In New Prime, Inc. v. Oliveira, petitioner New Prime Inc. was an interstate trucking company, and respondent Dominic Oliveira was one of its drivers. Oliveira worked under an operating agreement that called him an independent contractor and contained a mandatory arbitration provision. When Oliveira filed a class action alleging that New Prime denied its drivers lawful wages, New Prime asked the court to invoke its statutory authority under the Federal Arbitration Act to compel arbitration.
Oliveira countered that the court lacked authority, because §1 of the Act excepts from arbitration disputes involving “contracts of employment” of certain transportation workers. New Prime insisted that any question regarding §1’s applicability belonged to the arbitrator alone to resolve, or, assuming the court could address the question, that “contracts of employment” referred only to contracts that establish an employer-employee relationship and not to contracts with independent contractors. The District Court and First Circuit agreed with Oliveira, and the Supreme Court affirmed, holding that a court should determine whether a §1 exclusion applies before ordering arbitration.
A court’s authority to compel arbitration under the Act does not extend to all private contracts, no matter how clearly the contract expresses a preference for arbitration. In relevant part, §1 states that “nothing” in the Act “shall apply” to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
For a court to invoke its statutory authority under the Act to stay litigation and force arbitration, it must first know if the parties’ agreement is excluded from the Act’s coverage by the terms of §1. This sequencing is significant, because it means the court and not the arbitrator decides this issue, unlike other issues, which may be delegable to the arbitrator.
The issue for the Supreme Court thus became whether the Act’s term “contract of employment” referred to any agreement to perform work or applied strictly to contracts of employment. The Court held that Oliveira’s agreement with New Prime falls within §1’s exception.
The unanimous opinion relied on the Act’s original meaning for its decision. Citing dictionaries, statutes, and rulings from the era, Justice Gorsuch concluded that “contract of employment” was understood to encompass “work agreements involving independent contractors.” At the time of the Act’s adoption in 1925, the phrase “contract of employment” was not a term of art, and dictionaries tended to treat “employment” more or less as a synonym for “work.” Contemporaneous legal authorities provide no evidence that a “contract of employment” necessarily signaled a formal employer-employee relationship. Evidence that Congress used the term “contracts of employment” broadly can be found in its choice of the neighboring term “workers,” a term that easily embraces independent contractors.
New Prime also made a policy argument that the Court should order arbitration to further Congress’ effort to counteract judicial hostility to arbitration and establish a favorable federal policy toward arbitration agreements. Justice Gorsuch stated that courts, however, are not free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal. Rather, the Court should respect “the limits up to which Congress was prepared” to go when adopting the Arbitration Act.
Finally, the Court declined to address New Prime’s suggestion that it order arbitration anyway under its inherent authority to stay litigation in favor of an alternative dispute resolution mechanism of the parties’ choosing.Justice Ginsburg, in a concurring opinion, explicitly agreed with the Court’s unanimous opinion that words should be interpreted as taking their ordinary meaning at the time Congress enacted the statute. However, she also reasoned that Congress may design legislation to govern changing times and circumstances, perhaps foreshadowing future disputes between judicial philosophies.
Eighth Circuit Refuses to Punish Employer for History of Granting Special Treatment to Disabled Employee with Poor Attendance RecordJanuary 8, 2019 | Douglas Hill
While the Americans with Disabilities Act requires employers to make reasonable accommodations for the mental and physical limitations of otherwise qualified employees with a disability, it does not require employers to set aside their established attendance policy to accommodate disabled employees who simply cannot reliably and regularly make it to work. The recent Eighth Circuit case of Lipp v. Cargill Meat Solutions Corporation demonstrates this principle.
Sheena Lipp worked for 19 years at a Cargill meat processing facility in Ottumwa, Iowa, until she was terminated for absenteeism in November 2014. For most of her employment, she suffered from an incurable lung disease known as eosinophilic granuloma. For the final two years of her employment, this condition limited her ability to work in several ways. She required lifting assistance, limited working hours, and a clean working environment. But most notably also suffered from “flare-ups” that would require her to take off work for a few days at a time, two to four times a year.
Cargill accommodated all of Ms. Lipp’s needs, despite its written attendance policy allowing only six “unplanned” absences (i.e. sick days, personal business, etc.), if reported via an automated call-in system. After those six unplanned absences, a progressive disciplinary system existed, which culminated with termination after the ninth unplanned absence. In the case of medical absences, Cargill’s policy was that employees “may be required” to provide a doctor’s note or other verification upon their return to work.
Ms. Lipp’s ability to satisfy the attendance requirements of her job was further compromised in early 2014, when she was forced to take a nine-month leave of absence (originally planned to be only a few weeks) to care for her ailing mother. The first twelve weeks of leave were protected under the Family and Medical Leave Act. Beyond that, Cargill voluntarily accommodated Ms. Lipp’s request for additional leave, during which time she called the automated phone system daily to report her absences.
When she returned to work in October 2014, Ms. Lipp was presented with a series of written disciplinary notifications, indicating that she had accumulated 194 unplanned absences and was being placed on a “Last Chance” attendance policy. “Employee needs to understand,” the notices stated, “that any call-ins, lates, or leave early without authorization will violate this last chance agreement and will terminate her employment.” Ms. Lipp refused to sign any of the notifications but was allowed to return to work anyway.
Two weeks later, Ms. Lipp called the automated phone system and reported that she would be absent for “vacation.” Her testimony was that she must have mistakenly keyed the wrong entry on the phone system, because her absence was actually due to a “flare-up” of her lung condition. When she returned to work, she was terminated, despite explaining that her absence was for medical reasons, not vacation. Although she eventually provided medical documentation of her flare up, she did not do so until about three months after her termination.
She filed suit for disability discrimination under the ADA, but the Northern District of Iowa granted summary judgment in Cargill’s favor. Although the parties agreed that Ms. Lipp qualified as a disabled employee under the ADA, only “qualified individuals” can assert a claim for disability discrimination. A “qualified individual” is one “who, with or without reasonable accommodation, can perform the essential functions” of his or her job. 42 U.S.C. § 12111(8). An employer’s written policies—including attendance policies—are relevant guidance as to what constitutes an essential function of employment. Cargill insisted Ms. Lipp not a “qualified individual” under the Act, because she could not “regularly and reliable attend work, an essential function of her employment.” On appeal, the Eighth Circuit agreed.
The appellate court relied on a long line of ADA cases holding that “regular and reliable attendance is a necessary element of most jobs,” and that “the ADA does not require employers to provide an unlimited absentee policy.” Ms. Lipp argued that her 195 unplanned absences in 2014 were not excessive, since they were authorized by the employer. The court was unconvinced, noting that “persistent absences from work can be excessive, even when the absences are with the employer’s permission.”
Ms. Lipp also argued that Cargill was required to grant her additional time off for “flare-ups” after her return from the extended leave of absence, as a reasonable accommodation under the ADA—pointing out that Cargill had always been willing to do so in the past. The court rejected this argument, holding that even though medical leave of absence “might, in some circumstances, be a reasonable accommodation,” an accommodation is not reasonable if it requires the employer to set aside the essential functions of the job, including regular and reliable attendance (emphasis supplied by the court).
As for the past pattern of granting Ms. Lipp leave for “flare-ups,” the Court was unwilling to punish Cargill for its history of accommodating Ms. Lipp’s condition: “If an employer bends over backwards to accommodate a disabled worker, it must not be punished for its generosity by being deemed to have conceded the reasonableness of so far-reaching an accommodation.” “To hold otherwise,” the opinion concluded, “would punish Cargill for giving Lipp another chance instead of terminating her employment” earlier.
This case offers lessons for employers facing requests for disability accommodations or potential ADA claims. First, there is a limit to what is a reasonable accommodation for absenteeism. There is no bright-line rule for how much leeway a disabled worker must be given, but if an employee’s disability keeps her away from work so often that she cannot meet the basic requirements of her employment, she is not legally “qualified” for the job under the ADA. Second, employers should not live in fear that they will be punished for good behavior. As this case demonstrates, past acquiescence to a disabled employee’s request for special treatment should not be used to set some new standard for what accommodations are “reasonable” under the ADA.
As reported in a previous post, Congress spent a portion of the last year considering the Music Modernization Act (MMA), a sweeping piece of legislation meant to bring the world of music licensing into the era of online streaming services. In a rare show of bipartisanship, the MMA sailed through both houses of Congress, and was signed into law by President Trump last fall. This article discusses the key features of the new law.
Blanket Licenses and Royalty Rates
Before the MMA’s passage, streaming services negotiated licenses on an inconsistent basis, and often filed bulk Notices of Intention to use works with the Copyright Office. This haphazard practice created great uncertainty for streaming services and artists: the former faced the very real possibility that they were infringing upon copyrights and providing unlicensed work, while the latter could find themselves uncompensated for the use of their intellectual property.
Under the MMA, a process of blanket licensing has been established. Most works will now be subject to a blanket compulsory license, although the MMA still allows for parties to negotiate their own licensing terms if they so desire. A streaming service need only apply for such a license, and, once granted, the streaming service can make the work available without the fear of copyright infringement looming over it.
The MMA also sets a new standard for establishing royalty rates. Before, the royalty rate was determined by a formula having little to do with prevailing market rates. But now, a copyright royalty judge will determine the rate that would have been negotiated in the marketplace between a “willing buyer and a willing seller.” In reaching this decision, the judge must consider “economic, competitive and programming information” submitted by the parties. Section 102(c)(1)(F).
The Musical Licensing Collective
The MMA creates a body known as the Mechanical Licensing Collective (MLC) to administer this new licensing regime. The MLC will collect royalties from streaming services, pay royalties to artists, and assist in identifying the owners of any and all rights in a particular work. The MLC will be a non-profit entity, created and supported by copyright owners and funded by the payment of licensing fees. The composition of the MLC will be reviewed every five years. It will be overseen by a board of directors consisting of both industry and songwriter representatives.
One of the more interesting aspects of the MLC is the requirement that it establish and maintain a musical works database that will match artists and copyright owners with a particular work. This database will be fully searchable and publicly available. The initial creation of this database will be a formidable task for the MLC, and for the music industry.
Pre-1972 Sound Recordings
The final version of the MMA also incorporates portions of the Classic Protection and Access Act, extending full copyright protection to sound recordings, not already in the public domain, created on or before February 15, 1972. Service providers will now have to pay royalties to copyright owners when these pre-1972 sound recordings are streamed.
The MMA will bring interesting changes to the music industry, and, as with any new law, there will likely be unforeseen consequences of its enaction, whether for good or ill. However, the MMA has been greeted with approval by all sides of the industry, and will hopefully be a strong step towards fully modernizing the licensing and copyright of musical works in the age of streaming services.
The 2018-2019 ATRF Judicial Hellholes Report is out, and, surprise, surprise, the “Show Me Your Lawsuit” state, specifically the City of St. Louis, landed fourth on the list—only behind California, Florida, and New York City. While it must be noted that St. Louis has moved down in the ATRF Judicial Hellhole rankings (St. Louis was ranked No. 3 in 2017-2018 and No. 1 in 2016-2017), St. Louis is still considered by many to be one of the most plaintiff-friendly courts in the nation, making it an inhospitable venue for corporate defendants, or any defendants for that matter. While the term “hellhole” may be a bit over the top, defense counsel must nonetheless be wary of this venue and advise their clients accordingly. And in-house counsel should pay particular heed when drafting jurisdiction and venue clauses in corporate agreements.
There was initial optimism from 2017 that political changes in the executive branch would aid business interests and result in certain statutory reforms. The ATRF Report bursts that balloon, reporting that optimism “quickly evaporated in 2018 as massive verdicts, blatant forum shopping, and legislative ineptitude plagued the ‘Show Me Your Lawsuit’ state.”
The ATRF Report also attributes St. Louis’ inability to become a more balanced venue to its “loose” application of procedural rules, and an unwillingness to consistently follow Missouri appellate court and U.S. Supreme Court precedent, especially as it applies to a court’s exercise of jurisdiction over out-of-state defendants. A combination of these two elements is what generally encourages forum shopping and out-of-state plaintiffs to seek out this jurisdiction, which gained national recognition in recent substantial toxic exposure verdicts.
Looking ahead to the 2019 Missouri General Assembly legislative session, the Missouri Chamber of Commerce President and CEO, Daniel P. Mehan, recently vowed to address this state’s litigious climate which he describes as a “black eye for Missouri.” He intends to push for new legislation to make Missouri’s courtrooms more balanced when the Missouri General Assembly convenes for their legislative session in January 2019. More recently, the Missouri Chamber Board of Directors has approved the organization’s 2019 Legislative Agenda which include several modifications that are aimed specifically at curtailing Missouri’s Judicial Hellhole status. These reforms contain measures that would:
1. Clarify venue and joinder laws in an effort to curb venue/forum shopping;
2. Strengthen the Missouri Merchandising Practices Act to reduce frivolous class action lawsuits;
3. Increase transparency in toxic exposure litigation to curtail fraudulent claims and ensure compensation for future claimants;
4. Strengthen Missouri’s employment arbitration climate in an effort to avoid costly litigation and resolve disputes rapidly;
5. Establish a statute of repose to stop new regulations from opening additional paths to litigation; and
6. Reforming the statutes regarding punitive damages to clarify the standard and define when an employer can be held liable for such damages.
Whether or not all of these reforms will make it to committee is still yet to be determined, especially since several of these reforms were attempted in 2018 but failed. Nonetheless, 2019 is a new year!
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Over the years – and to the dismay of out-of-state defendants – state trial courts have often taken an expansive view of when they may exercise personal jurisdiction over companies with limited ties to Missouri. Recently, however, the Missouri Supreme Court made permanent a preliminary writ of prohibition in the case of State of Missouri ex rel PPG Industries, Inc. v. The Honorable Maura McShane, Case No. SC97006. Advertisement on a passive website by an out of state company is not conduct sufficient to confer personal jurisdiction under the Missouri long arm statute.
Hilboldt Curtainwall, Inc. provided materials for a Missouri construction project. Some of these materials were to be coated with a product made by PPG Industries, Inc., a Pennsylvania corporation. Hildboldt reviewed PPG’s website and identified Finishing Dynamics, LLC as an “approved applicator” of the coating product manufactured by PPG. Finishing Dynamics failed to properly apply the coating product, rendering useless the products which were coated. Hilboldt subsequently filed suit in the Circuit Court of St. Louis County, Missouri against Finishing Dynamics for breach of contract and implied warranty of merchantability. Hilboldt also sued PPG under a negligent misrepresentation theory stemming from the information obtained by Hilblodt from PPG’s website.
PPG filed a motion to dismiss Hilboldt’s negligent misrepresentation claim for lack of personal jurisdiction. PPG argued that its website advertising was insufficient conduct to confer personal jurisdiction, stating that representations on its passive website, which were not aimed specifically to Missouri consumers, were insufficient to confer personal jurisdiction. PPG had no other ties to Missouri.
Hilboldt argued that, under its negligent misrepresentation theory, PPG committed a tortious act in the state of Missouri. Hilboldt believed conduct sufficient to confer personal jurisdiction in Missouri existed because the representations on PPG’s website were received by Hilboldt in Missouri, relied upon by Hilboldt in Missouri, and caused injury to Hilboldt in Missouri.
The Circuit Court denied PPG’s motion to dismiss, and PPG filed a petition for a writ of prohibition in the Missouri Supreme Court to prevent the circuit court from taking any further action other than to dismiss PPG from the case. The Supreme Court issued a preliminary writ, and this decision followed.
PPG’s Conduct Was Insufficient to Confer Personal Jurisdiction.
The Supreme Court agreed with PPG that the passive website, visible within Missouri but not used for direct communication or negotiation, was not conduct falling under the Missouri long arm statute. The Court stated that, in light of “the broad and general nature of PPG’s website, PPG’s suit-related contacts with Missouri are not sufficient to be considered tortious acts in Missouri.”
Missouri courts apply a two part test to determine whether personal jurisdiction exists over a nonresident defendant. First, the nonresident’s conduct must fall within the Missouri long arm statute. That statute, RSMo. §506.500(3), confers personal jurisdiction upon foreign persons and firms who commit a tortious act within the state. Secondly, once it is determined that the conduct does fall under the statute, the Court must determine whether the defendant has sufficient minimum contacts with Missouri to satisfy due process.
The Court emphasized that no direct or individual communications occurred between Hilboldt and PPG, PPG did not contact any Hilboldt representative through the website and Hilboldt did not interact with any PPG representative using the website. The website was not used to complete any transaction, facilitate communication or conduct any interactions between Hilboldt and PPG. The website was merely accessible by Missouri residents, as well as residents of every other state, but PPG did not specifically target or solicit web traffic from Missouri.
Furthermore, the Court noted that the information from PPG’s website, even if false, was used by Hilboldt to enter into a contract with third-party Finishing Dynamics. The true basis for Hilboldt’s underlying claim was the mistakes made by the third-party in failing to appropriately apply PPG’s coating product, further “muddling” any connection between Hilboldt and PPG.
Because PPG’s limited conduct was found not to fall under the first prong of the Missouri personal jurisdiction analysis, the Court did not determine whether PPG’s contacts with Missouri were sufficient to satisfy due process under the second prong of the analysis.
The Supreme Court ruling establishes that a “passive website” which is used only for advertising and is not used to facilitate communication or negotiations will not provide the basis for conduct sufficient to confer personal jurisdiction against nonresident parties under the Missouri long arm statute.
Who May Challenge an Allegedly Discriminatory Property Tax Assessment? And What is the Burden of Proof?December 17, 2018 | Lisa Larkin
In Crowell v. David Cox, Assessor, Missouri’s Western District Court of Appeals reaffirmed that a taxpayer lacks standing to protest a property assessment made before the taxpayer owned the property. It also held that a taxpayer asserting a discrimination claim carries the burden of proving that other similarly situated properties were undervalued compared to their property, including presenting evidence of the fair market value of the similarly situated properties.
In 2014, the Crowells bought residential property in Parkville, Platte County, Missouri. As of 2006, the property had an appraised value of $48,832 (the value the assessor determined was the property’s fair market value) and an assessed value of $9,278 (a percentage of the appraised value which serves as the basis for calculating real estate tax liability). After extensive repairs and renovations, the property sold in December 2007 for $234,000. Based upon the sale, the appraised value increased in 2008 to $230,660, with the assessed value increasing to $43,825. These valuations were applied to the property for tax years 2008 through 2014 with no protests of the valuations. In October 2014, the Crowells purchased the property for $230,000.
After the purchase and after doing some research into the assessment and sales history, the Crowells engaged in informal negotiations with the assessor to have the appraised and assessed values of the property reduced. In 2015, the assessor reduced the appraised/assessed values to $210,660/$40,025. Dissatisfied with the reduction, the Crowells pursued formal review and appeal through the Platte County Board of Equalization, which affirmed, and the State Tax Commission.
Before the State Tax Commission, the Crowells argued discrimination in that their property was appraised at a higher ratio of its sale price than five other comparable properties. The five other properties were all recent sales and, unlike the Crowells’ property, none of them received an increase in assessed value based upon the sale. The Crowells also presented a chart comparing 41 other Platte County properties, as to square footage, appraised/assessed values, tax amount, and tax amount per square foot. Based on this comparison, the Crowells argued their property was assessed at a higher rate per square foot than all 41 comparison properties. The Crowells did not dispute, however, that the fair market value of their property was $210,660. Nor did they present any evidence of the fair market value of the comparison properties.
The State Tax Commission concluded the Crowells lacked standing to challenge the 2008 assessment because they did not own the property until 2014. It also found no discrimination because the Crowells failed to show that other properties in the same general class, i.e. residential, were undervalued. The Commission found the Crowells presented no evidence from which a comparison could be made between the median level of assessment of residential property in the county and the actual level of assessment of their property.
The Crowells filed a petition for review in the Circuit Court asserting disparate and discriminatory treatment because the 2008 assessment increase was based on the property’s sale price whereas none of the other properties sold in the Crowell’s neighborhood between 2008 and 2015 received an assessment increase based on the sale price. The Circuit Court affirmed the Commission’s decision and order.
On appeal, the Crowells argued two points: (1) the 2008 assessment violated Missouri law and was thus void ab initio, even if the Crowell lacked standing to challenge the assessment at the time it was imposed; and (2) the Commission had erroneously concluded that the Crowells were required to prove all other property in the same class was undervalued.
As to the challenge to the 2008 assessment, the Western District reaffirmed the long-standing rule that individual taxpayer plaintiffs lack standing to challenge other taxpayers’ property tax assessments, as they are not injured personally by others’ assessment calculations. This is true even though the allegedly legally faulty 2008 assessment in this case set in motion a chain of events which was directly and causally connected to the performance of the Crowells’ 2015 appraisal and assessment. According to the Court, a taxpayer lacks standing to challenge another taxpayer’s assessment even if the assessment results in a tax increase for the complaining taxpayer.
As to the Crowells’ discrimination claim, the Western District found the Crowells failed to meet their burden of showing that disparate treatment caused them to bear an unfair share of the property tax burden compared to the other properties. Even had the Crowells’ property been the only one reassessed based on its sale price that alone, would be insufficient. The Crowells failed to prove that the other recently sold properties were not assessed at their fair market values, and that failure was fatal to their claim.
The Tenth Circuit was tasked with evaluating whether or not an adverse employment action is an essential element of a failure to accommodate action under the American Disabilities Act (ADA). In a divided opinion, the court said Yes.
In Exby-Stolley v. Board of County Commissioners, plaintiff worked as a county health inspector and her job required her to inspect restaurants, bars, other places that handle food, interview employees and observe safety practices. While on the job, plaintiff broke her arm and required two surgeries. Because of her injury, plaintiff had to use makeshift devices to assist her and she could not complete the number of inspections required for her position.
The court noted there were two very different versions of the efforts to accommodate plaintiff. Plaintiff alleged that she suggested various accommodations that were rejected by her supervisors. This resulted in her supervisor telling her to resign. The County alleged that plaintiff requested that a new position be created for her piecing together various tasks from her job and other positions. The County considered it unfair to take tasks from fellow employees to create a new job for plaintiff. Plaintiff resigned when she was told the County would not provide job she requested.
Plaintiff filed suit alleging that the County violated the ADA by failing to reasonably accommodate her disability. The Court of Appeals recited the familiar proposition that “failure to accommodate” claims are actionable under the ADA, but then turned to the question of whether proof of an adverse employment action is an essential element of such claims; and whether the plaintiff in this case had in fact suffered an adverse employment action. The court explained at length that although the language “adverse employment action” does not appear in the ADA, it is well established in judicial opinions. Furthermore, the court will not consider a mere inconvenience to accommodating an individual, there must be a material alteration in a term, condition or privilege of employment.
The Court rejected the dissenting judge’s view that an “adverse employment action” was not essential, as having relied on dicta “of the weakest sort”, which it viewed as contrary to the weight of authority on this subject. The majority further concluded that the record showed Plaintiff had permission to continue to perform her job with some minor inconveniences or alterations in how she performed the work, but that she declined to do so, and insisted on more substantial accommodations. The Court thus held that the “inconveniences and minor alterations” of job responsibilities required of the plaintiff did not rise to the level of an adverse employment action
This ruling from the Tenth Circuit ups the ante for plaintiffs asserting a failure to accommodate claim. There must be a material and significant impact on the employee. Inconveniences and minor alterations of job responsibilities will not suffice.
Employees: An affirmative and purposeful reminder that the safety of your co-workers may also be your dutyDecember 7, 2018 | Suzanne Billam
Recently, in Brock v. Dunne, the Missouri Court of Appeals for the Eastern District affirmed a trial court judgment assessing liability against a co-employee pursuant to the 2012 Amendment to § 287.120.1 of the Missouri Workers’ Compensation Act. The appellate court held that the defendant co-employee (1) owed the injured plaintiff a personal duty of care, separate and distinct from his employer’s non-delegable duties, and (2) engaged in an affirmative negligent act that purposefully and dangerously caused or increased the risk of injury, which prevented him from claiming immunity under the statute.
The Missouri Worker’s Compensation Act immunizes employers from their employees’ tort claims for injuries that arise from workplace accidents. Generally, this immunity extends to the injured employee’s fellow employees where such co-employee’s negligence is based upon a general non-delegable duty of the employer. But a fellow employee does not have immunity where he commits an affirmative act causing or increasing the risk of injury. Specifically, the 2012 Amendment to § 287.120.1 grants immunity to co-employees except when “the employee engaged in an affirmative negligent act that purposefully and dangerously caused or increased the risk of injury.”
Here, plaintiff Brock sued his supervisor at the time of his injury, claiming the supervisor’s actions of removing a safety guard from a laminating machine and ordering plaintiff to clean the machine — while it was still running and without the safety guard equipped — constituted negligence and invoked the co-employee exception to immunity for workplace injuries under § 287.120.1. The jury returned a verdict against the supervisor co-employee, and assessed over a million dollars in damages.
Before the Missouri legislature’s 2012 modification, § 287.120.1 did not mention co-employee liability and such persons were liable to the full extent they would otherwise be under the common law. At common law, an employee is liable to a third person, including a co-employee, when he or she breaches a duty owed independently of any master-servant relationship – that is, a duty separate and distinct from the employer’s non-delegable duties. In 1982, closely following the common law, the Missouri Court of Appeals for the Eastern District initially articulated what is frequently referred to as the ‘something more’ doctrine. State ex. rel Badami v. Gaertner, 630 S.W.2d 175, 180 (Mo. Ct. App. E.D. 1982) (en banc). Under the ‘something more’ test, an employee may sue a fellow employee only for (1) affirmative negligent acts which are (2) outside the scope of an employer’s responsibility to provide a safe workplace.
While the 2012 Amendment does not expressly state that such acts must be committed outside the scope of an employer’s responsibility to provide a safe workplace for co-employee liability to attach, the appellate court in Brock v. Dunne found the Amendment did not abrogate the common law. Rather, the Amendment must be interpreted in conjunction with the common law requirement that an employee owes a duty to fellow co-employees if it is beyond the scope of an employer’s non-delegable duties.
The Supreme Court of Missouri has held that, as is the case with most common law duties, an employer’s non-delegable duties are not unlimited, but instead, are limited to those risks that are reasonably foreseeable to the employer. Conner v. Ogletree, 542 S.W.3d 315, 322 (Mo. banc 2018). Notably, one example of reasonably foreseeable actions is a co-employee’s failure to follow employer-created rules. It has also repeatedly been held that a co-employee’s creation of a hazard or danger does not fall within the employer’s duty to provide a safe workplace.
In Brock v. Dunne, not only did the supervisor violate specific safety rules created by the employer; his actions also affirmatively created the hazardous condition that resulted in plaintiff’s injury. The appellate court thus held the supervisor’s actions were not reasonably foreseeable to the employer and fell outside the scope of the employer’s non-delegable duties, because he purposefully performed affirmative negligent acts that created an additional danger which would not have been otherwise present in the workplace.
Affirmative Negligent Act
An affirmative negligent act can best be described as an act that creates additional danger beyond that normally faced in the job-specific work environment. These actions create a separate and extreme risk of injury and death, far beyond that anticipated or contemplated by the ordinary duties and responsibilities of the plaintiff’s position of employment. Affirmative negligent acts are not required to be physical acts, and, as was evident here, can be as simple as a superior directing a co-employee to perform a task.
Further, while § 287.120.1 requires that the act“purposefully and dangerously caused or increased the risk of injury[,]” the statute does not require proof the co-employee “had a conscious plan to dangerously cause or increase the risk of injury, and that he did so with awareness of the probable consequences[,]” as the defendant suggested in this case. Rather, the statute merely requires that the negligent act be conducted purposefully and intentionally (rather that inadvertently or by mistake).
The Bottom Line
For a co-employee to be liable in Missouri for a workplace injury, the plaintiff has to show BOTH:
(1) That the defendant co-employee owed a personal duty beyond the employer’s non-delegable duty to provide a safe workplace (defendant’s conduct created a job hazard beyond the foreseeable risks of the tasks assigned to the plaintiff by the employer); AND,
(2) That, in so doing, the defendant co-employee committed an “affirmative negligent act” (i.e., not a mere omission) that was purposeful and put the plaintiff in danger.
While employers are immune from civil suits due to the exclusivity of Missouri’s Worker’s Compensation Act, the same cannot be said for all employees. The duty to provide a safe workplace and safe appliances, tools and equipment for the work belongs to the employer, but employees must stay mindful that their own actions may endanger their co-workers and subject them to personal liability.
The Missouri Court of Appeals for the Eastern District recently rejected an invitation to recognize a common-law right-of-way rule for vehicles operating within a private parking lot. By operation of the fundamental principle that the law should impose tort liability on the party better able to alter their behavior to avoid harm, the court held concurrent duties of drivers to keep a careful lookout and to slow, stop, or swerve to avoid a collision better conform to Missouri’s principles of tort law.
Barth v. St. Jude Medical, Inc., involved an automobile collision on the parking lot of Mercy Hospital in St. Louis County. Defendant’s employee, who was backing out of a parking space, relied primarily upon her back-up camera because a vehicle parked to her right obscured her vision of any vehicles coming down the parking lane. Plaintiff, who was traveling down that parking lane, did not see defendant’s taillights or reverse lights. Defendant collided with the passenger side of plaintiff’s vehicle, causing plaintiff personal injury.
At trial, plaintiff tendered a disjunctive comparative-fault jury instruction which included the defendant’s failure to yield the right-of-way and an instruction defining the phrase “yield the right-of-way.” The trial court refused to submit these tendered instructions and instead submitted two comparative-fault instructions: one for assessing fault to plaintiff and the other to defendant with neither instruction hypothesizing a failure to yield the right-of-way. The jury returned a verdict for defendant.
On appeal, plaintiff asserted that the trial court erred by failing to instruct the jury on failure to yield the right-of-way. Plaintiff argued his proposed comparative fault instruction properly hypothesized a failure to yield the right-of-way under Missouri Approved Instruction 17.08, and his proposed definitional instruction was consistent with and required by the Notes on Use for that approved instruction.
The Court of Appeals found no error because the proposed definitional instruction, which it agreed was a necessary addition to any instruction hypothesizing a failure to yield the right-of-way on a public thoroughfare, did not pass muster. The Missouri pattern instructions provide eight different definitions for the phrase “yield the right-of-way.” All are patterned after statutory rules of the road, but notably, none of those statutory rules of road, applies to this case because the collision occurred on a private parking lot.
Plaintiff’s counsel argued that the statutory-based definitional instruction could be based upon a common-law right-of-way rule, even if the statutory rules did not apply. Toward this end, plaintiff proposed a definitional instruction hypothesizing “yield the right-of-way” in the context of this case means a driver backing out of a parking spot on a parking lot is required to yield to another vehicle approaching in the lane adjacent to the parking spot. As support, plaintiff cited to a statutory rule of the road setting out the definition of “yield the right-of-way” for when a vehicle enters a roadway from an alley, private road, or driveway. The court found, however, that since the statutory rules of the road did not apply to the private parking lot, it would have been error to submit a statutory right-of-way instruction for a private parking-lot accident.
Alternatively, plaintiff urged the court to recognize his proposed common-law right-of-way rule requiring vehicles backing out of parking spaces to yield to vehicles approaching in the traffic lane adjacent to the parking spot. The court declined to do so as such a rule would conflict with a fundamental principle of Missouri tort law: liability should be imposed on the party better able to alter his or her behavior to avoid the harm. Plaintiff’s proposed rule assumed that in every situation the party better able to avoid the harm is the party backing out of the parking space. This, however, may not always be the case. The court concluded that concurrent duties of the drivers to keep a careful lookout while in the parking lot and to slow, stop, or swerve to avoid a collision, consistent with the instruction the trial court gave in this case, conform to this basic principles of tort law. Any deviation from this basic principle under the circumstances of this case would have to come from the Missouri legislature.
Recently, the Southern District Court of Appeals affirmed the trial court’s determination in a bench tried case on an employee’s claim for what he described as unpaid commissions. In affirming the trial court’s Judgment, the court of appeals made clear that Missouri law allows an employer to unilaterally modify the terms of an at-will employee’s compensation. However, the facts of this case show that the employer did not fail to pay earned commissions, but rather, due to the specific compensation arrangement, plaintiff had drawn against any commissions he had earned.
Plaintiff began working for Dennis Oil in January 2010, on a trial basis and had specific terms of compensation which involved 8% commission on profit from new sales plus a $550 per week salary. He also was to be paid 5% commission on profit from existing sales, and provided a company truck and phone. Employee did not dispute the amount or calculation of his compensation during the trial period.
Effective June 1, 2010, and after the trial had expired, the employer unilaterally changed the terms such that the employee received a guaranteed draw of $2,333.33 per month, which was to be drawn against the employee’s commissions to be earned. The employee also was to receive commissions of 5% on profits earned by employer on existing customer accounts, as well as commissions of 8% on profits earned by employer on newly-acquired customer accounts. During the bench trial, the employer’s manager explained this to be “draw against commissions”, which meant that if the employee earned commissions that exceeded the guaranteed draw amount of $2,333.33 per month, then he would be paid the excess. However, if the employee did not clear that guaranteed amount, only that amount would be paid. The employer made no attempt to recoup payments to the employee for months where his commissions fell short of the guaranteed draw amount.
It is well settled that where sales have been fully consummated, commissions are considered due and owing, even if the employee is terminated before the scheduled payout date. Earned commissions, like salary or hourly pay, are “wages” that must be paid, even if the employee is an employee-at-will. Here, however, the Southern District Court of Appeals had to enlighten plaintiff that his simply was not a case in which his employer had failed to pay commissions he had earned.
This case demonstrates the potential confusion which can arise if counsel retained does not have the experience needed in the area of employment law. At Baker Sterchi we pride ourselves in providing clients with experience in all the areas of law in which we practice. Employment, labor, and wage-hour law are certainly no exceptions.
It is well known to financial services practitioners that a “debt collector” under the FDCPA is prohibited from using false or misleading information in furtherance of collecting a debt, and that a debt collector is liable for the claimant’s attorneys’ fees for such a violation. But a recent decision out of the Fifth Circuit serves as a worthwhile reminder that the conduct of a party and its counsel, as well as reasonableness of the fees, matters in considering whether or not to grant recovery of fees.
In Davis v. Credit Bureau of the South, the defendant’s name alone reveals a violation of 15 U.S.C. §§ 1692e(10), (16), as it had ceased to be a credit reporting agency years before it attempted to collect a past due utility debt from Ms. Davis under that name. Cross motions for summary judgment were filed, and the Court found that the defendant was liable for statutory damages under the FDCPA for inaccurately holding itself out as a credit reporting agency.
Subsequently, Davis’ attorneys filed a motion for recovery of their fees, relying upon 15 U.S.C. § 1692k(a)(3), which states that a debt collector who violates these provisions of the FDCPA “is liable [ . . . ] [for] the costs of the action, together with reasonable attorneys’ fees as determined by the court.” The motion sought recovery of fees in the amount of $130,410.00 based upon on hourly rate of $450.00. The trial court was, as it held, “stunned” by the request for fees and denied the motion. For its holding, the court cited to the fact that there was disposed of by summary judgment with a Fifth Circuit case directly on point, and that there were substantial duplicative and excessive fees charged by Plaintiff’s multiple counsel. The trial court also characterized the rate of $450.00 as excessive in light of the relative level of difficulty of the case and the fact that the pleadings were “replete with grammatical errors, formatting issues, and improper citations.” From this order, Davis appealed.
In its holding, the Fifth Circuit recognized that the FDCPA’s express language, and several other circuit holdings, suggest that attorneys’ fees to a prevailing claimant are mandatory. However, the Court relied upon other circuits that have permitted “outright denial” (as opposed to a mere reduction) of attorney’s fees for FDCPA claims in “unusual circumstances,” as well as other Fifth Circuit cases with similar conduct under other statutes containing mandatory attorney fee recovery, to deny recovery of fees altogether. The Court found there was extreme, outrageous conduct that precluded recovery of fees, where the record showed Davis and her counsel had colluded to create the facts giving rise to the action. For instance, Ms. Davis misrepresented that she was a citizen of Texas rather than Louisiana in order to cause the defendant to mail a collection letter, thus “engaging in debt collection activities in the state of Texas.” Furthermore, Davis and her counsel made repeated, recorded phone calls to the defendant asking repetitive questions in order to generate fees. While the FDCPA’s fee recovery provision was intended to deter bad conduct by debt collectors, the Fifth Circuit found it was even more important in this case to deter the bad conduct of counsel.
The Davis opinion may be found here and is a cautionary tale that attorneys’ fees, as well as behavior throughout a case, may be held under the microscope, even where the law suggests that fees are recoverable as a matter of right.
The Missouri Supreme Court recently issued an opinion that could undercut the arbitration clauses found in many existing commercial contracts. In A-1 Premium Acceptance, Inc. v. Hunter, the court refused to name a substitute arbitration forum when the parties’ agreed-upon arbitrator—the National Arbitration Forum—suddenly and unexpectedly stopped providing arbitration services in consumer claims nationwide.
By way of background, the National Arbitration Forum was one of the nation’s largest providers of arbitration services for consumer debt collection claims. In 2008, NAF administered over 200,000 cases. But a series of lawsuits alleged unfair practices and hidden ties to the debt collection industry, culminating in a July 2009 action by Minnesota’s attorney general. Just three days after the Minnesota case was filed, NAF entered into a consent judgment compelling it to immediately stop administering consumer credit arbitrations nationwide. (NAF has since re-branded as Forum and now focuses on internet domain-name disputes.)
Meanwhile, many existing consumer credit contracts were written with language requiring binding arbitration of consumer protection claims by the borrower and expressly naming NAF as the forum for arbitration. Several such agreements existed between A-1 Premium Acceptance, a payday lender operating as “King of Kash,” and borrower Meeka Hunter. Ms. Hunter had originally taken out four loans in 2006, totaling $800. When she defaulted almost nine years later, interest had grown the total debt to over $7,000. A-1 sued on the debt, and when Ms. Hunter filed a counterclaim alleging violations of the Missouri Merchandising Practices Act, A-1 sought to enforce the arbitration clauses from the original loan agreements.
Unfortunately, those clauses provided that that consumer claims “shall be resolved by binding arbitration by the National Arbitration Forum, under the Code of Procedure then in effect.” Conceding that NAF was no longer available to arbitrate the claims, A-1 asked the circuit court to appoint a substitute arbitrator, as authorized by the Federal Arbitration Act in the event of “a lapse in the naming of an arbitrator.” The circuit court refused to do so, and A-1 appealed.
The Missouri Supreme Court affirmed the lower court’s decision on the grounds that the language from the subject arbitration clauses stated an intent to arbitrate only before NAF. The opinion distinguished this type of agreement from those that express an agreement to arbitrate generally, regardless of the availability of a named arbitrator. Noting that A-1 drafted the agreement and chose to “insist upon NAF—and only NAF—as the arbitration forum,” the Court refused to “expand the arbitration promise [A-1] extracted from Hunter” by naming someone else as a replacement arbitrator. Since arbitration before NAF was not possible, the Court held, Ms. Hunter was free to pursue her claims in Missouri state court, a much more receptive forum for consumer protection claims like these.
Notably, the arbitration clauses at issue never expressly stated that arbitration could proceed “only” or “exclusively” before NAF. Instead, the court relied primarily on three factors to conclude that the parties had agreed to arbitrate only before NAF: (1) the language mandating that claims “shall be resolved by arbitration by the National Arbitration Forum” (emphasis added by the court); (2) the fact that A-1 drafted the contract and could have included language contemplating the unavailability of its preferred arbitrator, noting that many contracts do just that; and (3) language mentioning the “Code of Procedure then in effect,” a reference to the 2006 NAF Code of Procedure, which includes a rule that only NAF can administer the Code. Combined, the court concluded, these provisions showed that the parties agreed to arbitrate “before NAF and no other arbitrator.”
The Court finished, however, by cautioning that “merely identifying an arbitrator in an arbitration agreement—without more—cannot justify refusing to name a substitute.” A substitute should still be named unless there is “a basis to conclude the parties’ arbitration agreement was limited to the specified arbitrator,” which the Court determined existed in this case.
This decision adds to a wild profusion of existing case law addressing the numerous and diverse arbitration agreements that name NAF as arbitrator. Although the result invariably depends on the language of the particular contract at issue, courts across the nation that have taken the same approach as the Missouri Supreme Court and denied applications to compel arbitration include the Second, Fifth, and Eleventh Circuit Courts of Appeals, and the New Mexico Supreme Court. But the Third and Seventh Circuits and the Supreme Courts of Arkansas and South Dakota have reached the opposite result, appointing substitute arbitrators in place of NAF. Federal district courts across the country have come down on both sides. A-1’s attorneys have expressed an intent to appeal this Missouri decision to the United States Supreme Court, hoping to bring some clarity to this recurring and divisive issue.
This case demonstrates the importance, especially in Missouri, of exercising caution when drafting arbitration clauses. This is particularly true in the context of consumer transactions, where one side typically sets the terms of the transaction. If the intent is to ensure that disputes end up in private arbitration instead of state court litigation—then naming a preferred arbitrator is fine, but it is also essential to plan for the possibility that the arbitrator is unavailable. Otherwise, as A-1 experienced here, the agreement to arbitrate may be for naught.
The Missouri Supreme Court’s opinion is available here.
As part of Cybersecurity Awareness Month, we continue our discussion about the FDA’s efforts to help prepare various entities to address cybersecurity threats, vulnerabilities, and even attacks. In our previous post, we previewed the FDA and MITRE’s cybersecurity Regional Incident Preparedness and Response Playbook (the “playbook”) for health care delivery organizations. Here, we take a more in depth look into what that playbook has to offer.
The playbook’s focus is primarily aimed at preparing Health Care Delivery Organizations (“HDOs”), including their stay, for addressing and responding to cybersecurity threats. The playbook is not intended to address the day-to-day patch management of devices, but rather addresses threats and vulnerabilities for large-scale, multi-patient impact and patient safety concerns.
The playbook’s guidance primarily consists of four guiding steps, going in chronological order: (1) preparation, (2) detection and analysis, (3) containment eradication and recovery, and (4) post-incident activity. Below is a summary of these action steps, but you are encouraged to read the actual playbook for a more in-depth explanation and/or expansion on the summary below.
Assess and bolster cyber defensive measures and develop handling process and procedures to enable better operations when an incident arises.
1. Incorporate cybersecurity awareness into medical device procurement in order to strengthen the response to a cybersecurity incident. (E.g. Request a Software Bill of Materials to identify and address vulnerable device components.)
2. Take a medical device asset inventory. (E.g. Identify device name and description, physical location of device, device owner and manager.)
3. Perform a hazard vulnerability analysis to assess and identify potential gaps in emergency planning, including a review as anticipated cybersecurity threats and existing mitigations. (E.g. Identify potential cybersecurity risks, such as lack of staff with the ability to detect and respond to a cybersecurity incident.)
4. Prepare medical technical specialists (i.e. the response team to all hazard incidents) with cybersecurity and medical device expertise as part of the hospital incident management team.
5. Create an Emergency Operation Plan to determine how the HDO will “respond to and recover from a threat, hazard, or other incident” with a device. (E.g. Identify members and their roles and responsibilities.)
6. Create an overall Incident Response communication plan (E.g. Identity key internal and external communication roles.)
a. Specify incident-sharing expectations for all participants in the above communication plan. (E.g. What incidents can and cannot be shared?)
b. Identify cybersecurity incidents, initiate outreach to manufacturer and then to broader healthcare community.
c. Implement external incident notification and continue to stay abreast of intrusion information and/or mitigation recommendations from manufacturer(s).
d. Create a communication template for how incident notification will occur and how.
7. Implement user awareness training with all medical device users in your company and conduct preparedness and response exercises for all-hazards.
(2) DETECTION AND ANALYSIS
Identify and establish that an incident has occurred.
1. Define the priority of and appropriate level of response to incidents.
2. Implement formal and informal reporting obligations (Note: Manufacturers are required to conduct a formal notification of the incident to its customers and user community.)
3. The incident investigation and analysis can begin once initial incident parameters have been set.
4. All activities taken to address cybersecurity incidents and responses must be recorded or otherwise documented. Benefits of recording these activities include preserving evidence for potential criminal activity and learning to improve the response for the future.
(3) CONTAINMENT ERADICATION AND RECOVERY
Response to the confirmed cybersecurity incident begins. Such activities could include a strategy of “contain, clear, and deny” (i.e. halt cybersecurity incident, fix it and restore services quickly) or a “monitor and record” strategy (i.e. watch and “capture” adversary actions).
(4) POST-INCIDENT ACTIVITY
Identify what went well and what did not; such information can be leveraged to improve existing plan and future response. It is also suggested to retain a trained, digital forensics expert to fully identify the damage done.
For immediate, additional information about addressing cybersecurity breaches in medical devices, consider visiting the BSCR blog posts below addressing cybersecurity:
The Missouri Supreme Court has firmly upheld the right of a party to present multiple expert witnesses during the trial of a medical malpractice case. Shallow v. Follwell, 554 S.W.3d 878 (Mo. banc 2018). The Supreme Court disagreed with the Court of Appeals’ decision in the case, and instead affirmed the trial court’s overruling of plaintiff’s objections that the testimony of multiple defense experts was prejudicially cumulative. In doing so, the Supreme Court affirmed the jury verdict in favor of the physician defendant.
In this wrongful death, medical malpractice action, the three adult children of decedent Saundra Beaver claimed that Dr. Follwell negligently performed decedent’s bowel surgery and then failed to recognize post-surgical problems which developed into sepsis, which caused the patient’s death. During trial, plaintiff presented one medical expert (whose specialty was not described in the opinion), and also the testimony of a treating surgeon. Dr. Follwell presented four expert witnesses and also testified on his own behalf as a fact witness and an expert witness. The jury found for Dr. Follwell.
In post-trial Motions, plaintiffs alleged the trial court had erred in: 1) allowing prejudicially cumulative testimony from Dr. Follwell and his four expert witnesses; and, 2) permitting Dr. Follwell to testify at trial to a causation opinion different than that which he had offered at his own deposition. The trial court denied plaintiff’s post-trial Motions and plaintiffs appealed.
The Eastern District Court of Appeals had admonished the trial court for having ignored its duty to properly assess whether the testimony of all five defense expert witnesses was needed, and whether it was legally relevant. That court described the four retained experts as a “chorus of the same ultimate opinions…” which “posed a substantial risk of interfering” with the jury’s ability to properly decide the case.
After taking the case on transfer, the Missouri Supreme Court affirmed the jury’s verdict after analyzing the two main points which plaintiff/appellant had put before the trial court and the Court of Appeals.
I. Testimony of Multiple Experts Was Not Cumulative
One of Dr. Follwell’s defense theories was that the patient had a complex cardiac condition which caused her bowel injury. Dr. Follwell retained four experts, all with a separate specialty, which included: 1) cardiology; 2) general surgery and critical care; 3) colorectal surgery; and, 4) vascular surgery.
In finding that the trial court had not erred in denying plaintiffs’ objections that the defense experts’ testimony was prejudicially cumulative, the court stated it had carefully reviewed the trial transcripts, which showed that Dr. Follwell and his expert witnesses had “testified about the very root of the matter in controversy”, and so the evidence was not cumulative. The court also made clear that the rule against cumulative evidence remains intact, but that evidence is prejudicially cumulative only when it relates to a matter which is already so fully and properly proven by other testimony or evidence, that it removes it from the “area of serious dispute”. (The Supreme Court also noted that it appeared no sufficient trial record was made as to the objections to the purportedly cumulative nature of the challenged testimony.)
The court also made clear that evidence can be cumulative without necessarily being prejudicial. The Court observed that at trial, Dr. Follwell’s four experts testified contrary to the expansive testimony of plaintiff’s sole retained expert witness. However, in doing so, those four experts were testifying about issues – standard of care and causation – which were at the very core of the controversy. At the same time, the Supreme Court cautioned that a trial court should be alert to the risk of having jurors resolve differences in opposing expert witness testimony simply by the sheer number of witnesses called to testify, rather than giving due consideration to the quality and credibility of each expert’s opinions. Such a circumstance could well be prejudicial.
The Supreme Court also emphasized that the Circuit Court, “enjoys considerable discretion in the admission or exclusion of evidence and, absence clear abuse of discretion, its actions will not be grounds for reversal.” Whether to exclude evidence on ground of unfair prejudice rests in the discretion of the Circuit Court. The Circuit Court is uniquely positioned to evaluate the testimony of witnesses and to determine its prejudicial impact when prompted by a timely objection. The Court found that when considering the testimony of Follwell’s multiple expert witnesses, the trial court showed careful, deliberate consideration of plaintiff’s objections.
II. Dr. Follwell Did Not Offer a New Opinion at Trial
As to the claim that Dr. Follwell was improperly permitted to offer a different opinion at trial than at his deposition, the court pointed out that the purpose of preventing witnesses from offering new opinions at trial “is to relieve a party who is genuinely surprised at trial”. This can occur when an expert suddenly has an opinion where he had none before, renders a substantially different opinion than that earlier disclosed, and/or uses facts to support or newly bases that opinion on data or facts not earlier disclosed.
The court’s opinion contains pertinent portions of Dr. Follwell’s trial and deposition testimony to support its conclusion that the trial court did not err in overruling plaintiffs’ objections to Dr. Follwell testifying as he did at trial because he did not offer a substantially different opinion than what he offered at his deposition.
Here, the court found a central issue about which Dr. Follwell testified was the cause of the patient’s ischemic, and then necrotic, bowel. In both situations (deposition and trial), Dr. Follwell testified that vascular injury could cause bowel ischemia. He had also testified that he had not seen a surgical perforation of the bowel cause a vascular injury which then led to necrotic bowel.
Follwell is an important decision for a number of reasons, perhaps chiefly because it reaffirms the right of a party to defend itself with a sufficient number of expert witnesses, even where one’s adversary has chosen to use fewer expert witnesses. Follwell also demonstrates the crucial importance of making a proper and complete record at the trial court level, so an appellate court has the ability to fully examine that record, including the objections made by trial counsel.
At Baker Sterchi Cowden & Rice, we are committed to providing our attorneys with as full an education as possible in the fine art and science of trial work. We believe this is all the more important with the opportunities for jury trial experience diminishing, due to the shrinking number of jury trials across the country.
In a recent opinion, the United States Court of Appeals for the Eighth Circuit took a hardline position as to a plaintiff’s failure to disclose information required by Rule 26 of the Federal Rules of Civil Procedure, as to non-retained experts. Vanderberg v. Petco Animal Supplies Store, Inc., ---F.3d---, 2018 WL 4779017 (8th Cir., October 2, 2018). The result, though harsh, underscores the importance of strict compliance with not only the rules of discovery, but the rules regarding sanctions for non-compliance.
Plaintiff Vanderberg suffered injuries when making a delivery to a Petco store in Sioux City, Iowa, and sued Petco for negligence and premises liability. In his initial Rule 26 disclosures, plaintiff listed his medical provider, Fox Valley Orthopedic Institute, as likely to have discoverable information. In his interrogatory answers, plaintiff provided the name of Dr. Timothy Petsche as a treating physician from Fox Valley, as well as other medical professionals, and produced 573 pages of medical records. Several of those records reflected opinions held by Dr. Petsche, including that certain of plaintiff’s conditions were related to the injury at Petco. Plaintiff did not, however, designate Dr. Petsche or anyone else as an expert witness, or provide any summaries of the facts and opinions to which such experts would testify, as is required by Rule 26(a)(2).
