the standard Illinois Pattern Jury Instruction for proximate causation. John Crane objected and presented its own instruction regarding proximate cause. John Crane argued that the jury instruction should have included language requiring the jury to find that John Crane’s products were a “substantial factor” in the development of the decedent’s illness in order for proximate cause to exist. John Crane further submitted an instruction defining substantial factor as if, absent John Crane’s conduct, the injury would not have occurred. John Crane further also submitted a “state of the art” instruction, which would have required the plaintiff to prove that John Crane and those in the asbestos products manufacturing industry knew of the alleged dangerous nature of John Crane’s packing and gaskets. John Crane argued that such knowledge was required to establish a duty to warn. The trial court rejected these instructions submitted by John Crane.

Ultimately, a Cook County jury found for the plaintiff and entered a $6 million verdict. The trial court reduced the verdict to $4.8 million to account for pre-trial settlements. 

In a posttrial motion, John Crane argued that Dr. Abraham should not have been allowed to testify because he essentially testified that the decedent’s cumulative dose (or "each and every exposure") to all asbestos products caused his injuries. In other words, John Crane claimed that Dr. Abraham failed to differentiate the decedent’s exposure through John Crane products from his exposure through other sources. In addition to arguing that the court erred in rejecting the previously discussed jury instructions, John Crane also argued that the trial court erred by failing to properly analyze settlements the plaintiff entered into with certain defendants. The trial court denied John Crane’s motion.

On appeal, the First District first determined that the trial court properly allowed Dr. Abraham to testify. The court determined that Dr. Abraham did not testify that even a “de minimis” exposure to asbestos can cause illness. Rather, the court characterized Dr. Abraham’s testimony as emphasizing the importance of understanding the dose of asbestos fibers to which a person was exposed when determining causation. Moreover, the court believed the plaintiff established the dose of the decedent’s exposure through William Ewing’s testimony, who quantified the decedent’s exposure range and opined that the dosage level exceeded the background rate of asbestos exposure one would experience from the ambient environment. Overall, the court concluded that Dr. Abraham’s testimony provided the background knowledge the jury required to interpret Ewing’s opinions regarding the dose of the decedent’s asbestos exposure through John Crane products.   

John Crane also argued that the trial court erred in excluding proposed jury instructions that included language regarding Illinois' substantial factor causation test. On this point, John Crane appeared to argue that the jury should have been instructed on the Illinois frequency, regularity, and proximity causation standard used in asbestos cases. The court found that the Illinois pattern instructions on causation (which do not use the terms substantial factor or frequency, regularity, proximity) sufficiently instructed the jury. The court also determined that using these terms in instructions would have improperly suggested that the plaintiff had to prove a specific dosage amount, when, under Illinois law, a plaintiff need only prove that exposure by a defendant was legally significant. The appellate court seemed to take the position that the frequency, regularity, proximity test is relevant when the court is making a legal determination on whether or not the plaintiff has met her burden of proof in an asbestos case, but the jury should not be given instructions using this language because it suggests that the plaintiff must quantify her exposure levels. 

As to John Crane’s proposed “state of the art” jury instruction, John Crane argued that the jury should have been instructed that the plaintiff was required to prove either that John Crane specifically knew of the hazards of asbestos or, if not, that members of John Crane's industry had such knowledge. The court rejected this argument because there was evidence in the case that John Crane itself had knowledge regarding the dangers of asbestos when the decedent used its products. Moreover, the court believed that John Crane’s proposed instruction would have required the jury to find both that John Crane and those in its industry knew of the dangerous nature of John Crane’s products. According to the court, industry knowledge can be used to support a failure to warn claim, but it is not necessary evidence. Rather, the defendant's knowledge is at issue in such a claim.

Finally, the court rejected John Crane's argument that certain settled defendants should have appeared on the jury form and that the court should have compelled the plaintiff to disclose the amounts of certain pre-trial settlements. The court reasoned that it is well settled Illinois law that a party defendant cannot include former co-defendants or non-parties on the verdict form. As to the settlement amount issue, John Crane argued that the trial court erred in finding that the plaintiff reached good faith settlements with certain defendants without requiring the parties to disclose the settlement amounts. In rejecting this argument, the court determined that the trial court had sufficient evidence – including the plaintiff’s theory of liability, that plaintiff sought in excess of $50,000, and that John Crane was asserting a sole proximate cause defense – to make its good faith findings without the need to determine the amounts of the settlements. 

