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City of St. Louis falls to 5th on the Judicial Hellhole list with Madison and St. Clair Counties, Illinois close behind ranking 7th.

February 12, 2020 | Laura Beasley and Meghan Kane

Thanks to “junk science,” the “Show-Me-Your-Lawsuit” state remains within the top 10 of judicial hellholes throughout the country. St. Louis is home to the largest talc verdict to date thanks to a July 2018 City of St. Louis verdict awarding $550 million in actual damages and $4.14 billion in punitive damages to a group of 22 plaintiffs. Not only are there forum shopping concerns with regards to the talc litigation, there is concern that St. Louis City judges allow plaintiffs’ lawyers to introduce “junk science” as evidence. Specifically, plaintiffs’ experts have been allowed to tell jurors that talcum powder causes ovarian cancer, even though research is mixed and biased as to increased risk, if any, with the use of talcum powder. Nonetheless, the City of St. Louis continues to allow this “junk science” to be heard in their courtrooms, which can result in big verdicts. 

The Missouri legislature, however, has taken steps toward addressing the plaintiff-friendly forum, resulting in the City of St. Louis seeing a decline from 4th to 5th in the judicial hellhole rankings this year. But it has a long way to go, as do Madison and St. Clair Counties in Illinois.

In Madison and St. Clair Counties, the plaintiffs’ bar continues to push pro-plaintiff agendas. For example, pro-plaintiff legislation eliminating the statute of repose for asbestos-related occupational disease has been passed, along with legislation which essentially eliminates the power of special interrogatories.  The ATRF Report also puts the blame for these judicial hellholes on the Illinois Supreme Court.  

The American Tort Reform Foundation (“ATRF”) Report attributes “no-injury” lawsuits as overburdening Illinois businesses, and the Illinois Supreme Court helped open those floodgates when it issued its decision in Rosenbach v. Six Flags Entertainment, 2019 IL 123186. In Rosenbach, the court found that the plaintiff need not have suffered actual harm to maintain and win a lawsuit filed under the Illinois Biometric Information Privacy Act (“BIPA”), 740 Ill. Comp. Stat. 14 (2008). Since this decision, the ATRF Report indicates that more than 250 lawsuits have been filed with BIPA at the forefront of the issues in those suits, making businesses vulnerable to massive potential liability in the State of Illinois.

Moreover, according to the ATRF Report, Madison and St. Clair Counties continue to remain the preferred jurisdiction in the United States for plaintiffs’ lawyers to file asbestos lawsuits. The Report further notes that the Gori Law Firm (formerly known as Gori, Julian & Associates, P.C.), “one of the top asbestos filers in the nation,” was able to “stack” [sic] the deck higher when Barry Julian, co-founding partner of Gori Julian, was appointed to the Madison County bench in January 2019. The ATRF Report claims the “plaintiff-friendly reputation, low evidentiary standards, and judges’ willingness to allow meritless claims to survive” make Madison and St. Clair Counties a flocking ground for asbestos litigation. 

Until the legislature in both Missouri and Illinois decide to create meaningful reforms, these three counties are likely to continue to rank high on ATRF Report’s Judicial Hellholes list. 

City of St. Louis falls to 5th on the Judicial Hellhole list with Madison and St. Clair Counties, Illinois close behind ranking 7th.

February 12, 2020 | Laura Beasley and Meghan Kane

Thanks to “junk science,” the “Show-Me-Your-Lawsuit” state remains within the top 10 of judicial hellholes throughout the country. St. Louis is home to the largest talc verdict to date thanks to a July 2018 City of St. Louis verdict awarding $550 million in actual damages and $4.14 billion in punitive damages to a group of 22 plaintiffs. Not only are there forum shopping concerns with regards to the talc litigation, there is concern that St. Louis City judges allow plaintiffs’ lawyers to introduce “junk science” as evidence. Specifically, plaintiffs’ experts have been allowed to tell jurors that talcum powder causes ovarian cancer, even though research is mixed and biased as to increased risk, if any, with the use of talcum powder. Nonetheless, the City of St. Louis continues to allow this “junk science” to be heard in their courtrooms, which can result in big verdicts. 

The Missouri legislature, however, has taken steps toward addressing the plaintiff-friendly forum, resulting in the City of St. Louis seeing a decline from 4th to 5th in the judicial hellhole rankings this year. But it has a long way to go, as do Madison and St. Clair Counties in Illinois.