After the deadline for plaintiff’s expert witness disclosures, Petco’s counsel asked plaintiff’s counsel about the failure to designate any experts. Plaintiff’s counsel responded that plaintiff had no retained experts but expected the treating physicians to provide testimony. Plaintiff’s counsel also indicated that if Petco’s position was that treating physicians must be identified through expert witness certification, then it should so advise.
After the close of discovery, Petco filed a Motion for Summary Judgment on the basis that plaintiff had no produced any expert medical opinion evidence, as required by Iowa law, to show that his injuries were caused by the Petco incident. In opposition, plaintiff relied, in part, on Dr. Petsche’s notes to in an attempt to establish causation. Petco moved for sanctions for plaintiff’s failure to make the required Rule 26(a) expert witness disclosures and requested the exclusion of Dr. Petsche’s testimony.
The district court found plaintiff violated Rule 26(a)(2), and ruled that exclusion of the doctor’s statements was the appropriate sanction. Allowing the evidence to be used would almost certainly require a continuance of trial so the doctor could be deposed, and plaintiff provided no valid reason for the failure to disclose. Having excluded the only expert opinion evidence plaintiff had to establish that his injuries were caused by the fall at the Petco store the district court granted summary judgment to Petco. (Plaintiff also attempted to rely upon a report from a second undisclosed physician, but at oral argument plaintiff’s counsel conceded that exclusion of this second physician’s report was not an abuse of discretion, thus removing that issue from the case.)
The Eighth Circuit affirmed. The civil procedure rules are very clear: absent stipulation of the parties or a court order, parties must disclose the identity of non-retained experts who may testify at trial and disclose “the subject matter on which the witness is expected to present” expert opinion testimony and “a summary of the facts and opinions to which the witness is expected to testify.” Rule 26(a)(2)(C).
Rule 26’s disclosure mandates are given teeth in Rule 37. Rule 37(c)(1) provides that when a party fails to comply with Rule 26(a), “the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless.” This is a self-executing sanction for failure to make a Rule 26(a) disclosure, without need for a motion for sanctions, unless the failure was substantially justified or harmless.
The Court ruled that neither the production of hundreds of pages of medical records, nor the disclosure by plaintiff that Dr. Petsche was a treating physician and potential fact witness, satisfied plaintiff’s duty to disclose experts under Rule 26(a)(2)(A). Nor could plaintiff’s counsel’s letter stating that he expected non-retained physicians to testify on various issues save his claim. The Eighth Circuit agreed with the district court that, “[i]n essence, [plaintiff’s] counsel asked Petco if the Rules of Procedure regarding expert disclosures mean what they say.”
The Eighth Circuit also accepted the trial court’s finding that plaintiff’s failure to comply with Rule 26(a)(2) was neither substantially justified nor harmless where, although the record contained no hint of bad faith, there also was no proffered reason for noncompliance. Allowing the evidence after the close of discovery and just two months before trial would almost certainly require a continuance of trial.
Finally, the Eighth Circuit rejected the notion, espoused by the opinion’s dissent, that since the exclusion of the evidence was tantamount to dismissal, the district court should have first considered the possibility of a lesser sanction. Plaintiff never asked for a lesser sanction. The text of Rule 37(c)(1) provides that where a party violates the disclosure requirements of Rule 26(a), an alternative sanction to exclusion may be imposed by the court “on motion.” It was plaintiff’s obligation, as the party facing sanctions, to show that its failure to comply with the Rule deserved a lesser sanction.
The Court explained:
The result of Vanderberg’s failure to comply with his … disclosure requirements may seem harsh. But the burdens on parties who are not adequately appraised of an opposing party’s experts’ identity and expected testimony are also real and costly. In any event, the balance between adequately incentivizing compliance with parties’ disclosure obligations and not unfairly punishing “insignificant, technical violations” has already been struck by the drafters of Rule 37(a)(1). It is our role to conform our analysis to the text of the rule, rather than strike our preferred balance.
Food Labeling Litigation Under the Missouri Merchandising Practices Act: When the Label's Impact on Consumer Choice Doesn't Really MatterOctober 22, 2018 | Martha Charepoo
In a potentially problematic decision for manufacturers and sellers of consumer packaged goods, a federal judge allowed a lawsuit against Atkins snack bars to proceed under the Missouri Merchandising Practices Act (“MMPA”). Johnson v. Atkins Nutritionals, Inc., 2:16-cv-04213. The MMPA is Missouri’s consumer protection statute that has attracted a steady rise in the filing of food labeling cases in Missouri over the past few years. The lawsuit arises from a local resident’s purchase of five different Atkins-brand “low carb” snack bars found in most grocery stores. The lawsuit alleges that Atkins misrepresented the carbohydrate content of its snack bars by making statements on the wrappers such as “Only [X]g Net Carbs” and “Counting Carbs?” Atkins asked the court to dismiss the lawsuit, and while the District Court dismissed some of Plaintiff’s state common law claims, and his implied warranty claim, it allowed Johnson’s MMPA claims to move forward.
The Court allowed Johnson to proceed on his MMPA claim, on the theory that labels stating that an Atkins bar contained “Only [X]g Net Carbs” were false, misleading or deceptive because such labels may be illegal under federal law. The court also allowed Johnson’s theory that a “Counting Carbs?” label is false, misleading or deceptive concerning the effects of sugar alcohols on blood sugar. Thus, even though the court decided that claims based on the calculation method for determining net carbs were preempted by federal law, evidence of the calculation method can be introduced because it relates to the assertion that sugar alcohols have energy content and impact blood sugar. The court also decided that evidence concerning the labels would be admissible to give context to the “Counting Carbs?” labels.
In its motion for summary judgment, Atkins had asked the court to dismiss the case because Johnson testified that he purchased the products for reasons other than what was stated on the wrappers. In fact, Johnson testified that he saw but did not read the “Counting Carbs?” label on one product, and did not even look at it on another one before purchasing it. He also testified that the word “only” in the “Only 2g Net Carbs” label was meaningless, but that he purchased the bars as a part of a zero-to-low carbohydrate diet plan to cut sugar and lose weight. Atkins argued that dismissal was warranted because the labels or their contents must have actually factored into Johnson’s purchasing decision for a violation of the MMPA to have occurred. In other words, Johnson must have relied on the labels, or their contents must have been material to his decision to purchase the bars.
The court rejected this argument, citing Missouri Court case law, statutes, and regulations, stating that nothing in the MMPA indicates that there must be proof that a consumer actually relied on the allegedly unlawful practice to pursue a claim under the MMPA. The court pointed out that the definition of the three unlawful acts alleged by Johnson under the Act are intentionally broad: “The MMPA is a consumer-friendly law that is specifically designed to enable consumers to obtain relief even in those circumstances where they cannot prove fraud.” According to the court, Missouri law is well-established that materiality is an element of an MMPA claim only when the consumer alleges concealment as an unlawful practice. The proof required is that “the fact so-concealed would have been material to their purchasing decision.”
Thus, Johnson’s MMPA claim survived, with the Court concluding there was a genuine dispute of fact as to whether or not the “Only [X]g Net Carbs” label and the claim made in the “Counting Carbs?” label concealed facts that would have been a part of Johnson’s decision to purchase had he known them at the time.
Johnson’s common law claims fared differently. The court examined two product labels on five of the bars, to determine if Johnson established the elements of breach of express warranty and unjust enrichment. Breach of express warranty requires a showing that Johnson was aware of the statement made by Atkins that he is now saying is a misrepresentation. To prove unjust enrichment, there must be proof that Johnson actually relied upon the misrepresentation in making his purchase. Atkins won on both claims as to the “Counting Carbs?” label on the Peanut Butter Fudge Crips Bar and the Chocolate Peanut Butter Bars because the court found that Johnson saw the label but did not read it. The court allowed these two claims to proceed on the other three products containing the “Counting Carbs?” label and the “Only Xg Net Carbs” label — the Chocolate Chip Cookie Dough Bar, the Caramel Nut Chew Bar, and Endulge Chocolate Candies —only because there was a question of fact about whether Johnson saw and/or read the statements on those wrappers.
At the end of the day, however, this partial “victory” was not much of a victory for Atkins, because Plaintiff can seek at least as expansive remedies under the MMPA as those available under the common law theories.
There should be little doubt after Johnson v. Atkins that the MMPA means what it says when it comes to proving unlawful practices in food labeling. Food merchandisers can face liability for violation of the statute even if the contents of the label had no impact on consumer choice.
House Financial Services Committee introduces bill to provide uniform reporting standards in the event of data breachesOctober 17, 2018 | Megan Stumph-Turner
In the spirit of National Cybersecurity Awareness Month, BSCR reports that Rep. Luetkemeyer of Missouri introduced H.R. 6743, a measure aimed at amending the Gramm-Leach-Bliley Act to provide a national uniform standard for addressing cyber security data breaches. The bill has already made some traction, as it was ordered by vote to be reported to committee last month.
Some key amendments would be to revise the following two sections of the GLBA:
Standards with respect to breach notification
Each agency or authority required to establish standards described under subsection (b)(3) with respect to the provision of a breach notice shall establish the standards with respect to such notice that are contained in the interpretive guidance issued by the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision titled Interagency Guidance on Response Programs for Unauthorized Access to Customer Information and Customer Notice, published March 29, 2005 (70 Fed. Reg. 15736), and for a financial institution that is not a bank, such standards shall be applied to the institution as if the institution was a bank to the extent appropriate and practicable.
Relation to State laws
This subtitle preempts any law, rule, regulation, requirement, standard, or other provision having the force and effect of law of any State, or political subdivision of a State, with respect to securing personal information from unauthorized access or acquisition, including notification of unauthorized access or acquisition of data.
The full text of the proposed amendments can be found at this link.
It is this second provision that is troubling some state-level authorities. In a letter to Chairman Hensarling, John W. Ryan, the President and CEO of the Conference of State Bank Supervisors (CSBS) expressed concern on behalf of state regulators that the bill, if enacted into law, could hurt efforts to protect consumers more than help. Arguing that the GLBA and state privacy laws already provide sufficient guidance for cyber breach events, Mr. Ryan contends that H.R. 6743 would actually undermine state consumer protection laws, and that it would undermine the authority of state attorneys general and other authorities to enforce reporting requirements.
BSCR will continue to monitor the status of H.R. 6743, and our Financial Services Law Blog will keep the community posted as to pertinent events.
CYBERSECURITY. In a statement issued from FDA Commissioner Scott Gottlieb, M.D., the FDA made clear the threat of cybersecurity attacks are no longer a theoretical discussion, but are present and as such steps must be taken to proactively address future threats. Such attacks are already here in other capacities, including attacks on financial institutions, government agencies, and health care systems.
The FDA’s specific concerns revolve around attacks on patient medical devices. Cybersecurity researchers have found various vulnerabilities in patient medical devices that could result in bad actors gaining access and control over the patient’s medical device. While “FDA isn’t aware of any reports of an unauthorized user exploiting a cybersecurity vulnerability in a medical device that is in use by a patient,” the “risk of such an attack persists.” As a result, in an effort to instill confidence in both patients and providers that it can effectively address any reported medical device cyber vulnerabilities, the FDA has determined that it is important to address such a threat of an attack now.
In taking such proactive steps, the FDA announced it has coordinated with the MITRE Corporation to launch a cybersecurity “playbook” for health care delivery organizations, along with the “signing of two significant memoranda of understanding.” A “sneak peek” at the playbook shows it addressing the types of readiness health care delivery organizations should consider in order to be better prepared and address cybersecurity incidents involving their respective medical devices. The memoranda, among other actions, created such groups as information sharing analysis organizations, which are groups of experts (aimed to include manufacturers who share potential vulnerabilities and threats) that gather, analyze and disseminate important information about cyber threats.
The FDA’s work in addressing cybersecurity threats dates back to 2013 with the establishment of its medical device cybersecurity program. The FDA has issued a premarket and postmarket guidance for manufacturers to consider in addressing their cybersecurity vulnerabilities and threats. While the FDA’s premarket guidance was finalized in 2014, it announced in this statement that it plans on publishing a “significant update to that guidance to reflect the FDA’s most current understandings of, and recommendations regarding, this evolving space.” One such example included providing customers with a list of cybersecurity bill of materials to ensure that device customers and users are able to respond quickly to potential cybersecurity threats.
Finally, the FDA is taking steps to bring additional resources to build its medical device cybersecurity program, starting with its Fiscal Year 2019 Budget in order to establish additional “regulatory paradigms” to proactively address vulnerabilities and threats.
Be on the lookout for a future discussion of the FDA’s collaborative “playbook” with MITRE, as well as a posting on the FDA’s “significant update” to its 2014 premarket guidance.
For immediate, additional information about addressing cybersecurity breaches in medical devices, visit our prior posts addressing cybersecurity:
The Missouri Court of Appeals for the Western District recently confirmed the long-standing principle that a party’s failure to plead even a valid affirmative defense constitutes a waiver of that defense. Missouri trial courts have no authority to step in and remedy a defendant’s pleading error by applying such a defense sua sponte (“of its own accord”).
The case of Templeton v. Cambiano involved a series of three promissory notes issued between 2003 and 2005. The plaintiff claimed that the defendant had executed the notes in order to borrow nearly $50,000 but had then failed to make a single payment. She filed suit for the principal, plus over $75,000 in interest and late fees, in December 2015, which was just shy of ten years after the final note had been signed. The defendant filed a responsive pleading that generally denied liability for the debt, but his answer did not separately allege that the plaintiff had failed to mitigate her damages by allowing interest and late fees to accumulate for almost a decade before filing suit.
After a bench trial, the trial judge entered judgment in favor of the plaintiff, but excluded from the award all of the claimed interest and late fees, on the grounds that the plaintiff had “failed to mitigate these damages by the delay in prosecuting this action for ten years.” In her sole point on appeal, the plaintiff argued that the trial court had overstepped its authority by applying the affirmative defense of failure to mitigate damages, which the defendant had failed to plead.
The Western District Court of Appeals reversed the trial court’s judgment and remanded the case with orders to amend the judgment to include the $75,927.12 claimed as interest and late fees. This holding was based on long-standing Missouri precedent that an affirmative defense is waived if it is not either: (1) properly pleaded, according to Missouri’s fact-pleading standard, or (2) tried by the parties’ express or implied consent. Failure to mitigate damages is an affirmative defense. Seeing no evidence in the record that the issue of failure to mitigate damages had been tried by the parties’ consent, the appellate court ruled that the defendant had waived the defense when he omitted it from his answer. Regardless of how meritorious the defense might have been, the appellate court concluded, “the circuit court could not breath life back into this extinguished claim sua sponte.”
The defendant also argued that even if the trial court had relied on “a wrong or insufficient reason,” its judgment should still be affirmed because the equitable doctrine of laches would have supported the same result. Laches is an equitable doctrine that precludes claims asserted after an unreasonable delay, which has prejudiced the opposing party. The Court of Appeals was wholly unconvinced, observing that here too, Defendant had failed to raise laches as an affirmative defense. (Laches is specifically listed in Missouri Rule 55.08 as one of the affirmative defenses that must be pleaded to avoid waiver.) For good measure, the Court also concluded that in any event, the doctrine of laches would not apply even had it been properly pleaded.
The significance of this opinion for defendants in Missouri state court is twofold. First, the case stands as a potent reminder of the importance of carefully pleading all legal defenses and their supporting facts or, in the event a defense is omitted, of promptly seeking leave to amend the answer. Second, it demonstrates how a party’s failure to preserve its own legal defenses can tie the court’s hands, preventing it from crafting the remedy that it deems fair and leading to potentially severe results. Here, the pleading error was costly, ultimately increasing the defendant’s liability by about 150%.
The court of appeals opinion is available online through this link.
Missouri Criminalizes the Word "Meat": Civil Liability for the Mislabeling of Meat Substitutes as MeatSeptember 27, 2018 | Martha Charepoo
On August 28, 2018, with the passing of Senate Bill 627, Missouri criminalized the use of the word “meat” on labels of food products that do not come from an animal and became the first state to do so. The bill states that “[n]o person advertising, offering the sale or selling all or part of a carcass or food plan shall engage in any misleading or deceptive practices, including, but not limited to, any one or more of the following . . . misrepresenting a product as meat that is not derived from harvested production livestock or poultry.” The prohibition has been codified in Missouri Revised Statutes § 265.494(7). Violation of the prohibition is punishable as a Class A misdemeanor. Mo. Rev. Stat. § 265.496. Missouri’s meat advertising law empowers the Department of Agriculture to inspect products and make referrals to the prosecutor in the county in which they are sold. Mo. Rev. Stat. § 265.497. This poses risks not only under the newly enacted statute, but under the Missouri Merchandising Practices Act, as well.
It can be argued that the plain meaning of the statute cannot be reasonably construed to apply to non-animal products. The statute explicitly states that it applies to “person[s] advertising, offering the sale or selling all or part of a carcass or food plan.” The word “carcass” is not specifically defined in the statute. The ordinary meaning of “carcass” is the dead body of an animal. “Food plan” is “any plan offering meat for sale or the offering of such product in combination with each other or with any other food or nonfood product or service for a single price.” Mo. Rev. Stat. § 265.490(3). “Meat” means “any edible portion of livestock, poultry, or captive cervid carcass or part thereof.” Mo. Rev. Stat. § 265.300(7). Arguably, plant-based and lab grown meat substitute products do not constitute a “carcass” or “food plan”. However,it is widely believed that the amended statute will govern the marketing, sale, and offer of sale of meat substitute products that utilize the word “meat” on their packaging.
The new law is being challenged by vegan brand Tofurky and food-advocacy group Good Food Institute (GFI) in the U.S. District Court of the Western District of Missouri, in a case titled Turtle Island Foods v. Richardson. The American Civil Liberties Union of Missouri and the Animal Legal Defense Fund are also participating in the lawsuit. The petition alleges that § 265.494(7) is unconstitutional because it violates the Free Speech Clause of the First Amendment, the Dormant Commerce Clause, and the Due Process Clause. Filed on August 27, 2018, the day before the law passed, the lawsuit seeks to halt enforcement of the statute until the constitutionality of the statute can be ruled upon by the court.
However, the threat of criminal prosecution is probably not imminent. On August 30, 2018, the Missouri Department of Agriculture (“MDA”) issued a memorandum providing guidance about when the MDA will make referrals to the county prosecutor and Attorney General. The memorandum states that products whose labels contain prominent statements on the front of the packaging immediately before or after the product name that the product is “plant based”, “veggie”, “lab grown”, “lab created” or something comparable, or prominent statements that the product is made from plants or grown in a lab, will not be referred for prosecution. The Department also states that it will refrain from making any referrals for prosecution until January 1, 2019 “[t]o allow for any necessary label changes to be made.” Thus, companies should move quickly to ensure that their product labels display the required language on the primary packaging.
An additional legal threat could come from meat-eating consumers seeking relief under the Missouri Merchandising Practices Act (“MMPA”), Missouri’s consumer protection statute that has spawned a recent rising of food labeling litigation in Missouri. See our prior posts on food labeling litigation here, here, and here. The MMPA bars three types of conduct: deception, unfair practices, and concealment. Mo. Rev. Stat. § 407.020.1. The regulations that provide the definition of “unfair practice” for the statute define it as “any practice which . . . [o]ffends any public policy as it has been established by the . . . statutes or common law of this state” that “[p]resents a risk of, or causes, substantial injury to consumers.” The Missouri Supreme Court has commented on the scope of the term “unfair practice”, describing it as “unrestricted, all-encompassing, and exceedingly broad. For better or for worse, the literal words cover every practice imagine able and every unfairness to whatever degree.”
Unlike a cause of action for fraud, a consumer does not need to plead that the producer intended to dupe the consumer into thinking the product is meat and that the consumer relied on the misrepresentation to state adequately an unfair practice claim under the MMPA.See the U.S. District Court of the Western District of Missouri's Order in Michael Johnson v. Atkins Nutritionals, Inc. In addition to encompassing a broad range of merchandising practices, the appeal of the MMPA as a vehicle for consumer grievances is the availability of damages and attorney’s fees. The statute also allows for class action lawsuits.
Food products such as meat substitutes are arguably “merchandise” within the scope of the Act. Thus, a meat purchaser could bring a claim under the MMPA that a product that was mislabeled “meat” in violation of the new law is an unfair practice in violation of the MMPA. Moreover, compliance with the MDA’s labeling guidelines might not be enough to shield companies because the MMPA does not contain an exemption for conduct that complies with the MDA’s memorandum. Other jurisdictions have language in their consumer protection acts that exempt from violation labels that comply with state product labeling regulations. Currently, there is nothing similar in the MMPA that would bar an unfair practice claim brought against a meat substitute product whose label complied with the MDA’s guidelines as a matter of law. Of course, a food industry supplier could argue that a label that meets the standard established by the MDA is by definition not “deceptive” or “unfair” but there is currently no case law in Missouri addressing the merits of this contention.
The Missouri long-arm statute provides that an out-of-state defendant can be subject to personal jurisdiction in Missouri when it commits a tortious act within Missouri. See R.S.Mo. §506.500.1(3). The issue of what constitutes a tortious act within Missouri is not always evident, especially when a defendant solely acted outside of the state. A recent case decided by the Missouri Court of Appeals for the Western District squarely addressed the issue of when alleged out-of-state tortious acts give rise to long-arm jurisdiction in Missouri. In Good World Deals, LLC v. Gallagher, et al., the court held that letters or telephone calls containing fraudulent representations from an out-of-state defendant to a Missouri resident are sufficient to subject the out-of-state defendant to long-arm jurisdiction in Missouri under its tortious act provision.
In Good World, the plaintiff appealed the trial court’s finding that defendant Xcess was not subject to personal jurisdiction in Missouri. Good World, a Missouri limited liability company located in Kansas City, received an email from Xcess, an Ohio limited liability company with its principal place of business in Wooster, Ohio, regarding merchandise that Xcess had for sale.
Following the email, defendant Gallagher, on behalf of Xcess, and Good World engaged in telephone communications and text messages regarding the merchandise. Xcess represented that it had approximately 1,500 Xbox games and 200 Fitbits to offer, among other items, and that the items were overstock and could have damaged boxes. Good World informed Xcess it was interested in the merchandise because of the Xbox games and Fitbits. Following an agreement on the price, Good World arranged its own shipping and picked up the merchandise in Ohio.
Upon receipt of the merchandise and after discovering that there were fewer than 700 Xbox games, no Fitbits and many boxes were empty or contained broken items, Good World notified Xcess that the goods were nonconforming and gave them the opportunity to cure. When Xcess refused, Good World filed suit, alleging misrepresentation and breach of contract.
Xcess moved to dismiss the lawsuit, claiming it was not subject to personal jurisdiction in Missouri. The circuit court agreed. The Missouri Court of Appeals, however, reversed and remanded after employing a two-step analysis to determine if personal jurisdiction existed over Xcess. First, it examined whether Xcess’ conduct satisfied the Missouri long-arm statute and, once it determined that it did, it examined whether Xcess had sufficient minimum contacts with Missouri such that asserting personal jurisdiction over it comports with the principles of due process.
The Missouri long-arm statute vests jurisdiction in the Missouri courts when a defendant personally transacts business, makes a contract, or commits a tortious act in the state. See R.S.Mo. §506.500.1(1)-(3). It provides in relevant part as follows:
Any person or firm, whether or not a citizen or resident of this state, or any corporation, who in person or through an agent does any of the acts enumerated in this section, thereby submits such person, firm, or corporation, and, if an individual, his personal representative, to the jurisdiction of the courts of this state as to any cause of action arising from the doing of any of such acts:
(1) The transaction of any business within this state;
(2) The making of any contract within this state;
(3) The commission of a tortious act within this state.
Plaintiff claimed that personal jurisdiction existed over Xcess because it transacted business within Missouri, it entered into a contract in Missouri and it committed a tortious act within Missouri. Because the conduct of Xcess only needed to satisfy one of these subdivisions, the appellate court found that Good World sufficiently alleged that Xcess committed a tortious act, i.e. making false and material misrepresentations about the conformity of the merchandise, within Missouri. Since it was dispositive, the court only addressed the tortious act provision of the long-arm statute.
While Xcess denied any tortious act, it also argued that if there were alleged misrepresentations, they occurred in Ohio and not in Missouri. The Good World court therefore was faced with the issue of what constitutes the commission of a tort “within the state” for purposes of the long-arm statute. In analyzing this issue, the Good World court rejected Xcess’ argument that any such acts did not occur in Missouri because of well-established precedent holding that “‘[e]xtraterritorial acts that produce consequences in the state’ such as fraud, are subsumed under the tortious act section of the long-arm statute.” Because Good World alleged fraudulent acts of Xcess that created consequences in Missouri, the long-arm statute was satisfied and Missouri courts could exercise jurisdiction over Xcess.
Having decided that the long-arm statute was satisfied, the court turned to the second prong of the analysis, which is whether Xcess had sufficient minimum contacts with Missouri such that asserting personal jurisdiction over it comports with due process. The court recognized that the focus of such an evaluation is “whether ‘there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.’” The Court of Appeals held that plaintiff established Xcess purposefully engaged plaintiff in Missouri through emails, text messages and phone calls which contained misrepresentations about the merchandise. Citing the Missouri Supreme Court’s earlier ruling in Bryant v. Smith Interior Design Grp., Inc. 310 S.W.3d 227, 235 (Mo. banc 2010), the Court reasoned that when the actual content of communications in a forum gives rise to intentional tort causes of action, i.e. when the communications contain fraudulent content, there is purposeful availment.
The Good World holding does not limit Missouri precedent holding that communications from an out-of-state defendant to a Missouri resident alone do not amount to transacting business in the state for purposes of the long-arm statute. To the contrary, the court did not address whether Xcess transacted business in Missouri. Instead, this holding is limited to cases in which a plaintiff alleges that an out-of-state defendant sent communications into Missouri that were false and misleading, therefore satisfying the tortious act section of the Missouri long-arm statute.
Adding to a Circuit Split, the Tenth Circuit Rules that Arbitrators May Determine Whether Classwide Arbitration is AllowedSeptember 13, 2018
In August 2018, the Tenth Circuit Court of Appeals decided Dish Network L.L.C. v. Ray, an important ruling in the field of arbitration clauses and their effect on potential class action litigation. The Tenth Circuit specifically addressed the question of who should determine whether an arbitration clause allows classwide arbitration: a court or an arbitrator?
While the contract at issue and its accompanying arbitration clause did not expressly grant the right or ability to apply arbitration on a classwide basis, the Court concluded that the arbitrator appropriately interpreted the broad language of the contract as authorizing classwide arbitration. The Tenth Circuit cited the contract’s adoption of American Arbitration Association rules, granting arbitrators the power to determine their own jurisdiction and scope of authority. The Court reasoned that this explicit adoption of the AAA rules was clear and unmistakable evidence that the parties intended to empower an arbitrator to determine whether classwide arbitration of a dispute is permitted.
Through the Ray decision, the Tenth Circuit cast its vote in a growing circuit split. Now, the Tenth, Second, and Eleventh Circuits have ruled that an arbitrator may determine whether or not an arbitration clause permits classwide litigation. The Third, Fourth, Sixth, and Eighth Circuits have reached opposite conclusions. The Circuits that reject an arbitrator’s authority to determine whether classwide arbitration is allowed have held that adoption of AAA rules within the underlying contract is not sufficiently clear or unmistakable so as to bind the parties to class arbitration. The developing circuit split has turned largely upon the tension between explicit contract language, and the intent that can be implied from the adoption of AAA rules and the explicit content of those rules.
As a growing number of circuits reach opposite conclusions on the availability of classwide arbitration through the adoption of AAA rules, it is imperative that parties entering arbitration agreements be aware of whether or not the circuit governing the agreement has ruled on the issue. Parties should also consider spelling out their intent that classwide arbitration either is or is not permitted under the contract, thus removing any uncertainty. Clear and unequivocal language remains the best medicine to prevent against the unintended consequences of seemingly innocuous provisions within an arbitration agreement or clause. While this circuit split continues to grow, it seems only a matter of time before the Supreme Court of the United States fully considers and resolves this growing issue.
Governor Parson has signed Senate Bill 608, which enacts three new sections relating to civil liability due to criminal conduct. The Bill affords Missouri business owners greater protection against liability for criminal conduct that occurs on their property.
Senate Bill 608 repealed part of Section 537.349, RSMo, which provided that a person or business owner could not be found liable for the injury or death of a trespasser if the trespasser is substantially impaired by alcohol or an illegal controlled substance, unless the person or business owner acted with negligence or willful and wanton conduct. Under the revised law, negligence is no longer a basis for liability. Now, a person or business owner may only be liable if their willful and wanton misconduct was the proximate cause of the injury or death of the substantially impaired trespasser.
Senate Bill 608 also creates what is referred to as “The Business Premises Act”, which is comprised of Sections 537.785 and 537.787, RSMo. The Act creates safeguards to businesses for third-party crimes out of the business’s control. It provides that there is no duty to guard against unpreventable criminal and harmful acts of third parties that occur on the business premises unless the business knows or has reason to know that such acts are being committed or are reasonably likely to be committed. The Act codifies three affirmative defenses available to a premises owner, should a duty be found to exist under the Act. The business will not be liable:
- if the business has implemented reasonable security measures;
- the claimant was on the premises and was a trespasser, attempting to commit a felony, or engaged in the commission of a felony; or
- the criminal acts or harmful acts occurred while the business was closed to the public.
The Act also provides that evidence of subsequent action taken by a business to provide protection to persons shall not be admissible in evidence to show negligence or to establish feasibility of the security measure. This is consistent with a wide body of Missouri law on subsequent remedial measures. In addition, the Act expressly states that all immunities and defenses to liability available to a business under Missouri law are unaffected, and it shall not be construed to create of increase the liability of a business.
The safeguards created by Section 537.349, RSMo and the Act provide clarification of the duty of businesses when third-party crimes occur on business premises and the applicable affirmative defenses, neither of which was clear under Missouri case law. We will closely follow the body of case law that develops around this statutory framework, and are optimistic that the intent of Senate Bill 608 will be realized.
The full text of SB 608, and the cited statutory provisions may be found here.
In BNSF Railway Co. v. Seats, Inc., a Burlington Northern Santa Fe locomotive engineer was injured when the backrest of his locomotive seat broke. The engineer sued BNSF under the Federal Employers Liability Act alleging the seat did not comply with standards articulated in the Locomotive Inspection Act (“LIA”) The LIA requires all locomotives and their components to be “in proper condition and safe to operate without unnecessary danger of personal injury”.
BNSF settled the engineer’s lawsuit. Thereafter, BNSF sued Seats, Inc. to recover its settlement costs. Seats designed, manufactured and marketed the locomotive seat that injured the engineer. BNSF sought relief under products liability and breach of contract theories. The district court decided BNSF’s claims were preempted by the LIA, and granted Seats’ motion to dismiss BNSF’s claims.
On appeal, the Eighth Circuit noted that the LIA does not confer a private right of action on injured railroad workers. Rather, the LIA establishes standards of care that are enforced by a private right of action for railroad employees under the FELA. These standards of care, in the interest of national uniformity, are intended to occupy the field of locomotive design, materials and construction. Thus, quoting the U.S. Supreme Court decision in Kurns v. Railroad Friction Products Corp., 565 U.S. 625 (2012), the Eighth Circuit stated that “state common law duties and standards of care directed to the subject of locomotive equipment are pre-empted by the LIA”.
The Court framed the primary issue in the case as whether the LIA preempts state claims based on federal standards of care. Seats argued that state claims based on federal standards compromise national uniformity. The Court disagreed, and held that “…the enforcement under state law of a federal standard of care does not undermine national uniformity because it does not impose conflicting regulations that a railroad must heed during interstate travel.”
In determining that the District Court erred in ruling that the LIA preempts BNSF’s products liability claim, the Court added that if it were to hold that state law claims asserting LIA violations are preempted, the nation’s railroads would be left without a remedy, no matter how glaring the liability of an equipment supplier.
BNSF’s breach of contract claim was based on Seats’ contract with the locomotive manufacturer, General Electric. Seats and GE executed a contract that required Seats to manufacture locomotive seats “in compliance with the LIA” for installation in the locomotive. BNSF alleged Seats breached this contract by providing a defective seat.
Seats successfully argued to the District Court that BNSF’s breach of contract claim was a repackaged version of its products liability claim that was also preempted by the LIA. Again, the Eighth Circuit disagreed. The Court’s reasoning on the breach of contract claim was two-pronged.
First, the Court noted that “[j]ust as there is room for state tort remedies, there is room for state contract remedies associated with the federal standards embodied in the LIA”. Second, the Court found that the breach of contract claim did not require compliance with a state duty or standard of care. Instead, the claim was based on a duty that was voluntarily assumed and not imposed by state law. Therefore, these “self-imposed undertakings” are not preempted by federal law.
Commentary: The Seats decision provides great clarity to the commercial relationships between railroads and vendors whose products are covered by federal standards of care. The case is certainly not the first among such entities, and the Eighth Circuit has provided a definitive guide for current and future litigation.
A cyber thief was able to trick AT&T into providing Michael Terpin’s account information, enabling that thief to make off with nearly $24 million in cryptocurrency belonging to Terpin, according to a complaint filed in the U.S. District Court for the District of California in Los Angeles.
In the lawsuit, among other things, Terpin alleges that AT&T was negligent in failing to protect its customers’ private data, and that it willfully disregarded unlawful transactions between AT&T employees and cyber thieves. Terpin claims that his digital currency was lost due to a “SIM swap fraud,” where the customer’s phone number is transferred to a SIM card operated by a hacker, who then resets the customer’s passwords and logs into their accounts in order to obtain confidential data and access to assets. Terpin believes that an AT&T employee cooperated in the swap that caused him to lose digital coins that would have been valued at $23.8 million in January of 2018, during a time where the value of the bitcoin was soaring, as previously reported by the BSCR financial services law blog. Because he has been publicly involved in cryptocurrency enterprises, Terpin was a prime target for cyber thieves.
AT&T has responded to the complaint publicly, stating, “We dispute these allegations and look forward to presenting our case in court.” Terpin, though, alleges that the telecommunications juggernaut has simply become “too big to care,” prioritizing expansion and acquisition over investing in hiring qualified professionals, providing ongoing training, or investing in systems that would better protect customer data.
While it remains to be seen what the outcome of this litigation will be, this lawsuit serves as a cautionary tale to any large institution that possesses sensitive online account data of its customers. These institutions would be well advised to look into their hiring and training procedures, as well as to consider implementing secure storage systems, in order to curtail future liability. BSCR will continue to monitor this litigation and will provide updates as milestones occur in the case.
An action filed in the United States District Court for the Western District of Missouri culminated after four years with a consent order that is catching attention due to its unusually small civil penalty, particularly in light of the severity of the conduct being penalized.
Richard Moseley Sr. and others, as well as a multitude of LLCs operating under his control (the “Defendants”), reached a consent judgment in the amount of $69,623,528, representing the amount of Defendants’ ill-gotten gains from their illegal payday lending scheme. But, in that same order, execution of the judgment was suspended upon certain conditions, including the following: (1) that Defendants agree not to participate in any further lending or financial services activities, (2) that they permit the CFPB to work with the Department of Justice to use funds from their bank accounts seized in a separate criminal action, and (3) that they each pay a civil penalty of just one dollar.
This anemic civil penalty was figured based upon affidavits and documents Defendants provided to the Bureau showing their lack of ability to pay the judgment amount, or apparently even a small fraction of it.
The consent order follows the recent criminal conviction of Moseley in the Southern District of New York for conspiracy, collection of unlawful debts, wire fraud, aggravated identity theft, and false disclosures under TILA. Among other things, Moseley and others charged illegally high interest rates, approaching 1,000 percent, on payday loans, took sensitive banking information of prospective customers who had not signed a contract for the loan and withdrew money from their accounts, and falsely reported that his businesses were based in other countries when they were actually operating in the Kansas City area.
The Missouri legislature has enacted amendments to our state’s interpleader statute, Mo. Rev. Stat. § 507.060, which address one of the most vexatious problems in claims handling – multiple claimants with insufficient policy limits to fully resolve each claim against the insured. House Bill 1531 was signed by the governor on June 1, and will become effective August 28, 2018.
Prior to these amendments, Missouri law was unsettled as to which approach should be favored by an insurer in a multiple-claimant scenario without risking third-party bad faith claims, for which Missouri is notorious. This post looks at the approaches to this problem in Missouri and elsewhere under the common law, and then at the changes worked by the revised interpleader statute.
I. THE STATE OF THE LAW PRIOR TO AUGUST 28, 2018
A. FIRST-COME, FIRST-SERVE
The oldest rule for resolving an insurer’s duties when presented with multiple claims and insufficient limits to pay all claims and potential claims is “first in time, first in right,” or “first-come, first-served.” When multiple claimants bring lawsuits against one or more insured defendants seeking damages for bodily injuries or death arising from a single occurrence and, based on a reasonable evaluation, the policy limits are plainly insufficient to cover the insured’s total potential exposure, courts generally apply the rule “first in time, first in right.” Voccio v. Reliance Ins. Cos., 703 F.2d l, 3 (1st Cir. 1983). This principle “applies regardless of whether the priority is by way of judgment or by way of settlement.” World Trade Ctr. Props. LLC v. Certain Underwriters at Lloyd’s of London, 650 F.3d 145, 151 (2d Cir. 20 11); Allstate Ins. Co. v. Russell, 13 A.D.3d 617, 788 N.Y.S.2d 401, 402 (N.Y. App. Div. 2004); Castorena v. Western Indemnity Co., 213 Kan. 103, 110, 515 P.2d 789, 794 (1973).
This means that the insurer is entitled to pay the first claimant who obtains a judgment, or the first claimant who presents a settlement demand within policy limits. A liability insurer “has discretion to settle whenever and with whomever it chooses, provided it does not act in bad faith.” World Trade Ctr. Props. LLC v. Certain Underwriters at Lloyd’s of London, 650 F.3d 145, 151 (2d Cir. 2011); Allstate Ins. Co. v. Russell, 13 A.D.3d 617 (N.Y. App. Div. 2004). The first to settle rule does not literally require that the insurer settle the first claim that is presented, but absolves it of responsibility for later claims when it has reached a reasonable settlement with the first claimant to negotiate to settlement.
[W]hen faced with a settlement demand arising out of multiple claims and inadequate proceeds, an insurer may enter into a reasonable settlement with one of the several claimants even though such settlement exhausts or diminishes the proceeds available to satisfy other claims. Such an approach, we believe, promotes settlement of lawsuits and encourages claimants to make their claims promptly.
Texas Farmers Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex. 1994). Soriano is generally considered the lead opinion on resolution of multiple-claimant problems.
It is generally agreed that the insurer can pay some claims and leave others unresolved, such that settlement exhausts policy limits so that the insured and other claimants are left without coverage under the policy. Liquori v. Allstate Ins. Co., 76 N.J. Super. 204, 208, 184 A.2d 12, 17 (N.J. Super. Ct. 1962). When an insurer “has paid the full monetary limits set forth in the policy, its duties under the contract of insurance cease.” Boris v. Flaherty, 242 A.D.2d 9, 12, 672 N.Y.S.2d 177, 180 (N.Y. App. Div. 1998).
It is also generally accepted that the insurer does not need to, and probably should not, wait until all claims are presented before determining which it will settle and how it will settle them. Hartford Casualty Ins. Co. v. Dodd, 416 F. Supp. 1216, 1219 (D. Md. 1976); State Farm Mutual Auto Ins. Co. v. Hamilton, 326 F. Supp. 931, 934 (D.S.C. 1971).
Still, the insurer should make every attempt to settle as many claims as possible within policy limits. In Continental Casualty Insurance Company v. Peckham, 895 F.2d 830 (1st Cir. 1990), the court explained that, in a multiple-claimant case, the insurer should try to settle all or some of the claims so that the insured could be relieved from as much liability as is reasonably possible. Id. at 835. In doing so, the insurer is entitled to exercise “honest business judgment” as long as it attempts to resolve the multiple claims in good faith. The court further recognized that, when the insurer is making a good-faith attempt to resolve multiple claims within the inadequate policy limits, the insurer is not required to make perfect judgments and is not automatically found in bad faith if the insured incurs liability beyond the policy limits. Id.
However, the insurer must be careful to attempt to preserve policy funds for truly significant claims. In Brown v. United States Fidelity & Guaranty Co., 314 F.2d 675 (2d Cir. 1963), an insurer was found to have acted in bad faith for the “overeager” settlement of a claim in disregard of potential personal liability on the insured. Id. at 682. That is, the insurer should not jump to settle a claim of minimal value, simply because it is presented first and easy to resolve, when this would deplete already insufficient policy funds and increase the insured’s exposure to an excess judgment.
The “first in time” cases are obviously in tension with cases holding that the insurer must still attempt to preserve as much of the policy funds as possible to minimize the insured’s exposure to an excess judgment, and the reported cases are highly fact-specific without a bright-line rule. Moreover, there are no reported Missouri cases authorizing a “first in time” approach to settlement of multiple claims exceeding the policy limits.
B. SEEK THE CLAIMANTS’ SUGGESTIONS ON A SPLIT
Insurers should attempt to resolve all claims if possible. One approach would be to determine whether the claimants would agree to a split of the policy proceeds. See Voccio v. Reliance Ins. Cos., 703 F.2d 1, 3 (1st Cir. 1983) (the fact that “the carrier met together with counsel for both [claimants] and sought suggestions on how to divide the money” was evidence of the insurer’s good faith); accord, Kinder v. Western Pioneer Ins. Co., 231 Cal. App. 2d 894, 902 (1965).
Voccio involved competing claims by the survivors of a decedent, and a minor who lost both legs in an auto accident. The insured maintained only $25,000 in combined liability limits. The insurer consulted with representatives of both claimants and proposed a 50/50 split. The decedent’s family accepted the settlement, but the minor refused, and obtained a substantial judgment. The First Circuit, nevertheless, found no bad faith because the insurer had reasonably attempted to resolve the situation.
There is no real harm in notifying the claimants that their claims are believed to exceed the policy limits, and seeking their input regarding an equitable division of the proceeds. This may help to inoculate the insurer from a later bad faith claim.
Our sense is that, for claims that pre-date the amended interpleader statute, although there are no reported Missouri cases, Missouri courts would prefer to see an insurer attempt to resolve all claims globally based upon suggestions from the claimants as to how the funds should be divided. It is probably a good idea to make such a request as soon as possible after receipt of a demand. Even though it is unlikely that the claimants will actually provide an agreed-upon division of the policy proceeds, documenting that the insurer has identified the problem and seeking the claimants’ proposals probably can only help deter a future bad faith claim.
C. PRO RATA
Missouri specifically approves payment of policy proceeds on a pro rata basis, based on the relative magnitude of each claim. Christlieb v. Luten, 633 S.W.2d 139, 140 (Mo. App. E.D. 1982); see also Geisner v. Budget Rent a Car of Mo., 999 S.W.2d 265, 268 (Mo. App. E.D. 1999). However, the Christlieb case involved distribution of policy proceeds following judgments in which the value of the claims were established by juries.
In Countryman v. Seymour R-II Sch. Dist., 823 S.W.2d 515, 522 (Mo. App. S.D. 1992), plaintiffs in a garnishment action argued that an insurer is required to pay out policy proceeds on a pro rata basis. The case notes that, other than Christlieb, there is no clear guidance in Missouri law for how to handle multiple claimants to an insufficient policy limit. Countryman, like Christlieb, found that it would be most equitable to divide the policy funds on a proportionate or pro rata basis under the facts of that case. However, this case is post-judgment, and does not address resolution of pre-suit claims.
These cases seem to support an insurer reaching its own good-faith determination of the relative value of the claims and attempting a pro rata distribution. However, these cases do not apply to settlement (as opposed to final judgment). As discussed elsewhere, if a claimant with a significant claim refuses to accept a pro rata distribution, the insurer must re-evaluate its position – Christlieb and others are not a “get out of jail free” card to allow the insurer to avoid bad faith.
Obviously, in a pre-judgment settlement posture, the claimants may not be willing to accept a pro rata distribution, and/or may disagree regarding the relative values of their claims. As discussed more fully below, there are consequences to an insurer that loses the opportunity to settle at least one of the claims while attempting a global resolution. While proposing a pro rata allocation of the policy proceeds is acceptable, the insurer still must act to settle within or for the policy limits if possible if the claimants will not accept a pro rata distribution. If there is no agreement, then the insurer should proceed with either a “first in time” or “most valuable/greatest risk” approach.
D. MOST VALUABLE CLAIM OR CLAIM PRESENTING THE GREATEST RISK OF EXCESS EXPOSURE
One of the leading cases on this issue is from across the border in Kansas, Farmers Ins. Exch. v. Schropp, 567 P.2d 1359 (Kan. 1977). This case involved $25,000/$50,000 policy limits, and an auto accident which resulted in the death of the insured driver and injury to five surviving claimants. A Mr. Schropp suffered the most severe injuries and the most damages. The insurer refused his settlement demand for $25,000, based on the other four claims. Id. at 1363. This case is discussed in greater detail below, but Schropp eventually recovered on an assigned bad faith claim. Id. at 1364.
While the reported case law in Missouri is less clear, the standard for bad faith in Missouri looks at whether the insurer has adequately protected the insured from a judgment in excess of the policy limits:
Circumstances that indicate an insurer’s bad faith in refusing to settle include the insurer’s not fully investigating and evaluating a third--party claimant’s injuries, not recognizing the severity of a third--party claimant’s injuries and the probability that a verdict would exceed policy limits, and refusing to consider a settlement offer. . . . Other circumstances indicating an insurer’s bad faith include not advising an insured of the potential of an excess judgment or of the existence of settlement offers.
Johnson v. Allstate Ins. Co., 262 S.W.3d 655, 662 (Mo. App. W.D. 2008). Where an insurance company, knowing that a claimant was badly injured and that liability was clear, and expecting the possibility of a significant adverse judgment in excess of the policy limits against its insured, refuses to offer the full amount of the policy limit in settlement of the claim, it is apparent the insurer placed its own financial interests before those of its insured. See Frank B. Connet Lumber Co. v. New Amsterdam Casualty Co., 236 F.2d 117, 126 (8th Cir. 1956). This is more complicated in a multiple-claimant context, but under Missouri law there is the clear potential for bad faith liability where the insurer does not take advantage of an opportunity to settle a large claim that would expose the insured to an excess judgment.
E. DO NOT LOSE THE OPPORTUNITY TO SETTLE ONE CLAIM WHILE PURSUING SETTLEMENT OF ALL CLAIMS.
The lead Missouri case on these issues is not particularly helpful, but does demonstrate some of the potential pitfalls in failing to handle appropriately a multiple-claimant situation. The insurer should not overlook good opportunities to resolve substantial claims in pursuit of the goal of settling all claims.
In Rinehart v. Shelter General Insurance Company, 261 S.W.3d 583 (Mo. App. W.D. 2008), the insured was driving drunk when he struck another vehicle, causing serious injuries to his passenger (Adkins) and the two occupants of the claimant vehicle (Ingram and Krohn). The applicable policy limits were $50,000 per person / $100,000 per accident. Claimants Ingram and Krohn demanded $50,000 each. Id. at 588. The insurer advised that it was willing to tender the full policy limits, but advised that claimants Ingram and Krohn would have to reach an agreement with insured passenger Adkins as to the distribution of the proceeds. Claimants Ingram and Krohn refused to share the policy limits with Adkins. Id. at 589. Counsel for Ingram and Krohn presented another policy limits demand, and the insurer responded that it would settle the claims for two-thirds of the total policy limits. Id. at 589. Claimants Ingram and Krohn filed suit, and excess judgments were entered for more than $3.5 million to Ingram and over $1 million to Krohn. Subsequently, the insured filed a bad faith action and a jury awarded $6.25 million in compensatory damages and $3 million in punitive damages. Id.
On appeal, the insurer argued that there was no evidence of bad faith because its sole objective was to settle all of the potential claims within the policy limits and, thus, protect the insured from any potential personal liability. The court determined that the evidence demonstrated that the insurer did not really intend to settle Adkins’s claim, and, therefore, a jury could infer that the insurer had attempted to escape its full contractual obligation to the insured by only offering to pay two-third of the policy limits. Id. at 596. The court of appeals also found that a jury could reasonably find that the insurer had acted with reckless indifference to the insured’s financial interests by refusing to settle with Ingram and Krohn for the full policy limits. Id. Rinehart suggests that it would be preferable to settle with a “big” claimant and to leave other claims unresolved, rather than to lose the opportunity to settle with the big claimant whose claim could well exceed policy limits.
II. AFTER AMENDMENTS TO MISSOURI’S INTERPLEADER STATUTE
Missouri House Bill 1531 provides clear options for insurers faced with the multiple claimants, insufficient limits problem. The bill amends Mo. Rev. Stat. § 507.060 to specifically provide that an interpleader action may be filed in circumstances “including multiple claims against the same insurance coverage.” The amended statute provides that an interpleader claim may be filed where there are multiple “potential” claims against the insurer or insured.
Under the new statute, so long as the insurer files an interpleader action within 90 days from receiving a settlement demand, the insurer is insulated from extra-contractual liability in “any other action,” specifically addressing the third-party bad faith problem. However, the insurer gets this “get out of jail free” card as to a potential bad faith claim only if it defends the insured in any bodily injury action even though it has deposited its limits into court in the interpleader. See Mo. Rev. Stat. § 507.060.4 (effective Aug. 28, 2018). Filing the interpleader and timely paying the policy limits into court following its order also insulates the insurer from a subsequent garnishment action by any of the claimants, who are prohibited from recovering from the insurer any amount beyond the limits deposited in the context of the interpleader. § 507.060.5.
This is significant because not only has Missouri been a bad faith trap for decades, there is case law in other jurisdictions holding that filing an interpleader action does not insulate insurers from potential bad faith claims. In Liberty Mut. Ins. Co. v. Davis, 412 F.2d 475 (5th Cir. 1969), the insurer chose to file an interpleader action when faced with multiple claimants and insufficient limits. It did not accept the first-presented demand for policy limits, but proceeded with the interpleader action. While the interpleader was pending, one of the injured claimants obtained a default judgment against the insured, and proceeded with garnishment and an assigned bad faith claim against the insurer. The bad faith claim went to trial.
The Fifth Circuit found that, while Liberty Mutual’s concerns about having to pay more than its policy limits were relevant to the ultimate jury question of bad faith, they did not, as a matter of law, justify the trial court’s directing a verdict for the insurer. It was for the jury to decide whether the insurer’s refusal to settle was primarily in its own interests and with too little regard for its insured’s interests.
When several claimants are involved, and liability is evident, rejection of a single offer to compromise within policy limits does not necessarily conflict with the interest of the insured. He hopes to see the insurance fund used to compromise as much of his potential liability as possible. Of course, if the fund is needlessly exhausted on one claim, when it might cancel out others as well, the insured suffers from the company’s readiness to settle. To put the point another way, even if liability be conceded, plaintiffs will usually settle for less than they would ultimately recover after trial, if only to save time and attorney’s fees. Each settlement dollar will thus cancel out more than a dollar’s worth of potential liability. Insured defendants will want their policy funds to blot out as large a share of the potential claim against them as possible. It follows that, insofar as the insureds’ interest governs, the fund should not be exhausted without an attempt to settle as many claims as possible. But where the insurance proceeds are so slight compared with the totality of claims as to preclude any chance of comprehensive settlement, the insurer’s insistence upon such a settlement profits the insured nothing. He would do better to have the leverage of his insurance money applied to at least some of the claims, to the end of reducing his ultimate judgment debt.