Overall, while there have been recent positive rulings favoring defendants from the First District and the Circuit Court of Cook County in asbestos litigation, those rulings have largely been limited to the issue of personal jurisdiction. Unfortunately for defendants, the court’s opinion in this case is largely consistent with the trial court’s rulings on these issues. However, a possible silver lining is that defendants might be able to rely on this opinion to argue that, at trial, plaintiffs cannot simply argue that all exposures to asbestos cause or contribute to the development of mesothelioma, but rather, must present some evidence establishing the dosage level of a plaintiff’s asbestos exposure. 

Illinois First District Appellate Court upholds $4.8 million asbestos verdict against John Crane.

February 20, 2020

Much to the defense bar’s dismay, in late 2019, the First District Appellate Court affirmed and upheld a $4.6 million verdict against John Crane Inc. in Daniels v. John Crane, Inc., 2019 IL App (1st) 190170.

In that case, the decedent’s estate filed suit, alleging that the decedent developed pleural mesothelioma due to asbestos exposure. The decedent worked as a union pipefitter from 1957 to 1985. Prior to his death, the decedent testified to significant asbestos exposure from valves and gaskets, including gaskets manufactured by John Crane.  

At trial, plaintiff's expert, Dr. Jerrold Abraham, testified that the decedent's asbestos exposure through his work with John Crane products was a substantial contributing factor in his development of mesothelioma. Dr. Abraham did not quantify the decedent's exposure through John Crane products, and he testified that exposure to all types of asbestos fibers can cause mesothelioma. Moreover, according to Dr. Abraham, while mesothelioma is a dose-response disease – meaning the more exposure an individual has the more likely they are to contract the disease – once someone sustains an asbestos-related disease, it does not matter whether they have had a high or low exposure to asbestos. Dr. Abraham conceded that all of the decedent’s exposures, including through friable insulation, were substantial contributing factors to the development of his illness. Essentially, Dr. Abraham opined that if the decedent was exposed to asbestos through John Crane products, such exposure was a substantial factor to the development of his illness, regardless of the dose of the exposure or the dose of the decedent’s exposures through other sources.

Plaintiff also presented William Ewing, a Certified Industrial Hygienist. Ewing testified that the decedent was exposed to asbestos by using picks, chisels, and hammers to remove John Crane packing, and by using brushes and sanders to dislodge or reshape John Crane gaskets. Ewing quantified the duration of the decedent’s exposure (1957 to 1985) and his alleged dosage amount (.05 to 1 fibers per cubic centimeter when removing and installing gaskets; .05 to 2 fibers per cubic centimeter when removing packing). 

At the close of evidence, during the jury instruction conference, the plaintiff presented the standard Illinois Pattern Jury Instruction for proximate causation. John Crane objected and presented its own instruction regarding proximate cause. John Crane argued that the jury instruction should have included language requiring the jury to find that John Crane’s products were a “substantial factor” in the development of the decedent’s illness in order for proximate cause to exist. John Crane further submitted an instruction defining substantial factor as if, absent John Crane’s conduct, the injury would not have occurred. John Crane further also submitted a “state of the art” instruction, which would have required the plaintiff to prove that John Crane and those in the asbestos products manufacturing industry knew of the alleged dangerous nature of John Crane’s packing and gaskets. John Crane argued that such knowledge was required to establish a duty to warn. The trial court rejected these instructions submitted by John Crane.

Ultimately, a Cook County jury found for the plaintiff and entered a $6 million verdict. The trial court reduced the verdict to $4.8 million to account for pre-trial settlements. 

In a posttrial motion, John Crane argued that Dr. Abraham should not have been allowed to testify because he essentially testified that the decedent’s cumulative dose (or "each and every exposure") to all asbestos products caused his injuries. In other words, John Crane claimed that Dr. Abraham failed to differentiate the decedent’s exposure through John Crane products from his exposure through other sources. In addition to arguing that the court erred in rejecting the previously discussed jury instructions, John Crane also argued that the trial court erred by failing to properly analyze settlements the plaintiff entered into with certain defendants. The trial court denied John Crane’s motion.