In Madison and St. Clair Counties, the plaintiffs’ bar continues to push pro-plaintiff agendas. For example, pro-plaintiff legislation eliminating the statute of repose for asbestos-related occupational disease has been passed, along with legislation which essentially eliminates the power of special interrogatories.  The ATRF Report also puts the blame for these judicial hellholes on the Illinois Supreme Court.  

The American Tort Reform Foundation (“ATRF”) Report attributes “no-injury” lawsuits as overburdening Illinois businesses, and the Illinois Supreme Court helped open those floodgates when it issued its decision in Rosenbach v. Six Flags Entertainment, 2019 IL 123186. In Rosenbach, the court found that the plaintiff need not have suffered actual harm to maintain and win a lawsuit filed under the Illinois Biometric Information Privacy Act (“BIPA”), 740 Ill. Comp. Stat. 14 (2008). Since this decision, the ATRF Report indicates that more than 250 lawsuits have been filed with BIPA at the forefront of the issues in those suits, making businesses vulnerable to massive potential liability in the State of Illinois.

Moreover, according to the ATRF Report, Madison and St. Clair Counties continue to remain the preferred jurisdiction in the United States for plaintiffs’ lawyers to file asbestos lawsuits. The Report further notes that the Gori Law Firm (formerly known as Gori, Julian & Associates, P.C.), “one of the top asbestos filers in the nation,” was able to “stack” [sic] the deck higher when Barry Julian, co-founding partner of Gori Julian, was appointed to the Madison County bench in January 2019. The ATRF Report claims the “plaintiff-friendly reputation, low evidentiary standards, and judges’ willingness to allow meritless claims to survive” make Madison and St. Clair Counties a flocking ground for asbestos litigation. 

Until the legislature in both Missouri and Illinois decide to create meaningful reforms, these three counties are likely to continue to rank high on ATRF Report’s Judicial Hellholes list. 

Is a case overturned due to confusing special interrogatories still relevant under rule change?

February 6, 2020 | Laura Beasley

In, Doe v. Alexian Brothers Behavioral Health Hosp., 2019 IL App (1st) 180955, plaintiff filed suit for emotional injuries after a former hospital employee mailed the plaintiff a harassing letter that contained vile, personal statements related to private information in the plaintiff’s mental health records. She alleged that – before it fired the employee – the hospital failed to properly train the employee, supervise the employee, and monitor the employee’s use of records, which was more than the minimum necessary to complete her assigned billing tasks. The hospital denied the woman’s allegations, saying the former employee was solely responsible for the injuries.

At trial, the defense submitted to the jury a special interrogatory asking if the former employee was the “sole proximate cause of the plaintiff’s injuries” which they answered in the affirmative. The initial jury awarded was $1 million in damages in favor of the plaintiff. After the verdict, the court determined that the verdict was inconsistent with the jury’s answer to the special interrogatory and, therefore, entered judgment for the hospital. Under the new rules, the court can now direct the jury to further consider its answers and verdict if the general verdict and special interrogatory answer are inconsistent. If the jury cannot reconcile them, the court shall order a new trial. Further, the court could have chosen to not even allow the defense to submit a special interrogatory.

On appeal, the plaintiff argued that the special interrogatory was improper because the case was not about sole proximate cause. The plaintiff also argued that the special interrogatory was ambiguous and confusing. The plaintiff noted that the trial court refused a jury instruction on the issue of sole proximate cause and did not specifically define the term sole proximate cause.

The appellate court found that the general verdict was unquestionably inconsistent with the special interrogatory answer. However, the special interrogatory was confusing and ambiguous in the context of all of the jury instructions. The appellate court ordered a new trial. 

Under the new rule, 735 ILCS 5/2-1108, Doe may not have been appealed. As of January 2020, the new law amends the code of Civil Procedure and gives trial court judges the discretion to grant requests for special interrogatories. Previously, if a jury’s answer to a special interrogatory question conflicted with its general verdict, as was the case in Doe, then the special finding would supersede the verdict. Although the new law does not eliminate special interrogatories entirely it gives the court the discretion to grant the request for them and it gives attorneys the right to explain to the jurors what may result if the general verdict is inconsistent with any special finding which will likely make it for jurors to understand fundamental legal questions presented in certain negligence and causation cases. 