412 F.2d at 480-481.
The Fifth Circuit concluded that:
[E]fforts to achieve a prorated, comprehensive settlement may excuse an insurer’s reluctance to settle with less than all of the claimants, but need not do so. The question is for the jury to decide. As this Court put it in Springer v. Citizens Casualty Company, 5 Cir. 1957, 246 F.2d 123, 128- 129, it is “a question for jury decision whether the insurer had not acted too much for its own protection and with too little regard for the rights of the insured in refusing to settle within the policy limits”. [sic] Here, bearing in mind the existence of multiple claims and the insured’s exposure to heavy damages, did the insurer act in good faith in managing the proceeds in a manner reasonably calculated to protect the insured by minimizing his total liability? In many cases, efforts to achieve an overall agreement, even though entailing a refusal to settle immediately with one or more parties, will accord with the insurer’s duty. In other cases, use of the whole fund to cancel out a single claim will best serve to minimize the defendant’s liability. Considerable leeway, of course, must be made for the insurer’s honest business judgment, short of mismanagement tantamount to bad faith.
Id. at 481.
Although not an interpleader action, an insurer in Kansas filed a declaratory judgment action prior to the reduction of any of five competing claims to judgment. The court found that the insurer could still be liable for bad faith. Farmers Ins. Exch. v. Schropp, 567 P.2d 1359 (Kan. 1977). The facts of Schropp are discussed above.
The Kansas Supreme Court faulted the insurer for not filing an interpleader action, but also held that the preferred method for resolving the problem was to invite all of the claimants to participate in a joint effort to distribute the available policy funds. Id. at 1364. Even filing an interpleader may not have been enough to preclude bad faith liability. Filing a declaratory judgment action, however, was definitely not the correct course of action. Id.
It is a strange and refreshing sensation to find Missouri law to be more favorable than that of other jurisdictions on third-party bad faith exposure. However, given the nature of the plaintiffs’ bar in the state and some problematic courts, we will keep an eye on how the amended § 507.060 is applied by the trial courts.
While we regularly report to our readers on significant case law developments in the labor and employment field, the most dramatic developments in Missouri, over the past year, have played out in the legislative arena.
Last year, with a Republican governor and Republican-majority legislature, two major pieces of labor and employment law legislation were passed. One enacted major changes in the Missouri Human Rights Act, revising its terms to largely parallel those of their equivalent federal anti-discrimination statutes. (Over the years, Missouri courts had held that the MHRA had considerably broader reach than federal statutes like Title VII, the ADEA, and the ADA.) The other was the enactment of a right-to-work law that was signed by former Governor Greitens, which would have made Missouri the 28th right-to-work state. The latter result was short-lived, as union supporters gathered enough signatures to keep it from going into effect pending the results of a statewide referendum.
The rejection of so-called “Proposition A” became a major national priority for organized labor, which contributed substantial funds to the cause. And Missouri voters, by a 2-to-1 margin, have effectively blocked the right-to-work law.
In a right-to-work state (like Kansas), employees in unionized workplaces are permitted to opt out of both union membership and the payment of union fees of any kind. In states without right-to-work laws, employees at unionized workplaces don’t have to be dues-paying union members, but are required to pay “agency fees.” to cover the union’s cost of negotiating employment contracts that affect all bargaining unit workers.
Missouri Court of Appeals Eastern District Judges Disagree Regarding Substantial Compliance and Affidavit of Merit Statute in Med Mal CaseAugust 6, 2018 | John Mahon, Jr. and Rebecca Christensen
In Ferder v. Scott, the Missouri Court of Appeals, Eastern District (opinion authored by Judge Robert G. Dowd, Jr.), reversed a trial court’s dismissal of a medical malpractice lawsuit for failure to comply with the affidavit of merit requirement in § 538.225, RSMo. The appellate court held the plaintiff’s affidavit, which complied with the statute in every way except that it combined related defendants into a single affidavit, substantially complied with the statute and was sufficient to avoid dismissal.
The plaintiff sued three defendants (a doctor, the doctor’s practice group, and a hospital) but filed only a single affidavit as to all defendants. The plaintiff’s claims against the corporate defendants were premised solely on vicarious liability for the doctor’s conduct as an alleged employee. The plaintiff voluntarily dismissed her claim against the hospital. Later, the two remaining defendants moved to dismiss on the grounds that the single affidavit was deficient because it did not strictly comply with the mandatory language contained in § 538.225.4, RSMo, which states: “A separate affidavit shall be filed for each defendant named in the petition . . . .” The trial court agreed and dismissed the case, without prejudice, pursuant to § 538.225.6. The plaintiff appealed.
On appeal, the plaintiff conceded the affidavit was technically deficient and did not strictly comply with the statute because there was only one affidavit and not three separate affidavits. However, plaintiff argued she substantially complied with the statute because the affidavit was otherwise compliant and timely and verified her claims were not frivolous. She also argued that because the doctor was an employee of the practice group and because she alleged only a vicarious liability claim against the group, the substance of her single affidavit satisfied the purpose and intent of the statute with respect to both defendants. In other words, the affidavit complied in all substantive ways but not in form, and a separate affidavit for the group would have been nothing more than a duplicate of the one already filed with no additional information.
The appellate court reviewed Missouri case law analyzing § 538.225. The court acknowledged no Missouri court had ever found substantial compliance with the affidavit statute, but Missouri courts had not foreclosed the possibility that a plaintiff could survive a motion to dismiss through substantial compliance under a certain situation. The court found the plaintiff’s case, under its own unique set of facts, presented that situation. The court distinguished the various Missouri appellate decisions rejecting substantial compliance arguments as factually dissimilar in that the plaintiffs in those cases failed to file a timely affidavit. Thus, the court reversed and remanded to the trial court.
Judge Kurt Odenwald authored a dissent in which he expressed sympathy towards the plaintiff’s position, and agreed the affidavit substantially complied with the statute. But he did not believe the court had the discretion to disregard the express directive of the statute and make a finding of substantial compliance. That is because the language of the statute is clear and unambiguous, and Missouri law permits substantial compliance with a statute only under a statutory directive to construe a statute liberally or under a statute that expressly allows for substantial compliance, neither of which was present. Further, construing the statute to permit only one affidavit would necessarily render section 538.225.4 meaningless, and Missouri courts are not permitted to interpret a statute in a way that renders any portion meaningless. Without a direct mandate from the Supreme Court of Missouri, Judge Odenwald was unwilling to diverge from the express language of the statute and thus dissented.
On July 11, 2018, the defendants filed an Application for Transfer to the Supreme Court of Missouri asking the Court to address the conflict between the appellate court’s novel application of the substantial compliance theory to § 538.225 on the one hand, and the legislative intent of the statute, and all prior Missouri appellate decisions, including one Supreme Court decision, on the other. The defendants also argue that the ruling destroys the bright-line nature of the statute and creates a test that will inevitably lead to vastly different applications and inconsistent opinions that will cause confusion among the courts and parties. The application is currently pending.
No Class: SCOTUS Holds That Tolling Properties of Class Actions Only Apply to Individual Cases, Not Future Class ActionsJuly 31, 2018 | David Eisenberg
The recent United States Supreme Court decision China Agritech, Inc. v. Resh, 201 L. Ed. 2d 123 (2018), sensibly resolved some existing confusion about the tolling effect that a putative class action creates for the members of a proposed class. In its 1974 decision in American Pipe & Constr. Co. v. Utah, the Court held that a timely filed class action effectively tolls any applicable statute of limitations for persons who are a part of the proposed class. The Court elaborated on this rule in 1983 in Crown, Cork & Seal Co. v. Parker, stating that the tolling rule applies to putative class members who, if class certification is denied, “prefer to bring an individual suit rather than intervene.” This sparked a slew of actions by plaintiff’s attorneys who argued that the tolling rule applied to both individual claims as well as successive class actions after an original class’ certification was denied. Defense attorneys, understandably, felt differently, and argued against the application of equitable estoppel by some courts, to permit the filing of “stacked” class actions.
The Court’s unanimous ruling in China Agritech, Inc. v. Resh sets the record straight and makes clear that the rule in American Pipe “tolls the statute of limitations during the pendency of a putative class action, allowing unnamed class members to join the action individual or file individual claims if the class fails. But American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations.”
While widely anticipated, the ruling was no less vital to class action defendants. Under the arguments advanced by plaintiff’s attorneys, new class actions could conceivably be stacked end-to-end in perpetuity once an original class action had been timely filed. The Court recognized this perpetual domino effect, and Justice Ginsburg, writing for the Court, viewed this as a fundamental matter of judicial efficiency. American Pipe properly applies to permit tolling of individual claims, “because economy of litigation favors delaying those claims until after a class-certification denial. If certification is granted, the claims will proceed as a class and there would be no need for the assertion of any claim individually.” Early assertion of competing class representative claims is beneficial because it allows “the district court [to] select the best plaintiff with knowledge of the full array of potential class representatives and class counsel.” The Court’s holding effectively ensures class-action defendants that if class certification is denied in the first place, successive nearly-identical class suits will not follow, assuming the time period contemplated by the statute of limitations has passed.The ruling comes as a relief to would-be class action defendants concerned that an already time consuming and dreadfully expensive area of litigation could multiply exponentially. Moreover, the stacking of successive class actions could have effectively allowed plaintiffs to “test the waters” in an original class suit, knowing there would be a fall back option, in a later-filed case. Class action defendants can now rest a little easier knowing that if class certification is defeated, future liability will be limited to individual claims if the statute of limitations period has expired.
Amendments to 537.065 Providing for Notice to the Insurer and Intervention as of Right to be Applied Prospectively OnlyJuly 25, 2018 | Lisa Larkin
A recent decision from Missouri’s Western District Court of Appeals, Desai v. Seneca Specialty Insurance Company, WD81220, involves retroactive vs. prospective application of certain amendments to § 537.065, RSMo. That statute allows a claimant and a tort-feasor to contract to limit recovery against the tort-feasor. It permits any person with a claim for damages against a tort-feasor to enter into an agreement with that tortfeasor whereby, in consideration of the payment of some amount, the claimant would agree that in the event of a judgment against the tort-feasor, he would limit his recovery as against the tort-feasor to the amounts of the insurance policy. Amendments to that statute, effective August 28, 2017, provide new protections to the insurer in the context of these agreement, which are often used to set up claims against an insurer for bad faith refusal to settle. Under the 2017 amendments, before a judgment may be entered against any tort-feasor who has reached such an agreement with a claimant, an insurer must be provided with written notice of the execution of the contract and must be given thirty days after receipt of the notice to intervene as a matter of right in any pending litigation involving the claim for damages. The pre-August 28, 2017, statute contains no such protections for the insurer. The rights to notice and to intervene contained in the amendments is important, therefore, because it seemingly allows the insurer to contest both liability and damages, and possibly coverage issues, as part of the underlying litigation.
In Desai v. Seneca Specialty Insurance Co., Seneca sought to intervene in the lawsuit filed by Neil and Heta Desai against Seneca’s insured, Garcia Empire, LLC. In October 2014, Neil Desai suffered a personal injury while being escorted from a Garcia Empire establishment. The Desais filed suit in May 2016, and Garcia advised Seneca of the suit. Seneca offered to defend Garcia subject to a full and complete reservation of rights regarding coverage, but Garcia rejected Seneca’s offer. In November 2016, the Desais and Garcia entered into a contract under § 537.065 wherein the Desais agreed to limit recovery of any judgment against Garcia to its insurance coverage.
The parties tried the case on August 17, 2017, and the court entered judgment in favor of the Desais and against Garcia on October 2, 2017. Within 30 days of the entry of judgment, Seneca filed a motion to intervene as a matter of right, arguing it was entitled to receive notice of the § 537.065 contract between Garcia and the Desais and to intervene as a matter of right in the lawsuit based on the August 28, 2017, amendments to § 537.065.
The trial court denied the motion to intervene, holding the legislature did not expressly provide for the August 2017 amendments of § 537.065 to be applied to proceedings had or commenced under the statute prior to the amendment. The court of appeals affirmed.
The appellate court rejected Seneca’s argument that the August 28, 2017, amendments applied because the judgment had been entered after the effective date. The plain language of the amended statute provides that an insurer shall be given notice and an opportunity to intervene before a judgment may be entered against any tort-feasor “after such tort-feasor has entered into a contract under this section.” Thus, the trigger point is the entry of the contract, not the date of the judgment.
The appellate court also rejected Seneca’s argument that the 2017 amendments could apply to contracts entered before that date because the changes to the statute regarding notice and intervention were merely procedural and not a substantive change in the law. When Garcia and the Desais entered into their § 537.065 contract, however, Seneca had no right to notice and no standing to intervene as a matter of right. Yet, after the amendments, an insurer would have such standing and have the right to notice. Thus, that section, as amended, creates new legal rights in favor of an insurer which did not exist prior to the amendments. It also imposes new obligations and duties upon the insured, giving a contract entered before August 28, 2017, a different effect from that which it had when entered. Application of these amendments to contracts executed before August 28, 2017, therefore, would be impermissibly retrospective in nature, i.e., it would affect past transactions to the substantial prejudice of the parties.
Thus, the appellate court concluded the notice and intervention provisions of amended § 537.065 apply prospectively only to § 537.065 contracts executed after the effective date of the amendments, August 28, 2017. For contracts entered before that date, such as that at issue in this case, the insurer does not have the protection of the new notice provision and the option to intervene as a matter of right. This opinion reaches only these two specific portions of the August 28, 2017, amendments to § 537.065. It remains to be seen how appellate courts will address the retroactive application of other portions, but this opinion gives some good insight into how the Western District is likely to approach the issue.
Medical Malpractice: Missouri's Health Care Affidavit Statute is Constitutional - Comply or Face DismissalJune 22, 2018 | Suzanne Billam and Hal Meltzer
When will plaintiffs learn? In Hink v. Helfrich, the Missouri Supreme Court has recently added yet another to a long line of Missouri decisions upholding constitutional validity of the health care affidavit requirement for medical negligence actions, and strictly construing the mandatory statutory language. For more on this issue, see our prior post here.
Section 538.225.1 (Missouri Revised Statues) requires that a plaintiff or his counsel file an affidavit with the Court, stating that he has:
“… obtained the written opinion of a legally qualified health care provider which states that the defendant health care provider failed to use such care as a reasonably prudent and careful health care provider would have under similar circumstances and that such failure to use such reasonable care directly caused or directly contributed to cause the damages claimed in the petition.”
The Supreme Court in Hink held plaintiff’s medical malpractice case was properly dismissed for failure to file the required affidavit. In her Petition, the plaintiff challenged the constitutionality of this statute, as revised in 2005, arguing that it violated a plaintiff’s right to jury trial, Missouri’s open courts provision, and separation of powers. When the plaintiff failed to file any affidavit within the prescribed time limit (90 days, plus a 90-day extension as permitted by statute), the defendant physician filed a Motion to Dismiss. The trial court granted defendant's Motion, and plaintiff appealed.
The Supreme Court of Missouri endorsed its prior holding in Mahoney v. Doerhoff Surgical Services, Inc., 807 S.W.2d 503 (Mo. banc 1991), declaring that Section 538.225’s affidavit requirement does not violate the constitutional right of access to the courts under the Missouri Constitution, Article I, § 14, because access to the courts simply means “the right to pursue in the courts the causes of action the substantive law recognizes.” Missouri’s substantive medical malpractice law requires a plaintiff to prove by a qualified witness that the defendant deviated from an accepted standard of care. Without such testimony, the case can neither be submitted to the jury nor be allowed to proceed by the court.
The Court emphasized that Section 538.255’s affidavit requirement is consistent with this substantive law because the legislative purpose of requiring an “affidavit of merit” is to prevent frivolous medical malpractice lawsuits, when a plaintiff cannot put forth adequate expert testimony to support her claims. Thus, the requirement does not deny a fundamental right, or free access to the courts, and does not delay the pursuit of the cause in the courts. At most, it merely redesigns the framework of the substantive law to accomplish a rational legislative end of protecting the public and litigants from the cost of ungrounded medical malpractice claims.
Likewise, the Court once again (as in Mahoney) rejected the argument that Section 538.255’s affidavit requirement violates the right to trial by jury, because the statute simply reiterates existing requirements on plaintiffs: it does nothing more than “parallel” the requirement of Missouri Rule 55.03, that an attorney exercise a reasonable inquiry to ensure the suit is well grounded in fact and law. The affidavit of merit does nothing more than provide more specific guidance as to how medical malpractice plaintiffs must comply with existing pre-suit requirements rather than imposing any new requirement or other restrictions on his or her right to seek redress.
When first enacted, and at the time Mahoney was decided, Section 538.255 gave the trial court discretion on whether to dismiss, providing that if an affidavit was not filed within 90 days, “the court may, upon motion of any party, dismiss the action against such moving party without prejudice.” Mo. Rev. Stat. § 538.225.5, 1985 (emphasis added). In 2005, the statute was amended to provide the court “shall” dismiss the action if an affidavit is not filed, rather than the permissive “may.” This made it yet clear that the trial court had no option to dismiss, where no affidavit was timely filed.
Finally, the Court rebuffed plaintiff’s contention that the 2005 amendment to Section 538.255 defining “legally qualified healthcare providers” to include only those who practice in “substantially the same specialty” as the defendant, impermissibly imposes a stricter burden on the plaintiff than is required to prove a prima facie case of negligence at trial. As plaintiff Hink failed to file any affidavit, the Court held that she was not affected by the alleged deficits to Section 538.255, and therefore lacked standing to challenge its constitutionality. The Court did explain, however, that its interpretation of “substantially the same specialty” includes persons qualified by expertise rather than board certification, and that Section 538.255 does not require the affidavit to rely on only a single expert opinion for both breach of standard of care and causation.
Missouri courts could not be any clearer, Mo. Rev. Stat. § 538.225 is constitutional, mandatory, and here to stay.
The Missouri Legislature introduced bills during its most recent legislative session to curtail forum shopping of class action plaintiffs in Missouri. This anti-forum shopping legislation, while not ultimately enacted into law, would have limited out-of-state plaintiffs from joining lawsuits involving local claims against out-of-state defendants. Current statutes permit these out-of-state plaintiffs to join such claims for a nominal fee, thus allowing them to use Missouri’s court resources and taxpayer dollars to pursue out-of-state defendants for injuries that did not occur in Missouri. House Bill 1578 and Senate Bill 546 attempted to eliminate this problem by limiting both the joinder of plaintiffs and defendants in a single action.
Current Missouri law permits joinder of plaintiffs if they assert a joint right to relief or if their claims arise out of the same transaction or occurrence and if there is any question of law or fact common to all of the joined plaintiffs. Likewise, Missouri law permits joinder of defendants if a claim is asserted against the defendants jointly or if an asserted right to relief arises out of the same transaction or occurrence and there is a question of law of fact common to all of the defendants in the action. The proposed legislation sought to limit joinder by precluding joinder of out-of-state injury claims arising out of separate incidents, or purchases of the same product or service in a single action.
The bills further sought to limit joinder of two or more plaintiffs in an action to only those circumstances in which each plaintiff can establish proper venue independently, except that plaintiffs may be joined in actions in counties with populations below certain specified thresholds. Joinder of two or more defendants in a single action would likewise be prohibited under the proposed legislation unless the plaintiff could establish proper venue and personal jurisdiction as to each defendant, independent of plaintiff’s claims against other defendants. If personal jurisdiction and proper venue could not be independently established as to a particular defendant, that defendant would be deemed misjoined and could only be joined if each party to the action waived objection to the joinder. All claims against a misjoined plaintiff or defendant would have been severable from the action and either transferred to a county where proper venue exists, or if venue is not proper in any county in Missouri or personal jurisdiction does not exist, the claims would be dismissed without prejudice.
Ultimately, H.B. 1578 passed the House, but the similar Senate version, S.B. 546, after appearing on the Senate floor multiple times, failed to pass before the end of this year’s legislative session. While this legislation may be reintroduced next year, if it is enacted with the same provisions as the proposed legislation this session, it will not be retroactive and thus would not affect any lawsuits pending at the time of the legislation’s enactment.
Today, President Trump signed into law S. 2155, The Economic Growth, Regulatory Relief and Consumer Protection Act. In doing so, President Trump stated, “the legislation I'm signing today rolls back the crippling Dodd-Frank regulations that are crushing small banks.”
In response to the new law, community lenders across the nation rejoice. On behalf of Independent Community Bankers of America (the “ICBA”), President and CEO Rebeca Romero Rainey issued a statement that the “landmark law signed by the president today unravels many of the suffocating regulatory burdens our nation’s community banks face and puts community banks in a much better position to unleash their full economic potential to the benefit of their customers and communities.”
Some of those regulations include stringent ability-to-repay evaluations, record retention requirements, reporting to regulators, and stress-testing under the authority of the Federal Reserve to determine the ability to withstand a financial crisis. Smaller banks and credit unions reportedly found these regulations to be unduly burdensome for them, given their relative size and resources for compliance. Perhaps the best evidence of this argument is the nearly 2,000 community financial institutions that ceased operations after the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in 2010.
Critics of the Act, however, argue that the Act goes too far in deregulation. According to some, decision to raise the “enhanced oversight” threshold from those banks with $50 billion or more in assets, to those with at least $250 billion, was too severe, and that such a large rollback in regulation could lead to the next major financial crisis in America. Indeed, the Act provides a new standard for “too big to fail” that excludes nearly two dozen banks that were previously considered to be systematically important financial institutions.
Only time will tell the impact of this new legislation, but The Economic Growth, Regulatory Relief and Consumer Protection Act is being hailed as a win for Main Street by many.BSCR previously posted about S. 2155 when it was first expected to pass in the Senate and has continued to monitor the bill’s progress. The full text of the new law may be found here.
In Kansas, unless you are electronically filing your documents, the last day for filing ends “when the clerk’s office is scheduled to close.” K.S.A. 60-206(a)(4)(B). If you are electronic or fax filing, you have until “midnight in the court’s time zone.” K.S.A. 60-206(a)(4)(A).
In JPMorgan Chase Bank, N.A. v. Taylor, No. 117,774 (Kan.App. May 11, 2018), the Court of Appeals refused to consider the homeowner’s late-filed opposition to the confirmation of the sale, noting, “any response she would have to the motion needed to be filed by the close of business.”
In this case, JP Morgan initiated foreclosure proceedings and bought the property at the foreclosure auction for the full judgment amount. JP Morgan then filed a motion with the court to confirm the sheriff’s sale. The District Court confirmed the sale the same day without waiting for any objection and without notifying the homeowner. The District Court never served the homeowner with the Order.
Over one year later, the homeowner realized the District Court confirmed the sale and filed a motion for relief from that Order. The District Court denied the motion, and issued a minute sheet that included no findings of fact or conclusions of law.
The Court of Appeals in partially affirming and partially overturning the lower court noted that the rule requires that any “person that files a timely response objection to a motion to confirm a sheriff’s sale has the right to have that objection read and considered by the district court.” Id. at *6. Thus, “any procedure that allows for automatic approval of a sheriff’s sale without at least waiting to see if someone files an objection is subject to a later ruling that it is void as a violation of due process.” Id.
In this case, however, the Court of Appeals held that the Homeowner:
was served the motion by mail on November 13, 2015. She had seven days to respond, plus three days for mail service. K.S.A. 60-206 (a)(1)(d); Supreme Court Rule 133(b) (2018 Kan. S. Ct. R. 199). Accordingly, any response she would have to the motion needed to be filed by the close of business November 23, 2015. [Homeowner] did not file her response until November 24, 2015, so it was untimely. Therefore, even though the district court's order was premature, opening it up for a claim of violation of [Homeowner]'s due process rights, we cannot find error in the district court's failure to consider an untimely objection to confirmation of the sale.
Id. Thus, the Court of Appeals did not look at any of the arguments.
The Court of Appeals was unable to determine whether the District Court abused its discretion based solely on the minute order and remanded to the district court to make clear the findings of fact and conclusions of law.
U.S. Supreme Court, in a 5-4 Ruling, Upholds Employers' Use of Class Action Waivers in Employment AgreementsMay 21, 2018 | David Eisenberg
In a closely watched and long-awaited ruling, the U.S. Supreme Court on May 21st held that it is lawful for an employer, in an agreement with an employee, to provide that all disputes be resolved through one-on-one arbitration between the company and the employee. Accordingly, an employee may waive his right to bring his claims in a class action or collective action.
The decision, in a case titled Epic Systems Corp. v. Lewis, resolved a split in authority between Circuit Courts of Appeal, and actually resolved three recent separate appellate court cases with very similar facts. (The other two cases involved employers Ernst & Young, and Murphy Oil USA.) In each instance, the employee had entered into an employment agreement with his employer, which referred disputes to arbitration, and which contained a class action waiver clause. In the Murphy Oil case, the Court of Appeals had upheld the arbitration/class waiver clause. In Epic Systems and Ernst & Young cases, the Courts of Appeal had denied enforcement of those clauses.
At issue was the friction between, on one hand, a consistent line of recent Supreme Court cases upholding arbitration clauses with class waivers, under the Federal Arbitration Act (e.g. Concepcion, Italian Colors, Kindred Nursing); and a doctrine first espoused by the National Labor Relations Board in 2012, in the D.R. Horton case, holding that an agreement purporting to waive class action rights was unenforceable, because it encumbered the fundamental right under Section 7 of the National Labor Relations Act for employees to engage in concerted activity for their mutual aid or protection.
The majority opinion, written by Justice Gorsuch, rejected the employees’ argument about Section 7 rights, holding that the NLRA “does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act—let alone accomplish that much clearly and manifestly, as our precedents demand.” The opinion further observed that unlike the NLRA, various other federal statutes contain very specific language about the manner in which disputes should be resolved, and “when Congress wants to mandate particular dispute resolution procedures it knows exactly how to do so.”
This is a very important ruling for employers. An employer considering whether to resolve disputes with its employees through arbitration might take be tempted to take a narrow view in weighing whether arbitration is worth the bother, compared to having disputes resolved in court. The arguments against arbitration go roughly as follows: It is no longer cheaper than court. Discovery is allowed in arbitration. Cases take a long time to resolve. Arbitration fees can be substantial. And arbitrators are more likely to “split the baby”, and issue a compromise ruling in a case, even where the employer’s position is meritorious.
But this type of analysis overlooks an important additional factor. For it is now established law that an employment agreement containing an arbitration clause can preclude a wage-hour claim or discrimination claim from being brought in court as a collective action or class action. Employers who have been “on the fence” about whether to utilize arbitration agreements with class waiver clauses, because of the legal uncertainty about their enforceability, now have their answer. And if avoidance of class actions is a high priority for the company, now would be a good time to take action.
In an en banc opinion issued yesterday, the Third Circuit Court of Appeals upheld the district court’s holding that the statute of limitations period for an alleged violation of the Fair Debt Collection Practices Act (the “FDCPA”), 15 U.S.C. § 1692, et seq., began to run on the date the alleged violation occurred, regardless of when the claimant did, or should have, discovered the violation.
This precedential holding in Rotkiske v. Klemm, et al., represents a new deviation from both the Fourth and the Ninth Circuit Courts of Appeal, who have held that the statute of limitations would not begin to run until the date of discovery of the purported violation. “In our view, the Act [FDCPA] says what it means and means what it says: the statute of limitations runs from ‘the date on which the violation occurs,’” the Court reasoned.
In Klemm, the plaintiff alleged that the defendant law firm filed a collection suit that constituted a violation of the FDCPA. Because the plaintiff had moved, and someone else had accepted service on his behalf at the former address, plaintiff claimed that he was not aware of the collection action until years later. On June 29, 2015, the plaintiff sued the defendant law firm and others, alleging that the debt collection lawsuit violated the FDCPA for various reasons. Defendants moved to dismiss Rotkiske’s FDCPA claim on the basis that the action was time-barred, and the United States District Court for the Eastern District of Pennsylvania granted dismissal of the action on that basis.
On appeal, the plaintiff argued, in line with the Fourth and Ninth Circuit positions, that the statute was tolled until he did, or reasonably should have, discovered the wrongful collection action. Adopting the district court’s textualist approach, the Third Circuit Court of Appeals upheld the dismissal, respectfully rejecting the statutory interpretation of the other two circuits on this subject. It is important to note, however, that the Court reinforced the exception of equitable tolling where the defendant’s own fraudulent or misleading conduct concealed the facts that would have permitted the plaintiff to discover the FDCPA violation.
The opinion of the Third Circuit Court of Appeals may be accessed here.
In Jackson v. Barton, the Missouri Supreme Court was asked to decide whether unfair debt collection practices were sufficient to sustain a claim under the Missouri Merchandising Practices Act. To the surprise of many, the Court answered this question in the affirmative.
Specifically, the plaintiff received dental work and a series of oral contracts ensued in which the plaintiff was assured the amount he owed would be relatively small. Subsequently, collection efforts began for a much larger sum that had been agreed to orally. An attorney spearheaded the collection efforts, leaving a wake of collection “no-nos” in his trail. Among his many mistakes, the attorney failed to appear at trial in a collection suit he filed and later sent a demand letter for a much larger sum than was actually owed. Unsurprisingly, the Court was not impressed.
Clearly, these actions were sufficient to state a claim under the Fair Debt Collections Practices Act. There was, however, a question of whether a FDCPA claim was barred by the statute of limitations. Whether plaintiff possessed an actionable claim under the Missouri Merchandising Practices Act (MMPA) was significantly murkier. In essence, the question came down to whether the collection efforts qualified as an act “in connection with the sale” of merchandise as required under the MMPA.
The Court first compared the situation to Conway v. CitiMortgage, Inc., 438 S.W.3d 410, 414 (Mo. Banc 2014), a case in which the Court held that subsequent foreclosure proceedings are actions “in connection with the sale of merchandise” as contemplated by the MMPA. Moreover, the Court found that how a party enforces the terms of sale is in fact a continuation of the sale. With this precedent in mind, the Court turned its attention to how collections efforts should be viewed.
Collection efforts were ultimately held to be a part of or a continuation of the underlying sale of goods and services, in this case dental services. The Court found that because the dentist performed dental services while extending credit to the plaintiff, the sale of such dental services was not actually completed until final payment was received. As such, any collections efforts were made in connection with the sale of dental services in an effort to enforce the terms of the sale.
In sum, even actions that take place long after the bulk of a transaction is completed can still land a party on the wrong side of the MMPA. From a policy standpoint, the MMPA seems to be growing in scope, with Missouri courts willing to apply the Act to a wide array of situations and actions by defendants. In a world where debt collections can be a tricky area for businesses, and other statutes clearly regulate debt collection activities, the threat of running afoul of the MMPA only raises the stakes.
In Lovelace v. Van Tine, the Missouri Court of Appeals, Eastern District, applied the “intra-corporate immunity” rule, and upheld the dismissal of a defamation claim filed by a medical assistant against a physician at the hospital where both worked.
Plaintiff Lovelace worked for the Washington University School of Medicine for 12 years, but was terminated after the Defendant, Dr. Van Tine, reported to her supervisors that Lovelace said a certain job candidate should not be hired because that job candidate, as quoted in the opinion, “doesn’t like working with white people.” After being confronted by her supervisors about this allegation, Lovelace called in sick for several days, allegedly due to her distress. She was first placed on administrative leave, but her employment was later terminated. Her lawsuit against Dr. Van Tine followed, asserting that his report to her supervisors was false and defamatory.
A claim for defamation requires a Plaintiff, such as Lovelace, to plead and prove the following elements:
1) a publication,
2) of a defamatory statement,
3) that identifies the plaintiff,
4) that is false,
5) that is published with the requisite degree of fault, and
6) damages the plaintiff’s reputation.
At issue with Lovelace’s Petition was the element of “publication” -- the communication of the defamatory matter to a third person. The pivotal question was whether Dr. Van Tine’s communication was made to a third person, or whether, in the eyes of the law, it was a protected internal communication, within the hospital’s management group, and subject to intra-corporate immunity.
The idea behind this long-standing rule, as it applies to a defamation case, is that when a false statement is made and/or repeated in the context of a business, this generally does not constitute a publication when the business is merely communicating with itself.
The rule, however, does not offer protection to all communications within the corporate entity. The Missouri Supreme Court, in Rice v. Hodapp, has held that defamatory statements made by company supervisors or officers to non-supervisory employees constitute publication for purposes of a defamation action. However, communications between company supervisors or officers, or made by a non-supervisor to a supervisor or officer, are a different matter.
The public policy behind the intra-corporate immunity rule is to promote responsible reporting of issues within the work place from the bottom to the top or, in certain situations, along the same, linear supervisory lines, without fear of reprisal against the person making the report. The rule encourages reporting of inappropriate work place actions or comments to those in the business who are responsible for addressing those issues - i.e. those who handle the hiring or discipline decisions. Those who receive the reports are expected to take reasonable steps to investigate the report to ensure the report was made in good faith.
Conversely, per the Rice decision, communications made to non-supervisors - who have no need to know the information, and no responsibility for acting on inappropriate conduct – are not protected.
Without the intra-corporate immunity rule, there could be a chilling effect on responsible reporting to management by employees, for fear they could face a lawsuit for reporting the issue. However, the intra-corporate immunity rule apparently is alive and well in Missouri. Indeed, in the case of Lovelace, it was used to affirm the dismissal of a defamation complaint where the information in question was reported only to company management, and no outside publication of the alleged defamatory statement occurred.
The cost of litigating copyright infringement claims in federal court can be immense, taxing the resources of even a well-heeled content creator. For many authors, artists, photographers, and others, this immensity become overwhelming. And at some point, the benefit of pursuing infringement litigation is grossly outweighed by the cost. Consequently, many creators are effectively barred from asserting the full bundle of rights provided by a copyright.
Recently introduced federal legislation purports to change this state of affairs. The Copyright Alternative in Small Claims Enforcement Act of 2017, H.R. 3945 (“CASE Act”) melds elements of traditional small claims procedure, administrative law, and arbitration principles in an attempt to level the playing field. While the bill appears to have some serious deficiencies, its passage would be an interesting first-step towards putting some degree of power back in the hands of average, every-day copyright holders. Here are some key points:
The CASE Act would establish a three person board to hear small copyright claims. Parties would be allowed to represent themselves, and in-person appearances at proceedings would not be required. Rather, proceedings would be conducted by written submissions, and by “internet-based applications and other telecommunication facilities[.]” While the CASE Act does not set a formal schedule for proceedings before the board, it seems that a claim would proceed much faster in this forum than in a traditional court of law.
As with many administrative actions, the formal rules of evidence would be relaxed in CASE Act actions. It appears written discovery would be allowed, but there is no specific provision allowing for depositions. It also appears that the three person board would have very modest subpoena power, limited to commanding service providers to divulge the identity of alleged copyright infringers.
Factual findings would be subject to the “preponderance of the evidence” standard, and all decisions would require a majority of the board. Decisions of the board could be appealed to the United States District Court of the District of Columbia, but could only be overturned on the basis of fraud, misconduct, or other very limited circumstances. In this regard, the CASE Act resembles arbitration.
Participation is Voluntary
Under the CASE Act, participation would be voluntary for all parties. A petitioner would be required to serve a respondent, and a form of default judgment could be entered upon failure to timely respond. However, a responding party could immediately opt out of a CASE Act proceeding, and instead require that the claim be pursued in any court of competent jurisdiction.
In keeping with the spirit of small claims court, damages in CASE Act claims would be limited. In the aggregate, no more than $30,000 could be recovered in any one proceeding. Furthermore, recovery of attorney fees appears to be generally prohibited under the CASE Act (except in instances of bad faith conduct). This is a departure from traditional copyright claims brought under the Copyright Act, where attorney fees are available in certain circumstances if a copyright has been properly registered.
The primary problem with the CASE Act appears to be the aforementioned “opt out” provision. A respondent with deep pockets could opt out of any CASE Act proceeding, requiring the claimant to resort to a traditional court to pursue her claim, thereby nullifying a low cost option for those who don’t have the means to pour six or seven figures into full throated litigation. Without a mandate for all parties to participate in the proceedings, it could be argued that the CASE Act is essentially toothless in its current form.
Nevertheless, the mere existence of the CASE Act demonstrates that the plight of the individual artist, musician or other content creator is on the radar screen. With a few very important tweaks, its passage could serve make the copyright playing field a little more level.
“Impossibility preemption” applies to bar tort claims where it is impossible for a party to comply with both state and federal law. In the recent opinion of Raskas v. Teva Pharms. USA, Inc., No. 4:17-CV-2261 RLW, 2018 U.S. Dist. LEXIS 3507 (E.D. Mo. January 8, 2018), the Eastern District of Missouri reaffirmed application of “impossibility preemption” to generic drug manufacturers on strict liability and negligent defective design and failure to warn claims.
The allegations in the Raskas v. Teva complaint provide the story of a young man, Ralph Raskas, who, after seeking treatment for nausea and vomiting, ingested the medication prescribed by his physician - generic metoclopramide - and allegedly developed pain and restlessness in his legs. After being diagnosed with “drug-induced acute akathisia,” he complained of significant pain and eventually committed suicide after two prior attempts. His father filed a wrongful death action against Teva Pharmaceuticals, USA (Teva) and Actavis Elizabeth, LLC (Actavis) - manufacturers of the dispensed generic metoclopramide - alleging that the drug caused his son’s neurological injuries and suicide. Plaintiff asserted claims for strict liability and negligent defective design and failure to warn, negligence in identifying risks associated with the drug, as well as what he contended was a failure to update the generic medication’s labeling to conform to that of its brand name equivalent. Relying upon PLIVA, Inc. v. Mensing, 564 U.S. 608 (2011), and Mutual Pharm. Co. v. Bartlett, 570 U.S. 472 (2013), Teva and Actavis sought dismissal of all claims against them on federal preemption grounds.
The Raskas court began its analysis of the plaintiff’s claims by reviewing the approval requirements of the Food and Drug Administration (FDA) for both brand name and generic drugs. To gain approval of brand name drugs, a manufacturer must submit a new-drug application (NDA) that includes clinical investigative reports and all relevant information to allow the agency to determine whether the drug is safe for use. On the other hand, approval of a generic drug typically requires only that the generic be “bioequivalent” to the branded medication. In fact, a generic may receive FDA approval without any in vivo studies, solely based on in vitro studies that study dissolution of the proposed generic. See 21 C.F.R. §§ 320.24(b)(5) and 320.22(d)(3).
Critically for the generic drug manufacturers in Raskas, 21 C.F.R. Part 314 prohibits generic drug manufacturers from 1) making any unilateral changes to a drug’s label, and 2) deviating from the drug’s approved formulation. See 21 21 C.F.R. §§ 314.94(a)(8)(iii), 314.150(b)(10), and 314.70(b)(2)(i). These federal regulatory restrictions are the basis for the “impossibility preemption” found in Raskas.
In rejecting the plaintiff’s defective design claims, the court considered Brinkley v. Pfizer, Inc., 772 F.3d 1133 (8th Cir. 2014), in which metoclopramide design defect claims were specifically precluded due to preemption because the only way the manufacturer could avoid liability under Missouri law was by redesigning the product. If a generic drug manufacturer were required to redesign the product to comply with Missouri state law, it would be impossible to comply with federal law, which requires a generic drug’s formulation to be bioequivalent to the branded medication and the generic’s labeling to be identical to that of the brand name drug. This is the definition, and a descriptive example, of impossibility preemption, which provides that “[w]here state and federal law directly conflict, state law must give way.” Mensing, 564 U.S. at 617.
Raskas’s failure to warn claims were found to be similarly barred by impossibility preemption, because the warning labels on the generic metoclopramide manufactured by Teva and Actavis were required, under 21 C.F.R. Part 314, to be identical to those of the brand name medication Reglan®. If the failure to warn claims were allowed to proceed, generic drug manufacturers - in order to escape state tort liability - would be required to relabel their products to provide additional information or warnings, which is directly prohibited under federal regulations. The Missouri federal district court in Raskas determined it would be impossible for Teva and Actavis to comply with both state and federal law in this instance, so dismissal of the failure to warn claims against them was appropriate.
Although the plaintiff attempted to distinguish its claims from those presented in controlling legal precedent, the court ultimately concluded that impossibility preemption applied to each of the asserted negligence, strict liability, and wrongful death claims for failure to warn or defective design. The plaintiff was, however, granted leave to amend his complaint to adequately plead an alleged claim against Teva and Actavis for failure to update their labeling to conform to that of Reglan®, the brand name medication.
The Raskas opinion may be found here in its entirety.
While Neil Sedaka may have convinced many that breaking up is hard to do, Judge Stephen N. Limbaugh, Jr. of the United States District Court for the Eastern District of Missouri (“EDMO”) has made it clear that breaking up non-Missouri related Plaintiffs from a product liability case is certainly not hard to do in the post-Bristol-Myers Squibb Co. era.
On January 24, 2018, the EDMO added to the split in authority between Missouri and California, two forums favored by Plaintiffs, thereby testing the limits of Bristol-Myers Squibb Co. v. Super Ct. of Cal., 137 S. Ct. 1772 (2017) (“BMS”).In Nedra Dyson, et al., v. Bayer Corporation, et al., No. 4:17CV2584- SNLJ, (E.D. MO Jan. 24, 2018) (“Dyson”), Judge Limbaugh of the EDMO granted Defendants’ Motion to Dismiss 92 non-Missouri related Plaintiffs in a product liability lawsuit based on a lack of personal jurisdiction, finding that a Defendant’s clinical trials and marketing of a product in the state of Missouri does not establish personal jurisdiction for purposes of non-Missouri related Plaintiffs’ claims for that product. This is consistent with other recent EDMO decisions:
- See Siegfried v. Boehringer Ingelheim Pharmaceuticals, Inc., 2017 WL 2778107 (E.D. Mo. June 27, 2017);
- Jordan v. Bayer Corp., No. 4:17cv865(CEJ), 2017 WL 3006993 (E.D. Mo. July 14, 2017);
- Jinright v. Johnson & Johnson, Inc., 2017 WL 3731317 (E.D. Mo. Aug. 30, 2017);
- Shaeffer et al., v. Bayer Corp., et al., 4:17-CV-01973 JAR (E.D. Mo. Feb. 21, 2018).
The Dyson Defendants, who were also not citizens of Missouri, relied on BMS to argue that the EDMO lacked personal jurisdiction over the claims of 92 non-Missouri related Plaintiffs, and should be dismissed. The Defendants argued that dismissal of these Plaintiffs would provide complete diversity between the remaining Plaintiffs and Defendants and the amount in controversy would still exceed $75,000. This quickly became a fight between the parties, with one side trying to persuade the court to decide personal jurisdiction before subject matter jurisdiction and the other side arguing vice-versa. Ultimately, the court determined that personal jurisdiction could and should be decided prior to subject matter jurisdiction, because it provided the more straightforward analysis in light of BMS. Deciding subject matter jurisdiction would involve resolution of notoriously complex issues, reasoned the court.
Quick Recap On BMS: As a brief refresher, BMS involved both California and out of state Plaintiffs who sued in California state court based on alleged injuries caused by Defendant BMS’ drug. The United States Supreme Court, who took the case on a writ of certiorari, overturned the state court, applying “settled principles regarding specific jurisdiction,” finding that California state courts fail to retain specific personal jurisdiction over non-resident Defendants for claims asserted by non-resident Plaintiffs that do not arise out of or relate to the Defendant’s contacts with the forum. The Court rejected Plaintiffs arguments for specific personal jurisdiction based on alleged marketing and promotion of the product and clinical trials held in the state of California. The Court would also not allow the resident Plaintiffs’ allegations to confer personal jurisdiction over the non-resident Plaintiffs claims. Therefore, the Supreme Court dismissed the claims of the non-resident Plaintiffs.
In Dyson, the non-Missouri related Plaintiffs conceded that the medical device at issue (Essure) was not implanted in Missouri. However, Plaintiffs argued that their allegations concerning Defendant Bayer’s connections with Missouri should support the court’s exercise of personal jurisdiction. Plaintiffs alleged that Bayer’s marketing strategy was developed in Missouri, Missouri was one of the eight sites chosen to conduct pre-market clinical devices on the product (Essure), the original manufacture of the product’s conduct was in Missouri, the sponsoring of biased medical trials was in Missouri, and St. Louis, Missouri was the first city to commercially offer the Essure implant procedure.
Those arguments failed to persuade Judge Limbaugh, who ultimately found that the Dyson Plaintiffs failed to make a prima facie showing for personal jurisdiction and, as such, he denied their motion for jurisdictional discovery to support those arguments. Relying on BMS, Judge Limbaugh rejected Plaintiffs’ marketing campaign arguments, pointing out that the non-Missouri Plaintiffs not only failed to allege they viewed Essure advertising in Missouri, but also failed to allege they purchased, were prescribed or were injured by the product in Missouri. Thus, it was not relevant that Defendant first marketed Essure in Missouri. As for Plaintiffs’ argument regarding clinical trials in Missouri, Judge Limbaugh found such alleged conduct too attenuated to serve as a basis for specific personal jurisdiction over Defendants. In fact, the non-Missouri Plaintiffs failed to allege they even participated in a Missouri clinical study or that they reviewed and relied on the Missouri clinical studies in deciding to use the products.
In contrast to Dyson, Plaintiffs have tried to rely on the recent California case Dubose v. Bristol-Myers Squibb Co., No. 17-cv-00244, 2017 U.S. Dist. LEXIS 99504 (N.D. Cal. June 27, 2017) in support of specific personal jurisdiction over non-forum Defendants. Dubose, however, does not appear to employ the same analysis as BMS or its progeny.
In Dubose, a South Carolina resident Plaintiff sued AstraZeneca, Bristol-Myers Squibb, and McKesson in California federal court, alleging a defect in a prescription diabetes drug. The Dubose court relied upon Walden v. Fiore, 134 S.Ct. 1115 (2014), a 2014 U.S. Supreme Court decision that was in fact a pro-Defendant ruling intended to limit the states’ exercise of personal jurisdiction over non-resident Defendants. The Dubose Court reasoned that because Walden stressed that only the Defendants’ conduct could justify exercise of personal jurisdiction, any jurisdictional analysis should ignore Plaintiff’s residence or place of injury, and focus instead upon conduct that might “tether” the Defendant to the forum state. Ultimately, the Court relied on the Ninth Circuit’s preexisting “but for” test, holding that the pre-approval clinical trials were “part of an unbroken chain of events leading to Plaintiff’s alleged injury” and, therefore, specific jurisdiction existed because Plaintiff’s injuries “would not have occurred but for [Defendants] contacts with California.” Regardless, the Dubose Court ultimately transferred the case to South Carolina, the Plaintiff’s home state.
The judge in Dubose also decided Cortina v. Bristol-Myers Squibb Co., No. 17-cv-00247-JST, 2017 U.S. Dist. LEXIS 100437 (N.D. Cal. June 27, 2017) on the same theories, denying a motion to dismiss but transferring the case to New York, where the Plaintiff was a resident and was prescribed the drug at issue. However, in a footnote, the Cortina court noted that, “[it] does not mean to suggest that even a de minimis level of clinical trial activity would satisfy the requirements of specific jurisdiction.”
While the holdings for the Dubose and Cortina case appear to have relied upon attenuated claims of specific personal jurisdiction, in the EDMO, Judge Limbaugh concluded that the Dyson non-Missouri Plaintiffs’ claims were too attenuated from Missouri to prove specific, case linked personal jurisdiction. For example, the Dubose Plaintiff did not allege that she participated in any of the Defendants’ California clinical trials, but the Dubose court relied on others, not a party to the case, who participated in them. If specific personal jurisdiction exists in every state where a clinical trial occurred, then any Plaintiff who used the subject drug conceivably could sue the manufacturer in any of those states—no matter where the manufacturer is based and no matter where the Plaintiff resides or used the drug. It would be illogical for courts to adopt this rationale, calling that “specific” personal jurisdiction, and would be contrary to the United States Supreme Court’s recent pronouncements on personal jurisdiction, including in BMS.
Other recent cases have held similarly to the EDMO in Dyson, dismissing non-resident Plaintiffs due to a lack of both general and personal jurisdiction. For example, the Southern District of Illinois has been granting dismissal of non-Illinois Plaintiffs and denying remand in pharmaceutical drug, product liability cases. Specifically, those cases held that misjoined, multi-Plaintiff complaints no longer preclude removal, that there was no general personal jurisdiction pursuant to Daimler AG v. Bauman, 134 S. Ct. 756 (2014) and no specific personal jurisdiction existed pursuant to BMS, and/or found that conducting in-state clinical trials is not sufficient contact to support specific personal jurisdiction in suits by non-residents. See; Braun v. Janssen Research & Development, LLC, 2017 WL 4224034 (S.D. Ill. Sept. 22, 2017); Bandy v. Janssen Research & Development, LLC, 2017 WL 4224035 (S.D. Ill. Sept. 22, 2017); Pirtle v. Janssen Research & Development, LLC, 2017 WL 4224036 (S.D. Ill. Sept. 22, 2017); Roland v. Janssen Research & Development, LLC, 2017 WL 4224037 (S.D. Ill. Sept. 22, 2017); Woodall v. Janssen Research & Development, LLC, 2017 WL 4237924 (S.D. Ill. Sept. 22, 2017); and Berousee v. Janssen Research & Development, LLC, 2017 WL 4255075 (S.D. Ill. Sept. 26, 2017).
Bringing this back to Dyson, Judge Limbaugh’s decision reaffirms that it really is not that hard to break up Missouri Plaintiffs from non-Missouri Plaintiffs in a product liability lawsuit where the non-Missouri Plaintiffs cannot truthfully allege that their claims arise out of a connection to the state of Missouri (and cannot solely rely on clinical trials occurring in Missouri). This is not to say that non-Missouri Plaintiffs will never find another forum and/or that their claims are foreclosed; rather, those Plaintiffs have a better chance of avoiding a bad break-up by bringing their claims in the forum out of which their claims allegedly arise.
According to data from the Greater Kansas City Jury Verdict Service, courts in the metropolitan area experienced fewer jury trials in 2017, but the Plaintiffs’ Bar still managed to have a good year. Every year, the Greater Kansas City Jury Verdict Service issues a “Summary and Statistics of Jury Verdicts” for the greater Kansas City area. The report includes verdicts from the Kansas City division of the U.S. District Court for the Western District of Missouri; the Kansas City branch of the U.S. District Court for the District of Kansas; and state courts in Jackson, Clay and Platte counties in Missouri; and Johnson and Wyandotte counties in Kansas. The statistics in 2017 indicate a shift in various respects from 2016.
Fewer Trials, with an increased percentage of Plaintiffs’ verdicts
The Jury Verdict Service’s annual summary reported on 97 trials in 2017, compared to 113 in 2016. These numbers are down from the preceding three-year period: there were 110 trials in 2015, 133 trials in 2014, and 122 trials in 2013.
Because trials often involve multiple claims and multiple verdicts, the verdict statistics are based on the claims adjudicated, rather than simply the number of cases. The 97 trials in 2017 resulted in 193 verdicts; and the 113 trials in 2016 resulted in 199 verdicts.
While the number of trials has decreased from the preceding three-year period, the percentage of Plaintiffs’ verdicts has seen a slight increase. In 2017, 49% of the verdicts were for Plaintiffs compared to the 42% for Plaintiffs in 2016.