On appeal, the First District first determined that the trial court properly allowed Dr. Abraham to testify. The court determined that Dr. Abraham did not testify that even a “de minimis” exposure to asbestos can cause illness. Rather, the court characterized Dr. Abraham’s testimony as emphasizing the importance of understanding the dose of asbestos fibers to which a person was exposed when determining causation. Moreover, the court believed the plaintiff established the dose of the decedent’s exposure through William Ewing’s testimony, who quantified the decedent’s exposure range and opined that the dosage level exceeded the background rate of asbestos exposure one would experience from the ambient environment. Overall, the court concluded that Dr. Abraham’s testimony provided the background knowledge the jury required to interpret Ewing’s opinions regarding the dose of the decedent’s asbestos exposure through John Crane products.   

John Crane also argued that the trial court erred in excluding proposed jury instructions that included language regarding Illinois' substantial factor causation test. On this point, John Crane appeared to argue that the jury should have been instructed on the Illinois frequency, regularity, and proximity causation standard used in asbestos cases. The court found that the Illinois pattern instructions on causation (which do not use the terms substantial factor or frequency, regularity, proximity) sufficiently instructed the jury. The court also determined that using these terms in instructions would have improperly suggested that the plaintiff had to prove a specific dosage amount, when, under Illinois law, a plaintiff need only prove that exposure by a defendant was legally significant. The appellate court seemed to take the position that the frequency, regularity, proximity test is relevant when the court is making a legal determination on whether or not the plaintiff has met her burden of proof in an asbestos case, but the jury should not be given instructions using this language because it suggests that the plaintiff must quantify her exposure levels. 

As to John Crane’s proposed “state of the art” jury instruction, John Crane argued that the jury should have been instructed that the plaintiff was required to prove either that John Crane specifically knew of the hazards of asbestos or, if not, that members of John Crane's industry had such knowledge. The court rejected this argument because there was evidence in the case that John Crane itself had knowledge regarding the dangers of asbestos when the decedent used its products. Moreover, the court believed that John Crane’s proposed instruction would have required the jury to find both that John Crane and those in its industry knew of the dangerous nature of John Crane’s products. According to the court, industry knowledge can be used to support a failure to warn claim, but it is not necessary evidence. Rather, the defendant's knowledge is at issue in such a claim.

Finally, the court rejected John Crane's argument that certain settled defendants should have appeared on the jury form and that the court should have compelled the plaintiff to disclose the amounts of certain pre-trial settlements. The court reasoned that it is well settled Illinois law that a party defendant cannot include former co-defendants or non-parties on the verdict form. As to the settlement amount issue, John Crane argued that the trial court erred in finding that the plaintiff reached good faith settlements with certain defendants without requiring the parties to disclose the settlement amounts. In rejecting this argument, the court determined that the trial court had sufficient evidence – including the plaintiff’s theory of liability, that plaintiff sought in excess of $50,000, and that John Crane was asserting a sole proximate cause defense – to make its good faith findings without the need to determine the amounts of the settlements. 

Overall, while there have been recent positive rulings favoring defendants from the First District and the Circuit Court of Cook County in asbestos litigation, those rulings have largely been limited to the issue of personal jurisdiction. Unfortunately for defendants, the court’s opinion in this case is largely consistent with the trial court’s rulings on these issues. However, a possible silver lining is that defendants might be able to rely on this opinion to argue that, at trial, plaintiffs cannot simply argue that all exposures to asbestos cause or contribute to the development of mesothelioma, but rather, must present some evidence establishing the dosage level of a plaintiff’s asbestos exposure. 

City of St. Louis falls to 5th on the Judicial Hellhole list with Madison and St. Clair Counties, Illinois close behind ranking 7th.