Special interrogatories were an important tool that helped juries decided the facts necessary to support a verdict. They were especially useful in places where there are holes in the jury instructions. Where in the absence of a special interrogatory, the jury is not going to be properly instructed on the legal issues it’s supposed to address. The Doe case is a perfect example of a hole in the jury instructions where the use of a special interrogatory could be used to assist the jury in rendering fault. The special interrogatory on sole proximate cause enabled the Hospital to get the jury to consider whose conduct solely caused plaintiff’s injuries. Although the appellate court determined the special interrogatories confusing and ambiguous, one can see how important it was for the jury to determine who was solely at fault for the verdict rendered. 

It is too early to tell whether special interrogatories will become obsolete, but it is clear that the power behind them is now minimized. 

What Lies Ahead: Proposed Privacy Legislation in Illinois

January 28, 2020 | Gregory Odom and Jennifer Maloney

While it might not garner the attention of Halloween, Thanksgiving, or Christmas, January 28th is an international holiday; specifically, Data Privacy Day. The holiday is meant to raise awareness and promote privacy and data protection best practices. For more information on Data Privacy Day, please visit this link. For this year’s Data Privacy Day, we at Baker Sterchi Cowden & Rice are looking ahead to potential data privacy laws proposed in Illinois and evaluating the potential impact of those laws.

App Privacy Protection Act

One such proposed law is the App Privacy Protection Act. This law would require an entity that owns, controls, or operates a website, online service, or software application to identify in its customer agreements or applicable terms whether third parties collection electronic information directly from the digital devices of individuals in Illinois who use or visit its website, online service, or software application. The law would further require the disclosure of the names of those third parties and the categories of information collected. Perhaps most importantly, the law would amend the Illinois Consumer Fraud and Deceptive Business Practices Act to provide that a violation of the law constitutes a violation of the Consumer Fraud Act. Much like the Illinois Biometric Information Privacy Act, this law would create a private right of action for violations, albeit through the Consumer Fraud Act. The citation for this proposed law is 815 ILCS 505/2Z. The last legislative action taken on this proposed law was on March 29, 2019. You can find information about the proposed law at this link.   

Data Transparency and Privacy Act

The Illinois House also passed HB 3358, known as the Data Transparency and Privacy Act, in 2019. This bill resembled the California Consumer Privacy Act, which went into effect on January 1, 2020. Under this bill, entities that collect through the Internet personal information about individual consumers would be required to make disclosures to the individuals regarding the collection of the information. The bill also allowed individuals to opt out of the sale of their information. A violation of the proposed law could be enforced only by the Illinois Attorney General. The bill exempted several entities from its scope, including hospitals, public utilities, retailers, and telecom companies. After its passage, the Illinois Senate proposed several amendments to the bill, largely to address the ability to seek relief for violations of the Act. Ultimately, the proposed law stalled, failing to pass both chambers before the General Assembly ended its legislative session.

On January 8, 2020, however, the Illinois Senate breathed new life into the issue, with Senator Thomas Cullerton sponsoring SB 2330, an updated version of the Data Transparency Privacy Act. Under this version of the proposed law, businesses that process personal or deidentified information must, prior to processing, provide notice of certain information to consumers. The bill also grants consumers the right to obtain certain information from businesses regarding their personal information and the right to request to opt out of certain practices related to their personal information. The bill provides a private right of action to consumers, and allows the Illinois Attorney General to enforce the provisions of the bill through the Consumer Fraud Act. You can monitor the status of this legislation at this link.    

Biometric Information Privacy Act

Illinois also has considered amending one of the more controversial provisions of the Biometric Information Privacy Act. Senate Bill 2134 would delete language in the Act creating a private right of action. Under this bill, any violation that results from the collection of biometric information by an employer for employment, human resources, fraud prevention, or security purposes would be subject to enforcement by the Department of Labor. The bill further provides that any violation of the Act would constitute a violation of the Consumer Fraud Act and would be enforceable by the Illinois Attorney General. If enacted, this legislation could have a significant impact by reducing the amount of legislation filed under the Biometric and Information Privacy Act. The last action taken on this bill was on March 28, 2019. You can find more information about the status of the bill at this link.  

Geolocation Privacy Protection Act

The Geolocation Privacy Protection Act (House Bill 2785) was introduced by Rep. Ann M. Williams in February 2019. Under the proposed bill, affirmative express consent would be required before geolocation information can be collected, used, stored or disclosed from a location-based application on a user's device. Similar to the App Privacy Protection Act discussed above, the Geolocation Privacy Protection Act provides that a violation of the Geolocation Privacy Protection Act constitutes an unlawful practice under the Consumer Fraud and Deceptive Business Practices Act, thereby amending Section 2Z of the Illinois Consumer Fraud Act. In addition, a user's rights under the Act cannot be waived. The last action on the bill occurred on March 229, 2019, when it was re-referred to the Rule's Committee. More information regarding the status of the bill can be found at this link.