Increase in Average Monetary Awards for Plaintiffs
The overall average of the monetary awards for Plaintiffs experienced a significant increase from previous years. In 2016, the average of Plaintiffs’ verdicts was $1,383,549 while the average in 2015 was $1,376,323. In 2017, the average monetary award for Plaintiffs rose precipitously to $4,204,501. But most of this increase can be attributed to two hefty verdicts: $217.7 million awarded in the Syngenta Corn Litigation and $139.8 million the Time Warner Cable et al. litigation. (Friendly suggestion to Jury Verdict Service: how about reporting on the median jury verdict, as well as the average?)
Slight Decrease in Number of Large Verdicts
In 2017, the 11 verdicts that exceeded $1 million, compared to 16 such verdicts in 2016. However, both years show a large increase from the 6 verdicts in 2015 in the same monetary range. Of the eleven $1 million+ verdicts in 2017, 6 were in Jackson County, MO Circuit Court (evenly split between Kansas City and Independence), 2 were in the Circuit Court of Clay County, MO, and 3 were in the U.S. District Court for the District of Kansas. Finally, the amount of verdicts between $100,000 and $999,999 was virtually unchanged from 2016 (37 verdicts) to 2017 (36 verdicts).
Key Observations and Conclusion
Over the last four years, the percentage of Plaintiffs’ verdicts has increased. Additionally, the average amount of Plaintiffs’ verdicts has increased steadily from its low point in 2014. Over half of the verdicts awarded in 2017 that exceeded $1,000,000 were in Jackson County, MO Circuit Court, which is consistent with the view of many practitioners that this can be a Plaintiff-friendly forum. As we have stated in our previous Jury Verdict roundups, clients and national counsel should work with local counsel to carefully consider the forum when assessing the value of a case.
Source: Greater Kansas City Jury Verdict Service Year-End Reports 2013-2017
Premises liability update: Missouri Supreme Court affirms ruling on adequacy of negligence jury instructionMarch 23, 2018 | John Watt
We recently reported on a ruling of the Missouri Western District Court of Appeals that there was sufficient evidence to support the giving of the negligence instruction in a case where an employer was found liable for damages sustained when an employee was injured by a third party criminal act. The Missouri Supreme Court has now upheld that ruling. In Wieland v. Owner-Operator Services, Inc., Wieland was an employee of the Owner-Operator company when she alerted her employer that she felt threatened by an ex-boyfriend named Alan Lovelace. In response, the company undertook certain precautions, including disseminating a photograph of the ex-boyfriend to the reception area and informing the company’s safety team about the situation. Some two weeks later, Lovelace gained access to the employee parking lot and laid in wait in Wieland’s vehicle. After approximately an hour, Wieland and Lovelace had a confrontation and as Wieland walked away, Lovelace shot her in the back of the head. Wieland later sued the company.At trial, the circuit court judge approved a jury instruction which allowed liability for the criminal acts of a third party in instances where the defendant knew or by using ordinary care could have known that the third party was on its premises and posed a danger. In doing so, the trial court invoked an exception to the general rule that there is no duty to protect against criminal acts of third parties. Missouri courts have essentially adopted the rule established by § 344, Comment F, of the Restatement (Second) of Torts. That rule provides that since the possessor is not an insurer of the visitor safety, he is ordinarily under no duty to exercise any care until he knows or has reason to know that the acts of the third person are occurring, or are about to occur. The rule underscores that once the specter of harm to an invitee becomes apparent, the general rule insulating a premises owner from liability no longer applies. The evidence introduced at trial was that Owner-Operator had surveillance cameras that would have shown Mr. Lovelace gaining access to both parking lot and Wieland’s vehicle. However, the surveillance cameras were not monitored at the time the incident occurred.
In its appeal, the company argued the circuit court erred in submitting the jury instruction that allowed for this finding because there was not substantial evidence to let this issue go to the jury. The Supreme Court ruled that while a challenge to this verdict director was abandoned on appeal and was therefore not properly before the Court, in any event, the Plaintiff’s argument, as adopted by the trial court, did not misstate the law.
Following unsuccessful attempts to overhaul Dodd-Frank through varied iterations of the Financial CHOICE Act, the Senate is expected to vote in the immediate future on the “Economic Growth, Regulatory Relief, and Consumer Protection Act” (S. 2155).
The bill is sponsored by Idaho senator Michael Crapo (R), and it includes revisions to the Truth in Lending Act (“TILA”), the Bank Holding Company Act, the Volcker Rule, and the United States Housing Act, among others. As part of its bipartisan appeal, the proposed law also includes new protections for consumers to prevent identity theft and cybersecurity breaches, as well as relief for from private student loan debt.
If passed, this act would relieve relatively smaller banks from some of the burdens imposed by heightened regulations, such as ability-to-repay evaluations, record retention, reporting to regulators, and stress-testing. Dodd-Frank requires those banks with more than $50 million in assets, representing roughly the 40 largest banks, to follow the most stringent protocol, while the new bill would raise that tipping point to $250 billion in assets, or the top 12 banks.
Mortgage origination would be impacted as well. The bill creates somewhat of an incentive for lenders to hold on to the mortgages they originate, as it exempts them from the strict underwriting standards of Dodd-Frank if the lender continues to service and hold the loan. Furthermore, banks that originate less than 500 mortgages a year would have relaxed reporting requirements for racial and income data.
Touted as maintaining necessary protections of Dodd-Frank while providing much-needed relief to small and regional banks, the bill represents the first major bipartisan effort to reform financial regulation in recent history, with 20 co-sponsors from both major parties. Although there has been some difficulty in determining which amendments will be accepted and rejected, it is expected to pass at some point. The bill will face a challenge, however, if it proceeds to the House, as House Republicans have already indicated that, in its current form, the bill does not go far enough to undo Dodd-Frank.
The full text of S. 2155, as well as the bill’s progress, may be tracked here.
Political Divisions, Copyright Law, and a Strange Green Amphibian Meme - Pepe the Frog gets his Day in a Kansas City Area CourtFebruary 27, 2018 | John Patterson
Pepe the Frog, a cartoon character created by comic book artist Matt Furie in the mid-2000’s, started out innocently enough. According to an interview given by Furie to the Daily Dot, Pepe’s philosophy on life was simply “feels good man.” Unfortunately for Pepe, however, he became an internet meme thanks to the notorious 4Chan message board. While some of the memes have maintained the laid back philosophy originally espoused by Pepe, it appears that the character has been adopted as a symbol of the “alt-right.” Consequently, many Pepe the Frog memes contain overtly political messages, which are perceived by many as highly offensive or even racist.
Kansas City artist Jessica Logsdon appears to have capitalized on the Pepe phenomenon, and began creating, and selling on-line, politically charged artwork featuring a green frog with a striking resemblance to Pepe. Furie, the original creator of Pepe, has sued in the United States District Court for the Western District of Missouri, alleging copyright infringement and seeking damages and injunctive relief against Logsdon. The Complaint alleges that Pepe was originally a “peaceful frog dude,” but that:
“[I]ndividuals like Logsdon have misused Furie’s Pepe character and copied Pepe’s images for use in dozens of images sold online to promote violent and hateful messages espoused by alt-right fringe groups. In doing so, Logsdon not only copies Furie’s original creation, but also freeloaded off Pepe’s popularity and Furie’s labor.”
Logsdon has answered the Complaint, admitting that she is a “political artist,” and that she has used “Pepe” in the title of some of her artwork. But she denies that she has copied the image created by Furie, while simultaneously claiming that her use of the image constitutes “fair use.” Logsdon also claims that Furie lacks any registered copyright in the image of Pepe the Frog.
Beyond its obvious socio-political angles, the case has wider legal ramifications as well, and we will observe with interest how Pepe the Frog’s meme status plays into the claims and defenses asserted by the parties. We will continue to monitor the case and provide updates in this space.
A recent ruling by the Court of Appeals for the Eastern District of Missouri illustrates the perils of using disjunctive verdict directing instructions. In Kader v. Bd. of Regents, the court reversed a $2.5 million verdict against Harris-Stowe State University (“HSSU”) and remanded the case for a new trial based upon instructional error in the disjunctive verdict directing instruction.
Plaintiff Kader sued under the Missouri Human Rights Act, alleging that the Board of Regents of HSSU discriminated against her based upon several factors, including race and national origin, and retaliated against her for opposing the university’s discriminatory practices. Kader, originally from Egypt, came to the United States on a visa for individuals involved a work and study based program. After completing her studies, she worked at HSSU for three years under her original visa. HSSU then appointed a new dean to the program where Kader worked, and Kader alleged she received poor reviews from the new dean based upon her national origin. She reported this to the president of the university.
When Kader’s visa was about to expire, she sought assistance from HSSU to obtain a new visa. HSSU agreed to submit the paperwork she needed for this new visa and did provide the initial information needed. When Kader had not heard about whether her visa was granted, she contacted the United States Citizenship and Immigration Services and learned it had requested additional information from HSSU, but had not received a response.
When Kader contacted HSSU to inquire about the additional information requested, it denied receiving any such request. HSSU further informed Kader that her visa application had been denied and she had to leave HSSU within 30 days. Kader requested a work leave of absence, which HSSU did not provide. Three days later, Kader again requested a leave of absence from HSSU but received no response. Thereafter, Kader received a letter from HSSU that it would not appeal the denial of her visa application.
During the trial, the court gave the jury disjunctive verdict directing instructions, instructing them to rule in Kader’s favor if: (1) the jury found HSSU failed to do one or more of five listed acts, one of which was whether HSSU denied Kader a work leave of absence; (2) Kader’s national origin or complaints of discrimination were a contributing factor to HSSU’s failure to do any of those acts, and (3) such failure damaged Kader. The jury returned verdicts in Kader’s favor on her claims of national origin discrimination and retaliation.
In reversing the trial court, the appellate court relied on authority holding that “[i]n order for disjunctive verdict directing instructions to be deemed appropriate, each alternative must be supported by substantial evidence.” The court held that the denial of a work leave of absence was not supported by substantial evidence “because the record shows that, at the time she was denied leave, Dr. Kader did not have a valid visa authorizing her to work in the United States, and, therefore, HSSU could not legally employ her.” Therefore, the court declined to find that the denial of employment or a work leave of absence to one who no longer has a valid visa is discriminatory or retaliatory conduct.
“[A]s there is no way to determine upon which disjunctive theory the jury chose, we cannot rule out the possibility that the jury improperly returned its verdict upon a finding that HSSU discriminated against Dr. Kader by denying her a work leave of absence, which misdirected or confused the jury,” explained the court. Accordingly, the judgment was reversed and remanded for a new trial.
For more on this subject, see our earlier blog post titled “Employers Know That Instructions Matter.”
North Carolina Court Finds Employer's Negligence to Be Superseding, Sole Proximate Cause of Asbestos Plaintiff's InjuriesFebruary 7, 2018 | Robert Chandler
Plaintiff appealed a jury verdict in the District Court for the Western District of North Carolina in favor of an asbestos product vendor. Plaintiff claimed that the verdict form, which included a series of questions as to each defendant, caused the jury to render a legally inconsistent verdict and requested partial entry of judgment in his favor or a new trial. The 4th Circuit U.S. Court of Appeals affirmed the judgment.
Plaintiff Erik Ross Phillips alleged that he contracted mesothelioma from exposure to asbestos-containing brake linings used in a machine at the facilities of his employer, Champion International Paper Company. The brake linings were manufactured by Reddaway Manufacturing Company and sold to International Paper by Pneumo Abex, LLC. Plaintiff filed suit against Abex on a negligent failure to warn theory.
At trial Abex argued that even if it was negligent, the intervening negligence of Plaintiff’s employer was the sole proximate cause of Plaintiff’s injury. Under North Carolina law, where both defendant and a third party are negligent, but the third party’s negligence is the sole proximate cause of the plaintiff’s injury, plaintiff cannot recover from the defendant.
The jury was submitted questions on the verdict form asking them first to determine, for each defendant, whether plaintiff’s injury was proximately caused by any negligence of the defendant. If the answer was “Yes,” the jury was next asked whether any negligence on the part of a third party served to be a superseding or intervening cause of the injury suffered by defendant.
The jury found initially that Abex’s negligence was the sole proximate cause of plaintiff’s injury, but next found that the negligence of a third party was a superseding or intervening cause of the injury suffered by plaintiff. Based upon these answers, the Court entered judgment on behalf of Abex, taking the jury’s answers to the verdict form questions to mean that the jury believed that the negligence of a third party was an intervening cause of plaintiff’s injuries which became the sole proximate cause. Plaintiff then appealed.
The Verdict Form Did Not Present an Inconsistent Verdict Under North Carolina Law
On appeal Phillips argued that the jury’s answer to the verdict form questions rendered a legally inconsistent verdict. Because the jury found both that Abex’s negligence was the proximate cause of plaintiff’s injury in answer to the verdict form first question, and that a third party’s negligence was the cause in the answer to the second, the verdict was inconsistent since both could not legally be the proximate cause of plaintiff’s injuries. The Court disagreed.
The Appellate Court pointed to North Carolina law, indicating that to insulate the negligence of a party, the intervening negligence of a third party must break the sequence or causal connection between the negligence of the first party and the plaintiff’s injury so as to exclude the negligence of the first party as a proximate cause of the injury. “It must be an independent force which entirely supersedes the original action and renders its effect in the chain of causation remote.” The Court noted that, under the state law, although there may be more than one proximate cause, a new and entirely independent source of negligence, breaking the sequence of events between the first source of negligence and the injury, will insulate the first source of negligence from liability.
The District Court treated the intervening negligence of plaintiff’s employer as an affirmative defense – the burden of proof for proving third party negligence belonged to Abex – and ruled that, even if the jury found negligence on the part of Abex, the intervening negligence of plaintiff’s employer would act to relieve Abex of liability. The Court found that the jury was properly instructed on these issues, and, subsequently, the jury’s findings were in accordance with North Carolina law. The second finding by the jury, that the intervening negligence of plaintiff’s employer was the cause of plaintiff’s injury, was a new proximate cause which extinguished the proximate cause finding by the jury against Abex. Accordingly, Phillips’ appeal was denied.
When making determinations regarding whether proximate cause exists, parties will want to consider whether a superseding or intervening cause for a claimant’s injury is a defense to claims. Even where a defendant’s conduct may be a source of negligence, the negligence may not be the proximate cause of the claimed injury.
The rise of streaming music services has changed the landscape in ways that most would not have imagined even a decade ago. Among these changes are the ways in which performers, songwriters, and other copyright owners are compensated when their works are streamed on various devices. Simply put, the laws which pertain to such compensation have not kept up with the state of technology. The Music Modernization Act of 2017 (HR 4706 – 115th Congress), a piece of proposed legislation currently being considered in Congress, seeks to address some of these issues. This article touches on some of the more salient aspects of the proposed law.
Doing Away with Bulk Notices of Intention
In order to distribute a sound recording, any would-be distributor must first obtain a license from the owner of the copyright. This is often accomplished by providing a Notice of Intention (“NOI”) to the owner, either directly or by filing a copy of the NOI with the United States Copyright Office when information regarding the owner cannot be easily accessed. Presently, large music streaming services such as Spotify employ a process of filing NOIs in bulk with the Copyright Office, after which time such services simply start streaming the sound recordings. Many copyright owners believe that this bulk filing process gives them short shrift, depriving them of rightful compensation when their works are digitally streamed without their knowledge.
The MMA proposes to rectify this situation by creating the Musical Licensing Collective (“MLC”), a body that would be funded in part by the various large music streaming services. The MLC would collect accurate data regarding the identities of appropriate copyright owners. It would also grant blanket licenses to the streaming services. Presumably, this would allow the streaming services to more accurately identify copyright owners, while simultaneously lessening the legal risk which streaming services court by streaming songs without the knowledge of the copyright owner.
Royalty Rates for Compulsory Licenses
Even if copyright owners can be accurately identified after acquisition of compulsory licenses, they must still be compensated. Presently, this compensation, in the form of a royalty rate, is determined by the Copyright Royalty Board. This rate is set by statute, and employs a mechanical standard which is indexed to inflation. The MMA seeks to alter this formula, basing the calculation upon supply and demand. One of the Act’s sponsors refers to this new standard as the “willing buyer/willing seller” standard.
The MMA also proposes a number of procedural changes to the royalty process. Chief among these, it would do away with a fixed panel of rate dispute judges. Instead, a rotating panel of federal judges would hear rate disputes, presumably allowing for a fresh set of eyes upon disagreements between parties who had previously battled over royalty rights.
Unlike most federal legislation, the Musical Modernization Act has bi-partisan support. In addition, the streaming sites, which wield ever-increasing power in the industry, also appear to be supportive of the proposed law. We will continue to track the progress of the proposed legislation, and will provide updates as it winds its way through Congress.
He now leads the Consumer Financial Protection Bureau (the “CFPB”) – the very organization he once called a “sad, sick joke.” But acting director Mick Mulvaney assures the public that he has no intention to burn it down, and that the CFPB will continue enforcing consumer protection laws.
2017 ended with former CFPB Director Richard Cordray stepping down from his post, so that he could pursue his candidacy for Governor in Ohio. Mulvaney was subsequently appointed by President Trump as interim director, and he will continue in this role until a permanent replacement is appointed by the Senate.
Mulvaney issued a memo last week stating his intentions with respect to how the CFPB would change under his leadership. He focused on the language of his predecessor, Cordray, who publicly described the CFPB during his tenure as “pushing the envelope” in its fight to protect consumers from unscrupulous practices of lenders and other businesses. Contrarily, Mulvaney reasoned that the CFPB works for all people, including “those who use credit cards, and those who provide the cards; those who take loans, and those who make them; those who buy cars, and those who sell them.”
That, it seems, could be the most significant change in tune from the Cordray to the Mulvaney era. Since its inception, we have seen the CFPB’s one-sided focus on protecting the consumer; after all, that is the “C” in “CFPB,” and the assumption was that business can take care of itself. Now, we see a new perspective – that banks, creditors, and merchants are people in need of protection under the law, because they are comprised of people.
Mulvaney further assured that the CFPB would strive to protect consumers from unavoidable harm but would not “look for lawsuits to file,” and that the CFPB would no longer engage in the unpredictable practice of regulation by enforcement.
We already have the first concrete examples of the CFPB policy shift. Earlier this month, the CFPB issued a statement that the Bureau intends to engage in a rulemaking process so that it may reconsider the Payday Rule, which if it went into effect, would place the onus on payday lenders to determine the borrower’s ability to repay before making the loan. Just two days later, the CFPB dismissed a lawsuit that it had filed last year in Kansas federal court against four payday lending companies.
The CFPB has also invited industry personnel and attorneys to comment on the Civil Investigative Demand process, recognizing that many in the financial services industry felt their critiques about the enforcement process were disregarded or ignored in the past.
The full content of Mulvaney’s memo concerning the CFPB policy shift may be found here.
Missouri Court of Appeals Weighs in on the Breadth of Discoverable Prescription Records, Post-MortemJanuary 19, 2018
Decedent’s wife filed a lawsuit in Barton County, Missouri in 2016 after her husband was killed when a dump/bale bed manufactured by defendant Cannonball Engineering, which he was repairing at the time of the incident, crushed him. Plaintiff sued Cannonball on various negligence and product liability theories. A coroner’s two post-mortem blood samples, collected on the date of decedent’s death, revealed reportable amounts of opioid prescription pain medication.
Cannonball served discovery, seeking information on decedent’s prescription medications for about six years prior to his death. Plaintiff objected that the request was overbroad as to time and scope, and violated the decedent’s physician-patient privilege. Cannonball moved to compel the production of records.
Plaintiff argued that the only physical or medical condition identified in Plaintiff’s Petition was the crushing injury that killed decedent; that case law only entitles a defendant to medical records that relate to physical conditions put in issue by the Plaintiff’s pleading; and that any discovery in excess of this scope amounts also to a violation of the physician-patient privilege.
Cannonball argued that it was entitled the information because it was relevant to: (1) the impact the prescription pain medications may have had on decedent’s abilities around the time of his death; and (2) Cannonball’s affirmative defense of comparative fault (i.e., the decedent knew that it was unsafe to consume the medications and then operate heavy equipment, but negligently did so anyway). Cannonball also argued that the information was discoverable because Plaintiff alleged failure to warn and thereby impliedly asserted that decedent had the mental capacity to appreciate the warnings on the dump/bale at the time of the accident.
The trial judge sustained Cannonball’s Motion to Compel and ordered Plaintiff to execute the requested authorization for decedent’s prescription medications. Plaintiff applied for a writ of prohibition to block the trial court’s order.
The Missouri Court of Appeals for the Southern District granted the writ, concluding that the trial court had abused its discretion. The Court of Appeals noted that the physician-patient privilege remains intact until a plaintiff’s physical condition – as put in issue by the pleadings - is waived.The Court of Appeals held that Plaintiff’s allegations placed decedent’s cognitive function at the time of the incident at issue and waived his physician-patient privilege with respect to records that related to the issue of his mental capacity at or around the time of his death. On this basis, Cannonball, who alleged that decedent may have been cognitively impaired at the time of his death, was entitled to discover decedent’s prescription medication records at or near the event. But there was no justification for the trial court to allow discovery of nearly six years of prescription records, when decedent’s mental capacity only at or around the time of the incident was at issue.
In the recent case of We Shall Overcome Foundation, et al. v. Ludlow Music, Inc., et al., the United States District Court for the Southern District of New York was asked to determine the validity of the copyright to “We Shall Overcome,” the seminal tune of the civil rights movement made famous by folk singer Pete Seeger, which had been registered as a “derivative work” with the Copyright Office, twice in the early 1960’s.
A derivative work is one that is substantially copied from a prior work. In order to be copyrightable, the derivative work cannot be a simple facsimile of the prior work, but instead must “contain some substantial, not merely trivial originality.” By way of example, the court noted that copyrightable derivative works include things such as translation of novel into another language, or the adaptation of a novel into a movie or a play. A derivative work is only copyrightable for the “increments of expression beyond” what is contained in the underlying work. Put another way, a copyright on a derivative work should not hijack the copyright or public domain status of the original source material.
The disputed copyrighted version of “We Shall Overcome” was actually based on an earlier version that had entered the public domain in the late 1940’s. Plaintiff argued that the copyrighted version, or, more specifically, one line of the copyrighted version, was essentially the same as the public domain version, save for a minor lyrical discrepancy introduced by the aforementioned Pete Seeger when he sang “we shall overcome” rather than “we will overcome.” Defendant argued that this was no minor discrepancy, and went so far as to retain an expert in ‘musical hermeneutics’ to opine that the change from “will” to “shall” rendered the meaning of the songs different, and thus entitled the derivative work to copyright protection.
In its 66 page order granting summary judgment to plaintiff and invalidating the 1960’s copyrights to ‘We Shall Overcome,” the court laboriously traced the history of the tune, both lyrically and musically. After much explication, however, the court based its decision on a rather simple proposition: that the change in wording from “will” to “shall” did not render the disputed version original enough to make it a copyrightable derivative work.
There are lessons in this case for both artists who produce derivative works, and the attorneys who represent them. First, no matter how often an artist plays an “old standard,” and no matter how closely associated that song may be with the artist, he will need do more than change a few words or notes around, in order to get copyright protection for the derivative work. Next, practitioners must take special care to clearly outline source material and content differences when registering a derivative work with the Copyright Office. As the court pointed out, defendant lost its strong presumption in favor of a valid copyright because the 1960’s applications failed to identify the proper source material, and failed to set forth the lyrical differences between the public domain version and the Seeger version of “We Shall Overcome.” Finally, it is apparent from the opinion that this dispute engendered full throated, i.e. very expensive, litigation. The parties hired numerous expert witnesses, employed extensive written discovery, and filed motions aplenty. For the average artist, this could result in a process that breaks the bank. Artists and their lawyers should anticipate these issues at the inception of the copyright process, to head off the possibility of cost-prohibitive litigation in the future.
"Reasonable Attorney's Fees" Awarded On a Missouri Merchandising Practices Act Claim May Not Be Limited By a Plaintiff's Contingency Fee Agreement With CounselJanuary 5, 2018 | Robert Chandler
In Selleck v. Keith M. Evans Insurance, Inc., the Missouri Court of Appeals for the Eastern District remanded a case back to the trial court for further consideration on the reasonableness of an award of attorney’s fees, under the Missouri Merchandising Practices Act. The trial court ruling limiting plaintiff’s fees based upon his contingency fee agreement with his attorney was overturned.
Plaintiff sued his former employer in state Circuit Court for wrongful discharge, unpaid commissions under the MMPA, unjust enrichment and breach of contract. The litigation was “contentious” and “antagonistic”, with numerous discovery disputes. At trial, plaintiff requested damages for wrongful discharge in the amount of $160,000 and lost commissions in the amount of $11,709. Plaintiff presented evidence at trial that he had hired counsel on a contingency fee basis. The jury ruled for Defendant on the wrongful discharge claim, but awarded Plaintiff $10,000 for lost commissions on his MMPA claim.
Plaintiff’s counsel filed a post-trial motion seeking attorney’s fees in the amount of $221,292 under § 407.193, which states that a trial court “may award reasonable attorney’s fees and costs to the prevailing party.” Plaintiff’s counsel represented that they billed 788 hours by attorneys with hourly billing rates of $280 and $450. Noting that Plaintiff has entered into a one-third contingency fee agreement with counsel, the Court ruled that Plaintiff was entitled to reasonable attorney’s fees and awarded $3,333.33, or one-third of the $10,000 recovery. The Court found that the $221,292 claimed by plaintiff’s counsel was not reasonable and extremely excessive for the type of case involved. Plaintiff appealed.
Contingency Fee Agreement Does Not Serve as a Cap on MMPA Attorney’s Fees
Plaintiff’s single point on appeal was that the trial court erred in utilizing the contingency fee agreement to determine the award of attorneys’ fees under the MMPA. The Court of Appeals agreed. Although Missouri law does not prohibit consideration of a contingency fee agreement in making a reasonable-fee determination, it is only one of many factors that must be considered. However, the agreement cannot be used to impose an automatic ceiling on reasonable fees to be awarded. The Court must also consider other factors, including a determination of a “lodestar” amount – determined by multiplying the reasonable number of hours for the type of case by a reasonable hourly rate determined by rates customarily charged by the attorneys involved as well as other attorneys in the community offering similar services.
Concluding that the Circuit Court had used the contingency fee agreement to determine a cap on reasonable fees for Plaintiff’s counsel, the Court of Appeals reversed, and remanded the matter to the trial court for a determination of a reasonable fee based upon not only the contingency fee agreement, but also:
-the number of hours reasonably expended on the case,
-the nature and character of the services rendered,
-the degree of professional ability required,
-the nature and importance of the matter,
-the amount involved or the results obtained, and
-the vigor of the opposition.
Conclusion - Guidance for the Future
Although a contingency fee agreement may be considered in determining reasonable attorney’s fees under the MMPA, it is but one of many factors for the trial court to assess. The contingency fee provided for in the agreement cannot be used as a “cap” on MMPA attorney’s fees.
After Reilly Company terminated his employment, Plaintiff Jeff Reed brought claims against Reilly in Jackson County, Missouri Circuit Court. Reilly moved to dismiss the claims based upon an employment contract provision stating that all disputes between the parties calling for interpretation and enforcement of the contract must be brought in Johnson County, Kansas. Plaintiff argued that: (1) because he was not seeking to enforce the contract, the forum selection provision had no applicability to his common-law and statutory tort claims, (2) the forum selection clause, and the contract as a whole, were unenforceable because his employment was “at-will” and no additional consideration was given for the forum selection clause, and, finally, (3) the forum selection clause was unfair and unreasonable because it was procured by fraud and concealment and therefore unenforceable. The dismissal was affirmed by the Court of Appeals, and the Supreme Court affirmed, rejecting all of plaintiff’s arguments.
Reed sued in Missouri, seeking declaratory and injunctive relief based on his employment contract with Reilly, damages for alleged fraud including a Missouri Merchandising Practices Act claim of fraud in procuring the contract, and damages for wrongfully withholding commissions. Reilly moved to dismiss the claims, asserting that Reed’s lawsuit could only be brought in Johnson County, Kansas. The motion to dismiss was granted, and the Court of Appeals further affirmed the validity and enforcement of the forum selection clause. The Missouri Supreme Court accepted the case for review.
The Forum Selection Clause Was Enforceable Despite Allegations of Non-Contract Disputes
Reed argued that the trial court erred in enforcing the forum selection clause in the employment contract because the contract lacked precise language requiring him to bring his non-contract claims in Kansas. The provision at issue stated:
“In the event of a dispute, jurisdiction and venue to interpret and enforce any and all terms of the Agreement shall be the District Court of Johnson County, KS.”
The Court ruled that whether a forum selection clause applicable to contract actions also reaches non-contract claims depends upon whether resolution of the claims is dependent upon interpretation of the contract. The resolution of plaintiff’s claims in this matter necessarily required an inquiry into the terms and enforceability of the employment contract, and accordingly, the non-contract claims were subject to the forum selection clause. Plaintiff’s claims for injunctive and declaratory relief clearly sought determinations regarding the enforcement and validity of the contract as a whole, and therefore the forum selection clause was enforceable.
The Trial Court Was Not Required to Determine Whether the Employment Contract Was Wholly Enforceable and Supported By Appropriate Consideration, Before Ruling on the Forum Selection Provision
The Supreme Court held that the trial court was not required to determine whether the contract was valid and enforceable, before ruling on the enforceability of the forum selection clause. Such a determination would be absurd, particularly if the matter was sent to a different jurisdiction for the same analysis to be conducted. Also, assuming that additional consideration was required in exchange for the forum selection clause and no additional consideration was given by Reilly, as long as the contract terms were not arrived at under terms deemed “adhesive” the forum selection clause would be enforceable. Plaintiff Reed did not argue that the contract was adhesive.
Because resolution of Reed’s arguments that (1) at-will employment does not create an enforceable employment relationship and (2) Reilly breached the agreement were issues that could be addressed in the new venue, they did not void the forum selection provision.
The Forum Selection Clause Was Not Void Due to Unfairness, Fraud, or Misrepresentation.
The Court rejected Plaintiff’s assertion that the forum selection clause was void because the employment agreement, as a whole, was void due to fraud. Although a forum selection clause may be voided if procured by fraud, there was no evidence in the record concerning negotiation of the forum selection provision, and plaintiff’s arguments that the employment agreement was procured by fraud did not void the forum selection clause because plaintiff did not argue that the forum selection clause was specifically procured by fraud.
The Court likewise rejected plaintiff’s argument that the forum selection clause was unfair and unreasonable, because there was no evidence submitted that the contract was adhesive. Finally, the Court found that the chosen venue in the contract was a neutral forum for the parties’ dispute which cut against plaintiff’s fairness and reasonableness arguments.
Forum selection clauses that are not adhesive will be interpreted independently of the court’s determination of the enforceability and validity of the contract as a whole. When, as in this case, a contract specifies a forum for all disputes concerning the contract’s interpretation and enforcement, and the dispute between the parties involves those matters, the forum clause will be enforced. Parties drafting forum selection clauses should exercise care to avoid contracts that are adhesive – i.e. agreements reached without a realistic opportunity for bargaining – and to choose forums which will be considered “neutral” and not overly advantageous to the party drafting the agreement.
It's not a bird or a plane... So what do we do with it? Concerns and regulations increase as drone usage skyrockets.December 20, 2017 | Leigh Ann Massey
Reports of incidents involving unmanned aircraft systems (UASs), or drones, are on the rise. In October, for example, a drone crashed into a small passenger airplane as it was approaching the runway at the Jean Lesage International Airport in Quebec City, Canada. Although the airplane was landed safely and there were no reported injuries, the post-collision aircraft inspection revealed damage to one of the plane’s wings. This is the first time a drone has collided with a commercial aircraft in Canada, though pilot sightings of UASs has increased dramatically, at home and abroad, in the recent years.
Drone popularity has risen steeply as commercial users, not only individuals, are finding new and creative ways to incorporate drone usage into their business models. Drones are now used to provide video footage for major news stories. They hover over football players during NFL games. They’re used to film promotional videos for luxury resorts and hotels. They may, someday, be used to ensure same-day delivery of online orders.
The Federal Aviation Administration (FAA), through authority conferred by 49 U.S.C. § 106, implemented regulations known as Part 107 to apply specifically to small unmanned aircraft systems used for purposes other than solely hobby or recreational. These regulations, effective in 2016, provide relevant definitions (small UASs are those weighing less than 55 lbs) and guidelines for operation of UASs. For example, 14 C.F.R. Part 107 requires registration of UASs with the FAA and calls for voluntary reporting of accidents or damage caused by a drone. Similarly, Part 107 requires commercial “flyers” to obtain FAA certificates and prohibits drone usage in certain airspace (e.g., around airports) without the permission of Air Traffic Controllers.
This month, President Trump signed the 2018 National Defense Authorization Act into law, which extends certain requirements to those using model UASs. Although previously exempted from the registration requirement of Part 107, drone hobbyists (those that purchase and use drones for personal, non-commercial use) will be required to provide their name and contact information to the FAA, as well as pay a small fee, to be legally compliant when operating their drones.
While drones offer many benefits across multiple industries, there are still numerous issues to be addressed. There are safety considerations (as evidenced by the airfield collision in Canada), legal considerations (e.g., inability to identify owners of drones involved in accidents or collisions), as well as privacy considerations (e.g., drones used for unknown surveillance of an individual), to name a few. Additionally, the nature and scope of insurance related to drones remains in its early phase.
As drone usage continues to increase, it’s only a matter of time before the common law will develop to address some of these lingering concerns. Insurance coverage, terms and conditions also will impact the nature and extent of protection for those using drones.
The ultimate impact drones will have on our national airspace, and those involved in its regulation, is unknown. We’ll keep our eyes to the sky and provide relevant updates when they become available.
Despite an uptick in advocacy, support, and inclusion of the LGTBQ community over the past several decades, as of today, discrimination based on sexual orientation remains an invalid claim under the Missouri Human Rights Act (“MHRA”). However, in a recent decision by the Western District of the Missouri Court of Appeals, disparate treatment of a gay male employee because he did not conform to traditional or stereotypical notions of masculinity warranted a claim of sex discrimination; which is a cognizable claim under the MHRA.
In Lampley, et al. v. Missouri Commission on Human Rights, plaintiff Lampley alleged that his employer discriminated against him based on sex because his behavior and appearance deviated from the stereotypes of “maleness” held by his employer and managers. Lampley claimed the stereotypes surrounding masculinity encouraged his employer to harass him and treat him differently from similarly situated employees who conformed to gender stereotypes. Subsequently, a close friend and co-worker of Lampley’s named Frost also filed charges with the alleging retaliation based on her close association and support of Lampley. The two employees “dual-filed” their charges of discrimination with both the EEOC and the Missouri Commission on Human Rights. The MCHR dismissed the state administrative proceedings, stating it lacked jurisdiction over the claims because they were based on sexual orientation. Both complainants then petitioned the trial court for administrative review arguing that sex, and not sexual orientation, serves as the basis of their claims. The trial court consolidated the cases and granted summary judgement in favor of the MCHR.
On appeal, Lampley and Frost argued that the trial court erroneously construed their claims to be based on sexual orientation, while in fact, they were based on sex, and therefore actionable under the MHRA. Lampley and Frost further contented that the sex discrimination was based upon sex stereotyping. The Missouri Court of Appeals agreed. Relying on federal case law under Title VII, the Court held that sex stereotyping can form the basis of a sex discrimination claim allowable under the MHRA. The Court of Appeals also cited R.M.A. v. Blue Springs R-IV School Dist., another recent Missouri Court of Appeals decision, which held “discrimination on the basis of sex means the deprivation of one sex of a right or privilege afforded the other sex, including a deprivation based on a trait unique to one sex, or a deprivation based on traits perceived as unique to one sex.”
In sum, the Court held that under the MHRA, “evidence an employee has suffered an adverse employment decision based on stereotyped ideas of how a member of the employee’s sex should act can support an inference of unlawful sex discrimination.” Thus, employers must be wary of company managers who might try to dictate what is masculine or feminine enough to meet accepted company norms. Just like ideas of gender identity have become more fluid and inclusive over the years, so has the applicable law.
Court of Appeals Affirms that At-Will Employment Is Not Sufficient Consideration for an Arbitration Agreement, Refuses to Change LawDecember 14, 2017 | Robert Chandler
In Wilder v. John Youngblood Motors, Inc., the trial court had denied the employer’s motion to compel arbitration of its former employee’s claim for wrongful termination, and the employer appealed. The Circuit Court ruled that at-will employment was the only consideration given for the agreement to arbitrate, and Youngblood therefore failed to demonstrate sufficient consideration for the agreement between the parties to arbitrate. Youngblood subsequently appealed this ruling arguing that mutual consideration between the parties existed, and, regardless, the Court should find that at-will employment is sufficient consideration for an agreement to arbitrate in accordance with federal policy favoring arbitration agreements and a tension in Missouri law providing that at-will employment provides sufficient consideration for non-arbitration provisions. The Court of Appeals affirmed the Circuit Court’s ruling.
Plaintiff Stephanie Wilder filed a Petition alleging wrongful termination for reporting alleged wire fraud by her employer, Youngblood. Wilder was an at-will employer, but at the time of hiring she executed an “Agreement for Binding Arbitration” as a condition of her employment. The Agreement bound Wilder and Youngblood to pursue arbitrations to resolve any claims or disputes arising in the course of her employment, with some exceptions.
Wilder worked for Youngblood for approximately 18 months but was terminated after reporting alleged wire fraud by Youngblood. Wilder subsequently filed her lawsuit for wrongful termination and Youngblood filed an answer and motion to compel arbitration, citing the Agreement. Wilder argued that the Agreement was “unconscionable,” lacked consideration and was therefore unenforceable. Youngblood subsequently appealed.
The Arbitration Agreement Lacked Mutuality of Consideration
Youngblood argued that the trial court erred in denying its motion to compel arbitration because the Agreement was properly supported by mutual consideration. The Court of Appeals sided with the Circuit Court’s assessment that at-will employment is insufficient consideration for the Agreement.
Additionally, the Court of Appeals agreed with the Circuit Court’s finding of a lack of mutuality with respect to the claims that were exempted from arbitration. Employer Youngblood had the opportunity to exempt certain potential claims from arbitration (“breach of trust, use or dissemination of confidential information, unfair completion, disclosure, or use of trade secrets”), but Wilder was prohibited from avoiding arbitration except where arbitration was forbidden by law. The Court noted that claims for unemployment benefits and workers’ compensation benefits, exempted from arbitration under the Agreement, were areas already prohibited from arbitration by law as jurisdiction for these areas is vested with specialized administrative tribunals.
The Court was not swayed by Youngblood’s argument that, as consideration for the Agreement, it was foregoing its ability to bring common law tort claims. The Court noted that Youngblood, in bringing the causes exempted from arbitration in the Agreement, could also bring these common law claims in the event they “relate” to the potential claims exempted from arbitration. Wilder did not have the same opportunity, and therefore mutual consideration was absent.
Youngblood also pointed to conditioning Wilder’s employment upon execution of the Agreement, a provision in the Agreement calling for it to pay the costs of arbitration if invoked, and Wilder’s continued employment and salary all as independent consideration sufficient to meet the mutuality requirement. The Court rejected all three arguments: 1) reiterating that at-will employment is insufficient consideration for an agreement to arbitrate, 2) the agreement to pay arbitration costs was obviated by a provision calling for costs to be awarded to the prevailing party, and, 3) although continued employment could be sufficient consideration for a restrictive covenant such as an agreement not compete, agreements to arbitrate are fundamentally different restrictive covenants, and enforced differently.
Accordingly, the Court found Youngblood’s arguments on mutual consideration unavailing and affirmed the Circuit Court’s ruling denying the motion to arbitrate.
The Court Refused Youngblood’s Federal Policy Argument
Youngblood pointed out that at-will employment was sufficient consideration in some employment agreements, but, under Missouri law is insufficient for arbitration agreements. Youngblood argued that, because at-will employment is sufficient consideration for non-arbitration provisions, Missouri law should be changed to allow at-will employment to be sufficient consideration for arbitration agreements as well. The Court refused to change the law, noting that the Court of Appeals should not “make the law” but should only “correct errors” and an argument to change the law should be addressed to the Supreme Court.
Agreements to arbitrate based upon at-will employment will continue to be found unenforceable by the Court as lacking sufficient consideration despite at-will employment providing sufficient consideration for other non-arbitration provisions. This tension in Missouri contract law is notable.
Its exact origins are somewhat of a mystery, but it is believed that Satoshi Nakamoto, perhaps a pseudonym for more than one creator, first developed the concept of the bitcoin in 2007. In October of 2008, “Nakamoto” published his first paper describing the peer-to-peer, online-based cash system. The first Bitcoin transaction occurred in early 2009, and since then, the cryptocurrency market has exploded, and now major retailers, including Overstock.com, Microsoft, Dish Network, Etsy, Expedia, and even Subway have begun accepting Bitcoin for transactions in some capacity. And its value has catapulted, now exceeding $11,000 USD.
But what’s on the other side of the coin? First, Bitcoin users can make anonymous transfers, which lends itself well to criminal, underground activity. Likewise, a virtually unregulated market leaves Bitcoin transactions subject to a high risk of fraud, with no recourse for jilted consumers. While some individual U.S. states have introduced legislation attempting to regulate cryptocurrency, the federal government has not, leaving the environment unstable.
Furthermore, the exponential increase in its value and lack of regulation leaves many experts wondering if this Bitcoin craze is just a bubble, only to be followed by a crash.
While cryptocurrency faces skepticism, the blockchain technology used to effectuate Bitcoin transfers has earned much praise as an alternative for future banking systems, particularly in expediting international payments. And in light of this year’s highly publicized data breaches, financial institutions may be well advised to explore the use of blockchain technology to prevent public dissemination of sensitive information, as it is touted for its resilient data protection capabilities.
Financial institutions in particular have been wary about the growing popularity of the Bitcoin. Jamie Dimon, CEO of JPMorgan Chase Bank, issued a statement questioning its legitimacy. “It’s just not a real thing, eventually it will be closed,” said Dimon, who further threatened to “fire in a second” any JPMorgan trader who attempted to trade Bitcoin. The Bank’s CFO, Marianne Lake, shortly thereafter qualified Dimon’s statements, avowing that JPMorgan remains “ very open minded to the potential use cases in future for digital currencies that are properly controlled and regulated.” This sentiment reflects that held by many institutions – most are open to the idea of a new type of currency, but are reluctant to engage until the currency is widely regulated.
Regulating the Bitcoin presents several challenges. For one thing, while Bitcoin transcends borders, there is no uniformity among nations, or even states in the U.S., about how it should be treated or regulated. Furthermore, there is inconsistency among legislators and the judiciary about whether Bitcoin is a currency or a commodity, thus making legislation difficult to draft. Even so, the SEC has recently expressed its intent to begin regulating the sale of Bitcoin and other cryptocurrency.
Fad or not, the Bitcoin is sure to be a continued hot topic internationally among regulators and financial institution in the coming months.
In Yerra v. Mercy Clinic Springfield Communities, the Missouri Court of Appeals for the Southern District of Missouri held that the trial court erred in giving the jury a whistleblower verdict-directing instruction, reversed the jury’s verdict for the whistleblowing doctor, and directed that the trial court enter a verdict in favor of the defendant employer.
Dr. Yerra, an internal medicine physician, treated a Medicare patient in her 60’s who had been hospitalized several times for heart issues and other conditions. After the patient was stabilized, Dr. Yerra referred the patient to Dr. Cavagnol for a gall bladder removal procedure. Dr. Cavagnol accepted the referral and asked a cardiologist to consult as to whether the patient could tolerate anesthesia and surgery. Upon learning of the cardiac consult order, Dr. Yerra canceled it because she deemed it an unnecessary cost. Dr. Cavagnol re-ordered the cardiac consult and the cardiologist cleared the patient for the procedure.
Dr. Yerra complained to Mercy’s Medical Staff Services, stating that the cardiac consult was inappropriate, an unnecessary cost, and disrespectful to her. She threatened to report the conduct to Medicare if it continued. Mercy investigated the matter and determined that the consult was appropriate, within the standard of care, and not an unnecessary cost.
Dr. Yerra, who had previously been put on “improvement plans,” was put on a new “improvement plan.” However, following subsequent incidents, including one involving an ICU patient, Mercy terminated Dr. Yerra.
Dr. Yerra brought a whistleblower suit against her former employer, citing R.S.Mo. 334.100 and 197.285, asserting that public policy considerations supported her wrongful termination claim. While generally, an at-will employee may be discharged for any reason, Missouri law protects employees by a very narrowly-drawn public policy exception. An employee may bring a whistleblower claim against his or her former employer if it is based on a public policy consideration specifically recognized in a statute, regulation, or rule. Any vagueness is fatal to the at-will wrongful termination claim.
R.S.Mo. 334.100 identifies a physician’s duty not to willfully and continually perform inappropriate or unnecessary treatment, diagnostic testing, and/or medical or surgical services. R.S.Mo. 197.285 requires designated healthcare facilities to off protection to employees who report certain matters, such as facility mismanagement, fraudulent activity, or violations of applicable laws related to patient care.
Although the trial court was skeptical that Dr. Yerra’s cited statutes were “nonspecific” and did not identify a clear public policy that was not vague or general, it agreed to give Dr. Yerra’s requested whistleblower verdict-directing instruction. The jury returned a verdict for Dr. Yerra and Mercy appealed.
The Missouri Court of Appeals for the Southern District of Missouri was tasked with determining whether the statutes reflected a clear and specific public policy mandate. Ultimately, it held that Dr. Yerra was not entitled to a whistleblower instruction for reporting what Dr. Cavagnol did because the record did not demonstrate that the pre-surgery cardiac consult violated any provision of the cited statutes and did not amount to serious misconduct contrary to well-established, clearly-mandated public policy reflected in the statutes. The Court held that Dr. Yerra’s reasonable belief that Dr. Cavagnol’s conduct violated public policy was not relevant to her wrongful termination claim. Rather, the whistleblower instruction is only proper when the former employee demonstrates that public policy actually forbade the conduct complained of.
Missouri Upholds Pollution Exclusion to Relieve Insurance Company from Duty to Defend Toxic Tort Claims Arising from Industrial PollutionNovember 27, 2017 | Martha Charepoo
In a recent decision, the Missouri Supreme Court for the first time considered the meaning and application of a pollution exclusion in a commercial general liability policy, landing unanimously on the side of the insurance company in favor of denying coverage to the insured. In Doe Run Resources Corp. v. St. Paul Fire and Marine Ins. Co. et al., the Supreme Court decided whether a policy’s pollution exclusion relieved the insurer from having to defend a lead mining company in numerous toxic tort lawsuits alleging injury from industrial pollution emitted from an overseas operation. The outcome turned on whether the exclusion was ambiguous, and, therefore, should be construed against the insurer in favor of coverage.
In defending its decision to deny coverage, the insurer had to contend with Missouri appellate precedent relied upon by the insured that found, where the insured’s business involved chemicals that might be deemed “pollutants”, a pollution exclusion is inconsistent with the insured’s reasonable expectations of coverage. Hocker Oil Co. v. Barker-Phillips-Jackson, Inc., 997 S.W.2d 510 (Mo. App. S.D. 1999). The trial court adopted Hocker and found that the pollution exclusion created an ambiguity in the policy because it did not specifically identify lead as a pollutant. Consequently, the trial court construed the exclusion against the insurer and entered summary judgment in the insured’s favor on coverage. The Court of Appeals agreed that the pollution exclusion was ambiguous and did not bar coverage for the toxic tort claims.
On transfer from the Court of Appeals, the Supreme Court took the opposite view of Hocker and instead followed a more recent Eighth Circuit decision involving the same insured (Doe Run) which upheld a pollution exclusion and applied it to claims alleging injury from exposure to hazardous waste byproducts of the insured’s production process. Doe Run Res. Corp. v. Lexington Ins. Co., 719 F.3d 876 (8th Cir. 2013). In doing so, the Supreme Court distinguished the facts of Hocker, which involved failure of a gasoline storage tank at a gas station, releasing 2,000 gallons of gasoline into the ground causing damage to neighboring property. The court said that this case is completely different because the alleged exposure here was to toxic lead byproducts released into the air by the insured’s production process, not the insured’s lead products themselves. In framing the facts of the case in this way, the court found this case to be identical to Lexington in which the Eighth Circuit found that a nearly identically worded pollution exclusion barred toxic tort coverage for claims from the insured’s Missouri facility.
As a result of Doe Run, Missouri law is now clear that pollution exclusions are not inherently ambiguous as to toxic tort claims arising from exposure to industrial pollution rather than the insured’s product themselves, and insurers can probably rely on such an exclusion to deny coverage in such cases.
It ended before it ever began. As reported in a prior post, in July of 2017, the Consumer Financial Protection Bureau (the “CFPB”) enacted a new rule that would have prohibited financial institutions from including arbitration provisions in their contracts with customers wherein the customers waived their right to bring class action litigation against the creditor. The new rule was set to take effect in early 2018.
Not under our watch, said the United States Senate. Promptly following the CFPB’s issuance of the new arbitration rule, Sen. Mike Crapo of Indiana introduced S.J.Res.47, “Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by Bureau of Consumer Financial Protection relating to “Arbitration Agreements.” The resolution required only a simple majority vote to be enacted into law. Indeed, the resolution came down to a 51-50 vote, with Vice President Mike Pence breaking the tie.
The CFPB rule was designed with the intention of protecting consumers from an unknowing waiver of their right to pursue legal remedies, such as class action litigation. Research revealed that 3 out of 4 consumers who had entered into such arbitration clauses in their loan agreements were not aware they had done so.
Critics of the arbitration rule have maintained that the rule is a violation of individuals’ freedom to contract – after all, the consumer arguably could choose not to do business with that lender if unhappy with the terms of the agreement. Furthermore, many observed that the only parties who stood to benefit from the prohibition of class action waivers are the plaintiff’s attorneys representing consumers, and not the consumers themselves, since individual payouts from class litigation are often nominal.
Responding to the Senate’s vote to overturn the arbitration rule, CFPB Director Richard Cordray called the decision a “giant setback for every consumer in this country” and predicted that financial institutions would now “remain free to break the law without fear of legal blowback from their customers.”
Conversely, the Trump Administration commended the result of the Senate’s Vote, in a statement released shortly thereafter: "By repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy.”
So, while these consumer credit arbitration clauses will likely remain a controversial topic for years to come, the rule intended to get rid of them has instead been extinguished.
In Shallow v. Follwell, the Missouri Court of Appeals for the Eastern District of Missouri reversed and remanded a jury’s verdict for defendant Dr. Follwell, holding the trial court improperly allowed cumulative expert witness testimony that imperiled the jury’s ability to fairly consider the quality and quantity of expert witness opinions.
The case involved a surgical mesh procedure to repair decedent’s hernia. After the doctor twice within 24 hours discharged the patient from the hospital, she returned to the hospital a third time, where she was diagnosed with a severe infection in her abdominal cavity, caused by leakage of toxic and infectious bowel contents into her abdomen. She died soon thereafter.
At trial, Dr. Follwell – designated as a fact and expert witness on his own behalf – did not dispute that decedent’s bowel was perforated, leaked, and caused the septic condition that led to her death. He denied that he caused the hole in her bowel, however, and presented his alternative theory that decedent suffered from undiagnosed atrial fibrillation, which caused a blood clot to form, restricted the blood flow to that section of decedent’s bowel, and ultimately weakened and perforated the bowel wall. Four other retained experts testified for Dr. Follwell: (1) a critical care specialist; (2) a cardiologist and internist; (3) a vascular surgeon; and (4) a colorectal surgeon.