February 12, 2020

Thanks to “junk science,” the “Show-Me-Your-Lawsuit” state remains within the top 10 of judicial hellholes throughout the country. St. Louis is home to the largest talc verdict to date thanks to a July 2018 City of St. Louis verdict awarding $550 million in actual damages and $4.14 billion in punitive damages to a group of 22 plaintiffs. Not only are there forum shopping concerns with regards to the talc litigation, there is concern that St. Louis City judges allow plaintiffs’ lawyers to introduce “junk science” as evidence. Specifically, plaintiffs’ experts have been allowed to tell jurors that talcum powder causes ovarian cancer, even though research is mixed and biased as to increased risk, if any, with the use of talcum powder. Nonetheless, the City of St. Louis continues to allow this “junk science” to be heard in their courtrooms, which can result in big verdicts. 

The Missouri legislature, however, has taken steps toward addressing the plaintiff-friendly forum, resulting in the City of St. Louis seeing a decline from 4th to 5th in the judicial hellhole rankings this year. But it has a long way to go, as do Madison and St. Clair Counties in Illinois.

In Madison and St. Clair Counties, the plaintiffs’ bar continues to push pro-plaintiff agendas. For example, pro-plaintiff legislation eliminating the statute of repose for asbestos-related occupational disease has been passed, along with legislation which essentially eliminates the power of special interrogatories.  The ATRF Report also puts the blame for these judicial hellholes on the Illinois Supreme Court.  

The American Tort Reform Foundation (“ATRF”) Report attributes “no-injury” lawsuits as overburdening Illinois businesses, and the Illinois Supreme Court helped open those floodgates when it issued its decision in Rosenbach v. Six Flags Entertainment, 2019 IL 123186. In Rosenbach, the court found that the plaintiff need not have suffered actual harm to maintain and win a lawsuit filed under the Illinois Biometric Information Privacy Act (“BIPA”), 740 Ill. Comp. Stat. 14 (2008). Since this decision, the ATRF Report indicates that more than 250 lawsuits have been filed with BIPA at the forefront of the issues in those suits, making businesses vulnerable to massive potential liability in the State of Illinois.

Moreover, according to the ATRF Report, Madison and St. Clair Counties continue to remain the preferred jurisdiction in the United States for plaintiffs’ lawyers to file asbestos lawsuits. The Report further notes that the Gori Law Firm (formerly known as Gori, Julian & Associates, P.C.), “one of the top asbestos filers in the nation,” was able to “stack” [sic] the deck higher when Barry Julian, co-founding partner of Gori Julian, was appointed to the Madison County bench in January 2019. The ATRF Report claims the “plaintiff-friendly reputation, low evidentiary standards, and judges’ willingness to allow meritless claims to survive” make Madison and St. Clair Counties a flocking ground for asbestos litigation. 

Until the legislature in both Missouri and Illinois decide to create meaningful reforms, these three counties are likely to continue to rank high on ATRF Report’s Judicial Hellholes list. 

City of St. Louis falls to 5th on the Judicial Hellhole list with Madison and St. Clair Counties, Illinois close behind ranking 7th.

February 12, 2020

Thanks to “junk science,” the “Show-Me-Your-Lawsuit” state remains within the top 10 of judicial hellholes throughout the country. St. Louis is home to the largest talc verdict to date thanks to a July 2018 City of St. Louis verdict awarding $550 million in actual damages and $4.14 billion in punitive damages to a group of 22 plaintiffs. Not only are there forum shopping concerns with regards to the talc litigation, there is concern that St. Louis City judges allow plaintiffs’ lawyers to introduce “junk science” as evidence. Specifically, plaintiffs’ experts have been allowed to tell jurors that talcum powder causes ovarian cancer, even though research is mixed and biased as to increased risk, if any, with the use of talcum powder. Nonetheless, the City of St. Louis continues to allow this “junk science” to be heard in their courtrooms, which can result in big verdicts. 

The Missouri legislature, however, has taken steps toward addressing the plaintiff-friendly forum, resulting in the City of St. Louis seeing a decline from 4th to 5th in the judicial hellhole rankings this year. But it has a long way to go, as do Madison and St. Clair Counties in Illinois.