Right to Know Data Transparency and Privacy Act

Another proposed law is the Right to Know Data Transparency and Privacy Act which would require that an operator of a commercial website or online service that collects personally identifiable information through the Internet about individual customers residing in Illinois who use or visit its commercial website or online service notify those customers of certain specified information pertaining to its personal information sharing practices.  The Act would also require an operator to make available to customers all categories of personal information that were disclosed, as well as the names of all third parties that received the customer's personal information. Further, customers whose rights are violated under the Act have a private right of action. The Act is comprised of Senate Bill 2149, introduced by Sen. Michael E. Hastings, and House Bill 2736, introduced by Rep. Kambium Buckner, in February 2019. The last action taken on both bills was on March 29, 2019. You can find out more information about the Right to Know Act here

Genetic Information Privacy Act

In addition to an increase in proposed legislation related to data privacy, the expansion of existing privacy laws in Illinois is already occurring with new amendments which went into effect on January 1, 2020. For example, due to the growing popularity of direct-to-consumer genetic testing kits sold by companies such as Ancestry and 23andMe, House Bill 2189 was signed into law by Governor Pritzker on July 26, 2019. The amendment expands the definition of “genetic testing” under the Genetic Information Privacy Act to include direct-to-consumer genetic testing kits. In addition, the amendment specifically prohibits the sharing of any testing or personally identifiable information with health insurance and life insurance companies without the written consent of the consumer. 

Artificial Intelligence Video Interview Act

Further, Illinois law now provides for protections related to the use and disclosure of information gained using artificial intelligence software by prospective employers during video interviews.   Additional details regarding the Artificial Intelligence Video Interview Act can be found in a prior post here.

As you can see, companies doing business in Illinois need to remain vigilant about privacy legislation in Illinois. Not only do companies need to be aware of new legislation on this issue, but they need to understand how various privacy laws interact with each other.  Consumer privacy appears to be an important issue to the Illinois legislature, and as the legislation discussed above illustrates, one that will continue to develop in 2020.   

New Illinois Statute Among the First to Address AI-Aided Job Recruiting

January 14, 2020 | Lisa Larkin

Effective January 1, 2020, Illinois enacted a new statute in response to the increasingly pervasive use of artificial intelligence, also known as AI, software by prospective employers. Proponents assert such software allows employers to zero in on and hire the best candidates more quickly and efficiently. Typically, these AI products use mobile video interviews with algorithms analyzing the prospective employee’s facial expressions, word choice, tone, body language and gestures to determine a candidate’s work style, ethic, cognitive ability, and interpersonal skills. Other AI tools might include AI review of resumes and algorithms to analyze an applicant’s response to interview or test questions or an applicant’s social media content. This is all done with the stated aim of finding the best candidate for the specific open position. 

Illinois’ new statute, 820 ILCS 42/1, et seq., is among the first of its kind in the country. It addresses the use and disclosure of artificial intelligence video interviews, should an employee choose to utilize this still-emerging technology. The act, known as the Artificial Intelligence Video Interview Act, provides that an employer who asks applicants to record video interviews and uses AI analysis of the applicant-submitted videos must take certain steps. This includes (1) notifying each applicant before the interview that AI may be used to analyze the video and to evaluate and consider the applicant’s fitness for the position; (2) providing each applicant with information before the interview explaining how AI works and what general characteristics it uses to evaluate applicants; and (3) obtaining consent from the applicant. The Act also prohibits the sharing of applicant videos except with those whose expertise is necessary to evaluate the applicant. Applicants may request the destruction of the video interviews, and upon such a request, employers have 30 days within which to delete all copies of the videos, including those which might be in the possession of third-parties retained to evaluate them. 

Interestingly, the statute does not define “artificial intelligence” or provide insight into what level of information is sufficient to meet the act’s explanation requirement. Also, by its terms, the act protects applicants based in Illinois, but does not indicate whether it is intended to apply to out-of-state employers hiring for a position located outside of Illinois. Finally, the act says nothing about enforcement, whether through a private cause of action for statutory damages or otherwise.