While there is no “bright line” rule as to how many expert witnesses a party may utilize to prove or defend its case, Missouri trial courts are charged with admitting evidence that is both logically and legally relevant. The concept of legal relevance includes whether the evidence may, among other things, pose a danger of unfair prejudice, be a waste of time, and amount to the needless presentation of cumulative evidence. Missouri courts have expressed concern that excessive cumulative evidence risks invading the jury’s ability to resolve the case on the merits and evaluate the quality and credibility of expert opinions. Cumulative expert opinions may instead result in the jury simply “counting heads.” The Shallow v. Follwell court held that the trial court abused its discretion in failing to properly determine when cumulative evidence should stop.
It was not just the number of defendant’s experts that caused the Court of Appeals to reach its conclusion. Rejecting the defendant’s claim that each expert’s testimony was limited to his own area of medical expertise - cardiology, internal medicine, critical care, the vascular system, and the gastrointestinal system - the Court of Appeals ruled that what actually happened was that each expert presented his expert opinion in his own area of expertise, but also repeated the sum and substance of the defense’s alternative theory of causation, in testimony that extended beyond the expert’s specialty. The jury therefore heard the same opinions multiple times – essentially a “chorus of the same ultimate opinions” – which impeded its duty and ability to fairly weigh the evidence on each side.
In returning the case to the Circuit Court for a new trial, the Court of Appeals chastised the trial court for “ignoring its duty to properly assess whether the testimony was needed,” and reminded the trial court “to adhere to the principles and standards set forth in this opinion and elsewhere in Missouri law for determining the admissibility of cumulative evidence.”
Candy manufacturers nationwide are increasingly finding themselves in Missouri state court, facing class action allegations that their use of over-sized packaging misleads consumers into believing the package contains more product than is actually present. A recent Eighth Circuit decision in a “slack-fill” case suggests that when a corporate defendant removes to federal court under the Class Action Fairness Act (CAFA), it may face a stiff challenge when the plaintiffs move to remand the case to state court, on the grounds that the value of their claims total less than $5 million.
In Waters v. Ferrara Candy Co., people who bought Red Hot candies initiated claims against the candy company for violation of the Missouri Merchandising Practices Act (“MMPA”) based on under-filled or “slack-filled” cardboard boxes of the candies. The consumers filed suit in the City of St. Louis Circuit Court. Presumably seeking a less plaintiff-friendly venue, the candy company removed the case to the federal court for the Eastern District of Missouri, under CAFA, arguing that the total value of the consumers’ claims exceeded $5 million, the minimum amount required for the district court’s jurisdiction under that statute. The candy company based its calculation on what the consumers could potentially recover as compensatory damages (total sales in Missouri for the past five years), attorney’s fees (at 40% of compensatory damages), and punitive damages (at 5 times compensatory and punitive damages), and the cost of changing its packaging processes to eliminate slack-fill.
The consumers moved to remand the case back to the City of St. Louis, arguing that the $5 million threshold was not met. In opposition, the candy company submitted affidavits from executives attesting to the total retail sales of all Red Hots products for the previous five years and how much it would cost to change its packaging processes to eliminate slack-fill, if it were compelled to do so.
The district court considered each category of potential recovery by the consumers and concluded that taken together or separately, the value of the consumers’ claims did not meet the $5 million threshold and ordered the case back to the City of St. Louis. The court concluded that compensatory damages and attorney’s fees added up to less than $1 million, and that punitive damages should not be included in the calculation, because the consumers had not adequately pled punitive damages in their petition and, therefore, punitive damages would not be recoverable in this case. That left the value of injunctive relief. In deciding how to calculate the value of injunctive relief, the court followed “longstanding Eighth Circuit tradition” and looked at it from the consumers’ point of view, rejecting the “either viewpoint” test, which compares the value of injunctive relief to consumers to the cost to the manufacturer and taking the more expensive of the two. The candy company urged adoption of the “either viewpoint” test but presented no evidence of the value of injunctive relief from the consumers’ point of view, so the court disregarded this factor as well.
The court went on to criticize the efficacy of the candy company’s affidavits to establish the cost of injunctive relief from the manufacturer’s point of view. The CEO’s affidavit addressed the cost of changing its packaging to eliminate slack-fill based on an estimated cost to upgrade its packing equipment. The court found this to be speculative because it did not specify what injunctive relief would actually require the manufacturer to do -- add more candy to the existing package size, shrink the package size to more closely fit the current weight of actual candy, or modify every Red Hots candy production line. As a result, the court found the proposed cost to be too speculative to allow the consumers’ to rebut it.
The candy company appealed this decision, challenging (among other things) the district court’s adoption of the “plaintiff’s viewpoint” test. The Eighth Circuit Court of Appeals was unmoved. The appeals court found it unnecessary to rule on whether the district court should have applied the “plaintiff’s viewpoint” or the “either viewpoint” test, because it found that under either standard, the candy company failed to prove by a preponderance of the evidence that the amount in controversy exceeded $5 million. The appeals court agreed with the district court that the two affidavits did not adequately quantify what it would cost the company to comply with an injunction.
Given another chance, the Eighth Circuit might decide that the “plaintiff’s viewpoint” test determines the value of injunctive relief for establishing the jurisdictional amount under CAFA. Thus, a reasonable and conservative strategy to keep a slack-fill class action in federal court would be to present evidence from the consumers’ point of view and be as specific as possible about the method and cost of eliminating slack-fill. This is a calculus that can be accomplished before deciding to remove, and if neither of these amounts can be supported with specific evidence to establish a finding of at least $5 million, it might be more cost effective to just stay in state court.
Counsel should also keep in mind that in cases where plaintiffs have adequately pled punitive damages in their state court petition (which did not occur in the Waters case), it is not uncommon for punitive damages to total up to 10 times the amount of compensatory damages, and this can be a critically important factor in determining whether the CAFA threshold has been met.
Western District Court of Appeals Expounds on Attorney Duty of "Reasonable Investigation" of Juror Litigation HistoryOctober 24, 2017
Attorneys typically rejoice when courts provide further definition of previously established rules, standards, and legal terms; and that is exactly what the Western District Court of Appeals did in King v. Sorenson. We have previously chronicled Missouri’s adoption of Rule 69.025, which obligates a litigant to investigate the backgrounds of potential jurors. Specifically, if a litigant has failed to conduct a “reasonable investigation” of prospective jurors’ litigation history, he has waived the right to seek relief from an adverse judgment, based on juror non-disclosure. Before King v. Sorenson, lawyers knew that the definition of a “reasonable investigation” required review of Case.net before the jury is sworn, but there was no further guidance as to the required extent of a “reasonable search,” nor any accepted protocol to ensure that a search of venireperson’s litigation history is conducted properly.
King v. Sorenson was a wrongful death and lost chance of recovery case, in which the trial court provided both parties with a list of sixty-five randomly selected names of potential jurors. One of potential jurors was listed at “J. Paul Willis,” and this was confirmed by a separate juror questionnaire where the venireperson provided the name of “(John) Paul Willis.” At no time did the venireperson represent that Paul was his functional first name, and Plaintiff’s counsel solely conducted Case.net searches using “J” or “John” as the litigant’s first name, “P” or “Paul” as the middle name, and “Willis” as the last name. These searches revealed no collections cases involving the prospective juror.
In voir dire, Plaintiff’s counsel emphasized the importance of prospective juror honesty, candor, and how the lack thereof could cause the same issues to be re-tried and re-litigated. When the panel was questioned about collection cases that have been brought against them, Mr. Willis remained silent. Mr. Willis ultimately was seated on the jury, and participated in its defense verdict, signing the verdict form as “Paul Willis.”
Contrary to Willis’ representations on his juror questionnaire and during voir dire, it was later discovered that he was a defendant in a collection case where he was sued for an alleged breach of contract styled Champion Trim, Inc. v. Paul Willis, et al. Because Willis never provided “Paul” as his first name, Plaintiff’s counsel had not searched Case.net for matters involving a “Paul Willis.”
Plaintiff moved for a new trial based on the juror non-disclosure of litigation history. But the trial court denied the motion, and ruled that Plaintiff’s counsel “mistakenly used the incorrect first name” when conducting a Case.net search, and the search was therefore unreasonable. The Western District Court of Appeals disagreed and held that “where a litigant has performed a Case.net search by inserting the names as provided to counsel by the trial court, such a search simply cannot be deemed anything but ‘reasonable.’”
The appellate court remanded the case to the trial court, to determine if a new trial was warranted. It held that “if the trial court finds that Juror Willis’s nondisclosure was intentional, bias and prejudice must be presumed and a new trial ordered. If the trial court finds that the nondisclosure was unintentional, it must undertake an analysis as to whether Plaintiffs were prejudiced, in such a fashion necessitating a new trial, by Juror Willis’s nondisclosure of the 1991 lawsuit.”
Missouri Supreme Court May Be Signaling a Change in Analysis of Misjoinder of Claims in Multi-Plaintiff Product Liability CasesOctober 19, 2017 | Angela Higgins
On October 13, 2017, the Missouri Supreme Court issued a preliminary writ of prohibition directed to Circuit Judge Rex Burlison of the Circuit Court for the City of St. Louis, temporarily staying the talc case, Valerie Swann, et al. v. Johnson & Johnson, et al. The Supreme Court case number is SC96704. The plaintiffs, on behalf of the trial court, are to answer the writ petition by November 13, 2017.
Plaintiff Michael Blaes is one of 47 plaintiffs in the case, who contend that they or their decedents developed ovarian cancer following use of talcum powder. Johnson & Johnson alleges that Blaes’s decedent did not purchase or use talcum powder in the City of St. Louis. Blaes’s case was set for separate trial from those of the other plaintiffs, but Judge Burlison declined to formally sever his claim such that it could be reassigned and venue assessed. That decision is the subject of Johnson & Johnson’s petition for a writ of prohibition.
Missouri has long had a troubled history with venue analysis. As part of tort reform in 2005, the legislature made significant changes to the venue statute, designed to prevent forum shopping. The recent explosion in “litigation tourism” focused in the City of St. Louis has not been due to any change in, or deficiency of, the venue statute and the joinder rules, but in changes in the application of long-standing principles of venue and joinder.
Refusal to sever unrelated claims is at the core of the problem. Litigation tourism in St. Louis depends upon a single, anchor plaintiff who is a Missouri resident with a plausible jurisdictional claim and basis to claim venue in the City of St. Louis, with dozens of unrelated, out-of-state plaintiffs clinging to that anchor plaintiff’s case to justify pursuit of claims in Missouri against non-residents. The claims are misjoined and should be severed, but to date the Missouri Supreme Court has declined to find that a trial court’s refusal to sever misjoined claims warrants reversal on appeal unless the defendant can establish that the severance decision was prejudicial to the outcome (by establishing that the City of St. Louis is a biased venue). See Barron v. Abbott Labs., Inc., No. SC96151, 2017 Mo. LEXIS 403, at *6 (Sep. 12, 2017).
Severance has not always been this controversial, but reflects a change in the application of Missouri law and procedure in recent years. Rule 52.06 of the Missouri Rules of Civil Procedure is titled “Misjoinder and nonjoinder of parties,” and provides that “Any claim against a party may be severed and proceeded with separately.” Misjoinder of claims or parties requires severance of the claims. See State ex rel. Gulf Oil Corp. v. Weinstein, 379 S.W.2d 172, 174 (Mo. App. St. L. 1964).
Rule 52.05 identifies the only circumstances under which the claims of multiple plaintiffs may be properly joined in a single action:
All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence or series of transactions or occurrences and if any question of law or fact common to all of them will arise in the action.
Mo. R. Civ. P. 52.05(a) (emphasis added). Both tests must be met for plaintiffs to be joined in a single action. Id.; State ex rel. Allen v. Barker, 581 S.W.2d 818, 826 (Mo. banc 1979). If those requirements are not met, the claims are misjoined and severance is required. Even if joinder is permitted, severance is still permissible in the trial court’s discretion, based upon factors related to fairness, economy, and prejudice. See Wilson v. Bob Wood & Associates, Inc., 633 S.W.2d 738, 743 (Mo. App. W.D. 1981).
Rule 52.05(a) is analogous to Fed. R. Civ. P. 20(a), which provides that parties may be properly joined only where claims by or against them arise out of the same transaction or occurrence or present common questions of law or fact. In State ex rel. Allen v. Barker, 581 S.W.2d 818, 826 (Mo.1979) the Missouri Supreme Court discussed the adoption of Rule 52.05(a), recognized that it was patterned after the federal rule, and applied federal cases to interpret it. Id. The federal rule has been extensively construed, and overwhelmingly find that the claims of multiple plaintiffs are misjoined when the only commonality amongst plaintiffs is that they allege damages resulting from using the same product. See, e.g., In re Orthopedic Bone Screw Prods. Liab. Litig., MDL No. 1341, 1995 WL 428683, at *5-6 (E.D. Pa. July 15, 1995). In the bone screw litigation, the only plaintiffs who were allowed to remain joined in a single action were those who underwent surgery by the same doctor or group of doctors, at the same hospital, and who received the same or a similar device by the same manufacturer. Id. at *5. There is no reason in the rule why Missouri should be applying joinder principles in a manner so inconsistent with the federal courts.
Recent jurisprudence in the City of St. Louis and in the Eastern District Court of Appeals, in fact, is inconsistent with those courts’ own past precedent on misjoinder and severance. In Gulf Oil, plaintiffs had purchased fuel oil in unrelated transactions at different times. Id. at 174. These transactions did not constitute the “same transaction nor a series of transactions.” Id. at 175. Moreover, even though the plaintiffs all sustained fires, these occurred on different dates. Id. Accordingly, the plaintiffs’ losses did not constitute the same “occurrence.” Id.
The Gulf Oil court was keenly focused upon what is the “transaction” and what is the “occurrence” that is common to the plaintiffs. Because the issue is joinder of plaintiffs, it is a plaintiff-focused, not defendant-focused analysis. Recent jurisprudence on the eastern side of the state has shifted that focus to the notion that plaintiffs’ claims can arise out of the same transaction or occurrence when they derive from common conduct of the defendant, which has been expanded to include the design, marketing, and sale of the product. In reaching these decisions, the early trial court orders rely upon cases analyzing the proper joinder of defendants, which is, of course, a defendant-behavior-focused analysis.
Taken to the illogical extreme, the approach of focusing upon the defendants’ business practices and product design to establish joinder would allow any purchaser of a product to join with any single Missouri plaintiff and to pursue their claims in Missouri. It is simply untenable, and seems inevitable that, if the Missouri Supreme Court does not curtail this problem, the U.S. Supreme Court will. Allowing non-residents to sue non-residents for extraterritorial conduct and injuries is not constitutionally defensible. Personal jurisdiction limitations “are a consequence of territorial limitations on the power of the respective States.” Hanson v. Denckla, 357 U.S. 235, 251 (1958); see also World-Wide Volkswagen Corp v. Woodson, 444 U.S. 286, 292 (1980) (minimum contacts requirement serves the dual functions of protecting defendant against the burden of litigation and ensuring states “do not reach out beyond the limits imposed on them by their status as coequal sovereigns in our federal system”).
There are hopeful signs – the Eastern District Court of Appeals just overturned the first talcum verdict against Johnson & Johnson for lack of personal jurisdiction. See Estate of Fox v. Johnson & Johnson, No. ED104580, 2017 Mo. App. LEXIS 1043 (Mo. App. E.D. Oct. 17, 2017). The dust has not yet settled on these issues, however.
Johnson & Johnson’s writ of prohibition takes a subtly different track from the issue argued in Barron. In its recent writ, Johnson & Johnson does not argue that Judge Burlison erred in denying the original motion to sever based upon misjoinder of the plaintiffs’ claims, but that, when the court ordered separate trial of each of the claims, that the claims of each plaintiff should have been formally severed such that venue (and presumably jurisdiction) would be independently assessed as to each of the severed claims.
Rule 66.02 provides:
The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any claim, cross-claim, counterclaim, or third-party claim, or of any separate issue or of any number of claims, cross-claims, counterclaims, third-party claims, or issues.
Rule 52.06 provides that “Any claim against a party may be severed and proceeded with separately.” Missouri law has been somewhat ambiguous as to the relationship between these rules, including whether “proceed[ing] separately” with a claim is the same as severing it.
The 3-judge concurring opinion in Barron, upon which Johnson & Johnson relies for its writ petition, suggested that, when the trial court determines that a plaintiff’s claims should be separately tried, it has effectively “severed” that plaintiff’s claims from the remaining plaintiff(s). Alternatively, where the trial court has determined that the claims should not be tried together, it would ordinarily have no basis to deny a subsequent motion to sever. Because Mo. Rev. Stat. § 508.012 (part of the 2005 tort reform) requires reassessment of venue when a plaintiff is either added to or removed from the petition, and mandates transfer if venue is improper, the trial court’s failure to formally sever a separately-tried claim deprives defendants of the benefit of the statute.
When there has been severance, the normal administrative process would involve the assignment of a new case number to the severed case and, normally, random judicial reassignment. Severance of claims permits the court to render separate judgments which will be deemed final for purposes of appeal. Engel Sheet Metal Equipment, Inc. v. Shewman, 301 S.W.2d 856, 859 (Mo. App. St. L. 1957). The claims, being independent, would be subject to independent venue and jurisdictional analysis, having been unchained from the Missouri anchor plaintiff.
It is interesting that the Supreme Court has issued a preliminary writ in the Blaes matter. Although an order for separate trials is not generally deemed to be equivalent to an order for severance, that general principle must be considered in the context of the venue statute, which does contemplate a reassessment of venue. A court may be required to order severance based upon misjoinder, and the Johnson & Johnson argument seems targeted squarely at overcoming the “lack of prejudice” finding in Barron – the prejudice is in the denial of the rights afforded under Mo. Rev. Stat. § 508.012. Additionally, where the court has discretion to sever based upon judicial economy, fairness, and prejudice, it still appears to be an abuse of discretion to order 47 separate trials but refuse to sever them into independent actions.
Johnson & Johnson’s writ petition may be the hook to pry loose severance orders in these multi-plaintiff cases. Ideally, however, the impropriety of joinder would be assessed at an earlier stage of the litigation, before decisions on trial management have been made. We are hopeful that recent developments in the talc cases indicates a shift away from recent practices in these multi-plaintiff cases.
The Eighth Circuit Court of Appeals, in Donaldson v. Nat’l Union Fire Ins. Co. of Pittsburg, recently upheld the denial of benefits under an ERISA-governed insurance policy because the plan administrator’s interpretation of the disputed policy language was found to be reasonable.
Michele Donaldson filed a claim for accidental death and spousal benefits under an insurance policy issued to Schwan’s Shared Services, LLC by National Union Fire Insurance Company of Pittsburgh, PA. Mrs. Donaldson’s claim arose after her husband was killed in a motor vehicle accident in which his vehicle was struck by another that crossed into his lane of traffic. Mr. Donaldson was employed as a delivery driver with Schwan’s and was on his delivery route at the time of the accident.
The applicable insurance policy was an employee-benefit plan governed by the Employee Retirement Income Security Act (ERISA). The policy provided insureds with financial security in the event of an accidental death or injury when traveling on business. The policy provided “Hazards” that described specifically the circumstances under which coverage would be afforded.
Mrs. Donaldson filed her claim for accidental death and spousal benefits under Hazard H-12, which offered “24-Hours Accident Protection While On A Trip (Business Only).” National Union denied the claim under Hazard H-12 because Mr. Donaldson was not on a business trip at the time of his death; instead, he was operating a vehicle that he had been hired to operate. Following denial of her claim, Mrs. Donaldson filed a complaint in state court seeking an accidental death benefit on behalf of Mr. Donaldson’s estate in the amount of $286,000 and a spousal benefit of $50,000. Following removal to the United States District Court for the Eastern District of Arkansas, the district court found that denial of Mrs. Donaldson’s claim was appropriate because National Union had reasonably interpreted the Policy language and there was no abuse of discretion. Mrs. Donaldson’s complaint was dismissed with prejudice, which resulted in an appeal to the Eighth Circuit.
The ERISA-governed plan granted the plan administrator discretion to interpret the plan and to determine eligibility for benefits. The Eighth Circuit reviewed National Union’s decision to deny benefits under the abuse of discretion standard, which required the Court to uphold the insurer’s decision as long as it was based on a reasonable interpretation of the policy and was supported by substantial evidence. A number of relevant factors to aid the Court in its consideration have been determined in prior matters. See King v. Hartford Life & Accident Ins. Co., 414 F.3d 994, 999 (8th Cir. 2005). The dispositive factor, however, was whether the plan administrator’s interpretation of the disputed provisions was reasonable.
Interpretation of the policy at issue turned on whether an exception listed in Hazard H-12 applied to the circumstances of the accident. In its close examination of the policy language, the Eighth Circuit determined that the disputed exception language was ambiguous. The Court held that where the terms of the plan are susceptible to multiple, reasonable interpretations, a plan administrator’s choice among the reasonable interpretations is not an abuse of discretion. As both National Union and Mrs. Donaldson’s interpretations were equally reasonable, the Court deferred to the plan administrator’s interpretation of the disputed language and found no abuse of discretion by National Union. The district court’s decision was affirmed.
The opinion in its entirety may be found here.
Whistles Here, Whistles There, Whistles Everywhere - 8th Circuit Allows Airline Whistleblower to Proceed with State Law Wrongful Discharge ClaimOctober 3, 2017 | John Patterson
In Watson v. Air Methods Corp., No. 15-1900 (8th Cir. en banc, Aug. 31, 2017), the Eighth Circuit Court of Appeals reversed its own precedent and held that a former employee may bring a state law wrongful discharge claim against an “air carrier,” notwithstanding the pre-emption provision contained in the Airline Deregulation Act (“ADA”).
Plaintiff in Watson was an in-flight air medic employed by defendant. Over the course of his career, he made a number of complaints to his employer, alleging violations of various federal aviation safety regulations, including: a pilot making cell-phone videos during flight; members of a medical crew text messaging during critical phases of flight; a pilot attempting to take off with frost and ice on the aircraft; and another pilot making unnecessary “run-on landings.” After he was fired by the air carrier, Plaintiff claimed he was dismissed in retaliation for making these complaints, and filed suit in Missouri state court for the common-law tort of wrongful discharge in violation of public policy.
The air carrier removed the case to federal court and then moved to dismiss the state law claim based on the pre-emption provision of the ADA. The district court, relying on the Eighth Circuit’s decision in Botz v. Omni Air International, 286 F.3d 488 (8th Cir. 2002), dismissed plaintiff’s wrongful discharge claim. Plaintiff appealed, and a Court of Appeals panel upheld the district court. Plaintiff then sought en banc review, by the full Court. Somewhat surprisingly, the full court overturned its own decision in Botz and held that a state law claim for wrongful discharge was not preempted by the ADA, despite the existence of a federal whistleblower protection scheme for airline employees.
Defendant argued that if plaintiff’s claims were not pre-empted by the ADA, then state courts would need to adjudicate the meaning of the federal regulations, thus creating a patchwork of differing regulatory standards for air carriers to deal with. The Eighth Circuit disagreed, noting that state courts do not have federal regulatory enforcement power, that not all claims related to air “safety” are preempted by the ADA anyway (e.g. personal injury claims), and that the federal aviation whistleblower protection program acted in conjunction with state whistleblower claims, rather than superseding such claims. The Eighth Circuit stated that the Third, Ninth and Eleventh Circuits had reached the same conclusion.
As a result of the holding in Watson, “air carriers” (as defined in the ADA) doing business in the Eighth Circuit may now have to defend whistleblower-style claims from ex-employees, on both state and federal fronts.
Almost immediately upon announcement of the Equifax data breach, the plaintiff’s bar speedily initiated class litigation on behalf of consumers for purported failures by Equifax to protect its customer data. For instance, just one day after the breach became public knowledge, a multi-billion dollar class action suit was filed in Portland, Oregon.
We can undoubtedly expect to see more class action litigation crop up, as it has consistently on a daily basis since announcement of the breach. Nevertheless, the threat to Equifax does not stop at private litigation. Several state attorneys general have already announced plans to investigate the breach.
While the timeframe permitted to disclose a data breach varies from state to state, most states do have a requirement that the data breach be disclosed by the soonest reasonable date possible. The delay by Equifax in announcing the breach will certainly serve as the basis for many state-level investigations and penalties. It is reported that the breach occurred as early as May 2017, was discovered by Equifax in July 2017, but was not reported until September 7.
Several state attorneys general, including: Tom Miller, Iowa; Derek Schmidt, Kansas; Joshua Hawley, Missouri; and Douglas Peterson, Nebraska, have joined in a letter to Equifax expressing their concerns with the manner in which Equifax has handled the breach, thus far. Those concerns include many having to do with customer service and accessibility to information.
In particular, though, the state attorneys general have taken issue with Equifax reportedly requiring consumers to enter into mandatory arbitration agreements or pay fees for credit monitoring services that are otherwise available for free to the public. The letter states, “The fact that Equifax’s own conduct created the need for these services demands that they be offered to consumers without tying the offer to complicated terms of service that may require them to forego certain rights,” and “We remain concerned that Equifax continues to market its fee-based services to consumers affected by its data breach.”
The letter in its entirety is available here.
In excess of 143 million consumers’ personal information may have been compromised, and a software flaw is reported to be the cause. The compromised information includes names, dates of birth, addresses, social security numbers, credit card numbers, and even driver’s license numbers. Experts report that the number of affected consumers will likely increase as time passes.
Courts are often asked by plaintiffs’ counsel to admit evidence of other similar incidents (OSI) in order to show a defendant’s knowledge of an alleged defect, and/or causation. Plaintiffs have used this approach to tap into the power of strength in numbers and will typically seek to introduce evidence of as many “similar” incidents as a trial court will allow. Although the law allows for the introduction of this type of evidence, a trial court must carefully balance the relevancy of this evidence versus the prejudicial effect. The Eighth Circuit in Adams v. Toyota Motor Corp., recently examined the admissibility of evidence of other similar instances in an automotive “unintended acceleration” case. Plaintiff Koua Lee was driving his 1996 Toyota Camry on the highway. While exiting the highway, the car continued to accelerate, failing to stop as he pressed on the brake. Lee rear ended a car stopped at a red light, killing three of the five passengers in the stopped car and severely injuring others, including passengers in his own car. The Court of Appeals, in upholding the trial court’s decision to admit this evidence, affirmed that evidence of substantially similar incidents can be admitted in appropriate circumstances, and that the trial court is in the best position to determine whether or not this evidence is a distraction to jurors or is otherwise unduly prejudicial.
Weighing in favor of admissibility, OSI evidence can be relevant in that it can show a party had notice of defects. It may also be used to demonstrate the magnitude of the danger and the product’s lack of safety for its intended uses. But there are limitations to the use of OSI evidence. The prior incidents must be “substantially similar” to the incident in the case at hand. And the probative nature of the evidence must outweigh its potential for prejudice.
Here, the Court explained that there are no hard and fast rules to determine if the evidence is substantially similar. It is a case by case determination, and the court must focus on all the circumstances surrounding the OSI evidence and the facts of the case. When OSI evidence is admitted, a defendant is free to argue to the jury the evidence is not persuasive by pointing out the dissimilarities between the purported “similar” incident, and the incident presently being litigated.
In determining that there was no abuse of discretion in admitting this evidence, the Court stated the trial court properly looked at the circumstances surrounding the OSI evidence and that evidence was similar to what happened to plaintiff. Each witness drove a 1996 Camry with over 100,000 miles. Each witness testified that the Camry accelerated or maintained speed when his foot was removed from the gas pedal and the brakes were ineffective. Testimony from these three witnesses was very similar to testimony from the plaintiff. Additionally, an expert witness reviewed the OSI evidence and testified that he considered the three witnesses’ experiences to be similar to the plaintiff’s experience. The appellate court also approved of the trial court’s exercise of cautious discretion in limiting the OSI testimony to three witnesses.
There is a risk of admitting OSI evidence. As the Court noted, it can lead to a confusion of issues or be more prejudicial than useful. However, the trial court is in the best position to make sure that this does not occur. As long as the trial court does not abuse its discretion, the admittance of OSI evidence will be upheld.
“Dogs are not our whole life, but they make our lives whole.”
Animal-Welfare Advocate Roger Caras
(quoted by Court of Appeals Judge Lawrence E. Mooney)
I am an unabashed dog-person. Thus, a recent opinion out of Missouri’s Eastern District Court of Appeals, which entangled a dog’s adoption story with the law, immediately had me hooked.
Other than what I read in the Court’s opinion, I do not personally know Mack the Dog, nor the other dramatis personae in this case, and I am not here to provide commentary or an opinion on any of them. So I will limit my discussion to the Court’s legal analysis, and its potential implications for future cases.
If you are still reading, you likely are also a dog-person and/or would like to know more about the dog-gone contract at issue.
In Patterson v. Rough Road Rescue, Inc., the Court of Appeals affirmed a trial court’s decision to return a dog named Mack to, according to the Court, its rightful owner, plaintiff Patterson.
The trial court had found in favor of Plaintiff who made a claim for replevin, a civil remedy and “possessory action to obtain property that is in the defendant’s possession,” after Defendant Rough Road Rescue would not return the dog. Mack had previously been adopted from the rescue shelter by Patterson and had been picked up in town and returned to the shelter after wandering off from Plaintiff’s yard. To succeed on such a claim of replevin, a plaintiff must show:
- The plaintiff owned the property or was entitled to possess it;
- The defendant took possession of the property with the intent to exercise some control over it; and
- The defendant, by exercising such unauthorized control over the property, deprived the plaintiff of his right to possession.
On appeal, Defendants argued that the trial court erred in its decision because 1) the adoption was not governed by the UCC in that “the adoption was not a ‘sale’ and because they are not ‘sellers’ or ‘merchants’ as defined by the code, 2) the terms of the contract, under which Patterson adopted Mack, provide a reversionary interest in the dog permitting defendants to retake and retain the dog when the terms of the Animal Adoption Contract were breached, and 3) the $2500 bond posted, which was due to an individual defendant’s failure to comply with the trial court’s order to return Mack, was grossly excessive.
The Court of Appeals’ affirmation of the trial court’s decision, finding replevin was properly granted due to the adopter (Plaintiff) being the rightful owner, came after a de novo review of Plaintiff’s claim to possession of Mack based on Rough Road Rescue’s Animal Adoption Contract. Unlike the trial court, the Court of Appeals focused not on whether a dog was actually a “good” under the UCC and/or whether the adoption was a “sale” contemplated by the UCC, but rather on the interpretation of the Contract. Personally, as one who has always considered my dogs as family, I felt uneasy about the trial court’s label of the dog as a “good” and thought that there needed to be a discussion about that label and the law, but perhaps the Court wanted no dog in that fight, for now.
Plaintiff’s claim was based on the Contract; thus, the issue presented was of contract interpretation. “A cardinal principle of contract interpretation is to ascertain the intention of the parties and to give effect to that intent.” The Court honed in on five specific “conditions” set forth in the Contract. The first, third, and fourth addressed fairly standard conditions, setting a timeline for the adopted pet to be spayed/neutered, providing the adopted pet with humane care, and complying with all laws and ordinances applicable to the adopted pet where the adopter lives. The tenth was an additional, handwritten requirement that the adopter agreed to provide a fenced yard for the adopted pet by a certain date.
Where there is ambiguity within the four corners of a contract – i.e., the language used “is reasonably susceptible to two or more interpretations” - then the Court looks at such external factors as the relationship of the parties, circumstances of the execution of the contract and its subject matter, acts of the parties, and circumstances which may shed light on the intent of the parties. A court “construes the ambiguity and interpret the contract in the light most favorable to the party who did not draft the contract.”
In this case, the Court found at least some portions of the Contract ambiguous, largely within the language of the ninth condition, which stated:
9. Any noncompliance of this adoption contract by the above mentioned owner, may void this contract. And could immediately give a representative of Rough Road Rescue, Inc. the authority to take possession of said animal. (emphasis added)
Since the contract was drafted by Rough Road Rescue, the Court construed the contract, including the ninth provision above, against Rough Road Rescue and in favor of Plaintiff. Also, of note, is that Rough Road’s own personnel, who were involved in the drafting of the Contract, even disagreed about the meaning of many of its terms, such as adoption, providing further support of the Contract’s ambiguity.
The use of the words “may” and “could” were central to the Court’s analysis. In interpreting condition #9, the Court reasoned that “‘may’ and ‘could’ are conditional words as to what might occur, rather than what must result.” This repossession provision also clearly stated that the adopter was the owner, which implied that the adopter obtained ownership (full and exclusive rights), not just possession (which can be temporary and/or partial) of the adopted animal, therefore, the Court concluded that the Contract did in fact grant Plaintiff ownership of Mack and rejected what it found to be an unreasonable result if Rough Road Rescue was permitted to keep such a long leash on the potential repossession of Mack.
Lessons learned from this dog-gone contract? First, use assertive, mandatory language, such as “shall void” (not “may void”) and “must” (not “could”) if you want a stronger argument of a right to repossession of property. Second, make sure those who draft your contract are all in agreement with what those contractual terms mean (perhaps you want to get that agreement in writing too). Third, be cognizant and purposeful with the language that you use in your contracts, to avoid a “ruff” result.
"Slack Fill" Litigation under the Missouri Merchandising Practices Act: Save it for Summary JudgmentAugust 30, 2017 | Martha Charepoo
In two consecutive nearly identical opinions, a Missouri federal court ruling on food merchandisers’ motions to dismiss indicates that food labeling protections in Missouri strongly favor consumers, including in slack fill cases. (The term “slack fill” refers to the alleged use of over-sized packaging that could mislead a consumer into believing the package contains more product than is actually present.) In Bratton v. The Hershey Company and White v. Just Born, Inc., the Western District of Missouri refused to dismiss claims against candy manufacturers for selling under filled boxes of Reese’s Pieces and Whoppers (Hershey) and Hot Tamales and Mike and Ike’s (Just Born), thereby allowing both class actions to proceed to the discovery stage. Hershey and Just Born are among several food merchandisers that have recently found themselves in court over claims by consumers that they are being cheated by slack filling.
In both cases, the plaintiffs allege deceptive packaging in violation of the Missouri Merchandising Practices Act (MMPA), in that the candies they purchased came in opaque, rigid, cardboard boxes containing slack-filled space, making plaintiffs think that they were a better value than smaller packages. The plaintiffs argue that consumers spend an average of 13 seconds making purchasing decisions, and that such a decision is heavily based on the product’s packaging. The lawsuits allege that between 29 to 41 percent of the candy boxes are empty, but nothing prevents the candy companies from reducing the box size or adding more candy. The plaintiffs also contend that slack-filled space serves no practical purpose and that they would not have purchased the products or would have paid less for them had they known the boxes were under filled. The plaintiffs seek “benefit of the bargain” damages, measured by the difference between the actual value of the products versus their value as represented.
In each case, the candy company asked the court to dismiss the plaintiff’s MMPA claim, arguing that these allegations are not enough to show that they violated the MMPA or that the plaintiff suffered an “ascertainable loss”, as required by the statute. The candy companies contended that a reasonable consumer would readily realize the candy boxes are not filled to the top because their contents “audibly rattle.” The candy companies also said that it is common knowledge that most packaged goods contain some empty space, which is “necessary for efficient manufacturing and distribution.” The candy companies argued that consumers are not misled because information about the net weight of the contents, the number of pieces of candy per serving, and the number of servings in the box are clearly listed on the box.
These arguments did not persuade the court that the cases were subject to immediate dismissal. The court stated that whether a reasonable consumer would notice rattling in the 13 seconds it typically takes to make a purchase, and then be able to determine the amount of slack fill, are questions of fact that cannot be resolved before there has been fact discovery on these issues. In both opinions the court relied on the Missouri Court of Appeals decision in Murphy v. Stonewall Kitchen, LLC (see prior post) involving muffin mix labeled as “all natural” while disclosing in the ingredient list that it contained sodium acid pyrophosphate. There, the Missouri Court of Appeals said a reasonable consumer would expect the ingredient list to comport with the packaging. The court stated that the same reasoning could apply in both of these cases. Thus, the court decided that it cannot conclude at this stage of the litigation that the packaging is not misleading.
The message of these decisions is that reasonableness under the MMPA is an issue of fact that should be saved for summary judgment or trial.
In Caplinger v. Rahman, the Missouri Court of Appeals for the Southern District of Missouri reversed and remanded the trial court’s dismissal without prejudice of plaintiff’s medical malpractice action based upon its holding that plaintiff’s R.S.Mo. § 538.225 affidavit was insufficient.
The statute requires that, in a medical malpractice action, a plaintiff or plaintiff’s attorney file an affidavit stating that he or she has obtained the written opinion of a “legally qualified health care provider” who opines that the defendant failed to use such care that a reasonably prudent healthcare provider would have used under similar circumstances and that such failure caused or contributed to plaintiff’s damages. A “legally qualified health care provider” is one who is licensed in the same profession as the defendant and is either actively practicing, or is within five years of retirement from actively practicing, “substantially the same specialty as defendant.”
A defendant may challenge the plaintiff’s affidavit by requesting that the court conduct an in camera inspection of the written opinion. If the court determines that the written opinion does not meet the requirements of R.S.Mo. § 538.225, then the court shall conduct a probable cause hearing to determine whether there exists at least one competent health care professional to testify that plaintiff was injured due to defendant’s alleged medical negligence. If the court fails to find probable cause, plaintiff’s petition shall be dismissed.
In Caplinger, the defendant applied a biologic bone-growth stimulant during spinal surgery, which plaintiff alleged caused exacerbated bone growth, complications, and which was done in a non-approved manner and without plaintiff’s informed consent. Plaintiff’s counsel filed a § 538.225 affidavit, stating that he had obtained the written opinion of a Board Certified physician in General Surgery, who actively practices laparoscopic, general, and weight loss surgery.
The trial court’s in camera inspection left it unpersuaded that the physician practiced the same specialty or had the requisite experience to stand as a “legally qualified health care provider.” At the subsequent probable cause hearing, plaintiff provided the trial court with the additional testimony of a practicing neurosurgeon, who opined that defendant violated the standard of care and caused plaintiff’s injury. Plaintiff represented that this neurosurgeon would so testify at trial. But the trial court dismissed plaintiff’s petition on grounds that the first physician was not a legally qualified health care provider, and ruled that an expert identified and found qualified at a probable cause hearing must be the same person(s) identified in plaintiff’s § 538.225 affidavit.
On review, the Missouri Court of Appeals for the Southern District agreed that the first physician did not practice substantially the same specialty as defendant, but held that the probable cause hearing remedy provided for in Section 7 of R.S.Mo. § 538.225 was meant to allow a plaintiff to cure deficiencies in his affidavit, through subsequent testimony. The Court reasoned that every provision of a statute must be given some meaning, and if Section 6 (requiring dismissal without prejudice for the failure to file an affidavit containing the information mandated by Sections 1-5) were the end of the analysis, there would be no purpose for Section 7 (providing for a probable cause hearing if the court finds the affidavit to be insufficient).
Reversing the Greene County Circuit Court’s dismissal, the Court of Appeals held that the first physician’s failure to qualify as a “legally qualified health care provider” was not fatal to plaintiff’s case, where a fully qualified second physician testified at the probable cause hearing that defendant failed to exercise the appropriate level of care. The Court of Appeals also expressly rejected the trial court’s finding that at least one of the health care professionals who testifies at a probable cause hearing must be the same person previously identified in plaintiff’s R.S.Mo. § 538.225 health care affidavit.
Earlier this month, the Eighth Circuit Court of Appeals overturned the lower court’s decision in a case that involved a dispute over whether the Railroad Retirement Tax Act (RRTA) requires a railroad to pay taxes upon issuing stock as compensation to employees.
In an opinion mirroring, and even explicitly referencing, the textualist sentiment of Justice Gorsuch’s opinion in Hensen v. Santander, the Eight Circuit addressed the parties’ respective positions as to what the words “money” and “compensation” mean in the context of the RRTA. While the federal government argued that “money” has a broad and sometimes intangible meaning, Union Pacific maintained that “money” must refer to a “medium of exchange” – i.e., something tangible and of value that may be given in exchange for goods or services. The Eighth Circuit found Union Pacific’s reading of the text to be more compelling than the government’s.
In its discussion, the Court further distinguished the RRTA from FICA, which includes a more all-encompassing definition for compensation subject to taxation. The Court explained that, since the RRTA and FICA’s predecessor were drafted during the same time period, any difference or distinction between each law’s definition of compensation must have been intentional.
It is certainly worth noting that the Eighth Circuit referenced and rejected a recent holding by the Seventh Circuit in Wisconsin Cent Holding v. United States that stock may be considered “money remuneration” that is tantamount to cash, reasoning that “one cannot pay for produce at the local grocery store with stock.”
The Eighth Circuit also reversed the lower court’s decision concerning ratification payments made pursuant to a union’s collective bargaining agreements, because those payments were not made pursuant to “employment” of the individual by Union Pacific.
With that, the Eighth Circuit completely reversed the summary judgment rulings previously entered in favor of the United States and against Union Pacific, thus entitling Union Pacific to a $75 million refund for taxes paid over the course of 10 years on stock compensation and ratification payments.
The full text of the Eight Circuit’s opinion is available here.
U.S. Supreme Court Says it Again: Arbitration Agreements Should be Honored, and Not Singled Out for Negative Treatment by State CourtsAugust 10, 2017 | David Eisenberg
For years, the U.S. Supreme Court has made two fundamental principles crystal-clear:
- Under the Federal Arbitration Act, arbitration agreements are “valid, irrevocable, and enforceable”, except where grounds exist that could invalidate any type of contract (such as fraud, duress, or lack of consideration).
- As explained by the Supreme Court in its 2011 landmark Concepcion decision, though a court may invalidate an arbitration agreement based on “generally applicable contract defenses,” it may not do so based on legal rules that “apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue.” The FAA thus preempts any state rule that discriminates on its face against arbitration or that covertly accomplishes the same objective by disfavoring contracts that have the defining features of arbitration agreements. Arbitration agreements must stand on an “equal footing” with other contracts.
Unfortunately, some state courts have failed to get the message. And the Supreme Court’s recent 7-1 decision in Kindred Nursing Centers L.P. v Clark, 137 S. Ct. 1421 (2017),forcefully drives home the point that contrived state court attempts to explain why a rule is not impermissibly targeted at arbitration agreements will be viewed dimly
In Kindred, the Kentucky Supreme Court adopted a “clear statement” rule, under which a general power of attorney that was otherwise valid to authorize the execution of contracts in general, would not validly authorize execution of an arbitration agreement unless the power of attorney expressly addressed that topic. Thus, when family members holding a power of attorney agreed to arbitrate claims regarding the care of their loved ones in a Kindred nursing home, the arbitration agreement was deemed invalid, because the family members’ power of attorney did not “clearly state” that they had the power to waive the right to a jury trial. The state court opined that “the divine God-given right” to a jury trial could not be contractually waived, absent “an explicit statement before an attorney-in fact” that could “relinquish that right on another’s behalf.”
Justice Kagan, writing pointedly for the 7-member majority, would have none of that. She wrote that beyond the FAA “prohibiting outright the arbitration of a particular type of claim”, the law likewise prohibits “any rule that covertly accomplishes the same objective by disfavoring contracts that (oh so coincidentally) have the defining features of an arbitration agreement.” To the Kentucky court’s suggestion that its rule “could also apply when an agent endeavored to waive other ‘fundamental constitutional rights held by a principal’,” the Court responded: “But what other rights, really? No Kentucky court, so far as we know, has ever before demanded that a power of attorney explicitly confer authority to enter into contracts implicating constitutional guarantees.” Justice Kagan further noted the absence in Kentucky law of explicit authorization requirements as to settlement agreements or consents to a bench trial, both of which relinquish the right to a jury trial.
The Court further rebuffed Plaintiffs’ argument that the FAA applied only to contract enforcement, and not to contract formation, which was at issue in this case, emphasizing that:
- This argument was squarely contrary to the FAA’s text and case law; and
- “Adopting the respondents’ view would make it trivially easy for States to undermine the Act—indeed, to wholly defeat it. As the respondents have acknowledged, their reasoning would allow States to pronounce any attorney-in-fact incapable of signing an arbitration agreement—even if a power of attorney specifically authorized her to do so. . . . (After all, such a rule would speak to only the contract’s formation.) And why stop there? If the respondents were right, States could just as easily declare everyone incompetent to sign arbitration agreements. (That rule too would address only formation.) The FAA would then mean nothing at all—its provisions rendered helpless to prevent even the most blatant discrimination against arbitration.”
The Supreme Court’s message in support of the enforceability of arbitration agreements seems unmistakable. But a number of states’ courts (including Missouri, California, and others), while routinely accepting arbitration agreements governing commercial disputes, still seem to bristle at enforcing arbitration agreements between consumers and manufacturers or retailers; or between employees and their employer. State courts that look for reasons not to place all arbitration agreements on an “equal footing” with other contracts in general, do so at their peril.
Is It Necessary for an Expert Opinion to Take Into Account Obvious Alternative Explanations for an Injury? Eighth Circuit Weighs In.August 7, 2017 | Leigh Ann Massey
In Redd v. DePuy Orthopaedics, Inc., the Eighth Circuit Court of Appeals has reminded litigators of the importance of ensuring expert witnesses perform a thorough review of a matter, including apparent alternative causal explanations, prior to issuing their opinions.
Plaintiff retained a professor of metallurgy and materials science, Dr. Shankar Sastry, to testify as to the cause of the fracture. In preparing his expert report, Dr. Sastry failed to review records related to the manufacturing process of the hip implant and disregarded consideration of biomechanical factors that could have resulted in failure of the prosthesis. Dr. Sastry concluded that it was the physical state of the implant’s metal that caused the fracture. He further concluded that any individual environmental or biomechanical factors would have been a secondary cause of the fracture.
In granting DePuy’s motion to exclude Dr. Sastry’s testimony, the US District Court for the Eastern District of Missouri concluded that Dr. Sastry lacked a scientific or factual basis to conclude that there was a manufacturing defect or to opine on causation, and that he failed to consider the necessary issues of the forces that were exerted on the implant as it was placed in Redd’s hip. Following exclusion of Dr. Sastry’s testimony, Redd lacked expert testimony on defect or causation and DePuy’s motion for summary judgment was granted.
On appeal, the Eighth Circuit reviewed the district court’s exclusion of Dr. Sastry’s testimony, the propriety of which is governed by Rule 702 and the Daubert standard. Plaintiff argued that the district court erred by requiring Dr. Sastry to exclude other potential causes of the fracture. The Eighth Circuit concluded that, while an expert is not required to rule out all possible causes of an injury, he or she nonetheless should adequately account for obvious alternative explanations. Dr. Sastry did not consider the obvious alternative explanation for the fracture—failure of the hip stem to grow into the patient’s upper hip bone and subsequent failure to properly distribute her weight—which was a known possibility at the time of Redd’s surgery given her risk factors. Because Dr. Sastry failed to consider the individual biomechanical forces placed on the prosthesis in issuing his report, the district court’s decision to exclude the causation testimony was affirmed.
The opinion may be found here.
For more on Missouri’s recent adoption of the expert witness standard set forth in Federal Rules of Evidence 702 and Daubert, see The Daubert Standard – Coming Soon to a Missouri Court Near You.
In an effort to afford consumers with greater accessibility to the courtroom, the Consumer Financial Protection Bureau (the “CFPB”) has enacted a new rule that, while it does not ban arbitration clauses outright, does substantially limit a financial institution’s right to mandatory arbitration provisions. Specifically, the new rule prohibits financial institutions and consumers from contracting to waive the consumer’s right to join in class action lawsuits with other consumers against that entity.
The arbitration rule was preceded by a CFPB study, spanning several years, of the prevalence and impact of arbitration clauses in consumer financial contracts. One of the chief concerns of the CFPB is the plain ignorance of consumers with respect to arbitration clauses contained within consumer contracts. According to the study, more than half of credit card and checking account agreements contain mandatory arbitration provisions. Yet, 3 out of 4 of consumers who entered into agreements with such arbitration clauses were not aware that they had done so.
CFPB Director Richard Cordray, in his public statement regarding the new rule, further justified the rule on the basis that class action lawsuits are more effective in curbing unsavory lending and servicing practices than arbitration, as the penalties and damages imposed in class action litigation vastly exceed those assessed in arbitration.
In addition to restricting arbitration provisions, the new rule requires financial institutions to report the results of arbitration to the Bureau so that the results may be assessed for fairness and effectiveness. It is important to note that the rule only applies to new contracts between consumers and financial institutions, and not those already in effect.
Predictably, commentators and critics have already observed that the new arbitration rule truly stands to benefit the plaintiff’s class action bar, rather than the consumers being represented in class action litigation. Some also view the arbitration rule as an unjust infringement of the freedom to contract with no rational basis under the law. Legal challenges to the new arbitration rule in the coming months are unquestionably imminent. The new arbitration rule may be found here.
"Jurisdictional Discovery" Is Not a Magical Incantation to Ward Off Timely Dismissal of a Case Filed in the Wrong ForumJuly 14, 2017 | Angela Higgins
In the wake of Bristol-Myers-Squibb and other game-changing personal jurisdiction decisions from the U.S. Supreme Court and the Missouri courts this year, plaintiffs are chanting “jurisdictional discovery” as if it is a magical incantation to ward off the timely and necessary dismissal of claims improperly filed in the wrong forum. Few if any could even identify what information they believe they could obtain through such discovery that would save their doomed cases, and the courts should curtail the needless, expensive, and harassing discovery proposed by forum shoppers who should never have gained access to the forum in the first place.
Limited jurisdictional discovery” seems so enticing to judges, as if it is fair or proper to allow forum-shopping plaintiffs to continue to subject non-resident defendants to the burden and expense of discovery in the wrong forum. The “primary concern” in assessing personal jurisdiction, however, is “the burden on the defendant.” Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773, 198 L.Ed.2d 395, 403 (2017). Subjecting a non-resident defendant to futile discovery in a case filed in the wrong forum simply prolongs the burden on the defendant in a case in which the forum state lacks authority to act. Definitive rulings in BMS, BNSF v. Tyrrell, and Dolan should not permit months of pointless discovery in cases that must, under the law, be dismissed for lack of personal jurisdiction.
I. PLEADING JURISDICTION IS PLAINTIFF’S BURDEN, AND JURISDICTIONAL DISCOVERY IS UNNECESSARY IF ADEQUATE FACTS (NOT CONCLUSIONS) SUPPORTING JURISDICTION HAVE BEEN PLED
As an initial matter, it is plaintiff’s burden to plead personal jurisdiction. Conway v. Royalite Plastics, Ltd., 12 S.W.3d 314, 318 (Mo. banc 2000); Dever v. Hentzen Coatings, Inc., 380 F.3d 1070, 1072 (8th Cir. 2004). In many instances, jurisdictional allegations in these cases are entirely lacking in any facts, whether pled with knowledge or upon information and belief, that would establish personal jurisdiction under the applicable legal standards, and these complaints and petitions are therefore subject to dismissal on the pleadings, without conducting any discovery.
A plaintiff who has failed to meet her pleading burden should certainly not be granted permission to conduct discovery, as she has not properly invoked the jurisdiction of the court. “In order to be entitled to discovery, plaintiff is required to have alleged facts in the petition which, if true, establish jurisdiction.” Mello v. Giliberto, 73 S.W.3d 669, 674 (Mo. App. E.D. 2002). “In the absence of such alleged facts, plaintiff is not entitled to discovery.” Id. Legal conclusions are not sufficient, actual facts are required. Id.