In Madison and St. Clair Counties, the plaintiffs’ bar continues to push pro-plaintiff agendas. For example, pro-plaintiff legislation eliminating the statute of repose for asbestos-related occupational disease has been passed, along with legislation which essentially eliminates the power of special interrogatories.  The ATRF Report also puts the blame for these judicial hellholes on the Illinois Supreme Court.  

The American Tort Reform Foundation (“ATRF”) Report attributes “no-injury” lawsuits as overburdening Illinois businesses, and the Illinois Supreme Court helped open those floodgates when it issued its decision in Rosenbach v. Six Flags Entertainment, 2019 IL 123186. In Rosenbach, the court found that the plaintiff need not have suffered actual harm to maintain and win a lawsuit filed under the Illinois Biometric Information Privacy Act (“BIPA”), 740 Ill. Comp. Stat. 14 (2008). Since this decision, the ATRF Report indicates that more than 250 lawsuits have been filed with BIPA at the forefront of the issues in those suits, making businesses vulnerable to massive potential liability in the State of Illinois.

Moreover, according to the ATRF Report, Madison and St. Clair Counties continue to remain the preferred jurisdiction in the United States for plaintiffs’ lawyers to file asbestos lawsuits. The Report further notes that the Gori Law Firm (formerly known as Gori, Julian & Associates, P.C.), “one of the top asbestos filers in the nation,” was able to “stack” [sic] the deck higher when Barry Julian, co-founding partner of Gori Julian, was appointed to the Madison County bench in January 2019. The ATRF Report claims the “plaintiff-friendly reputation, low evidentiary standards, and judges’ willingness to allow meritless claims to survive” make Madison and St. Clair Counties a flocking ground for asbestos litigation. 

Until the legislature in both Missouri and Illinois decide to create meaningful reforms, these three counties are likely to continue to rank high on ATRF Report’s Judicial Hellholes list. 

Is a case overturned due to confusing special interrogatories still relevant under rule change?

February 6, 2020

In, Doe v. Alexian Brothers Behavioral Health Hosp., 2019 IL App (1st) 180955, plaintiff filed suit for emotional injuries after a former hospital employee mailed the plaintiff a harassing letter that contained vile, personal statements related to private information in the plaintiff’s mental health records. She alleged that – before it fired the employee – the hospital failed to properly train the employee, supervise the employee, and monitor the employee’s use of records, which was more than the minimum necessary to complete her assigned billing tasks. The hospital denied the woman’s allegations, saying the former employee was solely responsible for the injuries.

At trial, the defense submitted to the jury a special interrogatory asking if the former employee was the “sole proximate cause of the plaintiff’s injuries” which they answered in the affirmative. The initial jury awarded was $1 million in damages in favor of the plaintiff. After the verdict, the court determined that the verdict was inconsistent with the jury’s answer to the special interrogatory and, therefore, entered judgment for the hospital. Under the new rules, the court can now direct the jury to further consider its answers and verdict if the general verdict and special interrogatory answer are inconsistent. If the jury cannot reconcile them, the court shall order a new trial. Further, the court could have chosen to not even allow the defense to submit a special interrogatory.

On appeal, the plaintiff argued that the special interrogatory was improper because the case was not about sole proximate cause. The plaintiff also argued that the special interrogatory was ambiguous and confusing. The plaintiff noted that the trial court refused a jury instruction on the issue of sole proximate cause and did not specifically define the term sole proximate cause.

The appellate court found that the general verdict was unquestionably inconsistent with the special interrogatory answer. However, the special interrogatory was confusing and ambiguous in the context of all of the jury instructions. The appellate court ordered a new trial. 

Under the new rule, 735 ILCS 5/2-1108, Doe may not have been appealed. As of January 2020, the new law amends the code of Civil Procedure and gives trial court judges the discretion to grant requests for special interrogatories. Previously, if a jury’s answer to a special interrogatory question conflicted with its general verdict, as was the case in Doe, then the special finding would supersede the verdict. Although the new law does not eliminate special interrogatories entirely it gives the court the discretion to grant the request for them and it gives attorneys the right to explain to the jurors what may result if the general verdict is inconsistent with any special finding which will likely make it for jurors to understand fundamental legal questions presented in certain negligence and causation cases. 