Furthermore, under Fed. R. Civ. P. 11 and the Missouri equivalent, Mo. R. Civ. P. 55.03, a plaintiff must have a factual basis, formed after reasonable inquiry, for all allegations in the complaint or petition, including her jurisdictional allegations. The allegations are required to have “evidentiary support,” or to be specifically identified as being made upon information and belief. See Fed. R. Civ. P. 11(b)(3); Mo. R. Civ. P. 55.03(c)(3). Moreover, the attorney is certifying that the claims “and other legal contentions” (including contentions as to the existence of personal jurisdiction) are warranted by existing law or a non-frivolous argument for the modification of existing law. Fed. R. Civ. P. 11(b)(2); Mo. R. Civ. P. 55.03(c)(2).
From the outset, then, a plaintiff who suggests the need to conduct “jurisdictional discovery” is generally admitting either that she failed to plead sufficient jurisdictional facts (in which case she is not entitled to discovery) or that she lacked a basis for making such allegations in the complaint or petition, in which case she has violated Rule 11. Plaintiffs should not be caught flat-footed and at a loss to defend their choice of forum, they should have had sufficient grounds to withstand a motion to dismiss for lack of jurisdiction before the petition or complaint was filed. Other jurisdictions have recognized this:
Complaints should not be filed in matters where plaintiffs intend to find out in discovery whether or not, and against whom, they have a cause of action. Absent exigent circumstances, plaintiffs’ counsel should not file a complaint until sufficient information is obtained, and plaintiffs’ counsel believes in good faith that each plaintiff has an appropriate cause of action to assert against a defendant in the jurisdiction where the complaint is to be filed. To do otherwise is an abuse of the system, and is sanctionable.
Harold’s Auto Parts, Inc. v. Mangialardi, 889 So.2d 493, 494 (Miss. 2004) (emphasis original).
A plaintiff does not need jurisdictional discovery if she has alleged sufficient facts, even upon information and belief, that, if true, would be sufficient to establish the jurisdiction of the trial court to proceed. See State ex rel. Deere & Co. v. Pinnell, 454 S.W.2d 889, 893 (Mo. 1970). In virtually every case, to establish personal jurisdiction a plaintiff must allege the occurrence of specific conduct by the defendant within the forum state that gives rise to the plaintiff’s cause of action. As discussed more fully below, it would be rare for the plaintiff to be unable to allege such conduct, even upon information and belief, if there were a good-faith basis under the established law to support personal jurisdiction. In actuality, plaintiffs seeking “jurisdictional discovery” are generally seeking to buy time to concoct a plausible theory for jurisdiction, or to leverage settlement.
This highlights the murky legal justification for “jurisdictional discovery” – if there are sufficient factual allegations that, if true, would establish jurisdiction, then a motion to dismiss must be denied, as there is no need for plaintiff to adduce evidence to meet her pleading burden. “[T]his court is limited to deciding whether the pleadings are sufficient to survive the motion to dismiss.” Hollinger v. Sifers, 122 S.W.3d 112, 115 (Mo. App. W.D. 2003). If, on the other hand, plaintiff has failed to plead sufficient factual allegations to establish personal jurisdiction, she has failed to meet her pleading burden and is not entitled to discovery. See Mello, 73 S.W.3d at 674. Discovery is not a panacea to cure pleading defects, particularly not where a party is expressly permitted to plead upon information and belief.
II. THE BASIS, IF ANY, FOR CONTACT-BASED SPECIFIC PERSONAL JURISDICTION IS ALMOST ALWAYS WITHIN THE KNOWLEDGE OF PLAINTIFF
In nearly all circumstances, personal jurisdiction must be founded upon some conduct by the defendant within the forum state that gave rise to the plaintiff’s cause of action. The exercise of personal jurisdiction over non-residents is called “long-arm” jurisdiction. The Missouri courts’ authority to exercise long-arm jurisdiction is constrained by the Missouri statutes and the U.S. Constitution. Missouri’s long-arm statute expressly affords contact-based specific jurisdiction over the person of non-resident defendants. See Shouse v. RFB Const. Co., Inc., 10 S.W.3d 189, 193 (Mo. App. W.D. 1999). Specific jurisdiction is called “contact-based” because such jurisdiction only exists for a cause of action “arising from” certain specified conduct by the defendant within the forum state. See Mo. Rev. Stat. § 506.500.1. “In order for a court to exercise specific jurisdiction over a claim, there must be an ‘affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State.’” Bristol-Myers Squibb, 198 L.Ed.2d at 404. “For specific jurisdiction, a defendant’s general connections with the forum are not enough. As we have said, ‘[a] corporation’s ‘continuous activity of some sorts within a state . . . is not enough to support the demand that the corporation be amenable to suits unrelated to that activity.’” Id.
Missouri’s long-arm jurisdiction statute provides:
Any person or firm, whether or not a citizen or resident of this state, or any corporation, who in person or through an agent does any of the acts enumerated in this section, thereby submits such person, firm, or corporation, and, if an individual, his personal representative, to the jurisdiction of the courts of this state as to any cause of action arising from the doing of any of such acts:
(1) The transaction of any business within this state;
(2) The making of any contract within this state;
(3) The commission of a tortious act within this state;
. . . .
Mo. Rev. Stat. § 506.500.1 (emphasis added). The three types of conduct listed here are the most common bases for asserting specific jurisdiction against a non-resident defendant.
When plaintiffs press for “jurisdictional discovery,” they should be required to identify specifically what information they seek that would tend to establish one of these bases for the exercise of specific personal jurisdiction. Moreover, plaintiffs should be required to plausibly establish that this information would be uniquely within the knowledge of the defendant – not public information, and not already known to the plaintiff. Otherwise, there is no need for the non-resident defendant to be subjected to the burden and expense of formal discovery.
The long-arm statute’s grant of personal jurisdiction based upon the “transaction of any business within the state” is intended to confer jurisdiction over nonresidents “who enter into various kinds of transactions with residents of Missouri.” Capitol Indemn. Corp. v. Citizens National Bank of Fort Scott, N.A., 8 S.W.3d 893, 904 (Mo. App. W.D. 2000) (emphasis added). That transaction must be “the transaction sued upon.” Id. (emphasis added). It is difficult to imagine how plaintiff would be unable, after reasonable inquiry prior to filing her complaint or petition, to identify the Missouri resident with whom the non-resident defendant was doing business in a transaction out of which the plaintiff’s own claim arises. If plaintiff has a theory of how the defendant engaged in wrongful conduct, she must have enough information to plausibly allege facts identifying the Missouri business partner with whom the defendant was engaging in such conduct.
Similarly, for the Court to exercise jurisdiction of the non-residents because of their contracting in the State of Missouri, plaintiff’s claims against the non-residents must arise out of a contract that was entered into in the State of Missouri. See Mo. Rev. Stat. § 506.500.1(2). The plaintiff’s claim must arise out of that specific contract. How can plaintiff not know enough to identity the contract, and the Missouri contracting party, if she alleges she was damaged as a direct result of the contract?
In order to rely upon the “tortious act” provision of the long-arm statute, a plaintiff is required to show that the non-resident defendant committed a tort in Missouri and that this specific tortious conduct caused the plaintiff’s injuries. Hollinger v. Sifers, 122 S.W.3d 112, 116 (Mo. App. W.D. 2003). To invoke personal jurisdiction under the “tortious conduct” prong of the Missouri long-arm statute, then, plaintiff is alleging that she was directly injured as a result of tortious conduct by the defendant within the forum state. Plaintiff knows where she was prescribed the medication. She knows where her treating physician is located. She knows where she purchased the product at issue. If the defendant has a manufacturing plant within the state, plaintiff can meet her pleading burden by alleging, even upon information and belief, that the product was defectively manufactured at that plant. Given the standards of Rule 11 and Missouri Rule 55.03, how can plaintiff be unable to allege, even upon information and belief, what allegedly wrongful conduct by the defendant occurred in Missouri? How could she, or her counsel, have conducted a minimally sufficient inquiry under Rule 11 or Missouri Rule 55.03 into the claim before filing it and not have some basis to allege facts identifying tortious conduct by the defendant within the forum state?
It is difficult to conceive of a circumstance in which a plaintiff would legitimately need “jurisdictional discovery” to establish contact-based specific personal jurisdiction, because her cause of action arises out of the defendant’s conduct within the forum state and should be known to plaintiff. Plaintiffs attempt to cloud these issues in an aura of mystery, when in fact there is rarely anything mysterious to the person who alleges that she was harmed by the conduct about where the conduct occurred.
In fact, in actual practice “jurisdictional discovery” is nearly always a fishing expedition directed at discovering corporate organization, sales, employees, office locations, and other matters that relate to general jurisdiction. As general jurisdiction almost never applies, discovery on these issues is rarely appropriate, and, therefore, “jurisdictional discovery” is rarely appropriate. At a minimum, under the Dolan and BMS tests, a plaintiff seeking such discovery should be required to identify whether she seeks to establish specific or general personal jurisdiction, and what colorable basis she has to believe that discovery would reveal facts that would establish one of these ground for personal jurisdiction.
III. GENERAL JURISDICTION IS EXCEPTIONALLY LIMITED AND RARELY APPLICABLE
As to individuals, “general jurisdiction” applies only to the state in which the individual is domiciled. Daimler AG v. Bauman, 134 S. Ct. 746, 760 (2014). Accordingly, allegations of general jurisdiction over non-resident individual defendants (often employees or other representatives of corporate defendants) are utterly frivolous under settled law.
“A court normally can exercise general jurisdiction over a corporation only when the corporation’s place of incorporation or its principal place of business is in the forum state.” State ex rel. Norfolk S. Ry. v. Dolan, 512 S.W.3d 41, 46 (Mo. banc 2017); Daimler, 134 S. Ct. at 760 & 761 n.19; see BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549, 1554 (May 30, 2017). The U.S. Supreme Court just this term again held that the mere fact that a defendant conducts in-state business is not sufficient to permit the exercise of general jurisdiction over claims that are unrelated to the forum state. See Tyrrell, 137 S. Ct. 1549. Of course, Bristol-Myers-Squibb (
Only an “exceptional case” will escape this rule. Daimler, 134 S. Ct. at 760 & 761 n.19. This is where the corporate is “essentially at home” in a state where it is not incorporated and does not have a principal place of business. See id. To be a “home state,” the forum state must be a “nerve-center” of activities of the company. Dolan, 512 S.W.3d. at 48. Initially, it is difficult to imagine how a forum state could be a “nerve center” of a business and not be the business’s principal place of business, unless perhaps the business is a foreign-based company with a substantial U.S. presence in a particular state. At a minimum, “nerve center” suggests that something close to the majority of the business’s activities within the U.S. must occur within the forum state.
An allegation of “substantial, continuous and systematic contacts” with the forum state is facially insufficient to plead general jurisdiction.
The Supreme Court observed that finding a corporation at home wherever it does business would destroy the distinction between general and specific jurisdiction, for “[a] corporation that operates in many places can scarcely be deemed at home in all of them. Otherwise, ‘at home’ would be synonymous with ‘doing business’ tests framed before specific jurisdiction evolved in the United States.” Id. For this reason, when “a corporation is neither incorporated nor maintains its principal place of business in a state, mere contacts, no matter how ‘systematic and continuous,’ are extraordinarily unlikely to add up to an ‘exceptional case.’” Brown, 814 F.3d. at 629.
Dolan, 512 S.W.3d at 48 (emphasis added); see also Tyrrell, Slip Op. at 11.
Many of the reported cases show that the courts often accept, uncritically, incantations of the magic of “jurisdictional discovery.” “Discovery is often necessary because jurisdictional requirements rest on facts that can be disputed, for instance, the domicile of the parties.” Pudlowski v. St. Louis Rams, LLC, 829 F.3d 963, 964-65 (8th Cir. 2016). As to corporate defendants, it seems unlikely that there would be any legitimate factual dispute about domicile, however – the company’s state of incorporation is a matter of public record, and corporate registration records generally also reflect the company’s principal place of business, and a corporate defendant sophisticated enough to have multiple options for domicile will usually have a web presence identifying its headquarters. Courts that are authorizing jurisdictional discovery should take seriously their obligations to enforce Rule 11 or its local equivalent, and to the extent that any discovery is permitted, limit it to facts that are plausibly in dispute and that can only be proven through discovery of the defendant.
For a defendant that has raised an objection to the court’s personal jurisdiction, there are considerable expenses and burdens associated with discovery in a forum in which the action is, in all likelihood, improperly filed. A plaintiff seeking such discovery should be required to articulate what jurisdictional facts are “in dispute” before discovery can be permitted. Texas, at least nominally, applies this standard:
[A]ppellant’s counsel told the trial court, “I can’t plead specific facts until I have the facts. I can only get the facts through discovery.” However, appellant was required to provide the court with a colorable basis or reason to believe that discovery would reveal sufficient minimum contacts. Barron v. Vanier, 190 S.W.3d 841, 849-50 (Tex. App.—Fort Worth 2006, no pet.); Haferkamp v. Grunstein, No. 11-10-00194-CV, 2012 Tex. App. LEXIS 3706, at *25 (11th App. May 10, 2012).
For example, if the defendant has stated, by reference to public filings or by affidavit, that it maintains no offices within the state, then surely plaintiff must be required to make a non-frivolous showing that discovery would disprove this fact. It cannot be enough that defendant alleges or affirms that “x” is a fact, and plaintiff is permitted to engage in discovery merely to “ask about x” – the relevant, quite permissive standard set out by the Eighth Circuit still requires that the fact be subject to dispute, and, moreover, it must be subject to dispute under the Rule 11 standard. Courts that do police these standards recognize that a plaintiff seeking “jurisdictional discovery” should be required to identify what facts she seeks to establish in discovery, and some colorable basis to believe that such facts do exist.
IV. DEPOSING AFFIANTS IS RARELY WARRANTED
In some cases, particularly with respect to allegations of general jurisdiction, a defendant may supply an affidavit from a corporate representative regarding quantification of the defendant’s business within or other contacts with the forum state. This, predictably, triggers a plaintiff’s request to depose the affiant. These depositions are generally improper under Rule 11 and Missouri Rule 55.03, are usually futile, and tend to harass the defendant rather than provide plaintiff with any useful information to save her case.
Initially, a motion to dismiss for lack of personal jurisdiction may be decided upon affidavits supplied by the defendant. In ruling on a motion to dismiss for lack of personal jurisdiction, a trial court may consider affidavits. Chromalloy American v. Elyria Found, 955 S.W.2d 1, 3 n.3 (Mo. banc 1997); Mello, 73 S.W.3d at 674. “[T]he motion is not addressed to the merits of the underlying action, but only to the limited question of personal jurisdiction.” Mello, 73 S.W.3d at 674. An affidavit is not a self-serving attempt by a defendant to gain an unfair advantage, it is a valid procedural tool to support a motion to dismiss for lack of personal jurisdiction, and courts should not reflexively permit depositions of affiants without good cause to disbelieve the sworn testimony contained in the affidavit. This is particularly true where jurisdiction is in question, because the court is obligated to ensure that the defendant’s due process rights to be subject to only lawful authority are safeguarded and that any encroachment upon such rights is as minimally invasive as necessary to resolve a legitimate factual dispute as to jurisdiction.
Defendants supplying affidavits in support of a motion to dismiss for lack of general personal jurisdiction are often in an untenable, Catch-22 situation. Usually, plaintiff has failed to meet her pleading burden under the Daimler, BMS, and/or Dolan standards. She should not be permitted to even conduct jurisdictional discovery. Plaintiff is required to plead facts establishing that the defendant is incorporated in the forum state, has its principal place of business there, or is “essentially at home” in the forum. It is plaintiff’s burden to plead jurisdiction, not defendant’s burden to offer evidence to disprove jurisdiction. However, the case law entertains this “quantum of business in the forum state” mathematical analysis that invites defendants to submit affidavits to disprove general jurisdiction. And the supplying of such affidavits should be legally sufficient – a motion to dismiss may be decided upon affidavits.
But plaintiffs will seemingly always assert a supposed need to depose the affiant. Such depositions are improper and usually intended to harass and inconvenience the defendant. Plaintiffs, who have failed to meet their burden to plead jurisdiction, are suggesting that non-resident corporate defendants would lie in an affidavit regarding jurisdictional facts, and courts are indulging plaintiffs in this absurd and offensive innuendo. A plaintiff confronted with an affidavit from a corporation with an international presence, stating that its sales in Missouri comprise a single-digit share of its overall revenues, should not be permitted to subject the non-resident defendant to “jurisdictional discovery” without a colorable basis to dispute the affidavit as being a lie.
V. A MOTION OR MOTION RESPONSE SEEKING JURISDICTIONAL DISCOVERY IS SUBJECT TO RULE 11
Rule 11 provides that, by signing any pleading or motion or other paper presented to the court, an attorney “certifies” that “it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation.” Fed. R. Civ. P. 11(b)(1). The Missouri rule is functionally identical, though by its terms more stringent even than the federal rule in encompassing “any argument” within the matters presented to the court that are certified not to be for any improper purpose. Mo. R. Civ. P. 55.03(c)(1).
It is impermissible for a plaintiff to file a motion or motion response seeking “jurisdictional discovery” as a means of treading water and keeping the case alive, where plaintiff’s position is not supported by evidentiary facts or justification under existing law. Where the highest courts have just, within the last few months, spoken on jurisdictional issues, it is difficult to imagine how a party could make a good-faith, non-frivolous argument to change the law on jurisdiction.
Under existing Missouri law, there are no meaningful requirements for a time-limited settlement demand from the claimant sufficient to form the basis of a claim for bad faith refusal to settle. The new legislation enacts evidentiary rules that exclude evidence of a time-limited demand in a bad faith case, unless the demand meets the requirements of the statute. A demand that does not meet these requirements “shall not be considered as a reasonable opportunity to settle for the insurer” and “shall not be admissible” in any lawsuit seeking extracontractual damages.
Most significantly, the amendments to § 537.065 now bar an insured from entering into an agreement with the claimant unless the tortfeasor’s insurer has the opportunity to defend without a reservation of rights, but refuses to do so. Our read of the statute is that, if the insured wishes to refuse a defense offered under reservation, the insured must give the insurer an opportunity to withdraw its reservation and defend without reservation.
The amendments to § 537.065 now require that, where the insured tortfeasor has entered into a § 537.065 agreement with the injured claimant, no judgment may be entered against the insured before the tortfeasor’s liability insurer has been provided with written notice of the execution of the agreement, and at least 30 days have lapsed after the insurer’s receipt of such notice.
Insurers shall have 30 days after receipt of a notice that the insured has entered into a § 537.065 agreement to intervene in the underlying lawsuit. The insurer is entitled to intervene as a matter of right, not permissively at the discretion of the court.
Regardless of how the parties denominate their agreement, if it has the effect of a covenant not to execute against the insured, it will be treated as an agreement under the amended statute.
“‘Retroactive’ or ‘retrospective’ laws are generally defined, from a legal viewpoint, as those which take away or impair vested rights acquired under existing laws, or create a new obligation, impose a new duty, or attach a new disability in respect to transactions or considerations already past.” State ex rel. Clay Equip. Corp. v. Jensen, 363 S.W.2d 666, 668 (Mo. 1963). “We have many times held that a statute is not retrospective in its operation within the constitutional prohibition, unless it impairs a vested right. . . . Nor is an act retrospective if it but substitutes a remedy or provides a new remedy.” Id. at 669.
Rules of evidence are not deemed to be “vested,” substantive rights in Missouri. “A right to have one’s controversies determined by existing rules of evidence is not a vested right.” O’Bryan v. Allen, 108 Mo. 227, 232, 18 S.W. 892, 893 (1891). In O’Bryan, the Missouri Supreme Court held that rules of evidence “pertain to the remedies which the state provides for its citizens” and “they neither enter into and constitute a part of any contract, nor can be regarded as being of the essence of any right which a party may seek to enforce.” Id.
Like other rules affecting the remedy, they must, therefore, at all times be subject to modification and control by the legislature; and the changes which are enacted may lawfully be made applicable to existing causes of action even in those states in which retrospective laws are forbidden; for the law as changed would only prescribe rules for presenting the evidence in legal controversies in the future, and it could not, therefore, be called retrospective even though some of the controversies upon which it may act were in progress before.
O’Bryan, 108 Mo. at 232, 18 S.W. at 893.
The legislature has a clear and constitutional right to enact evidentiary statutes. St. Louis v. Cook, 359 Mo. 270, 274, 221 S.W.2d 468, 469 (1949). The Missouri Supreme Court in Jensen specifically held that evidentiary and procedural statutes apply to all actions within their scope, “whether commenced before or after the enactment, that is, unless a contrary intention is expressed by the legislature, and a statute affecting only the remedy may apply to a cause of action existing at the time the statute was enacted.” 363 S.W.2d at 669. Thus, an evidentiary statute applies to actions already on file at the time the statute becomes effective. “Laws which change the rules of evidence relate to the remedy only, may be applied to existing causes of action, and are not precluded from such application by the constitutional provision.” O’Bryan v. Allen, 108 Mo. 227, 231-32, 18 S.W. 892, 893 (1891). Evidentiary and procedural statutes apply to all pending cases which have not yet been reduced to a final judgment. Claspill v. Missouri P.R. Co., 793 S.W.2d 139, 140 (Mo. banc 1990).
In Enright, the Supreme Court entered an order of prohibition precluding discovery of hospital peer review committee materials based upon a statute enacted after the cause of action accrued. 706 S.W.2d at 856. In Claspill, the Supreme Court precluded enforced a statutory provision that excluded from evidence information that was compiled for purposes of developing a highway safety construction project. 793 S.W.2d at 140.
Accordingly, it should be settled law in Missouri that evidentiary and procedural statutes can be applied to any action, including any pending action, that is tried after the effective date of the statute.
III. EFFECTIVE DATES OF VARIOUS ASPECTS OF THE LEGISLATION.
This change to § 537.065 is a procedural change, which requires that notice be given to the insurer if the insured has entered into a § 537.065 agreement before judgment is entered against the insured. This should apply to bad faith claims that have accrued in the sense that the claimant has made a policy limits demand to settle that was not accepted, but not where a judgment has already been taken against the insured. Insurers should be prepared to argue that a judgment entered on or after August 28 is not valid if the insurer was not provided with 30 days’ written notice prior to its entry, even if the § 537.065 agreement was executed previously.
Policy limits demands made on or after August 28 must conform to the requirements of § 537.058, unless made within 90 days prior to a jury trial on the claim.
As we have previously discussed, the requirements of § 537.058 for a policy limits demand that would support a bad faith claim (that a demand be left open for 90 days and be accompanied by authorizations) are already required by the statute that authorizes recovery of prejudgment interest, Mo. Rev. Stat. § 408.040. In 2005, as part of comprehensive tort reform efforts, the legislature amended § 408.040 to provide that, before a settlement demand could trigger the accrual of prejudgment interest, it must be transmitted by certified mail, be accompanied by an affidavit of the claimant and, where applicable, medical or wage loss records and authorizations, and be left open for 90 days.
At least one court seemed to recognize the legislature’s intent that a demand in the format specified by § 408.040 was a necessary predicate for a bad faith claim. See Johnson v. Allstate Ins. Co., 262 S.W.3d 655, 664 (Mo. App. W.D. 2008). In Johnson, the court held that claimants’ “demand letter satisfied the requisites of Section 408.040, RSMo 2000, which authorizes individuals with a claim like the Johnsons' to make a demand to an insurance company for either the policy limits or for a specific amount of money.”
Moreover, although claimants attempting the bad faith setup are in the habit of treating a policy limits demand as a one-time-only offer, there is usually no good faith basis for the drop-dead deadline. The intent of the original § 537.065, and certainly the intent of the statute as amended by the present legislation, is to allow the claimant to recover the insurance policy proceeds, not to “blow up” the limits of the policy and recover more than the liability limits. Accordingly, even where the claimant has previously made a demand that was not accepted prior to August 28, there appears to be no reason why the claimant could not be required to make a second demand in accordance with the new requirements, as the claimant has never had any substantive right under Missouri law to recover more than the insurance policy proceeds.
Although the 2017 session of the Missouri legislature was not geared to comprehensive tort reform, several key bills were passed that will bring significant changes to civil litigation in Missouri. These include changes to the collateral source rule and evidence of discounted medical bills, the adoption of the Daubert standard, and restraints on insurance bad faith claims.
I. COLLATERAL SOURCE RULE
On July 5, 2017, Governor Greitens signed Missouri Senate Bill 31, bringing needed changes to the collateral source rule. The collateral source rule generally prohibits a defendant from introducing evidence that part of a plaintiff’s loss was paid for by a party independent of the defendant, such as the plaintiff’s insurer or a public benefits program. Deck v. Teasley, 322 S.W.3d 536, 538 (Mo. banc 2010). However, this rule has been twisted to allow plaintiffs to offer evidence of full-price or “sticker price” medical bills, without regard to contractual adjustments for health insurance or limits on reimbursement established by public payors, on the premise that defendants should not benefit from discounting of the full-price medical bills. The counter-argument, of course, is that plaintiffs are then permitted to recover a windfall that far exceeds both their actual liability for medical care and the costs of health insurance premiums they have paid, and are permitted to present evidence of damages that is merely a legal fiction.
By way of background, older Missouri cases held that, if the evidence establishes that the plaintiff is not liable for payment, medical expenses have not been “incurred,” and plaintiff cannot recover for their value. See Morris v. Grand Ave. Ry. Co., 46 S.W.170 (Mo. 1898). In the workers’ compensation context, Missouri courts have determined that an employee is not entitled to compensation for healthcare provider write-offs. Mann v. Varney Construction, 23 S.W.3d 231, 233 (Mo. App. 2000) (employee not entitled to compensation for Medicaid write-off amounts when the total amount submitted to Medicaid will never be sought from claimant); accord, Lenzini v. Columbia Foods, 829 S.W.2d 482, 487 (Mo. App. 1992). “Implicit in both decisions is the requirement of actual liability [for the medical bills] on the part of the employee.” Farmer-Cummings v. Personnel Pool of Platte County, 110 S.W.3d 818, 821 (Mo. 2003). However, the Missouri courts have been reluctant to follow this approach outside the realm of workers’ compensation.
As part of the 2005 Missouri tort reform, Mo. Rev. Stat. § 490.715 was amended to include a new subsection 5 that addressed valuation of the medical expenses, including a provision that there was a rebuttable presumption that the “value” of medical treatment is “the dollar amount necessary to satisfy the financial obligation to the health care provider.” Plaintiffs were not permitted to introduce evidence of medical expenses that exceeded the reasonable “value” of medical care and treatment. See id.
Missouri cases, however, significantly undermined this statutory tort reform, by allowing evidence of “sticker price” bills to get to the jury upon a very low showing of the “reasonableness” of the full-price bills, which can be made by affidavits or the testimony of the health care providers. See Deck v. Teasley, 322 S.W.3d 536 (Mo. banc 2010). The bar to rebut the presumption was so low in practice that the statutory reform failed to have the desired effect.
With the passage of SB 31, laudable carve-outs from the collateral source rule have been made. As to payments by or on behalf of the defendant, the statute used to provide that the defendant could offer evidence that these medical expenses had been paid, but not by whom. The new law clearly provides that, where the defendant or the defendant’s insurer or representative have paid a portion of plaintiff’s medical expenses, these sums are “not recoverable from” the defendant. Although this statute should provide a basis for motions in limine to exclude evidence of medical expenses paid by defendant, the revised statute also provides that, if a claim for these expenses is made at trial, the defendant is entitled to a credit against the judgment.
Critically, SB 31 changes § 490.715’s reference to the “value” of medical expenses, using instead the “actual cost” of medical care and treatment. The “actual cost of the medical care or treatment” is now defined as “a sum of money not to exceed the dollar amounts paid by or on behalf of a plaintiff or a patient whose care is at issue plus any remaining dollar amount necessary to satisfy the financial obligation for medical care or treatment by a health care provider after adjustment for any contractual discounts, price reduction, or write-off by any person or entity.” SB 31 (emphasis added).
II. ADOPTION OF THE DAUBERT STANDARD
House Bill 153, signed by Governor Greitens on March 28, 2017, adopts the Daubert standard for admission of expert opinion testimony. In State Board of Reg. v. McDonagh, 123 S.W.3d 146 (Mo. banc 2003), the Missouri Supreme Court held that Mo. Rev. Stat. § 490.065, not Frye or Daubert, controlled the admission of expert opinion testimony in civil cases. The opinion does, however, hold that federal cases applying Daubert are relevant to interpreting the Missouri statute. Citing Missouri Church of Scientology v. State Tax Commission, 560 S.W.2d 837, 839 (Mo. banc. 1977), the McDonagh Court held that “to the extent that Section 490.065 mirrors FRE 702 and FRE 703 . . . the cases interpreting those federal rules provide relevant and useful guidance.” McDonagh, 123 S.W.3d at 155.
The Court also noted that Section 490.065 contains language not present in the analogous federal rules of evidence, most particularly Section 490.065.3, which requires that the facts or data on which an expert bases and opinion or inference “must be of a type reasonably relied upon by experts in the field in forming opinions or inferences upon the subject” and that these facts and data “must be otherwise reasonably reliable.” Id. at 152-153 (emphasis added). The McDonagh court construed this slight language difference to require an expert in a state court proceeding to establish that the facts and data on which she relied are reasonably relied upon by experts in that particular field. The Court contrasted its holding with Daubert’s interpretation of the slightly different language in the federal rule that an expert testifying in federal court need not necessarily identify the relevant scientific community or field in which the data and facts were accepted.
Under the prior standard, “the circuit court is responsible for determining (1) whether the expert is qualified; (2) the expert’s testimony will assist the trier of fact; (3) the expert’s testimony is based upon facts or data that are reasonably relied upon by experts in the field; and (4) the facts or data on which the expert relies are otherwise reasonably reliable.” Kivland v. Columbia Orthopaedic Group, LLP, 331 S.W.3d 299, 311 (Mo. banc 2011). Whether an expert’s opinion is supported by sufficient facts and evidence is a question of law for the Court. Vittengl v. Fox, 967 S.W.2d 269, 280-82 (Mo. App. W.D. 1998).
The amended statute retains the stricter “in the field” language from the prior iteration, requiring that “experts in the particular field would reasonably rely on those kinds of facts or data in forming an opinion on the subject.” Where the amendment gives the statute teeth is in setting standards for the expert’s methodology.
III. INSURANCE BAD FAITH REFORMOn July 5, 2017, Governor Greitens signed the Senate Substitute for the Senate Committee Substitute for the House Committee Substitute for House Bills 339 and 714, enacting significant insurance bad faith reform. We previously blogged about these bills here.
On May 26, 2017, the Kansas Supreme Court in Lozano v. Alvarez, (No. 113,060) 2017 Kan. LEXIS 287 (May 26, 2017) tested the Kansas saving statutes, which states:
If any action be commenced within due time, and the plaintiff fail in such action otherwise than upon the merits, and the time limited for the same shall have expired, the plaintiff, or, if the plaintiff die, and the cause of action survive, his or her representatives may commence a new action within six (6) months after such failure.
Kan. Stat. Ann. § 60-518. The statute allows a case that has been dismissed for a reason other than the merits to be refiled within 6 months of the dismissal, notwithstanding that the statute of limitations has expired.
The Kansas Supreme Court held that the dismissal of an action that was filed during K.S.A. 60-518's 6-month grace period does not trigger another 6-month grace period. Thus, a third lawsuit does not relate back to the original filing and may be barred by the statute of limitations.
Lozano filed a civil action against the Alvarezes alleging injuries as a result of a battery. Lozano I was dismissed without prejudice by the Ford County District Court for lack of prosecution. Lozano refiled his case less than 6 months later using the Kansas savings statute. The district court dismissed Lozano II without prejudice on December 31, 2013, once again for a lack of prosecution.
Lozano refiled the action on June 18, 2014, attempting to invoke K.S.A. 60-518 a second time. (Lorenzo III). The Alvarezes moved to dismiss Lorenzao III with prejudice, claiming the savings statute did not permit the refiling.
The Kansas Supreme Court affirmed the dismissal of Lorenzo III with prejudice and declined to apply the saving statute in serial fashion, because “the 6-month grace period in the savings statute applies only to an action that was commenced during the statute of limitations period.” Id. at *12. The Court reasoned,
the dismissal of an action that was filed during K.S.A. 60-518's 6-month grace period does not trigger another grace period because it is not an "action" to which K.S.A. 60-518 applies. In short, a plaintiff is limited to one 6-month period of grace to get a determination on the merits; refilings beyond that 6-month period are barred by the statute of limitations. Id. at *12-13.
 See the full opinion at http://www.kscourts.org/Cases-and-Opinions/opinions/SupCt/2017/20170526/113060.pdf
Ponzi Schemes and Bankers: Eighth Circuit Upholds Bank's Right To Presume A Fiduciary Is Acting Lawfully Under Missouri's Uniform Fiduciaries LawJune 21, 2017 | Martha Charepoo
Martin Sigillito, the former St. Louis Attorney who was convicted in 2011 for his involvement in a $52 million Ponzi scheme, is 7 years into a 47-year federal sentence, but the Eight Circuit for a second time just decided that many of his investors cannot recoup their losses from a bank where Sigillito kept the accounts he used to defraud them. In Roseman v. St. Louis Bank, 2017 U.S. App. LEXIS 9075 (8th Cir. 2017), St. Louis Bank avoided liability for investors’ losses in the Ponzi scheme. The Eighth Circuit found that St. Louis Bank did not know the money moving through Sigillito’s accounts was being used by him to cover returns on earlier investments. Roseman followed on the heels of another Eighth Circuit case involving similar claims against PNC Bank for investors’ losses in the same Ponzi scheme which also ruled for the bank. Aguilar v. PNC Bank, N.A., 835 F.3d 390 (8th Cir. 2017).
In Roseman, investors sued St. Louis Bank where Sigillito held several commercial accounts from 2006 to 2011, claiming among other things that the bank violated Missouri’s Uniform Fiduciaries Law (“UFL”) because it knew Sigillito was breaching his fiduciary duties, acted in bad faith, and knew the schemer was benefiting himself with the funds. The accounts were business checking and “Interest on Lawyers Trust Account” (IOLTA) accounts that bore only the name of Sigilitto’s law firm or Sigilitto as an attorney.
A three-judge panel affirmed the Eastern District of Missouri’s grant of summary judgment in the bank’s favor, refusing to hold the bank liable for the Ponzi scheme’s victims’ claims, concluding that the investors failed to present evidence that the bank knew or had reason to even suspect that Sigillito was using investors’ funds for other purposes. In doing so, the Eight Circuit shunned the investors’ attempt to apply the UFL as a strict liability statute and instead followed its interpretation of a bank’s duties with respect to fiduciaries under the UFL in Aguilar which held that the statue requires actual knowledge of a fiduciary’s breach of its duties or knowledge of sufficient facts that constitute bad faith on the part of the fiduciary.
Quoting Aguilar, the court stated thatactual knowledge means “an awareness that, at the moment, the fiduciary was defrauding the principal.” To prove awareness, the investors had the burden of presenting “express factual information” that Sigillito was using the fiduciary funds for personal purposes. Several key facts lead the court to conclude that the investors’ evidence was insufficient to prove that the bank knew that Sigillito’s conduct constituted a breach of his fiduciary duty. None of the accounts referenced the British Lending Program (“BLP”), Sigilitto’s name for the investment program he claimed would facilitate loans to an English law firm to fund black lung claims by English coal miners. Also, the bank employee who worked with Sigillito and his assistant on bank transactions knew nothing about the BLP. The court also noted that the multiple-source nature of an IOLTA account made it impossible for the bank to know the source of any single deposit. The court held that simply knowing that Sigilitto was moving large sums of money between his law firm’s accounts was not enough to trigger any duty on the bank’s part to investigate the transactions or suspect that Sigillito was misusing funds.
Nor did the court agree that the bank acted in bad faith despite overdraft activity on the IOLTA account. The court applied Aguilar’s test for bad faith, i.e. “whether it is commercially justifiable for the person accepting a negotiable instrument to disregard and refuse to learn facts readily available.” Per Aguilar, this requires the existence of facts and circumstances that are so obvious that remaining passive is bad faith. The court acknowledged that a bank’s tolerance of significant overdrafts or check kiting can constitute bad faith under the UFL, but only when the bank knows that the account is a fiduciary account containing the principal’s funds. The court explained that an IOLTA account is a fiduciary account but differs from a typical trust account because the funds it contains could be owed to the any of the beneficiaries involved, i.e. the attorney or unrelated third-parties. Thus, the court found that the activity patterns on the IOLTA account would not have caused the bank to know that Sigillito was misappropriating client funds. Moreover, the court believed that the existence of funds in other accounts to cover those overdrafts would have eased any potential concerns.
Thus, the Eighth Circuit once again upholds a very high standard for holding a bank liable for a Ponzi scheme or anyone else’s breach of fiduciary duty under the UFL.
Yesterday, the United States Supreme Court, in a unanimous decision, issued a ruling that resolves a circuit split as to whether or not the purchaser of a defaulted debt is a “debt collector” under the Fair Debt Collection Practices Act (the “FDCPA”). In the first Supreme Court opinion authored by Justice Neil Gorsuch, the Court held that Santander, the purchaser of a defaulted debt, was not a “debt collector” as defined by the Act.
The Supreme Court’s opinion focused on the plain language of the statute, which defines a debt collector as a person or entity who “regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” 15 USC § 1692a(6). There has been a split among the circuits as to whether that definition is to be applied to a debt buyer who purchases accounts in default, and then collects on those accounts.
The rationale of the opinion was hinged on syntax and legislative intent, in large part. Plaintiff argued that “owed” was to be read as past-tense, meaning that the debt in question used to be owed to another party. But the Court rejected this argument and provided plaintiff a rather costly grammar lesson, reasoning that, had Congress intended for the term “owed” to be read in the past tense, it would have drafted the definition to read “were owed or are due another.” Rather, the Court held, the definition is to be interpreted to mean that a debt collector is someone who does not own the debt, but is collecting on behalf of a separate party who owns or originated the debt.
The Court further reasoned that, had Congress intended for the definition of a “debt collector” to include purchasers of debt, it would have included a distinction between an original creditor and a “current” creditor in the definition, as it had done throughout the Act in other sections.
The Henson outcome will certainly have a chilling effect on FDCPA litigation in many circuits, where successor owners of debt have been ordered to pay immeasurable damages in litigation for purported violations of the FDCPA. The opinion may be found in its entirety here.
In a transparently partisan vote today, the House passed the 2017 Financial CHOICE Act (commonly referred to as “CHOICE Act 2.0”), leaving the future of the bill to be determined by the Senate.
The first version of the anti-Dodd-Frank legislation was introduced by Rep. Jeb Hensarling of Texas in 2016, and it was touted as a bill that would provide relief to financial institutions that have been, as many assert, overburdened by the 2010 Dodd-Frank regulations. The CHOICE Act was then amended, ostensibly to soften some of the anti-regulation sentiment, before being submitted by Committee to the House for vote.
The Executive Summary of the CHOICE Act identifies several key goals of the proposed legislation:
- End bank bailouts, but make modifications to the Bankruptcy Code as an alternative
- Strengthen penalties for fraud and deception to hold Wall Street accountable
- Create more oversight of regulators and take power from Washington
- Create Advantages for Capital Election
- Provide regulatory relief for Main Street/smaller financial institutions
- Considerable reforms to the structure and power of the Consumer Financial Protection Bureau (the “CFPB”).
With respect to the CFPB, the constitutionality of which has already been challenged through the PHH Mortgage litigation (under review in the D.C. Circuit), the current structure would be modified to create more oversight and checks against the power of the Director, in addition to permitting the President to terminate the director at will.
Obtaining the required 60 votes from the Senate will be challenging, so Rep. Hensarling and other supporters of the bill have much work ahead to work across the party line if the CHOICE Act can cross the next threshold in order to be enacted.
The Republican-majority House vote in favor of CHOICE Act 2.0 today echoes the campaign sentiment of President Trump, who consistently promised to “dismantle” Dodd-Frank. BSCR’s Financial Services Law team will continue to monitor the progress of the bill and provide prompt updates as they are received.
It seems almost impossible in today’s world to escape our dependence on technology. From the minute we wake-up in the morning, we access news reports on our tablets, keep track of our health with fitness trackers, receive and respond to e-mails on our mobile phones, and many of us rely upon interconnected medical devices, such as insulin pumps, to safely navigate through a typical day. But such convenience is not without risk.
Medical devices, like all interconnected technology, can be vulnerable to security breaches, which “may compromise the essential clinical performance of a device” and potentially impact patient safety. The Food and Drug Administration (“FDA”) thoroughly understands this benefit v. risk balance, and has issued a number of recommendations that address comprehensive cybersecurity over the lifecycle of medical device products. Most recently, on December 27, 2016, the FDA issued its final Guidance on Postmarket Management of Cybersecurity in Medical Devices. The recommendations apply to medical devices that use software, including programmable logic and software that is regulated as a medical device, including mobile medical apps. You can link to the full text of the Guidance here. This final Guidance closely resembles a draft of the document, issued for comment almost a year prior. For more details on our take of the draft Guidance, see our prior series “FDA Issues Draft Guidance Document for Postmarket Management of Cybersecurity in Medical Devices” posted in four parts here, here, here, and here. This Postmarket Guidance also follows the FDA’s Guidance on medical device premarket cybersecurity, issued in October 2014, discussed in more detail here.
The final Guidance outlines steps that medical device manufacturers and health care systems should take to monitor, identify, understand and address cybersecurity risks once medical devices and mobile medical devices have entered the marketplace. Yet, don’t allow the “guidance” nature of the document fool you into believing its recommendations are optional, as the FDA takes the position that manufacturers are required to ensure the safety and efficacy of their medical devices, and should they choose not to follow this guidance, the device vendor must have in place another similar cybersecurity strategy in order to avoid regulatory scrutiny.
From this Guidance emerges two predominant concepts: 1) the Guidance, like its predecessor draft and the 2014 Premarket Guidance, follows a risk-based approach, i.e., guiding manufacturers to identify, assess, and mitigate risks that emerge after the device has been introduced to market; and 2) medical device cybersecurity and cybersecurity risk management must be proactively addressed throughout the entire lifestyle of a product, and is a shared responsibility among stakeholders including health care facilities, patients, providers, and manufacturers of medical devices.” In other words, cybersecurity controls should be incorporated into the design, development and manufacture of a device. But after marketing and during patient use, the device should be continuously monitored, and cybersecurity concerns addressed.
As Suzanne B. Schwartz, the FDA’s associate director for science and strategic partnerships, stated in a blog post concurrent with the issuance of the Guidance itself, “[w]ith this guidance, we now have an outline of steps the FDA recommends manufacturers take to remain vigilant and continually address the cybersecurity risks of marketed medical devices.” “This approach enables manufacturers to focus on continuous quality improvement, which is essential to ensuring the safety and effectiveness of medical devices at all stages in the device’s lifecycle.” Essential to the FDA’s recommendations is the belief that device manufacturers implement comprehensive cybersecurity risk management programs and documentation which emphasizes “addressing vulnerabilities which may permit the unauthorized access, modification, misuse or denial of use, or the unauthorized use of information that is stored, accessed, or transferred from a medical device to an external recipient, and may result in patient harm. Manufacturers should respond in a timely fashion to address identified vulnerabilities.”
Critical components of such a program include:
- Monitoring cybersecurity information sources for identification and detection of cybersecurity vulnerabilities and risk;
- Maintaining robust software lifecycle processes that include mechanisms for:
- monitoring third party software components for new vulnerabilities throughout the device’s total product lifecycle;
- design verification and validation for software updates and patches that are used to remediate vulnerabilities, including those related to Off-the-shelf software;
- Understanding, assessing and detecting presence and impact of a vulnerability;
- Establishing and communicating processes for vulnerability intake and handling
- Note: The FDA has recognized ISO/IEC 30111:2013: Information Technology – Security Techniques – Vulnerability Handling Processes;
- Using threat modeling to clearly define how to maintain safety and essential performance of a device by developing mitigations that protect, respond and recover from the cybersecurity risk;
- Adopting a coordinated vulnerability disclosure policy and practice. The FDA has recognized ISO/IEC 29147:2014: Information Technology – Security Techniques – Vulnerability Disclosure which may be a useful resource for manufacturers; and
- Deploying mitigations that address cybersecurity risk early and prior to exploitation.
It is further recommended that the program incorporate elements consistent with the National Institute of Standards and Technology’s (NIST) Framework for Improving Critical Infrastructure Cybersecurity (i.e., Identify, Protect, Detect, Respond, and Recover). For more details on these concepts, please see our previous discussion, which can be found here.
Perhaps more important than the shared responsibility of risk mitigation in cybersecurity among all stakeholders, is the concept that, in the FDA’s view, cybersecurity risk management should revolve around assessing therisk to the device’s essential clinical performance, which focuses on assessing the risk of patient harm. As the Guidance explains, “[a] key purpose of conducting the cyber-vulnerability risk assessment is to evaluate whether the risk of patient harm is controlled (acceptable) or uncontrolled (unacceptable). One method of assessing the acceptability of risk involves using a matrix with combinations of “exploitability” and “severity of patient harm” to determine whether the risk of patient harm is controlled or uncontrolled.” This focus is achieved by considering:
(1) The exploitability of the cybersecurity vulnerability, and
(2) The severity of patient harm if the vulnerability were to be exploited.
Such risk is to be assessed according to these two considerations on a sliding scale, which ranges from a controlled risk (low probability of a cybersecurity exploit with little impact on patient health) to an uncontrolled risk (high probability of an exploited vulnerability that seriously threatens patient safety or even patient death). While in some cases the evaluation will yield a definite determination of controlled or uncontrolled, the possibility remains that not all situations will produce such distinct results.
The Guidance provides that manufacturers should have processes for assessing the exploitability of a cybersecurity vulnerability as well as the severity of patient harm, if the cybersecurity vulnerability were to be exploited. The FDA suggests using a cybersecurity vulnerability assessment tool or similar scoring system for rating vulnerabilities and determining the need for and urgency of the response, such as the “Common Vulnerability Scoring System,” Version 3.0. Many adequate methodologies may be utilized to analyze the potential severity of patient harm, yet the Guidance highlights an approach based on qualitative severity levels as described in ANSI/AAMI/ISO 14971: 2007/(R)2010: Medical Devices – Application of Risk Management to Medical Devices. These levels range from Negligible (inconvenience or temporary discomfort) to Catastrophic (resulting in patient death).
The figure below shows the relationship between exploitability and severity of patient harm, and can be used to categorize the risk of patient harm as controlled or uncontrolled.
While the FDA clearly distinguishes between a controlled risk and uncontrolled risk, even its illustrative chart above shows a large gray area of in-between, further acknowledging that it will not always be clear in which category the risk belongs.
The FDA Guidance then sets forth recommended proper responses to controlled and uncontrolled risks. Controlled risk scenarios involve relatively minor issues, where there is sufficiently low (acceptable) risk of patient harm. However, manufacturers are still encouraged to proactively promote good cyber hygiene and reduce cybersecurity risks even when residual risk is acceptable. Uncontrolled risks, on the other hand, require immediate intervention and remediation, and must be reported under 21 CFR part 806, unless:
(1) There are no known serious adverse events or deaths associated with the vulnerability;
(2) The manufacturer communicates with its customers and user community regarding the vulnerability, identifies interim compensating controls, and develops a remediation plan to bring the risk to an acceptable level, as soon as possible, but no later than 30 days after learning of the vulnerability;
(3) The manufacturer fixes the vulnerability, validates the change, and distributes the deployable fix to its customers and user community within 60 days; and,
(4) The manufacturer actively participates as a member of an Information Sharing Analysis Organization or “ISAO.”
Like its draft before it, the final Guidance additionally contains an essential practical element in its Appendix: “Elements of an Effective Postmarket Cybersecurity Program.” The Appendix encompasses the totality of the FDA’s recommendations, in an easy to follow five-prong framework, consistent with the elements of the NIST Framework for Improving Critical Infrastructure Cybersecurity. These prongs are: A) Identify, B) Protect/Detect, C) Protect/Respond/Recover, and D) Risk Mitigation of Safety and Essential Performance.
All medical devices come with both risks and benefits. While it may not always be clear whether a particular risk is categorized as controlled or uncontrolled, the FDA has been explicitly clear in both its Premarket and Postmarket Guidances that comprehensive cybersecurity and risk analysis must be addressed over the lifecycle of medical device products, keeping a primary focus on the risk of patient harm.
 Guidance, at 12.
 Guidance, at 13.
 Guidance, at 13-14.
 Guidance, at 15 (emphasis in original).
 Guidance, at 17.
 Guidance, at 15.
 Guidance, at 17.
 For more details, see “Common Vulnerability Scoring System,” Version 3.0: Specification Document (https://www.first.org/cvss/specification-document).
 Guidance, at 17.
 Guidance, at 18.
 Guidance, at 19.
 Guidance, at 22-23.
 Guidance, at 27-30.
Serving judicial documents on individuals and companies located outside the United States can be a time-consuming and expensive process. First, you have to figure out if the person or entity to be served is located in a country covered by the Convention on the Service Abroad of Judicialand Extrajudicial Documents in Civil and Commercial Matters (a.k.a. the
“Hague Convention”) or another international service treaty. Then, you have to determine whether that country opposes certain Articles of the Convention or other applicable service treaties. After all of that, you still have to jump through the country-specific hoops to effectuate proper service.
But on May 22, 2017, the United States Supreme Court provided a definitive answer to one question over which there has been a long-standing disagreement. Specifically, the Court resolved the split among courts as to whether the Convention permits service by mail.
Until now, some courts, like those in the Fifth and Eighth Circuits and in Texas, had held that the Convention does not permit service by mail. See Nuovo Pignone v. Storman Asia M/V, 310 F.3d 374 (5th Cir. 2002); Bankston v. Toyota Motor Corp., 889 F.2d. 172, 173-74 (8th Cir. 1989); Velasco v. Ayala, 312 S.W.3d 783 (Tex. Ct. App. 2009). In contrast, courts in the Second, Fourth and Ninth Circuits and in California had concluded that the Convention allows service by mail. See Ackerman v. Levine, 788 F.2d 830 (2nd Cir. 1986); Koehler v. Dodwell, 152 F.3d 304 (4th Cir. 1998); Brockmeyer v. May, 383 F.3d 798 (9th Cir. 2004); Shoel Kako v.Superior Court, 33 Cal.App.3d 808 (Cal. App. 1973).
In Water Splash, Inc. v. Menon, 2017 LEXIS 3212, the Supreme Court unanimously sided with those courts which have allowed service of process by mail. Specifically, the Court held that the Convention permits service by mail if: (a) the receiving country has not objected to service by mail; and (b) service by mail is authorized under otherwise-applicable law.
At issue in Water Splash was the text of Article 10 of the Convention. The English version states:
“Provided the State of destination does not object, the present Convention shall not interfere with –
(a) The freedom to send judicial documents, by postal channels, directly to persons abroad,
(b) The freedom of judicial officers, officials or other competent persons of the State of origin to effect service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination,
(c) The freedom of any person interested in a judicial proceeding to effect service of judicial documents directly through the judicial officers, officials or other competent persons of the State of destination.”
(Emphasis added).The dispute in Water Splash and the other cases in which parties contested service by mail under the Convention centered around the use of the word “send” in Article 10(a) compared to the use of the phrase “to effect service” in Articles 10(b) and 10(c).
To reach its unanimous decision in Water Splash, the Court looked at the text of the Convention, the structure of the Convention, and extratextual sources. The Court emphasized that “the scope of the Convention is limited to service of documents” and that in fact, “[e]ven the Convention’s full title [Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters] reflects that the Convention concerns ‘Service Abroad.’”
Because the entire framework of the Convention concerns service of documents, according to the Court, “it would be quite strange if Article 10(a) – apparently alone among the Convention’s provisions – concerned something other than service of documents.” Thus, for “Article 10(a) to do any work, it must pertain to sending documents for purposes of service.”(Emphasis in original).
The defendant futilely tried to counter that logic by arguing that Article 10(a) applies to “post answer judicial documents” but does not apply to service of process documents. But the Court rejected that argument, because “[i]f the drafters wished to limit Article 10(a) to a particular subset of documents, they presumably would have said so.” Plus, Article 10(a) uses the same phrase “judicial documents” as used in Articles 10(b) and 10(c). Therefore, “the notion that Article 10(a) governs a different set of documents than 10(b) or 10(c) is hard to fathom.”
The Court even relied on the French version of the Convention to support the conclusion that the Convention permits service by mail. The Court noted that the “French version of the Convention is ‘equally authentic’ to the English version.” And the French counterpart to the word “send” in Article 10(a) is “addresser” which “has been consistently interpreted as meaning service or notice.”
Finally, the Court looked at the drafting history of the convention, the Executive Branch’s interpretation of the Convention and views of the other parties to the Convention. All of those extratextual sources supported the Court’s determination that the Convention allows service by mail.
Although the Convention allows service by mail, that “does not mean that the Convention affirmatively authorizes service by mail.” Rather, Article 10(a) “simply provides that, as long as the receiving state does not object, the Convention does not ‘interfere with … the freedom’ to serve documents through postal channels
As the Court noted, some signatory countries (the Czech Republic, Bulgaria, Hungary, Kuwait and Turkey among them) have objected to all or parts of the service methods mentioned in Article 10. In those countries, service by mail is not acceptable under the Convention. For a complete list of countries that have opposed all or some of Article 10 (and other Articles of the Convention), see the “Table Reflecting Applicability of Articles 8(2), 10(a)(b) and (c), 15(2) and 16(3) of the Hague Service Convention” (December 2015) here.
The decision in Water Splash may make serving judicial documents in foreign jurisdictions which have not objected to service by mail easier. But parties will still need to analyze the specific service methods allowed by the country in which a person or entity is to be served. Plus, service by mail must be an appropriate means of service under the law of the originating state. If the receiving country has not objected to service by mail and service by mail is authorized under the applicable state law, then under Water Splash, service by mail is permissible. So, check your mail if you are located in or have company facilities in countries which allow service by mail. You may have just been validly served.
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In Kesler v. The Curators of the University of Missouri, et al., the Court of Appeals for the Western District of Missouri has provided a refresher course on the defense of res judicata.
Plaintiff was a former assistant professor at the University of Missouri. While he was in the process of tenure review, he simultaneously faced university disciplinary proceedings for “plagiarism and other misconduct.” Although he prevailed on the plagiarism charge, plaintiff was found to have engaged in “other unacceptable behavior.” Plaintiff was ultimately denied tenure, and given a one year terminal contract. In September 2014, he sued MU and various University officials (Kesler I), seeking writs of prohibition and mandamus compelling the University to provide various items of relief, including new tenure review proceedings. Kesler I was premised on the University officials’ alleged improper conduct during the tenure and disciplinary proceedings. After extensive litigation, the trial court ruled against plaintiff and in favor of the university.
Soon after losing Kesler I, plaintiff filed another lawsuit against MU and the same University officials (Kesler II). In Kesler II, plaintiff sought recovery on various tort theories which were not asserted in Kesler I. However, the factual basis for Kesler II was the same as before – once he again he complained of the University officials’ alleged improper conduct during the tenure and disciplinary proceedings. Defendants were granted summary judgment on the basis of collateral estoppel and res judicata. Plaintiff appealed, apparently arguing in part that res judicata did not apply because he sought to advance different legal theories in Kesler I and Kesler II.
The Western District affirmed, holding that for res judicata to apply, four “identities” must be present: identity of (1) the things sued for, (2) the cause of action, (3) the persons and parties to the action, and (4) the person for or against whom the claim is made. For res judicata purposes, “[s]eparate legal theories are not to be considered as separate claims[.]” Instead, analysis of the “identity of the things sued for” and “identity of the cause of action” must focus on the underlying facts, and “[f]or a subsequent claim on the same transaction to be considered separate, there must be new ultimate facts, as opposed to evidentiary details, that form a new claim for relief.” Citing Kesterson v. State Farm Fire & Cas. Co., 242 S.W.3d 712, 715 (Mo. banc 2008).
Kesler reminds practitioners that, when performing a res judicata analysis, a new legal spin on an old set of facts is generally insufficient to overcome the defense. If the facts are the same, then new labels will not resurrect a dead claim.
Talk about a one-two punch. First, federal question jurisdiction kept a medical device case in federal court. And then came the knock-out blow: a federal judge in North Carolina ruled that federal preemption barred all of the state law claims against the medical device companies. In Burrell v. Bayer Corp., U.S Dist. LEXIS 38769 (W.D. N.C. March 17, 2017) (Burrell I), Judge Max O. Cogburn, Jr. retained jurisdiction over the medical device related lawsuit based on federal question jurisdiction. In a subsequent order, Judge Cogburn granted Bayer’s motion to dismiss plaintiff’s claims because federal law preempts those claims. Burrell v. Bayer Corp., U.S Dist. LEXIS 71374 (W.D. N.C. May 10, 2017) (Burrell II).
The plaintiff in Burrell alleged she was injured as a result of her use of an Essure birth control device. The Essure device is a Class III medical device approved by the FDA through the pre-market approval process. Plaintiff sued various Bayer entities, as well as local doctors for malpractice to defeat diversity jurisdiction. Bayer removed the case to federal court arguing it belonged there because of federal question jurisdiction. As evidenced by the inclusion of local defendants in her Complaint, plaintiff did not want the case in federal court and, thus, filed a motion to remand.
But the plaintiff’s Complaint was “replete with references to the FDA” and included numerous allegations “that the defendants violated the federal requirements of the Federal Food, Drug & Cosmetic Act (FDCA).” Burrell I, at *4-5. Because plaintiff’s Complaint “necessarily raise[d] federal issues,” Judge Cogburn concluded it was “properly a case that ‘arises from’ federal law, as the MDA was passed by Congress to govern the safety and effectiveness of Class III medical devices.” Id. at *11. He therefore retained jurisdiction over the case and denied plaintiff’s motion to remand. Id.
Just under two months later, Judge Cogburn delivered the knockout punch by granting Bayer’s motion to dismiss. Before delivering the decisive blow, though, Judge Cogburn had to block plaintiff’s counter punch – a motion to reconsider the remand denial order. In Burrell II, plaintiff tried again to convince Judge Cogburn that he should remand the case to state court. Judge Cogburn had no trouble crushing plaintiff’s reconsideration attack. For her reconsideration argument, the plaintiff relied on a 2005 Fourth Circuit case for the proposition that:
“[A] preemption defense that raises a federal question is inadequate to confer federal jurisdiction. Again, a case may not be removed to federal court on the basis of a federal defense, including the defense of preemption," even if the complaint begs the assertion of the defense, and even if the defense is the only question truly at issue in the case.
Burrell II, at *8-9 quoting Pinney v. Nokia, Inc., 402 F.3d 430, 446 (4th Cir. 2005).
But Judge Cogburn easily rebuffed the reconsideration wrangle by distinguishing Burrell from Pinney. While federal law “was ‘lurking’ as a question in the background” in Pinney, in Burrell II, “[b]y plaintiff’s own admission,” she alleged violations of the FDCA as part of her state law claims and thus her Complaint met the requirements for federal jurisdiction. Motion for reconsideration denied.
After successfully deflecting plaintiff’s reconsideration left hook, Judge Cogburn led with a little jab about preemption. Usually, when a judge begins a preemption discussion by noting that “Federal law generally recognizes a presumption against preemption,” the defendant can expect a body blow at the end of the discussion. Thankfully, that was not what happened in Burrell II. Instead, Judge Cogburn followed the jab with the express and implied preemption combination by noting that “the task of avoiding express and implied preemption is a difficult one.” Burrell II. He then thoroughly analyzed plaintiff’s claims and concluded federal law preempted all of the claims against the Bayer defendants.
Negligent Failure to Warn Claims
Plaintiff alleged the Bayer defendants were negligent by failing to warn of adverse events relating to Essure and that they “were under a continuing duty to comply with requirements” in the FDA’s pre-market approval of Essure. On this point, the court agreed with the plaintiff. Burrell II at *12. But that agreement also meant federal law preempted plaintiff’s negligence claims because “plaintiff’s cause of action is being brought because the Bayer defendants allegedly failed to meet those reporting requirements.” Id. at *12-13.
To insure the negligent failure to warn claims remained knocked out, as an added bonus, Judge Cogburn also ruled that “plaintiff cannot support a finding of causation” for those warnings claims. Id. at * 13. Judge Cogburn explained that by the time the plaintiff in Burrell received her device, “the FDA had the related information regarding the adverse event reports mentioned by plaintiff.” Id. Thus, in addition to being a preempted claim, Judge Cogburn found that plaintiff “failed to show that the failure-to-warn caused her injuries.” Id.
Negligent Failure to Train Claims
In addition to her negligent failure-to-warn claims, plaintiff also asserted claims that the Bayer Defendants failed to train the implanting physician about how “to implant the device, deal with potential complications, and remove the device.” Id. at *14. Judge Cogburn quickly dispensed with plaintiff’s failure-to-train combination. Federal law preempted plaintiff’s negligent training claim because plaintiff’s claim “imposes a duty that is beyond the confines of the MDA.” Id. But on the downside, Judge Cogburn noted that such a claim could survive a preemption attack “to the extent that the manufacturer failed to provide the training required by the MDA.” Id. However, plaintiff’s Complaint did “not provide information as to how the training violated the FDA’s requirements or how her physician was trained.” Id. at *14-15. Due to lack of information on that point, federal law preempted the claim.
As with the negligent warning claims, Judge Cogburn also found plaintiff failed to provide sufficient facts to establish that any training failure caused her injuries. Thus, in addition to being preempted, the negligent training claims failed for lack of causation.
Manufacturing Defect Claims
Judge Cogburn also knocked aside plaintiff’s weak attempt at throwing a manufacturing defect punch. Although the plaintiff alleged her Essure was “manufactured improperly,” she did not link “any manufacturing deficiency to the device that [she] received and how it caused the alleged injuries.” Id. at *16. Thus, her manufacturing defect claim failed.
Design Defect Claim
Judge Cogburn parried plaintiff’s product liability claim as well. To the extent plaintiff argued that Essure suffered from a design defect, federal law expressly preempted those claims. In brushing aside the design defect claim, Judge Cogburn simply noted that “The FDA made its determination [about the] safety and effectiveness” of the Essure and therefore “these design defect claims are preempted.” Id. at 17.
Breach of Warranty Claims
Judge Cogburn blasted the breach of warranty claims. The plaintiff alleged the Bayer defendants “expressly warranted Essure to be safe for use by the general public, including Plaintiff” and that the “warranties and representations ‘were untrue in that Essure was unsafe and unsuited for the use for which it was intended.’” Id. at *18. In short, Judge Cogburn noted that “Congress provided the FDA with the authority to regulate the safety and effectiveness of Class III medical devices.” So, he dismissed the breach of warranty claims.
Fraud and Unfair Trade Practices Claims
Finally, with all other claims against Bayer flat on the mat, Judge Cogburn crushed plaintiff’s unfair and deceptive trade practices claims. Judge Cogburn noted that the “allegations largely repackage the allegations” he already dismissed and that “several of the alleged misrepresentations are indistinguishable from FDA-approved labeling statements.” Id. at *19-20. Plaintiff’s allegations of “deviations from the FDA-approved language” were insufficient to “support a claim based on fraudulent behavior or unfair trade practices.” Id. at *20. Federal law preempted those claims.
Medical Malpractice Claims
After knocking out all of the plaintiff’s claims against the Bayer defendants, Judge Cogburn came full circle and turned his attention to the medical malpractice claims against the local defendants. Plaintiff eventually got her wish – the case will not remain in federal court. Judge Cogburn declined to exercise supplemental jurisdiction over the medical malpractice claims and dismissed those claims pursuant to 28 U.S.C. § 1367(c)(3) so plaintiff could reassert those claims in state court.
Post Bout SummaryUnder Riegel v. Medtronic, Inc., 552 U.S. 313, 128 S. Ct. 999 (2008), plaintiffs in Class III medical device cases have a “narrow window” through which they must plead when attempting to state “parallel claims.” Judge Cogburn’s orders in this case provide great training roadmaps for knocking out claims in Class III medical device cases when plaintiffs allege violations of the FDCA or FDA regulations. Bayer used a great combination of federal question jurisdiction and preemption arguments to flatten plaintiff’s claims in this Class III medical device case. Bayer made the arguments, and Judge Cogburn delivered the epic knockout.
Last month the Court of Appeals for the Western District of Missouri held that a Missouri Bank’s overdraft fee charged as part of its overdraft protection service (called “the Bounce program”) did not violate the state’s usury rate, thereby affirming the right of it and other banks to charge such fees in Missouri for debit/checking transactions.
A class action was filed against Hawthorn Bank alleging that its fee charged to customers for debit card overdrafts, which ranged from $25 to $30 per overdraft, was excessive and usurious. Plaintiffs’ counsel argued that the overdraft fees are, in essence, interest charged to the customer, and that they are therefore subject to Missouri’s usury limit.
Notably, the customers had the option to opt in or out of the overdraft protection service offered by Hawthorn Bank, and one of the named plaintiffs had even sought out a checking account with Hawthorn precisely because of its Bounce program. Both named plaintiffs understood that they could have the service cancelled at any time.
Hawthorn Bank argued, and the trial court agreed, that Mo. Rev. Stat. § 362.111, which permits banks and trust companies to assess fees and service charges against its customers, applied in that case. The Court of Appeals affirmed the lower court’s holding on the basis that § 362.111 exempts service charges and fees from the state’s usury laws. The Court also rejected the plaintiffs’ argument that the Bounce program created a binding loan contract permitting interest to be charged, as Hawthorn had expressly advised its customers that it would pay overdrafts at its discretion and could not guarantee that it would always authorize and pay the transactions.
The Court additionally found that the fees charged by Hawthorn Bank were reasonable as compared to those charged by other financial institutions within the state. The Court further recognized that the customers enrolled in the optional Bounce program were receiving substantial benefits from the service, such as coverage of overdrafts, providing notices to the customer, and providing customer service pertaining to the program, at the expense of the bank, thus justifying the fees being charged.
The Court of Appeals’ holding in Hawthorn provides reassurance to banks offering such overdraft protection services in Missouri, as the right to collect fees for those services has been upheld.
The opinion may be found here.
The old adage “location, location, location” applies as much for medical device preemption as it does for real estate. Despite acknowledging that the plaintiff’s Amended Complaint “would likely not survive a motion to dismiss if this case was pending in a court in the Eighth Circuit (or perhaps the Eastern District of New York),” an Indiana federal judge recently denied Medtronic’s motion to dismiss the Amended Complaint in Cavender v. Medtronic, Inc. (Cavender II), 2017 U.S. Dist. LEXIS 57376 (N.D. Ind. Apr. 14, 2017).
As frequently happens in cases involving pre-market approved medical devices, the court dismissed the initial complaint. He dismissed the initial Complaint because it was “nothing more than the sort of “unadorned, the-defendant-unlawfully-harmed-me accusation” and was “still in the ‘assembly required’ stage.” Cavender v. Medtronic, Inc. (Cavender I), 2016 U.S. Dist. LEXIS 154540 *20-21 (N.D. Ind. Nov. 8, 2016). But, just as many other courts do, the judge in this case, Judge William C. Lee, granted the motion to dismiss without prejudice and gave the plaintiff another chance to try to plead a valid claim.
In Cavender I, the plaintiff alleged that her implantable cardioverter defibrillator malfunctioned and injured her. She filed her initial complaint “apparently asserting product liability, breach of warranty and negligence claims against Medtronic.” Cavender I, at *2. Judge Lee’s first task in Cavender I was to determine whether the Indiana Product Liability Act (IPLA) preempted and subsumed plaintiff’s attempted product liability claims. Judge Lee concluded that the IPLA subsumed the negligence and product defect claims.
However, plaintiff’s complaint lacked specifics and was “nothing more than the sort of ‘unadorned, the-defendant-unlawfully-harmed-me accusation’” which was “chock-full of keywords that imply” that the plaintiff was “attempting to assert various product liability claims.” Id. at *20. Because the plaintiff’s complaint “need[ed] work” and was “still in the ‘assembly required’ stage,” Judge Lee gave plaintiff another chance to plead valid claims. Id. at *21-22 and 37.
In his order in Cavender I, Judge Lee offered guidance for what plaintiff needed to do to plead valid claims. For example, in response to Medtronic’s argument that federal law preempts plaintiff’s claims, Judge Lee noted that the Complaint “is completely devoid of any facts whatsoever that would even imply that she is alleging a violation of federal law.” Id. at *28. Judge Lee advised the plaintiff that the “amended complaint will clarify this issue also.” Id. at 29.
Rather than directly clarifying the issue as instructed by Judge Lee, in the Amended Complaint, the plaintiff switched which device she was claiming caused her injury. In the initial Complaint, she vaguely alleged that a defibrillator malfunctioned and injured her. Id. at *2. In the Amended Complaint, she copied allegations from the Master Consolidated Complaint in the Sprint Fidelis Leads Prods. Liab. Litig. MDL and alleged a separate device, a Sprint Fidelis lead, caused her injuries.
Plaintiff copied the allegations from the Sprint Fidelis Leads Prods. Liab. Litig. MDL even though the MDL judge dismissed those claims with prejudice at the pleading stage. See In re Medtronic, Inc. Sprint Fidelis Leads Prods. Liab. Litig., 592 F.Supp.2 1147 (D. Minn. 2009) (dismissing the Master Complaint because federal law preempted the negligence and strict liability claims) aff’d Bryant v. Medtronic, Inc. (In re: Medtronic, Inc., Sprint Fidelis Leads Prods. Liab. Litig, 623 F.3d 1200 (8th Cir. 2010).
By copying the preexisting and previously dismissed complaint, the plaintiff added more detail than in her initial complaint. Judge Lee noted that:
[W]hile the claims contained in her original Complaint were barely discernible, they now jump vividly off the page in full regalia, all because they are clothed in language taken—largely verbatim—from another complaintfiled against Medtronic that was summarily dismissed by another district court eight years ago. Id. at *8-9.
Despite the product switcheroo and the blatant copying of a previously dismissed complaint, in Cavender II, Judge Lee concluded that the Seventh Circuit’s decision in Bausch v. Stryker Corp., 630 F.3d 546 (7th Cir. 2010), “precludes dismissal of Cavender’s IPLA claim at this point and the motion to dismiss must be denied as to the issue of federal preemption of that claim.” Cavender at *33.
Judge Lee noted that the Seventh Circuit in Bausch agreed with the dissent in the Eighth’s Circuit’s decision affirming the dismissal of the Master Complaint in the Sprint Fidelis Leads Prods. Liab. Litig. MDL. In short, “the Seventh Circuit took a decidedly different approach to the issue of MDA preemption as it applies to state law claims.” Cavender II at *26-27. Thus, according to Judge Lee, “the Bausch decision mandates that [plaintiff] be permitted, at this juncture, to proceed with that claim notwithstanding the preemption clause in the MDA.” Id. at *38.
One other aspect of Judge Lee’s order is noteworthy. The plaintiff argued that because preemption is an affirmative defense, that she should not have to "defend" against an affirmative defense at this stage, thus the Court should not consider the defense as a basis for dismissal.” Id. at n.5 *21. Medtronic did not take issue with “that statement of the law” and Judge Lee declared that plaintiff was “correct, of course.” Id. Rather than take issue with the statement of law, Medtronic argued that because the plaintiff copied and pasted the very detailed, dismissed MDL complaint relating to this Lead[,]" she has, "[u]nder Seventh Circuit law . . . pled enough facts for the Court to consider the affirmative defense of preemption." Id. Because Judge Lee concluded that the Bausch decision precluded preemption at the pleading stage in this case, he determined that the issue was “rendered irrelevant.” Id.
Judge Lee’s order is yet another example of how the Bausch decision continues to cause problems for medical device makers at the motion to dismiss phase in cases in the Seventh Circuit. The plaintiff in Cavender II simply copied allegations the Eighth Circuit had already dismissed as preempted. But because of the overly permissive language of Bausch, those same claims survive the motion to dismiss in the Seventh Circuit. Medtronic’s preemption argument may very well prevail at the summary judgment stage, but only after spending on unnecessary litigation expenses.
On April 21, 2017, the Kansas Supreme Court in FV-I, Inc. v. Kallevig, (No. 111,235) 2017 Kan. LEXIS 135 (Apr. 21, 2017) reviewed a mortgage foreclosure. The dispute was between FV-I, the first mortgage holder, and Bank of the Prairie (BOP), the second mortgage holder.
One week before the foreclosure, the mortgage was assigned to FV-I. Attached to the petition was a copy of the mortgage and a copy of the note with an undated endorsement to a third-party. At trial, FV-I presented the original note containing an additional two endorsements, ending with an endorsement in blank. BOP undisputedly had three junior mortgages.
BOP challenged FV-I’s standing to foreclose and the priority of its mortgages.
1. FV-I’s Standing to Foreclose
BPO alleged that FV-I did not have standing to pursue its claim without establishing enforcement rights in the promissory note as of the date of the filing. First, FV-I argued that it need not prove possession of the note and the existence of enforcement rights in it at the time it filed its petition in order to establish standing to pursue mortgage foreclosure. Second, FV-I argued that standing could be established by its undisputed possession of the mortgage prior to filing, even without possession of the note.
The Kansas Supreme Court held that:
standing in a foreclosure action is predicated on the plaintiff's ability to demonstrate—either in the pleadings, upon motion for summary judgment, or at trial—that it was in possession of the note with enforcement rights at the time it filed the foreclosure action. Allowing a lack of standing to be cured by a post-petition assignment granting enforcement rights in the note after the foreclosure action has been filed would defeat any incentive for a note holder to ensure that it has enforcement rights prior to filing the action.
Id. at *29.
The Court further held that “possession of the mortgage alone does not establish standing,” because “a person or entity possessing only the mortgage would never experience the cognizable injury, i.e., the default necessary to foreclose the mortgage.” Id. at 46.
The Kansas Supreme Court remanded the action to determine whether FV-I had enforcement rights in the promissory note as of the date of the filing such that it had standing to bring a foreclosure action. Id. at *37.
2. BOP’s Priority
BOP argued that FV-I’s mortgage was unenforceable, because the note and mortgage had been split; thus, BOP’s mortgages were superior. The District Court held that FV-I's mortgage and note had split, because the note and mortgage FV-I held had not followed the same path to FV-I, which rendered FV-I's mortgage unenforceable and allowed BOP's mortgages to jump ahead in priority.
The Supreme Court, in overturning the holding that BOP’s mortgages had priority, noted that the lower court’s decision was based on an “overreading” Landmark Nat. Bank v. Kesler, 289 Kan. 528, 539-40, 216 P.3d 158 (2009). Landmark, did not address the effect of a split on the priority of the mortgage or whether a separated note and mortgage could later be reunited. In short, Landmark never held that a currently unenforceable mortgage, in effect, no longer exists. The Kansas Supreme Court held that, “[r]egardless of whether a split occurred or the party capable of enforcing the note was not a party to this case, the mortgage itself still exists.” Id. at *50.
The Court remanded the case with instruction to determine whether FV-I or BOP had priority consistent with the general rules that the first to record a mortgage has priority so long as the mortgage is not released. Id.
 See the full opinion at http://www.kscourts.org/Cases-and-Opinions/opinions/SupCt/2017/20170421/111235.pdf
 The homeowners/debtors were no longer involved in the case, because the parties agreed to sell the property and place the proceeds in escrow pending resolution of the matter.
As practitioners and insurers doing business in Missouri know, this is one of the most insurer-hostile jurisdictions in the country. Missouri insurance law is something of a perfect storm of archaic insurance statutes, uneven jurisprudence, and outright collusion in service of the bad faith setup. The Missouri legislature has recently taken important steps toward reforming these abuses, and the state’s new governor is expected to sign the legislation.
On April 26, the House passed the Senate Substitute for the Senate Committee Substitute for the House Committee Substitute for House Bills 339 and 714, which we will just identify by the House Bill numbers. This legislation replaces Mo. Rev. Stat § 537.065 with provisions designed to take several pounds of weight off the scale in favor of bad faith plaintiffs. Assuming Governor Greitens signs off, which is expected, § 537.065 will be repealed and replaced effective August 28, 2017. H.B. 339 was sponsored by Representative Bruce DeGroot and H.B. 714 was sponsored by Representative Kevin Engler.
I. REPEAL AND REPLACEMENT OF § 537.065
Together, H.B. 339 and 714 repeal and replace existing Mo. Rev. Stat. § 537.065. H.B. 174 enacts an entirely new section, § 537.058, as follows:
1. As used in this section, the following terms shall mean:
(1) "Extra-contractual damages", any amount of damage that exceeds the total available limit of liability insurance for all of a liability insurer's liability insurance policies applicable to a claim for personal injury, bodily injury, or wrongful death;
(2) "Time-limited demand", any offer to settle any claim for personal injury, bodily injury, or wrongful death made by or on behalf of a claimant to a tort-feasor with a liability insurance policy for purposes of settling a claim against such tort-feasor within the insurer's limit of liability insurance, which by its terms must be accepted within a specified period of time;
(3) "Tort-feasor", any person claimed to have caused or contributed to cause personal injury, bodily injury, or wrongful death to a claimant.
2. A time-limited demand to settle any claim for personal injury, bodily injury, or wrongful death shall be in writing, shall reference this section, shall be sent certified mail return-receipt requested to the tort-feasor's liability insurer, and shall contain the following material terms:
(1) The time period within which the offer shall remain open for acceptance by the tort-feasor's liability insurer, which shall not be less than ninety days from the date such demand is received by the liability insurer;
(2) The amount of monetary payment requested or a request for the applicable policy limits;
(3) The date and location of the loss;
(4) The claim number, if known;
(5) A description of all known injuries sustained by the claimant;
(6) The party or parties to be released if such time-limited demand is accepted;
(7) A description of the claims to be released if such time-limited demand is accepted; and
(8) An offer of unconditional release for the liability insurer's insureds from all present and future liability for that occurrence under section 537.060.
3. Such time-limited demand shall be accompanied by:
(1) A list of the names and addresses of health care providers who provided treatment to or evaluation of the claimant or decedent for injuries suffered from the date of injury until the date of the time-limited demand, and HIPAA compliant written authorizations sufficient to allow the liability insurer to obtain such records from the health care providers listed; and
(2) A list of the names and addresses of all the claimant's employers at the time the claimant was first injured until the date of the time-limited demand, and written authorizations sufficient to allow the liability insurer to obtain such records from all employers listed, if the claimant asserts a loss of wages, earnings, compensation, or profits however denominated.
4. If a liability insurer with the right to settle on behalf of an insured receives a time-limited demand, such insurer may accept the time-limited demand by providing written acceptance of the material terms outlined in subsection 2 of this section, delivered or postmarked to the claimant or the claimant's representative within the time period set in the time-limited demand.
5. Nothing in this section shall prohibit a claimant making a time-limited demand from requiring payment within a specified period; provided, however, that such period for payment shall not be less than ten days after the insurer's receipt of a fully executed unconditional release under section 537.060 as specified in subsection 2 of this section.
6. Nothing in this section applies to offers or demands or time-limited demands issued within ninety days of the trial by jury of any claim on which a lawsuit has been filed.
7. In any lawsuit filed by a claimant as an assignee of the tort-feasor or by the tort-feasor for the benefit of the claimant, a time-limited demand that does not comply with the terms of this section shall not be considered as a reasonable opportunity to settle for the insurer and shall not be admissible in any lawsuit alleging extra-contractual damages against the tort-feasor's liability insurer.
Existing § 537.065 is technically repealed and replaced, but the changes to the existing language are identified below, with the new language in bold.
1. Any person having an unliquidated claim for damages against a tort-feasor, on account of personal injuries, bodily injuries, or death, provided that, such tort-feasor's insurer or indemnitor has the opportunity to defend the tort-feasor without reservation but refuses to do so, may enter into a contract with such tort-feasor or any insurer on his or her behalf or both, whereby, in consideration of the payment of a specified amount, the person asserting the claim agrees that in the event of a judgment against the tort-feasor, neither such person nor any other person, firm, or corporation claiming by or through him or her will levy execution, by garnishment or as otherwise provided by law, except against the specific assets listed in the contract and except against any insurer which insures the legal liability of the tort-feasor for such damage and which insurer is not excepted from execution, garnishment or other legal procedure by such contract. Execution or garnishment proceedings in aid thereof shall lie only as to assets of the tort-feasor specifically mentioned in the contract or the insurer or insurers not excluded in such contract. Such contract, when properly acknowledged by the parties thereto, may be recorded in the office of the recorder of deeds in any county where a judgment may be rendered, or in the county of the residence of the tort-feasor, or in both such counties, and if the same is so recorded then such tort-feasor's property, except as to the assets specifically listed in the contract, shall not be subject to any judgment lien as the result of any judgment rendered against the tort-feasor, arising out of the transaction for which the contract is entered into.
2. Before a judgment may be entered against any tort-feasor after such tort-feasor has entered into a contract under this section, the insurer or insurers shall be provided with written notice of the execution of the contract and shall have thirty days after receipt of such notice to intervene as a matter of right in any pending lawsuit involving the claim for damages.
3. The provisions of this section shall apply to any covenant not to execute or any contract to limit recovery to specified assets, regardless of whether it is referred to as a contract under this section.
4. Nothing in this section shall be construed to prohibit an insured from bringing a separate action asserting that the insurer acted in bad faith.
II. THE PROBLEMS ADDRESSED BY THE LEGISLATION
A. THE UNREASONABLE TIME-LIMITED DEMAND
This is not the Missouri legislature’s first attempt in recent memory to tackle the problem of the quick-trigger time-limited demand, which is the foundation of the bad faith setup. In 2005, as part of comprehensive tort reform efforts, the legislature amended § 408.040 to provide that, before a settlement demand could trigger the accrual of prejudgment interest, it must be transmitted by certified mail, be accompanied by an affidavit of the claimant and, where applicable, medical or wage loss records and authorizations, and be left open for 90 days. The expectation of many was that this would curtail the short-fuse time-limited demands that form the basis of Missouri’s bad faith tort claim. Experience, however, has proven that attorneys looking to set up a bad faith claim are willing to forego the possibility of recovering prejudgment interest and continue to transmit short time-limited demands without documentation supporting the claim. The courts briefly seemed to toy with holding that a demand in the format specified by § 408.040 was a necessary predicate for a bad faith claim. See Johnson v. Allstate Ins. Co., 262 S.W.3d 655, 664 (Mo. App. W.D. 2008). In Johnson, the court held that claimants’ “demand letter satisfied the requisites of Section 408.040, RSMo 2000, which authorizes individuals with a claim like the Johnsons' to make a demand to an insurance company for either the policy limits or for a specific amount of money.” However, this language was not subsequently interpreted to require that demands be made in conformity with § 408.040 to support a bad faith claim.
The new § 537.058 pulls from the prior changes to § 408.040, and requires that demands be left open for 90 days and be accompanied by medical and wage authorizations. Subsection 7 of this new statute is intriguing, and we hope it is interpreted as the legislature intended. This subsection provides that a time-limited demand that does not comply with the requirements of the statute shall not be admissible in a lawsuit “alleging extracontractual damages” (i.e., an amount exceeding the insurance policy limit(s)).
This subsection is triggered by the filing of a claim for extracontractual recovery “by a claimant as an assignee of the tort-feasor or by the tort-feasor for the benefit of the claimant.” The Missouri Supreme Court, in Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818 (Mo. banc 2014), appears to have authorized the assignment of bad faith claims from the insured to the claimant, a departure from Missouri’s general rule that tort causes of action are not assignable and cannot be subrogated. However, in practice we are not seeing cases explicitly filed by the claimant/judgment creditor as an assignee of the insured.
Moreover, while it is understood that the filing of a bad faith claim by the insured or putative insured is “for the benefit” of the claimant, in practice both the insured and claimant vehemently resist this conclusion, going to extraordinarily lengths to attempt to conceal their § 537.065 agreement and their cooperation in the lawsuit, and expressly denying that the insured is merely recovering money as a pass-through for the claimant. As a practical matter, there are probably two options to establish that the insured has filed the claim “for the benefit of the claimant.” The first would be to authorize routine discovery of § 537.065 agreements, which the Missouri courts have historically resisted. The second would be for the courts to presume that a bad faith action, where the underlying judgment remains unsatisfied, is presumptively for the benefit of the claimant/judgment creditor. Either option would be an improvement over the current circumstances.
This statute does not specifically address a related, troubling problem in Missouri bad faith litigation. In Catron v. Columbia Mut. Ins. Co., the Missouri Supreme Court held that the goal behind recognition of the tort of bad faith failure to settle claims is not to provide redress to the injured party. 723 S.W.2d 5, 6 (Mo. 1987). Rather, the goal of a bad faith claim is to provide redress to the insured for an insurer’s bad faith refusal to settle. Catron, 723 S.W.2d at 6. Damages recoverable in a bad faith refusal to settle claim are limited to “the amount of money which the insured was forced to pay on the claim not settled by virtue of a judgment of liability in excess of the policy limits.” Dyer v. Gen. Am. Life Ins. Co., 541 S.W.2d 702, 704-05 (Mo. App. St. L. 1976) (citing Zumwalt v. Utilities Ins. Co., 360 Mo. 362, 228 S.W.2d 750 (Mo. 1950) and Landie v. Century Indem. Co., 390 S.W.2d 558 (Mo. App. 1965), where both insureds paid the amount of the excess judgment against them). The essence of a bad faith cause of action is that the insured suffered tangible economic loss as a result of her insurer’s tortious refusal to settle claims against her. Like any tort claim, damages are an essential element of the cause of action. Heartland Stores, Inc. v. Royal Ins. Co., 815 S.W.2d 39, 41 (Mo. App. W.D. 1991). “Actual damages are compensatory and are measured by the loss of injury sustained.” Stiffelman v. Abrams, 655 S.W.2d 522, 531 (Mo. banc 1983) (citing Chappell v. City of Springfield, 423 S.W.2d 810, 814 (Mo. 1968); State ex rel. St. Joseph Belt Ry. Co. v. Shain, 108 S.W.2d 351, 356 (Mo. 1937); Hussey V. Ellerman, 215 S.W.2d 38, 42 (Mo. App. St. L. 1948)).
What has always been problematic is the Missouri courts’ willingness to allow an insured to argue that he or she has sustained damages measured by a judgment from which the insured is fully protected by virtue of a § 537.065 or similar agreement. Other courts resist this conclusion, and Missouri’s position is inconsistent with logic and well-settled precedent. A Texas court, for example, held that allowing the insured, protected by a covenant not to execute, to collect all or part of the judgment amount “perpetrates a fraud on the court, because it bases the recovery on an untruth, i.e., that the judgment debtor may have to pay the judgment.” H.S.M. Acquisitions, Inc. v. West, 917 S.W.2d 872, 82 (Tex. App. Corpus Christi 1996) (citations omitted). “Allowing recovery in such a case encourages fraud and collusion and corrupts the judicial process by basing the recovery on a fiction.... the courts are being used to perpetrate and fund an untruth.” Id. Allowing an insured with a §537.065 agreement to recover the amount of the underlying judgment, apparently for the benefit of the claimant/judgment creditor, is a legally dubious proposition. To the extent that Missouri might have an interest in penalizing insurers for not settling claims, punitive damages are recoverable in bad faith actions. Permitting insureds to recover as “damages” amounts which do not represent damages actually sustained by them is utterly unjustified, however. A bad faith action can be “for the benefit of the claimant” in securing the insurance policy proceeds to the claimant/judgment creditor without misrepresenting the amount of damages that were actually sustained by the insured.
B. RIGHT TO KNOW OF § 537.065 AGREEMENTS AND TO INTERVENE
As a preliminary matter, one odd aspect of Missouri insurance law that is not fully addressed by this legislation is the courts’ belief that any reservation of rights or coverage question presents an insurmountable conflict of interest that constitutes an insurer’s breach of its duty to defend, freeing the insured from the cooperation clause of the policy. See State Farm Mut. Auto. Ins. Co. v. Ballmer, 899 S.W.2d 523, 527 (Mo. banc 1995). In virtually every other jurisdiction, an insurer may defend through Cumis counsel without the inexplicable brinksmanship created by the Missouri courts, in which insurers are often pressured to drop their coverage defenses and defend without reservation at a time when they have minimal information about the claim (and certainly less than the insured). Why the Cumis counsel approach is not acceptable in Missouri remains a mystery.
The amended § 537.065, however, will allow an insurer the opportunity to either defend without reservation, or to intervene in the tort action (presumably to litigate its coverage defenses) before judgment may be taken against the insured or putative insured. This is a tremendously favorable development for insurers who have generally learned only after the fact that their insured has entered into a § 537.065 agreement and stipulated to judgment, often in cases that are truly defensible as to liability and/or damages. The new provisions of § 537.065, which deem any covenant not to execute, however denominated, as falling within the scope of the statute, will also be helpful in securing disclosure of these types of agreements.
The Missouri legislature’s efforts to reform bad faith litigation are welcome, and long overdue. The current assembly has emphasized litigation reform, and we look forward to providing a final report on the session later this month.
Court Muzzles Counsel: Says Defendants Cannot Ask Plaintiffs if Their Attorneys Referred Them to Treating PhysiciansApril 27, 2017
Defense lawyers routinely ask personal injury plaintiffs how they came to be treated by their doctors. But defense lawyers in Florida will no longer be allowed to ask plaintiffs if their lawyers referred them to physicians for treatment even if those attorneys repeatedly refer their clients to the same doctors. In Worley v. Cent. Fla. YMCA, 2017 Fla. LEXIS 812 April 13, 2017), the Florida Supreme Court held that the attorney-client privilege protects a party from being required to disclose if her attorney referred her to a doctor for treatment. In a 4-3 ruling, the Court held that asking whether a lawyer referred a client to a doctor “implicates a confidential communication between the attorney and the client.”
In Worley, the plaintiff fell in the YMCA parking lot and injured her right knee. Because she claimed she did not have insurance, she did not see a specialist but instead retained attorneys and then sought treatment from specific orthopedic and anesthesia practices. During discovery, the YMCA “repeatedly attempted to discover the relationship” between Worley’s law firm and her treating physicians, because the YMCA suspected there was a ”cozy agreement” between the firm and the physicians.
As part of the attempts to discover whether the attorneys referred the plaintiff to the treating physicians, the YMCA asked the plaintiff in her first deposition if her attorneys had referred her to the doctors. The plaintiff’s attorneys objected claiming that the information was protected by the attorney-client privilege. In a second deposition, the YMCA asked “how [plaintiff] was referred to her doctor.” Again, plaintiff’s counsel objected to the question.
The Worley majority acknowledged “[t]hat the plaintiff was treated by a particular doctor is an underlying fact.” The majority also agreed “[t]hat the plaintiff received a referral to see a particular doctor is also an underlying fact.” Nonetheless, the court held that “whether the plaintiff’s attorney requested that the client see a certain doctor requires the plaintiff to disclose a part of a communication that was held between the plaintiff and the attorney.”
But the majority ignored the requirement that to be privileged, a communication between a lawyer and a client must be “in furtherance of the rendition of legal services to the client.” § 90.502(1)(c) Fla. Stat. As discussed by the three dissenting justices, “[a] lawyer’s referral of a client to a treating medical provider is for the purpose of the client’s medical care, not in furtherance of legal services.” Thus, “communications that do not involve legal advice” should not be protected by the attorney-client privilege. The dissent thus concluded that “if a communication is a recommendation of a physician from whom someone should seek medical treatment the referral does not constitute protected legal advice.”
To make matters worse, the majority seems to have restricted broader inquiries into relationships between plaintiffs’ firms and treating doctors. Before addressing whether the attorney-client privilege barred the specific question of whether the plaintiff’s attorneys referred her to her doctors, the majority considered “whether the financial relationship between a plaintiff’s law firm and the plaintiff’s treating physician [was] discoverable.” The majority stated that the relationship was not discoverable because the law firm was “not a party to the litigation” and treating physicians are not hired for the purpose of the litigation.
The majority did indicate that defendants could inquire whether the doctor provided medical care to the specific plaintiff pursuant to a “Letter of Protection,” to establish bias on the part of the treating doctors. (Letters of Protection are generally used only when patients lack insurance or adequate insurance to guarantee payment.) But this narrow limitation ignores whether the law firm and the treating physicians have ongoing financial relationships. And the majority decision would seemingly prevent defendants from discovering any referral relationship if the plaintiff has sufficient medical insurance.
As explained by the dissent, “[i]f a law firm routinely refers clients to the medical provider…the more it is likely that the witness has a vested interest in that financially beneficial relationship continuing.”
While the overly broad wording of the majority opinion prevents defense counsel from asking plaintiffs if they were referred to doctors by their lawyers, the decision should leave open other avenues to discover information about attorney referrals to and “cozy agreements” with treating doctors. Some of those opportunities should include:
- Intake Forms: Most new patient forms ask who referred the patient to the doctor’s office. If the plaintiff admits his attorney referred him, no privilege should apply.
- Relatives and Third Parties: Defense counsel should be able to ask if the plaintiffs’ friends or relatives know who referred plaintiffs to their doctors. In general, plaintiffs waive any attorney-client privilege if they disclose their communications with their lawyers to other people.
- Treating Physician Depositions: Nothing in the opinion should prevent defense counsel from asking a doctor if the doctor knows who referred the plaintiff for treatment. If the doctor knows it was the plaintiff’s attorney, then the privilege has been waived through disclosure.
- Prior Testimony of the Treating Doctors: If the doctors have testified in other cases in which the same attorneys represented the plaintiffs, defense counsel should still be able to inquire about those prior cases.
Thankfully, the Florida Supreme Court’s decision in Worley is an outlier. As noted by the dissent, a lawyer’s referral of a plaintiff to a doctor is not legal advice. The identity of the person who referred a patient to a doctor is an underlying fact. The narrow majority in Worley simply reached the wrong conclusion. Defense lawyers across the country should remain vigilant to prevent the mistaken ruling in Worley from spreading to other states.
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Missouri Court of Appeals Upholds Acceptance Doctrine to Absolve General Contractor of Premises LiabilityApril 21, 2017 | John Watt
In the case of Wilson v. Dura-Seal and Stripe, the Missouri Court of Appeals for the Eastern District held that the “acceptance doctrine” is still valid law in Missouri, and bars liability against a construction contractor for the injury of a third party after the owner of the premises has accepted the work. Citing prior case law, the Court explained the law as follows: “After an owner accepts a structure, the general rule is that a general contractor is not liable to persons with whom he did not contract....In the absence of formal acceptance, constructive or practical acceptance will suffice....Acceptance of the work is attended by the presumption of the owner … made a reasonably careful inspection of the work, knows of its defects, and so accepts the defects and the negligence that caused them as his own.”
In Wilson, plaintiff brought suit against general contractor Dura-Seal for injuries she sustained when she tripped and fell in the gutter area of new asphalt, which had been applied by Dura-Seal at a public school. Wilson claimed that she fell as a result of the height differential between the gutter area and the new asphalt installed by Dura-Seal. Wilson filed a premises liability claim against the owner of the premises who then in turn added Dura-Seal as a third party defendant. Dura-Seal moved for summary judgment, stating that the owner had accepted their work and therefore bore the premises liability due to the acceptance doctrine. The plaintiff argued that there was no evidence that the owner had accepted the work.
It was undisputed that Dura-Seal had not performed any work on the drive lane for at least two months before the plaintiff’s injury and that the owner had paid Dura-Seal for all of the work. It was undisputed that the owner also had exclusive possession and use of the premises rather than the contractor. The Court of Appeals affirmed summary judgment and found that the undisputed facts showed that Dura-Seal was neither in control of the premises, nor had the right to control the premises at the time of the plaintiff’s injury.
The Court of Appeals also analyzed the “imminently dangerous” exception to the acceptance doctrine. This exception operates to impose liability on a contractor, even after the owner has accepted the contractor’s work, under the following conditions: “Where the structure was so defectively constructed as to be essentially and imminently dangerous to the safety of others; the defects are so hidden and concealed that a reasonable and careful inspection would not have disclosed them, and these things are known to the defendants but not to those who accepted them.” Here, the undisputed facts showed that the drive lane and the gutter area where Dura-Seal worked were in plain view and therefore was easily discoverable by the owner. The Court thus declined to apply the exception, and ruled in Dura-Seal’s favor, holding that plaintiff had accepted the work when it was completed and payment in full was made.
Missouri construction contractors and their counsel should be well aware of the dimensions of the acceptance doctrine, and the “imminently dangerous” exception, when defending cases of this type.
One of the more compelling, but sometimes unheeded, arguments against heavy banking regulations is the plight of the community bank. The expense and practicality of adhering to stringent reporting requirements, fee limits, and timelines place a heavier burden on small, local banks, particularly those in rural areas, than on large financial institutions. Accordingly, organizations for community banks and local credit unions have been created in order to give a voice to those smaller entities that are often overlooked in the course of financial regulation.
At a recent convention attended by nearly 3,000 community bankers, Camden R. Fine, the President and CEO of Independent Community Bankers of America (“ICBA”) called community banks to action in order to drive continued regulation reform for local banking communities. The ICBA intends, at an upcoming summit in Washington D.C., to address Congress in order to ensure that proposed regulatory relief legislation for community banks is signed into law.
In its “Plan for Prosperity” outlining the relief the ICBA will seek at the Summit, the ICBA proposes that the CFPB should be granted increased authority to exempt or tier regulatory requirements for community banks and to restructure the CFPB to create a diverse panel rather than a single decision-maker, which the ICBA hopes would increase the likelihood that at least one decision maker has a background in community bank lending practices.
The ICBA also seeks to eliminate the filing of capricious “disparate impact” fair lending lawsuits by requiring the petitioner to demonstrate discriminatory intent in order to succeed on a claim under the Equal Credit Opportunity Act and the Fair Housing Act. This change would ensure that lenders, particularly small, local lenders with limited pools of applicants, who apply uniform and neutral lending standards, are not subjected to frivolous or unfounded claims under those Acts.
Additional reforms proposed by the ICBA would impose a cost-benefit analysis for new regulations, raise the currency transaction report threshold under the Bank Secrecy Act, eliminate the small business data collection requirements under Dodd-Frank, and would reform the reporting requirements and closing processes for community banks and other small servicers.
By reforming and lessening regulation for smaller financial institutions, it is hoped that local lenders will thrive and compete with those servicers deemed “Too Big to Fail.”
Earlier this week, Governor Eric Greitens signed Missouri HB 153 into law. HB 153, which supplants Missouri’s existing expert witness standard with that set forth in Federal Rules of Evidence 702, 703, 704 and 705, effectively submits expert testimony in most civil and criminal case to the analysis set forth in Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).
Until now, R.S.Mo. 490.065 has set forth the requirements for admission of expert testimony in Missouri state courts. In its present form, the language of the statute has varied significantly from the familiar expert witness standard set forth in the Federal Rules of Evidence and the rules of numerous sister states that track the federal rules. The standard for applying the requirements of R.S.Mo. 490.065 has been nebulously outlined in Missouri case law. Missouri appellate decisions have noted on occasion that Daubert and its progeny could provide “guidance” where the federal rules and the Missouri rules match up. See, e.g. State Bd. of Registration for the Healing Arts v. McDonagh, 123 S.W.3d 146, 155-156 (Mo. 2003) (Wolff, J, concurring in part and dissenting in part), and Goddard v. State, 144 S.W.3d 848, 852-853 (Mo. App. S.D. 2004) . On other occasions, however, Missouri courts have plainly stated that Daubert did not govern the admissibility of expert testimony in Missouri cases. See, e.g., McGuire v. Seltsam, 138 S.W.3d 718, at fn. 3 (Mo. 2004). As one Supreme Court Justice noted in a concurrence to McDonagh, supra:
“Forget Frye. Forget Daubert. Read the statute. Section 490.065 is written, conveniently, in English. It has 204 words. Those straightforward statutory words are all you really need to know about the admissibility of expert testimony in civil proceedings. Section 490.065 allows expert opinion testimony where "scientific, technical or other specialized knowledge will assist the trier of fact…" McDonagh, supra at 160.
Things have not proven so straightforward, and with no definitive standard, trial judges understandably have had a difficult time sorting the wheat from the chaff, allowing some questionable “expert” testimony to slip through the cracks and into the jury box. When HB 153 takes effect, in August 2017, and Daubert unquestionably sets the standard for admissible expert testimony, this risk will be considerably lessened. In federal courts, Daubert has for decades proven a fair and effective standard for assessing the admissibility of expert testimony. Its introduction into Missouri law will be a welcome change.
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Attorneys: John Patterson
A little less than two weeks apart, two federal judges emphatically let practitioners in their districts know how much they despise boilerplate objections to written discovery. Both judges delivered the same message: boilerplate objections violate the Federal Rules of Civil Procedure, are not valid objections and could subject parties or their attorneys to sanctions.
In the first order, Magistrate Judge Andrew Peck of the Southern District of New York expressed his disgust for boilerplate objections in just a few pages and most of those pages involved direct quotations from the Federal Rules, the Advisory Committee Notes to the rules and the specific requests for production and the responses to those requests. Stripped of the quotations, Judge Peck used fewer than a dozen paragraphs in Fischer v. Forrest, 2017 U.S. Dist. LEXIS 28102 (S.D.N.Y. Feb. 28, 2017), to explain that boilerplate objections violate the Federal Rules in at least four ways.
In contrast, Judge Mark Bennett of the Northern District of Iowa penned an expressive 45 page treatise in Liguria Foods, Inc. v. Griffith Labs, Inc., 2017 U.S. Dist. LEXIS 35370 (N.D. Iowa Mar. 13, 2017), in which he lambasted the use of boilerplate objections and analyzed whether the use of those objections by both parties constituted sanctionable conduct. Ultimately, Judge Bennett decided against issuing sanctions in this particular case, but he made it clear that he will issue sanctions in future cases.
Judge Peck’s Order in Fischer v. Forrest
In the opening sentence of his short order, Judge Peck declared that “[i]t is time, once again, to issue a discovery wake-up call to the Bar in this District…” Specifically, Judge Peck reminded practitioners that amendments to the Federal Rules of Civil Procedure took effect on December 1, 2015 and those amendments included changes to Rule 34 regarding responses to discovery requests. In particular, Judge Peck noted that:
(a) grounds for objections must be stated with specificity;
(b) objections must state whether responsive material is being withheld on the bases of objections; and
(c) parties must specify the time for production of documents, and if it will be a rolling, then the production will begin and end.
Lawyers who have not changed their “form file” for objections to discovery requests “violate one or more (and often all three) of these changes.” Judge Peck then lamented that “[d]espite the clarity of the no-longer-new 2015 Amendments, the Court still sees too many non-compliant Rule 34 responses.”