Special interrogatories were an important tool that helped juries decided the facts necessary to support a verdict. They were especially useful in places where there are holes in the jury instructions. Where in the absence of a special interrogatory, the jury is not going to be properly instructed on the legal issues it’s supposed to address. The Doe case is a perfect example of a hole in the jury instructions where the use of a special interrogatory could be used to assist the jury in rendering fault. The special interrogatory on sole proximate cause enabled the Hospital to get the jury to consider whose conduct solely caused plaintiff’s injuries. Although the appellate court determined the special interrogatories confusing and ambiguous, one can see how important it was for the jury to determine who was solely at fault for the verdict rendered. 

It is too early to tell whether special interrogatories will become obsolete, but it is clear that the power behind them is now minimized. 

What Lies Ahead: Proposed Privacy Legislation in Illinois

January 28, 2020

While it might not garner the attention of Halloween, Thanksgiving, or Christmas, January 28th is an international holiday; specifically, Data Privacy Day. The holiday is meant to raise awareness and promote privacy and data protection best practices. For more information on Data Privacy Day, please visit this link. For this year’s Data Privacy Day, we at Baker Sterchi Cowden & Rice are looking ahead to potential data privacy laws proposed in Illinois and evaluating the potential impact of those laws.

App Privacy Protection Act

One such proposed law is the App Privacy Protection Act. This law would require an entity that owns, controls, or operates a website, online service, or software application to identify in its customer agreements or applicable terms whether third parties collection electronic information directly from the digital devices of individuals in Illinois who use or visit its website, online service, or software application. The law would further require the disclosure of the names of those third parties and the categories of information collected. Perhaps most importantly, the law would amend the Illinois Consumer Fraud and Deceptive Business Practices Act to provide that a violation of the law constitutes a violation of the Consumer Fraud Act. Much like the Illinois Biometric Information Privacy Act, this law would create a private right of action for violations, albeit through the Consumer Fraud Act. The citation for this proposed law is 815 ILCS 505/2Z. The last legislative action taken on this proposed law was on March 29, 2019. You can find information about the proposed law at this link.   

Data Transparency and Privacy Act

The Illinois House also passed HB 3358, known as the Data Transparency and Privacy Act, in 2019. This bill resembled the California Consumer Privacy Act, which went into effect on January 1, 2020. Under this bill, entities that collect through the Internet personal information about individual consumers would be required to make disclosures to the individuals regarding the collection of the information. The bill also allowed individuals to opt out of the sale of their information. A violation of the proposed law could be enforced only by the Illinois Attorney General. The bill exempted several entities from its scope, including hospitals, public utilities, retailers, and telecom companies. After its passage, the Illinois Senate proposed several amendments to the bill, largely to address the ability to seek relief for violations of the Act. Ultimately, the proposed law stalled, failing to pass both chambers before the General Assembly ended its legislative session.

On January 8, 2020, however, the Illinois Senate breathed new life into the issue, with Senator Thomas Cullerton sponsoring SB 2330, an updated version of the Data Transparency Privacy Act. Under this version of the proposed law, businesses that process personal or deidentified information must, prior to processing, provide notice of certain information to consumers. The bill also grants consumers the right to obtain certain information from businesses regarding their personal information and the right to request to opt out of certain practices related to their personal information. The bill provides a private right of action to consumers, and allows the Illinois Attorney General to enforce the provisions of the bill through the Consumer Fraud Act. You can monitor the status of this legislation at this link.    

Biometric Information Privacy Act

Illinois also has considered amending one of the more controversial provisions of the Biometric Information Privacy Act. Senate Bill 2134 would delete language in the Act creating a private right of action. Under this bill, any violation that results from the collection of biometric information by an employer for employment, human resources, fraud prevention, or security purposes would be subject to enforcement by the Department of Labor. The bill further provides that any violation of the Act would constitute a violation of the Consumer Fraud Act and would be enforceable by the Illinois Attorney General. If enacted, this legislation could have a significant impact by reducing the amount of legislation filed under the Biometric and Information Privacy Act. The last action taken on this bill was on March 28, 2019. You can find more information about the status of the bill at this link.  