After noting that the defendant included 17 “general objections” in its responses to the discovery requests, Judge Peck quoted from the defendant’s objections to the first two document requests. The defendant objected “to the extent that [they are] overly broad and unduly burdensome, and not likely to lead to the discovery of relevant evidence” and that the requests seek “information already in Plaintiff’s possession.”
According to Judge Peck, those objections violate the amended rules in at least four respects. First, the general objections violate Rule 34(b)(2)(B)’s requirement that objections be stated with specificity and Rule 34(b)(2)(C)’s requirement to indicate if responsive material is being withheld on the basis of a specific objection. Thus, “[g]eneral objections should rarely be used after December 1, 2015 unless each such objection applies to each document request.”
Second, the defendant’s general objections on the basis of “non-relevance” to the “subject matter of the litigation” and that the discovery is “not likely to lead to the discovery of relevant admissible evidence” are outdated. Because "discovery about 'subject matter' no longer is permitted" and because the “2015 amendments deleted” the “likely to lead to the discovery of relevant, admissible evidence” language, “lawyers need to remove [that language] from their jargon."
Third, objections that requests are “overly broad and unduly burdensome” are “meaningless boilerplate” because that “language tells the Court nothing.” Fourth, the discovery responses failed to indicate when the responsive material would be produced.
Judge Peck concluded his order with an ominous warning to practitioners:
From now on in cases before this Court, any discovery response that does not comply with Rule 34’s requirement to state objections with specificity (and to clearly indicate whether responsive material is being withheld on the basis of objection) will be deemed a waiver of all objections (except as to privilege).
Judge Bennett’s Order in Liguria Foods, Inc. v. Griffith Labs, Inc.
Judge Bennett, in Liguria Foods, concluded his order in similar fashion. But unlike Judge Peck, Judge Bennett used the typewritten version of yelling to issue his warning – he concluded his order in all capital letters. Specifically, he announced:
NO MORE WARNINGS. IN THE FUTURE, USING “BOILERPLATE” OBJECTIONS TO DISCOVERY IN ANY CASE BEFORE ME PLACES COUNSEL AND THEIR CLIENTS AT RISK FOR SUBSTANTIAL SANCTIONS.
In his 45-page order, Judge Bennett cites no fewer than ten scholarly articles to support his opposition to boilerplate objections, and observes that no judicial jurisdiction in the United States “authorizes, condones, or approves of this practice[.]” According to Judge Bennett, boilerplate objections are “obstructionist” and this obstructionist discovery practice is a firmly entrenched “culture” in some parts of the country, notwithstanding that it involves practices that are contrary to the rulings of every federal and state court to address them.
Because boilerplate objections are part of the “culture,” Judge Bennett declared that “admonitions from the courts have not been enough to prevent such conduct and that, perhaps, only sanctions will stop this nonsense.” Thus, in his view, Judge Bennett wrote that “the imposition of increasingly severe sanctions will help solve the problems.”
Although counsel for both parties agreed that they had a cooperative and professional relationship throughout discovery, Judge Bennett nonetheless spent several pages of his order considering whether to sanction counsel for both parties who prepared the “obstructionist” boilerplate objections. Ultimately, Judge Bennett decided against issuing sanctions in this case. But he “strongly encourage[d] counsel for both parties to improve discovery practices at their own firms and to educate their colleagues and law students on proper discovery responses.”
Prior to this order, Judge Bennett had issued a Supplemental Trial Management Order applicable in cases starting in 2017. In that new order, Judge Bennett specifically states that “[a]ny party subjected to obstructionist conduct in discovery or depositions…shall promptly file a Report to the Court in writing, advising the Court of the specific nature of the alleged discovery abuse, regardless of whether or not the party intends to seek sanctions on its own motion.” In short, parties now have an affirmative obligation to report “obstructionist discovery conduct” to Judge Bennett.
Key Takeaways from Both Orders
The message from both judges could not have been louder or clearer: boilerplate objections are unacceptable and may be sanctioned in future cases. But the disdain for boilerplate objections is not limited to just these two judges. Judges in Kansas have long railed against boilerplate objections, general objections, and conditional objections. See High Point SARL v. Sprint Nextel Corp., 2011 U.S. Dist. LEXIS 103118 (D. Kan. Sept. 12, 2011) (rejecting “unduly burdensome” objections that were not supported by evidence detailing the nature of the burden); Pro Fit Mgmt. v. Lady of Am. Franchise Corp., 2011 U.S. Dist. LEXIS 19152 (D. Kan. Feb. 25, 2011) (criticizing general and conditional objections as “hypothetical and meaningless”); Duffy v. Lawrence Mem. Hosp., 2016 U.S. Dist. LEXIS 176848 (D. Kan. Dec. 21, 2016) (citing numerous Kansas rulings railing against conditional and boilerplate objections including cases dating back as far as 2005).
And in the few weeks since Judge Peck penned his order, other federal judges from California, Florida and North Carolina have joined the chorus, albeit with less fervor than Judges Peck and Bennett. In Sream, Inc. v. Hassan Hakim & Sarwar, 2017 U.S. Dist. LEXIS 31491 (S.D. Fla. Mar. 6, 2017), the court quoted directly from Judge Peck’s order that the language “overly broad” and “unduly burdensome” “tells the Court nothing.” In another case, Am. Humanist Assn. v. Perry, 2017 U.S. Dist. LEXIS 38600 (E.D.N.C. Mar. 17, 2017), after noting that “[s]uch boilerplate objections are subject to waiver,” the court threatened sanctions up to default judgment if the defendant’s supplemented discovery responses continue to be deficient. See also Amatrone v. Champion, 2017 U.S. Dist. LEXIS 40800 (N.D. Cal. March 20, 2017) (holding that “boilerplate responses are insufficient.”).
Judge Peck urged counsel to update their “form” files and suggested that parties should avoid “general objections” except in rare instances. Judge Bennett explicitly prohibits boilerplate objections in his Supplemental Trial Management Order. He also provides direct instructions regarding proper discovery responses. The amended Federal Rules require specific objections and detailed privilege logs. To avoid the wrath of federal judges, parties would be wise to avoid the types of boilerplate objections made by the parties in Fischer and Liguria Foods, Inc.
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In Bierman v. Violette,the Missouri Court of Appeals for the Eastern District, reestablished that yes, employees, you may owe duties to your co-employees that are separate and distinct from those duties the employer owes to its employees. The Court of Appeals reversed trial court’s dismissal of a negligence claim against a co-worker, citing this distinction.
Plaintiff Bierman and Defendant Violette were co-workers at a bar and grill, who were working together when the Plaintiff was injured. Specifically, Plaintiff alleged that she was injured after entering “a lofted space accessible only through the use of a twelve-foot, A-frame ladder” that was locked into place, which the Defendant knew or should have known the Plaintiff was doing. Then, while the Plaintiff was still within the lofted space, the Defendant unlocked, closed and moved the ladder for a time and then returned the ladder to the place where it was accessible again to Plaintiff. Plaintiff alleged that the Defendant failed to properly secure and lock the ladder in its previous position when it was moved, causing it to collapse as Plaintiff descended down the ladder. This resulted in injuries to Plaintiff after she fell, struck a concrete countertop and landed on the ground.
The Defendant argued that the claim against her was legally insufficient, because Plaintiff’s allegations did not “establish an independent duty of care owed by Defendant, which is separate and distinct from their Employer’s non-delegable duty to provide a safe workspace.” The trial court agreed and dismissed the Petition, and Plaintiff appealed. The Court of Appeals postponed oral argument, because then pending before the Missouri Supreme Court were two cases - Peters v. Wady Industries, Inc. and Parr v. Breeden, both of which involved the legal standards for pleading co-employee liability.
In both Peters and Parr, the Missouri Supreme Court affirmed the decisions in favor of the defendant/co-employees where the plaintiffs failed to establish that the defendants owed duties to the plaintiffs that were separate and distinct from the respective employer’s nondelegable duty to provide a safe workplace. Although the Peters and Parr cases were, on their face, unfavorable to Plaintiff Bierman, both Plaintiff Bierman and the Court of Appeals relied on aspects of the Missouri Supreme Court decisions to differentiate and ultimately reverse the trial court’s decision in favor of the Defendant/co-employee; thus, resulting in a different outcome that the Peters and Parr decisions.
The Bierman Court, citing Peters and Parr, first noted that the 2005 amendments to the Workers’ Compensation Law gave immunity against tort claims for work-related injuries only to employers; thus, co-employees are not immune and remain at risk for such liability (i.e. plaintiff can pursue a common law negligence claim against her co-employees if her allegations are adequately pled).
In Missouri, a plaintiff asserting allegations of negligence must establish that:
- the defendant had a duty to the plaintiff;
- the defendant failed to perform that duty; and
- the defendant’s breach was the proximate cause of the plaintiff’s injury.
In Bierman, the Court of Appeals analyzed whether the first element, “duty,” had been adequately pled. This question turned on what Missouri recognized as a duty owed by a co-employee to another at common law, versus what duty is owed by an employer to its employees. “An employee is liable to a third person, including a co-employee, for breaching a legal duty owed independently of any master-servant relationship.” An employer, on the other hand, owes its employees certain non-delegable duties with respect to safety and the employer, by itself, is liable for the breach of such a non-delegable duty. Thus, a co-employee cannot be held liable for breach of an employer’s non-delegable duty, which the employer alone owes. The duty owed by the co-employee must be separate and distinct from that of the employer.
What are an employer’s non-delegable duties, which cannot be separately imposed upon a co-employee? The Bierman court set forth the following, based on Peters and Parr:
- the duty to provide a safe workplace, including a duty to ensure that instrumentalities of the workplace are used safely;
- the duty to provide safe work appliances, tools, and equipment;
- the duty to give warning of dangers of which an employee might be reasonably expected to be ignorant of;
- the duty to provide a sufficient number of fellow employees; and
- the duty to make and enforce rules for the conduct of employees to ensure the work is safe.
When does an employer not have a duty to protect its employees and, therefore, when can a co-employee’s duty(ies) arise? As set forth in Bierman, “[e]xcept in the cases in which the employer is itself directing the work in hand, its obligation to protect its employees does not extend to protecting them from the transitory risks which are created by the negligence of a co-employee carrying out the details of that work.” In other words, the distinction revolves around how the co-employee is carrying out the details of his or her own work. For example, is a co-employee misusing equipment, such as a hose, where the co-employee uses the equipment in a manner that is not approved by the employer and causes injury to a co-employee? Or is the employer allowing defective equipment to remain on the property that results in injury to its employees?).
The Bierman Court determined that the Plaintiff’s injury was alleged to have occurred because of the Defendant/co-employee’s negligent use and manner of handling the ladder (i.e. how the co-employee was carrying out the details of his or her own work) and not because the employer allowed a defective product to remain in use on the property (i.e. the workplace was not unsafe). As a result, the duty alleged in Plaintiff’s Petition was found to be a separate and distinct duty owed by the Defendant/co-employee from that of an employer’s non-delegable duties to provide a safe workplace. The Bierman Court further held that the negligence of the Defendant did not need to be the sole cause of plaintiff’s injury, “as long as it is one of the efficient causes thereof, without which injury would not have resulted.” Therefore, the Court of Appeals reversed and remanded the case back to the trial Court, allowing Plaintiff to attempt to prove her negligence claim against her co-worker.
The Bierman case’s final outcome is presently unknown. However, this case does teach some simple, but important lessons for plaintiffs, defendants, and those in the business world:
- When a workplace negligence claim is asserted, language matters. The wording of a claim by a plaintiff, or a defense by a defendant, needs to adhere to the case law recently articulated by the Missouri appellate courts.
- Workplace safety is not just the employer’s concern. Co-workers must pay attention and take reasonable, precautionary action to ensure the safety of those around them.
Rule 55.27(a) Means What It Says: Summary Judgment Rules Apply to Motions to Dismiss That Rely on Matters Outside of the PleadingsMarch 14, 2017 | Martha Charepoo
In Schnurbusch v. West Plains Regional Animal Shelter et al., after a trial court had dismissed a case for failure to state a claim, the Court of Appeals reversed and remanded the case, because the trial court dismissed the case based on evidence outside of the pleadings without having before it a fully developed summary judgment-type record.
Schnurbusch initially arose from claims by a landscaping company and its owners against a city for failing to enforce its zoning laws against an animal shelter and the resulting alleged nuisance. The dispute with the city involved a protracted court battle spanning several years, a jury trial, and an appeal, and the filing of a separate lawsuit against the animal shelter. The parties filed many motions and cross-motions, including a motion to dismiss by the animal shelter which attached three exhibits. The trial court granted the motion and dismissed the petition, relying on the exhibits attached to the motion.
The plaintiffs appealed the trial court’s decision to dismiss their petition arguing that Rule 55.27(a) required that it treat the animal shelter’s motion like a summary judgment motion under Rule 74.04. The Court of Appeals agreed in clear and forceful terms, relying on well-established precedent that once a trial court considers materials outside of the pleadings in ruling on a motion to dismiss, it automatically gets converted into a motion for summary judgment. Thus, the trial court erred by failing to compel the parties to comply with the procedural requirements of Rule 74.04. The Court of Appeals also reiterated that the procedural requirements of Rule 74.04 are strict and must be followed, which was not done in this case. Here, there was no statement of uncontroverted material facts or legal memorandum explaining why summary judgment should be granted. Indeed, the Court of Appeals found no evidence that the trial court gave the plaintiffs a chance to present additional materials facts to controvert the exhibits presented by the animal shelter. Thus, the Court found there was no Rule 74.04 record for its review, and sent the case back to the trial court for further proceedings under Rule 74.04.
The lesson of Schnurbusch is clear: the procedure of Rule 55.27(a) for handling a motion to dismiss that brings in matters outside of the pleadings is not discretionary with the trial court, and a trial court’s failure to require the parties to comply with the procedure of Rule 74.04 as stated in that rule will result in reversal.
Jury Panel Investigation in Missouri Revisited: Waiver of the Issue of Juror Non-Disclosure Remains Limited to the Litigation HistoryMarch 6, 2017 | James Seigfreid
With the constant evolution of technology, the Missouri Constitution’s guarantee of the right to a fair and impartial jury of 12 has simultaneously become easier and more difficult to attain. As internet outlets and social media platforms rapidly multiply, prospective jurors have more opportunities to express or “post” beliefs and reveal biases on topics involved in litigation. In the best case scenario, this provides a litigant ample opportunity to corroborate or dispute the information provided by a prospective juror during voir dire. On the other hand, it has become increasingly difficult to uncover all of a prospective juror’s internet persona to discover whether a juror may, or may not, be impartial in a particular case.
As outlined in a blog post published in 2013, Missouri was one of the first states to obligate a litigant to investigate the backgrounds of potential jurors. In 2010, the Supreme Court of Missouri, in Johnson v. McCullough, affirmed a lower court’s grant of a new trial when plaintiff’s counsel, through research after trial, discovered that a juror failed to disclose their prior “litigation history.” Although the Supreme Court agreed that a new trial was appropriate, it also put litigants on notice that they should not expect to succeed on such motions in future if they wait until after a verdict is returned to perform juror research.
In 2011, the Missouri Supreme Court approved Rule 69.025 which codified the duty of litigants to research prospective jury members. Notably, it cautioned litigants that “a party waives the right to seek relief based on juror nondisclosure if the party fails to do either of the following before the jury is sworn: (1) Conduct a reasonable investigation; or (2) if the party has reasonable grounds to believe a prospective juror has failed to disclose that he or she has been a party to litigation, inform the court of the basis for the reasonable grounds. Mo. R. Civ. P. 69.025(e). For the purposes of the rule, “reasonable investigation” constitutes a search of Case.net, at minimum. Mo. R. Civ. P. 69.025(b).
The Southern District Court of Appeals recently addressed this rule in Spence v. BNSF Ry. Co. Despite the exponential growth of technology and online outlets in the past four years, the Court held the applicability of Rule 69.025 was limited to the subject of a venireperson’s “litigation history.” Spence involved a fatal car accident in which a BNSF train struck the decedent’s truck. Before the panel of potential jurors were seated, the parties conducted pretrial Case.net searches based on a list tendered by the Court. However, around the time the panelists were seated for voir dire, it was discovered that Juror Cornell’s last name was misspelled (“Carnell”). The parties did not conduct another Case.net search using Juror Cornell’s correctly spelled name before questioning.
As voir dire unfolded, BNSF’s counsel asked potential jurors whether or not they, or a close family member, had been involved in a motor vehicle accident. Counsel did not, however, question the panel about their “litigation history” involving motor vehicle accidents. Juror Cornell, whose son died in an auto accident, remained silent and said nothing in response to BNSF counsel’s question seeking information about those involved in motor vehicle accidents. Juror Cornell ultimately made the jury and assisted in awarding $19 million dollars to the decedent’s wife.
BNSF appealed the trial court’s rejection of their juror non-disclosure claim regarding Juror Cornell’s failure to truthfully answer the questions regarding her family’s history with automobile accidents. In response, plaintiff argued that another Case.net search using Juror Cornell’s correctly spelled name would have revealed the juror’s lawsuit for her son’s death and that Mo. R. Civ. P. 69.025 should operate to cause waiver of the complaint that the juror failed to disclose pertinent information.
The appellate court held that Mo.R.Civ.P. 69.025 pertained exclusively to juror non-disclosure of “litigation history.” In this case, Juror Cornell failed to advise the litigants that her son had died in an auto accident, not whether or not she had been involved in litigation relating to an accident. As a result, the majority was compelled to find that Mo.R.Civ.P. 69.025 could not be invoked to cause BNSF’s waiver of the right to complain about the disclosure. The Court ordered a new trial as a result.
In a well-reasoned dissent, Judge Rahmeyer argued that Rule 69.025 was much broader in its application than as narrowly construed by the majority. The judge believed that the claim by BNSF counsel relating to juror non-disclosure was “exactly the type of claim that Rule 69.025 was enacted to curtail, i.e. an after-trial complaint of juror non-disclosure of a matter that would have been discovered had defendant used due diligence by searching Case.net.” Plaintiff has asked the Missouri Supreme Court to review the case; the Court has not yet decided whether to do so.
However, reports that hail this decision as the death-knell to “litigation tourism” are likely premature. Parker does good things to curtail litigation tourism. Among these are rejection of the notion that out-of-state defendants consent to personal jurisdiction by maintaining a registered agent in Missouri, and adoption of the Daimler and Goodyear cases regarding general jurisdiction.
The rejection of the doctrine of consent jurisdiction is a significant and much-needed development. Missouri courts have long improperly conflated the ability to serve a defendant with obtaining personal jurisdiction over the defendant. Although Parker cites only out-of-state cases for this proposition, as a practical matter Missouri practitioners have found that designation of a registered agent for service in Missouri has been universally viewed by the state’s trial courts as consent to personal jurisdiction. The Missouri Supreme Court’s only prior opinion involving this issue ultimately declined to decide whether service upon an in-state registered agent was sufficient to confer personal jurisdiction over a non-resident defendant. See State ex rel. K-Mart Corp. v. Holliger, 986 S.W.2d 165, 167-68 (Mo. banc 1999). However, Holliger was frequently cited for the proposition that a registered agent, plus “sufficient” contacts with the state, was sufficient to confer personal jurisdiction. Id. at 168-69.
The lack of guidance afforded by Holliger has opened the door to some of the “litigation tourism” problem, allowing trial courts to rule that an out-of-state defendant has consented to personal jurisdiction by appointing a registered agent to accept service and registering to do business within the state. See, e.g., Order dated Sept. 6, 2016, Kologenski v. The Adel Wiggins Group, et al., Case No. 1622-CC00427 (22nd Judicial Circ., City of St. Louis, Div. 29); Gracey v. Janssen Pharmaceuticals, Inc., Case No. 4:15-CV-407 (CEJ), 2015 U.S. Dist. LEXIS 57990, 2015 WL 2066242 (E.D. Mo. May 4, 2015). In Kologenski, a City of St. Louis trial court found that it was unnecessary to perform a “minimum contacts” constitutional due process analysis where the defendant maintains a registered agent in the state, because it has consented to personal jurisdiction. Order at 3.
Parker holds that registration statutes, including designation of a registered agent for service, does not alone equal consent to personal jurisdiction over non-resident defendant companies. “[T]he registration statute does not provide an independent basis for broadening Missouri’s personal jurisdiction to include suits unrelated to the corporation’s forum activities when the usual bases for general jurisdiction are not present.” Slip. Op. at 18.
The explicit adoption of federal precedent regarding general jurisdiction, including Daimler and Goodyear, is also good, particularly the acknowledgement that these cases change Missouri law. The attempt to quantify how much contact a defendant must have with a forum before that contact is “systematic and continuous,” however, is likely a mixed blessing for defendants.
While Norfolk Southern can account for only approximately 2% of its track and employees within the state of Missouri, the mathematical formula approach in Parker will likely prove more frustrating for defendants whose Missouri contacts comprise a more significant portion of their overall business. We can foresee considerable post-Parker litigation over the location of the mathematical threshold for “continuous and systematic” contacts, which is not consistent with the intent of Daimler and Goodyear. Is the threshold crossed when a defendant’s Missouri contacts constitute a double-digit percentage of its overall business? Is it greater than 50%? Parker introduces what will likely prove to be an unwieldy math problem with little practical guidance as to where the line is drawn. By contrast, Daimler and Goodyear signaled that the very notion of general jurisdiction was of such dubious and exceptionally limited application that it would virtually never apply, and this essential premise was not well-adopted in Parker.
Furthermore, Parker does not address the multi-plaintiff problem that is at the core of litigation tourism in Missouri. In the “mini MDLs” proliferating in the state, particularly in the context of pharmaceutical, medical device, and asbestos cases, usually at least one plaintiff can establish personal jurisdiction over the defendants. Typically, a Missouri resident who sustained injury in Missouri is included, and who could establish jurisdiction under the long-arm statute for commission of a tort in the state or conducting business in the state.
The problem is allowing other non-resident plaintiffs to bootstrap their unrelated claims. Parker helps when there is a single forum-shopping plaintiff, but does not clearly address the problem of “pendent” or “supplemental” personal jurisdiction. The argument that numerous unrelated out-of-state plaintiffs may be joined under Missouri’s Rule 52.05 with one plaintiff who properly asserts personal jurisdiction is a type of “pendent” or “supplemental” theory of specific personal jurisdiction. See, e.g., Liggins v. Abbvie Inc. (In re Testosterone Replacement Therapy Prods. Liab. Litig.), 164 F. Supp. 3d 1040, 1048 (N.D. Ill. 2016).
Federal courts have plainly held that “[t]here is no such thing as supplemental specific personal jurisdiction; if separate claims are pled, specific personal jurisdiction must independently exist for each claim and the existence of personal jurisdiction for one claim will not provide the basis for another claim.” Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 275 n.6 (5th Cir. 2006). “Permitting the legitimate exercise of specific jurisdiction over one claim to justify the exercise of specific jurisdiction over a different claim that does not arise out of or relate to the defendant’s forum contacts  violate[s] the Due Process Clause.” Id.
This is the crux of the problem with “litigation tourism” in Missouri. Because Parker is a single plaintiff case, the pernicious misapplication of the law evidenced by the “supplemental personal jurisdiction” fallacy remains untested in Missouri. While it appears likely that the Missouri Supreme Court would be receptive to ruling that the theory is not viable, it has not done so in Parker. Multi-plaintiff litigation tourism likely lives to fight another day.
“Make hay while the sun is shining.” The Consumer Financial Protection Bureau (the “CFPB”) is making its proverbial hay, after facing political attacks and constitutional challenges to its very structure, by bringing suit against Navient and two of its subsidiaries for an array of alleged failures in servicing of student loans.
In the Complaint, the CFPB states that Navient has failed to correctly allocate payments received to the customer’s account, particularly where that customer has multiple loans. The Bureau further alleges that representatives of Navient, rather than offering the student income-based repayment plan, often directed their customers to enter into forbearance periods, during which the interest capitalized, causing an increase in the principal balance of those loans. For those who did receive income-based payment plans, it is alleged that Navient failed to send appropriate notices detailing requirements and requests for information for borrowers to maintain the income-based payment plan, causing the monthly payment to increase by hundreds, if not thousands of dollars, and potentially disqualifying those borrowers from student loan forgiveness eligibility.
Navient is also alleged to have misreported the discharge of U.S. Armed Forces Service members’ loans by reporting that the military borrowers had been in default at the time of discharge when they had not been in default.
According to the Bureau, these, and other errors in servicing, put borrowers at a severe disadvantage in repaying their loans and maintaining good credit. “For years, Navient failed consumers who counted on the company to help give them a fair chance to pay back their student loans,” advised CFPB Director Richard Cordray. Director Cordray further stated that, over the course of servicing its loans, Navient “chose to shortcut and deeive consumers to save on operating costs. Too many borrowers paid more for their loans because Navient illegally cheated them and today’s action seeks to hold them accountable.”
This action has the potential to give a lasting impact on student loan servicing, as Navient is the nation’s largest student loan servicer, currently servicing more than $300 billion in both federal and private student loans. In a study conducted in 2016 by the CFPB, it was found that more than 8 million student loan borrowers are in default on at least one of their loans. Student loan servicers are reminded that the 2012 Mortgage Servicing Settlement, involving similar allegations with respect to errors in servicing against the 5 largest home loan servicers, paved the way for CFPB regulations that now impact nearly all home loan servicers.
BSCR will continue to monitor this action and will provide important updates as the case progresses.
State ex rel. Norfolk Southern Railway Company v. The Honorable Colleen Dolan, 2017 WL 770977, No. SC95514 (February 28, 2017)
In a recent opinion, the Missouri Supreme Court continued the U.S. Supreme Court’s trend toward limiting personal jurisdiction over a non-resident defendant.1 In State ex rel. Norfolk Southern Railway Co. v. Dolan, the Court held Norfolk’s substantial and continuous business in the state of Missouri was insufficient to establish general personal jurisdiction over Norfolk.
Plaintiff Russell Parker, an Indiana resident, filed suit in St. Louis County against his employer, Norfolk, pursuant to the Federal Employer’s Liability Act. Norfolk is a Virginia corporation with its principal place of business in Virginia. Plaintiff alleged cumulative trauma injury sustained over the course of his years of employment with Norfolk, all occurring in Indiana. Plaintiff never worked for Norfolk in Missouri.
Noting there seems to be continued confusion regarding how personal jurisdiction may be established, the Supreme Court explained that personal jurisdiction over a corporation may be general (when a state exercises jurisdiction over a defendant in a suit not arising out of or related to the defendant’s contacts with the state) or specific (when the suit arises out of or relates to the defendant’s contacts with the forum).
The Court also explained that a court normally may exercise general jurisdiction over a corporation only when the corporation’s place of incorporation or its principal place of business is in the forum state. In “exceptional cases,” however, general jurisdiction may be found to exist if the corporation’s activities in that other state are “so substantial and of such a nature as to render the corporation at home in that State.”
In an effort to show Norfolk conducted continuous and systematic business in Missouri, the Plaintiff presented evidence that Norfolk owns or operates approximately 400 miles of track in the state of Missouri, generates approximately $232 million in revenue, employs approximately 590 people in Missouri, and has a registered agent in the state. However, these numbers represent only about 2% of its total tracks across the country, its total revenue, and its total workforce. Norfolk generates greater revenue in 11 other states, has track in 22 states and has more employees in 13 other states.
Based on this evidence, the Court held Norfolk’s contacts are insufficient to establish general jurisdiction over Norfolk in Missouri. While in “exceptional cases” a state may have general jurisdiction over a corporation neither incorporated nor operating its principal place of business there, such exceptional cases only exist where the forum state can be said to be a surrogate for the place of incorporation or the home office, such that the corporation is essentially at home in that state. Citing to cases from the U.S. Supreme Court, the Court noted this showing requires apprising in their entirety the corporation’s activities in the forum state and its activities in other states and countries. Being “essentially at home” in a state is not the same as “doing business” in a state, such that mere contacts, no matter how systematic and continuous, are unlikely to support an “exceptional case” in and of themselves.
As to specific jurisdiction, the Court emphasized that it requires consideration of the relationship between the defendant, the forum, and the litigation. The Court noted that, while Norfolk had purposefully availed itself of the opportunity to do business in Missouri, it would be subject to specific jurisdiction in Missouri on that basis only as to claims that are related to business contacts it has made in the state. The suit at issue, however, was unrelated to its Missouri contacts so it can be brought only if Missouri has general jurisdiction over Norfolk. That Norfolk engages in its railroad business in Missouri and the alleged injuries arose from the railroad business it conducts in Indiana is insufficient. There is no support for the notion that if a company is a national company that does the same “type” of business in the forum state, then essentially it can be used anywhere, otherwise the notion of specific versus general jurisdiction would be rendered meaningless.
Finally, the Court rejected the notion that Norfolk consented to personal jurisdiction over any case filed in Missouri by complying with Missouri’s foreign corporation registration statute. A broad inference of consent based on registration would allow national corporations to be sued in every state and, again, render the notion of specific versus general jurisdiction pointless.
1. See Goodyear Dunlop Tires Operations, S.A. v. Brown, 131 S.Ct. 2846 (2011); J. McIntyre Machinery Ltd. v. Nicastro, 131 S.Ct. 2780 (2011); Daimler AG v. Bauman, 1345 S.Ct. 746 (2014); and Walden v. Fiore, 134 S.Ct. 1115 (2014).
Premises Liability: The Responsibility of a Business Owner to Act When a Foreseeable Danger is Posed to an InviteeFebruary 13, 2017
In Missouri, business owners generally have no duty to protect invitees from criminal acts of third persons. But there is an important exception to this general rule known as the specific harm exception. As explained and applied in a recent Missouri Court of Appeals case titled Wieland v. Owner Operator Services, Inc., “a duty of care arises when a business owner realizes, or should realize, through special facts within his knowledge that criminal acts of a third party are occurring or about to occur on the premises.”
In Wieland, the jury returned a verdict in favor of plaintiff-employee for $3.25 million for an injury she sustained - inflicted by a third party - while she was on her employer’s premises. The employee had expressed safety concerns to her employer regarding a former domestic partner. Her employer had issued and implemented certain safety protocols to handle situations such as this. Just weeks after alerting her employer, the employee’s former partner entered company parking lot, hid in the employee’s car, and ultimately shot her in the back of her head when she tried to return to the company office building after discovering him in her car.
On appeal, the company argued that the trial court had improperly instructed the jury that it should find for plaintiff if “defendant knew or by using ordinary care could have known that [the assailant] was in the parking lot and posed a danger to plaintiff.” The company argued that the specific harm exception to the general premises liability rule does not apply unless the premises owner has actual knowledge of the third party’s entrance on its premises; and that it therefore had no duty to take action until it knew that the assailant was on its property. The Court of Appeals disagreed and sustained the jury verdict, holding that the “special facts and circumstances” exception is premised on foreseeability, not actual knowledge. It was therefore proper for the jury to consider the company’s pre-existing knowledge, and the actions it should have taken in the exercise of ordinary care, in determining when the company could have known of the third party criminal’s arrival. The evidence at trial, which the jury properly considered, included the company’s own security protocols, the presence of security cameras, and the availability of extra police patrols had they been requested.
This opinion emphasizes the need for an employer or other business owner to stay actively involved and abreast of its invitee’s safety concerns. Upon receiving information that may lead to the “foreseeability of harm” to an invitee, it is imperative that businesses follow internal safety protocol to assure the safety of its employees or customers. The foreseeability of a dangerous third-party’s presence triggers the duty to act; actual knowledge of a dangerous third-party’s presence is not required. Here, had the company offered the employee a closer parking spot, an escort to her car, and routinely checked the parking lot surveillance footage, the resulting injury might have been averted.
The calendars said the years were different, but data from the Greater Kansas City Jury Verdict Service shows that 2016 and 2015 were nearly the same in many respects. Every year, the Greater Kansas City Jury Verdict Service issues a “Summary and Statistics of Jury Verdicts” for the greater Kansas City area. The report includes verdicts from the U.S. District Courts in the Western District of Missouri as well as Jackson, Clay and Platte counties in Missouri and Johnson and Wyandotte counties in Kansas. The statistics in 2016 were remarkably similar to those in 2015.
Comparable Number of Trials and Plaintiffs’ Verdicts
The Jury Verdict Service’s annual summary reported on 113 trials in 2016 compared to 110 in 2015. These numbers are down from the preceding two-year period: there were 133 trials in 2014, and 122 trials in 2013.
Because trials may involve multiple claims and multiple verdicts, the verdict statistics are based on the claims and not the cases. For the 113 trials in 2016, there were 199 verdicts for claims and for the 110 cases in 2015, there were 178 verdicts for claims.
Although the number of trials has decreased from 2013 and 2014, the percentage of plaintiff verdicts is little changed. In both 2015 and 2016, 42% of the verdicts were for plaintiffs compared to 38% for plaintiffs in 2014 and 40% in 2013. These numbers are down from the 55% of the verdicts for plaintiffs in 2012.
Comparable Average Monetary Awards
The overall average of the monetary awards for plaintiffs’ verdicts also remained almost the same in 2016 as they were in 2015. In 2016, the average of plaintiffs’ verdicts was $1,383,549 while the average in 2015 was $1,376,323. Both of those averages are over $1 million more than the average plaintiffs’ verdict in 2014, which was $350,730. While each of these figures is far below the $5,577,689 average verdict in 2013 and somewhat lower than the $1,772,469 average in 2012, the 2013 numbers were skewed by a single $400 million verdict that inflated the 2013 average.
Fluctuating Number of Large Verdicts
Although the average plaintiff’s verdict was similar in 2016 compared to 2015, the number of verdicts exceeding $1 million more than doubled in 2016. There were 16 verdicts of $1 million or more in 2016 and only six such verdicts in 2015. The number of million dollar or more verdicts has fluctuated over the last five years. In 2012, there were 19 such verdicts but only five in 2013 and then ten in 2014, the recent year with the lowest average monetary award in plaintiffs’ verdict matters.
Juries in the following venues awarded million dollar or more verdicts over the last five years.
- Over the last four years, the percentage of defense verdicts on plaintiffs’ claims has consistently hovered around 60%.
- When money has been awarded, the average verdict amounts over the last two years were nearly identical.
- Half of the seven-figure jury awards over the last five years have occurred in Jackson County, Missouri state court .
Although every case is different, information regarding verdict percentages and jury award amounts in the specific venues can help assess the values of cases and claims. For instance, recent data confirms the received wisdom among experienced practitioners that juries in Jackson County, Missouri, are more likely to assess million dollar or more awards on plaintiffs’ claims than juries in Platte County, Missouri. As always, clients, as well as national counsel who are working with local counsel, should carefully consider the forum when assessing the value of a case.
Source: Greater Kansas City Jury Verdict Service Year-End Reports 2012-2016
Comparable Number of Trials and Plaintiffs’ Verdicts
The Jury Verdict Service’s annual summary reported on 113 trials in 2016 compared to 110 in 2015. These numbers are down from the preceding two-year period: there were 133 trials in 2014, and 122 trials in 2013.
Because trials may involve multiple claims and multiple verdicts, the verdict statistics are based on the claims and not the cases. For the 113 trials in 2016, there were 199 verdicts for claims and for the 110 cases in 2015, there were 178 verdicts for claims.
Although the number of trials has decreased from 2013 and 2014, the percentage of plaintiff verdicts is little changed. In both 2015 and 2016, 42% of the verdicts were for plaintiffs compared to 38% for plaintiffs in 2014 and 40% in 2013. These numbers are down from the 55% of the verdicts for plaintiffs in 2012.
Comparable Average Monetary Awards
The overall average of the monetary awards for plaintiffs’ verdicts also remained almost the same in 2016 as they were in 2015. In 2016, the average of plaintiffs’ verdicts was $1,383,549 while the average in 2015 was $1,376,323. Both of those averages are over $1 million more than the average plaintiffs’ verdict in 2014, which was $350,730. While each of these figures is far below the $5,577,689 average verdict in 2013 and somewhat lower than the $1,772,469 average in 2012, the 2013 numbers were skewed by a single $400 million verdict that inflated the 2013 average.
Fluctuating Number of Large Verdicts
Although the average plaintiff’s verdict was similar in 2016 compared to 2015, the number of verdicts exceeding $1 million more than doubled in 2016. There were 16 verdicts of $1 million or more in 2016 and only six such verdicts in 2015. The number of million dollar or more verdicts has fluctuated over the last five years. In 2012, there were 19 such verdicts but only five in 2013 and then ten in 2014, the recent year with the lowest average monetary award in plaintiffs’ verdict matters.
Juries in the following venues awarded million dollar or more verdicts over the last five years.
- Over the last four years, the percentage of defense verdicts on plaintiffs’ claims has consistently hovered around 60%.
- When money has been awarded, the average verdict amounts over the last two years were nearly identical.
- Half of the seven-figure jury awards over the last five years have occurred in Jackson County, Missouri state court .
Although every case is different, information regarding verdict percentages and jury award amounts in the specific venues can help assess the values of cases and claims. For instance, recent data confirms the received wisdom among experienced practitioners that juries in Jackson County, Missouri, are more likely to assess million dollar or more awards on plaintiffs’ claims than juries in Platte County, Missouri. As always, clients, as well as national counsel who are working with local counsel, should carefully consider the forum when assessing the value of a case.
Source: Greater Kansas City Jury Verdict Service Year-End Reports 2012-2016
Rationale Underlying Missouri's Runaway "Supplemental Jurisdiction" Theory to be Tested by U.S. Supreme CourtJanuary 30, 2017 | Angela Higgins
The U.S. Supreme Court has accepted certiorari in Bristol-Myers Squibb Co. v. Superior Court of California, Dkt. No. 16-466, a pharmaceutical product liability case in which some 600 out-of-state plaintiffs sued in a California court, arguing that the defendant had “contacts” with the state even though their individual claims did not arise out of those contacts. This case is straight from the same playbook that has led to dozens of out-of-state plaintiffs suing out-of-state defendants in the plaintiff-friendly jurisdiction of the City of St. Louis, though the state of Missouri has no legal or logical relationship to these plaintiffs’ claims. The rampant abuse of the judicial system has led to the Circuit Court of the City of St. Louis being deemed the latest “Judicial Hellhole,” and it appears that the U.S. Supreme Court is about to crack down.
A. The California case
In Bristol-Myers Squibb, the question accepted for determination by the Supreme Court is:
The Due Process Clause permits a state court to exercise specific jurisdiction over a defendant only when the plaintiff’s claims “arise out of or relate to” the defendant’s forum activities. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (citation omitted). The question presented is: Whether a plaintiff’s claims arise out of or relate to a defendant’s forum activities when there is no causal link between the defendant’s forum contacts and the plaintiff’s claims—that is, where the plaintiff’s claims would be exactly the same even if the defendant had no forum contacts.
Bristol-Myers Squibb follows a decision of the California Supreme Court affirming denial of the defendant’s motion to dismiss for lack of personal jurisdiction. The drug at issue was not manufactured or designed in California, whose marketing, packaging, and regulatory materials were not prepared in California, and, critically, that was not prescribed to, dispensed to, or ingested by respondents in California. The very concept of 600 unrelated plaintiffs with no contact to the forum state using that state as a friendly forum to maintain their claims against non-resident defendants is blatantly offensive to the concept of personal jurisdiction, and it is encouraging that the Supreme Court has granted certiorari to hear this appeal.
It is commonly accepted amongst practitioners that courts, particularly state courts, struggle with the limitations of personal jurisdiction. Personal jurisdiction can be general or specific. See Daimler AG V. Bauman, 134 S. Ct. 746, 754 (2014). Specific jurisdiction, also known as “contact-based” jurisdiction, refers to personal jurisdiction which derives from a defendant’s actions in the forum state. See id. General jurisdiction refers to a court’s power over a defendant regardless of where those claims arose, based upon a defendant’s overwhelming contacts with the state. See id.
As Bristol-Myers Squibb argues in its petition for writ of certiorari, and amicus Product Liability Advisory Counsel notes in its brief in support of the cert petition, many state courts have “blended” the doctrines of general jurisdiction and contact-based specific jurisdiction to arrive at a hybrid non-standard that effectively subjects any defendant with any type of national commercial presence to jurisdiction anywhere its products are sold. The frequently-expressed test established by the U.S. Supreme Court, and, indeed, the very nature of “contact-based specific personal jurisdiction” is not complex; it is merely flouted because it is in tension with state courts’ desire to afford a forum for cases that they are not constitutionally authorized to hear.
B. Missouri long-arm jurisdiction
The exercise of personal jurisdiction over non-residents is called “long-arm” jurisdiction. The Missouri courts’ authority to exercise long-arm jurisdiction is constrained by the Missouri statutes and the U.S. Constitution. Missouri’s long-arm statute expressly affords contact-based specific jurisdiction over the person of non-resident defendants. See Shouse v. RFB Const. Co., Inc., 10 S.W.3d 189, 193 (Mo. App. W.D. 1999). Specific jurisdiction is called “contact-based” because such jurisdiction only exists for a cause of action “arising from” certain specified conduct by the defendant within the forum state. See Mo. Rev. Stat. § 506.500.1.
In product liability actions brought in the Missouri courts, plaintiffs commonly rely upon two statutory provisions for long-arm jurisdiction. One is the commission of a tort in Missouri. See Mo. Rev. Stat. § 506.500.1(3). The other is the transaction of business in Missouri. See Mo. Rev. Stat. § 506.500.1(1). Properly applying the jurisdictional test, it is the plaintiff’s burden to establish personal jurisdiction. Conway v. Royalite Plastics, Ltd., 12 S.W.3d 314, 318 (Mo. banc 2000).
In order to rely upon the “tortious act” provision of the long-arm statute, a plaintiff is required to show that the non-resident defendant committed a tort in Missouri and that the tortious conduct caused the plaintiff’s injuries. Hollinger v. Sifers, 122 S.W.3d 112, 116 (Mo. App. W.D. 2003). In applying the long-arm statute, the Missouri courts in the past have correctly rejected the contention that non-resident defendants should be subject to personal jurisdiction because a plaintiff suffered some “effect” or injuries in Missouri. See Mello v. Giliberto, 73 S.W.3d 669, 678 (Mo. App. E.D. 2002). Instead, the statute is limited to authorizing jurisdiction over non-resident defendants who “committed a tortious act” within the state, and where the plaintiff’s cause of action “cause of action aris[es] from the doing of any of such acts.” See Mo. Rev. Stat. § 506.500.1. When the defendant is not a resident of the state, it is difficult to imagine how it engaged in tortious conduct directed toward a plaintiff who is also located outside the forum state. Accordingly, if this test were properly applied, it should be difficult for non-resident plaintiffs to establish contact-based specific personal jurisdiction over a defendant based upon the “tortious act” provision of the long-arm statute.
The long-arm statute’s grant of personal jurisdiction based upon the “transaction of any business within the state” is intended to confer jurisdiction over nonresidents “who enter into various kinds of transactions with residents of Missouri.” Capitol Indemn. Corp. v. Citizens National Bank of Fort Scott, N.A., 8 S.W.3d 893, 904 (Mo. App. W.D. 2000) (emphasis added). The subject matter of that particular transaction must be the one that allegedly caused the plaintiff’s alleged injuries. See id.; Mo. Rev. Stat. § 506.500.1(1). The circumstances in which a non-resident plaintiff could successfully argue for personal injury in a product liability case based upon the “business transaction” provision of the long-arm statute should be exceptionally limited.
C. Constitutional due process limitations
The Bristol-Myers Squibb outcome will be significant in Missouri because the Missouri courts’ exercise of personal jurisdiction is not only based upon the provisions of our statute, but is also limited by due process requirements found in the U.S. Constitution. For a court to exercise personal jurisdiction over non-resident defendants, the plaintiff’s claims must arise out of one or more of the types of conduct identified in Missouri’s long-arm statute, and the non-resident defendant must have had sufficient “minimum contacts” with the forum state for the exercise of personal jurisdiction to comport with the defendant’s constitutional due process rights. See Conway v. Royalite Plastics, Ltd., 12 S.W.3d 314, 318 (Mo. banc 2000).
The long-arm statute “extend[s] jurisdiction of the courts of this state over nonresident defendants to the extent permissible under the due process clause of the fourteenth amendment of the constitution of the United States.” Hollinger v. Sifers, 122 S.W.3d 112, 115 (Mo. App. W.D. 2003) (citing State ex rel. K-Mart Corp. v. Holliger, 986 S.W.2d 165, 167-68 (Mo. banc 1999)). The minimum contacts test is satisfied for due process purposes when a non-resident defendant “purposefully directed” its activities at residents of the forum state, and the litigation results from alleged injuries that “arise out of or relate to” those activities. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985) (emphasis added); Daimler AG v. Bauman, 134 S. Ct. 746, 754 (2014).
The Missouri courts have held that the commission of an extraterritorial tortious act that produces consequences in Missouri may provide a basis for the exercise of personal jurisdiction, but only where the non-resident defendant “set in motion some course of action which was deliberately designed to move into Missouri and injure the plaintiff.” Capitol Indemn. Corp. v. Citizens National Bank of Fort Scott, N.A., 8 S.W.3d 893, 903 (Mo. App. W.D. 2000) (emphasis added). The “‘purposeful availment’ requirement ensures that a defendant will not be hauled into a jurisdiction solely as a result of ‘random,’ ‘fortuitous,’ or ‘attenuated’ contacts or of the ‘unilateral activity of another party or third person.’” State ex rel. William Ranni Associates, Inc. v. Hartenbach, 742 S.W.2d 134, 138 (Mo. 1987).
Because the second half of the test that any plaintiff must satisfy to establish long-arm jurisdiction in Missouri deals with the constitutional due process limitations established by the U.S. Supreme Court and relevant federal authorities, developments in Bristol-Myers Squibb should reign in the abuses that are seen in the Missouri courts, and particularly the City of St. Louis.
Now, the U.S. Supreme Court has been very clear that contact-based specific personal jurisdiction requires that the particular plaintiff’s claim arise out of the defendant’s contacts with the forum state, and that the concept of “general jurisdiction” is functionally dead for use in these types of personal injury cases. Absent an “exceptional” case, a corporation is only subject to general jurisdiction where it is “at home,” i.e., where it “is incorporated or has its principal place of business.” Daimler, 134 S. Ct. at 760 & 761 n.19. As with Bristol-Myers Squibb, Daimler arose from an overreach on jurisdiction by the California courts. In Daimler, the Supreme Court held that the California court lacked general jurisdiction over the defendants because “neither Daimler nor MBUSA is incorporated in California, nor does either entity have its principal place of business there.” Id. at 761. The fact that the defendant’s wholly-owned subsidiary did significant and continuous business within the state did not support the exercise of general jurisdiction. See id. at 752, 761. “Plaintiffs would have us . . . approve the exercise of general jurisdiction in every State in which a corporation ‘engages in a substantial, continuous, and systematic course of business.’ . . . That formulation, we hold, is unacceptably grasping.” Id. at 760-61.
Given that general jurisdiction is not a viable argument for jurisdiction over non-resident defendants, plaintiffs must establish contact-based specific personal jurisdiction. “[T]he defendant’s suit-related conduct must create a substantial connection with the forum.” Walden v. Fiore, 134 S. Ct. 1115, 1121-22 (2014). The Missouri Supreme Court has previously recognized this, holding that the cause of action must arise out of the particular contact with Missouri. Conway, 12 S.W.3d at 318.
Despite clear and binding guidance, however, California, Missouri, and a minority of other jurisdictions have allowed non-residents to take advantage of their states as a forum to litigate disputes that are wholly unrelated to any of the defendants’ conduct within the state. Bristol-Myers Squibb argues, correctly, that a Tennessee plaintiff should not be able to sue a Delaware/New York citizen defendant in California. As the Supreme Court has consistently and repeatedly recognized, there are limitations on a state’s ability to encroach upon jurisdiction that is rightfully placed in another state.
Those states, including Missouri, that fail to strictly apply personal jurisdiction limitations are engaged in an unconstitutional power-grab from their sister states. The restrictions on the courts’ exercise of personal jurisdiction “are more than a guarantee of immunity from inconvenient or distant litigation.” Hanson v. Denckla, 357 U.S. 235, 251 (1958). Rather, “[t]hey are a consequence of territorial limitations on the power of the respective States.” Id.; see also World-Wide Volkswagen, 444 U.S. at 292 (minimum contacts requirement serves the dual functions of protecting defendant against the burden of litigation and ensuring states “do not reach out beyond the limits imposed on them by their status as coequal sovereigns in our federal system”). “Due process limits on the State’s adjudicative authority principally protect the liberty interest of the nonresident defendant – not the convenience of plaintiffs or third parties.” Walden v. Fiore, 134 S. Ct. 1115, 1125 n.9 (2014). “Due process protects [a defendant’s] right to be subject only to lawful authority.” J. McIntyre Machinery Ltd. v. Nicastro, 564 U.S. 873, 887 (2011). The crux of the personal jurisdiction inquiry is whether the defendant “reveal[ed] an intent to invoke or benefit from the protection of” the laws of the forum state. Id. Absent plaintiff’s proof of such intent, the forum state is “without power to adjudge the rights and liabilities” of the foreign defendant. Id.
Missouri courts simply lack the power to hear cases by non-resident plaintiffs against non-resident defendants, and the continued flouting of jurisdictional limitations has created a constitutional crisis in this country and within the state.
D. Each plaintiff must establish personal jurisdiction
Missouri state courts generally fail to appreciate what the federal courts recognize – that each plaintiff in a multi-plaintiff action must independently establish personal jurisdiction over the defendant with respect to his/her claims. See, e.g., Sun World Lines, Ltd. v. March Shipping Corp., 585 F. Supp. 580, 584-85 (E.D. Mo. 1984) (“[P]ersonal jurisdiction must be valid as to each and every cause of action in a complaint. Those causes of action which do not provide a sufficient basis for in personam jurisdiction must be dismissed even if other claims have such a basis.”) (citations omitted), aff’d, 801 F.2d 1066 (8th Cir. 1986); see also Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 274-75 (5th Cir. 2006) (“Permitting the legitimate exercise of specific jurisdiction over one claim to justify the exercise of specific jurisdiction over a different claim that does not arise out of or relate to the defendant’s forum contacts  violate[s] the Due Process Clause.”).
An MDL court, applying Missouri and federal law, found that “the specific jurisdiction inquiry in this case must be conducted separately for the claims of each individual plaintiff.” In re Testosterone Replacement Therapy Prods. Liab. Litig. (“In re: TRT”), 164 F. Supp. 3d 1040, 1047 (N.D. Ill. 2016)) Thus, “every plaintiff . . . [must] show that his claims arise from, or are related to, defendants’ conduct in Missouri.” Id.
The Missouri state courts, however, have tended toward truly absurd results and unheard-of verdicts in product liability actions maintained by improperly joined out-of-state plaintiffs. The Court of Appeals for the Eastern District recently affirmed a $38 million verdict in favor of a Minnesota plaintiff who sued a Delaware/Illinois citizen defendant. See Slip Opinion, Barron v. Abbott Laboratories, Inc., Case No. ED103508. This is merely the “bellwether” – there are dozens of plaintiffs’ claims still to be tried in that action, which joined unrelated plaintiffs from around the country. Huge verdicts in improperly-joined out-of-state plaintiff actions involving talcum powder have also recently emerged from the City of St. Louis, and are merely the tip of the iceberg if overreach on personal jurisdiction is not reigned in.
Both the Circuit Court for the City of St. Louis and the Court of Appeals for the Eastern District completely glossed over the fundamental jurisdictional problem with the Barron