Geolocation Privacy Protection Act

The Geolocation Privacy Protection Act (House Bill 2785) was introduced by Rep. Ann M. Williams in February 2019. Under the proposed bill, affirmative express consent would be required before geolocation information can be collected, used, stored or disclosed from a location-based application on a user's device. Similar to the App Privacy Protection Act discussed above, the Geolocation Privacy Protection Act provides that a violation of the Geolocation Privacy Protection Act constitutes an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act, thereby amending Section 2Z of the Illinois Consumer Fraud Act. In addition, a user's rights under the Act cannot be waived. The last action on the bill occurred on March 229, 2019, when it was re-referred to the Rule's Committee. More information regarding the status of the bill can be found at this link.

Right to Know Data Transparency and Privacy Act

Another proposed law is the Right to Know Data Transparency and Privacy Act which would require that an operator of a commercial website or online service that collects personally identifiable information through the Internet about individual customers residing in Illinois who use or visit its commercial website or online service notify those customers of certain specified information pertaining to its personal information sharing practices.  The Act would also require an operator to make available to customers all categories of personal information that were disclosed, as well as the names of all third parties that received the customer's personal information. Further, customers whose rights are violated under the Act have a private right of action. The Act is comprised of Senate Bill 2149, introduced by Sen. Michael E. Hastings, and House Bill 2736, introduced by Rep. Kambium Buckner, in February 2019. The last action taken on both bills was on March 29, 2019. You can find out more information about the Right to Know Act here

Genetic Information Privacy Act

In addition to an increase in proposed legislation related to data privacy, the expansion of existing privacy laws in Illinois is already occurring with new amendments which went into effect on January 1, 2020. For example, due to the growing popularity of direct-to-consumer genetic testing kits sold by companies such as Ancestry and 23andMe, House Bill 2189 was signed into law by Governor Pritzker on July 26, 2019. The amendment expands the definition of “genetic testing” under the Genetic Information Privacy Act to include direct-to-consumer genetic testing kits. In addition, the amendment specifically prohibits the sharing of any testing or personally identifiable information with health insurance and life insurance companies without the written consent of the consumer. 

Artificial Intelligence Video Interview Act

Further, Illinois law now provides for protections related to the use and disclosure of information gained using artificial intelligence software by prospective employers during video interviews.   Additional details regarding the Artificial Intelligence Video Interview Act can be found in a prior post here.

As you can see, companies doing business in Illinois need to remain vigilant about privacy legislation in Illinois. Not only do companies need to be aware of new legislation on this issue, but they need to understand how various privacy laws interact with each other.  Consumer privacy appears to be an important issue to the Illinois legislature, and as the legislation discussed above illustrates, one that will continue to develop in 2020.   

New Illinois Statute Among the First to Address AI-Aided Job Recruiting

January 14, 2020

Effective January 1, 2020, Illinois enacted a new statute in response to the increasingly pervasive use of artificial intelligence, also known as AI, software by prospective employers. Proponents assert such software allows employers to zero in on and hire the best candidates more quickly and efficiently. Typically, these AI products use mobile video interviews with algorithms analyzing the prospective employee’s facial expressions, word choice, tone, body language and gestures to determine a candidate’s work style, ethic, cognitive ability, and interpersonal skills. Other AI tools might include AI review of resumes and algorithms to analyze an applicant’s response to interview or test questions or an applicant’s social media content. This is all done with the stated aim of finding the best candidate for the specific open position. 

Illinois’ new statute, 820 ILCS 42/1, et seq., is among the first of its kind in the country. It addresses the use and disclosure of artificial intelligence video interviews, should an employee choose to utilize this still-emerging technology. The act, known as the Artificial Intelligence Video Interview Act, provides that an employer who asks applicants to record video interviews and uses AI analysis of the applicant-submitted videos must take certain steps. This includes (1) notifying each applicant before the interview that AI may be used to analyze the video and to evaluate and consider the applicant’s fitness for the position; (2) providing each applicant with information before the interview explaining how AI works and what general characteristics it uses to evaluate applicants; and (3) obtaining consent from the applicant. The Act also prohibits the sharing of applicant vide