This new AI act is just one piece of an ever-increasing legal puzzle of already-enacted laws and pending legislation, both nationally and worldwide, seeking to address the use of AI in the hiring process and the protection of such data. In Illinois, another puzzle piece is the Biometric Information Privacy Act, 740 ILCS 14/1, et seq., regulating the collection and storage of biometric identifiers and providing for a broad private right of action for violations. The challenge for employers will be managing all such laws, at both the state and federal levels, to ensure compliance and avoid any resulting liability from a failure to comply. At a bare minimum, the implementation of Illinois’ AI Video Interview Act should encourage employers to exercise caution when considering or implementing hiring practices involving AI.

First Judicial District Appellate Court of Illinois Upholds Motion for Directed Verdict in Medical Malpractice Claim

December 26, 2019 | Paul Venker and Laura Beasley

In Ludgarda R. Castillo and Richard Castillo v Jeremy Stevens, M.D. and The Center for Athletic Medicine, LTD., 1029 IL App (1st) 172958, the Court reviewed several issues, and held that a plaintiff’s medical expert in a successful informed consent claim must testify to a breach of the applicable standard of care for the allegedly negligently obtained consent.

Ludgarda Castillo sought treatment in 2004 after suffering from right knee pain and was diagnosed with a 17-degree valgus deformity of her right femur. To correct the valgus deformity, defendant Dr. Stevens performed a right distal femoral open wedge osteotomy, but during this procedure the medial cortex fractured. This required Dr. Stevens to intra-operatively install a condylar plate obliquely to achieve the desired degree of correction. The procedure properly aligned the femur to correct the valgus deformity. However, sometime after the procedure, plaintiff was diagnosed as having a nonunion of the femur. Plaintiff underwent a revision surgery in 2005. Although, plaintiff healed from her surgeries, she still had continuing complaints of pain and functional limitation. 

In 2011, plaintiff filed suit against Dr. Stevens claiming, among other things: (1) that he failed to advise her of the risks of intra-operative medial cortex fracture and subsequent nonunion; and, (2) that a reasonable person in her position would not have consented to the osteotomy had those risks been fully disclosed to her such that she could understand them. The trial court granted defendant’s motion for directed verdict. It found that plaintiff failed to present any expert testimony that Dr. Stevens failed to comply with the applicable standard of care in how he advised plaintiff of the risks of the procedure. Plaintiff appealed.

On appeal, plaintiff argued that expert testimony was required only to establish the applicable standard of care as to the performance of the procedure, but not for whether a physician failed to give adequate explanation of the risks. Citing to Coryell v. Smith, 274 Ill. App. 3d 543, 545 (1995), the appellate court reviewed the four elements of an informed consent claim: (1) the physician had a duty to disclose material risks; (2) he failed to disclose or inadequately disclosed those risks; (3) as a direct and proximate result of the failure to disclose, the patient consented to treatment she otherwise would not have consented to; and, (4) plaintiff was injured by the proposed treatment. Id at 546.

The appellate court found that it was clear from the record that plaintiff presented expert testimony only to establish: 1) the standard of care was that non-surgical treatment should been pursued instead of surgery; and, 2) generally as to what surgical risks Dr. Stevens had a duty to disclose. However, plaintiff failed to provide expert testimony that Dr. Stevens failed to comply with applicable standard of care as to the manner in which he was to advise plaintiff of the risks of the surgery.   Unlike the Coryell case, which held that once an expert establishes the applicable standard of care, the jury is equipped to determine the third element of proximate cause, this court focused on both the second and third elements of the informed consent claim. 

The appellate court agreed with the trial court’s ruling that it is a well-established principle of law that a plaintiff’s expert was required to testify not only to the standard of care as to the medical care at issue, but also as to the details which the physician failed to fully discuss with plaintiff to show the standard of care was not met in disclosing to plaintiff the material risks of the treatment.  The appellate court clearly rejected plaintiff’s subjective testimony that she was not fully informed as to the risks, part of which her concession that Dr. Stevens could have told her more about the procedure than she remembered.

This opinion should provide clarity on the issue of the necessity of expert testimony on whether a physician properly obtained informed consent, which is an objective standard, based on the consensus of medical practitioners. If the court had reversed the directed verdict for the physician, it would have potentially opened the floodgates for claims based solely on a lay person’s subjective perspective on their lack of understanding of the risks.

This intermediate appellate court opinion may be subject to further appellate review by the Illinois Supreme Court.

An Approved Jury Instruction Isn't Always the Best Choice

December 11, 2019 | John Lord

The Missouri Court of Appeals (Western District) recently reversed a defense verdict because the trial court’s verdict directing instruction, taken from the Missouri Approved Instructions (MAI), didn’t accurately state the law applicable to Plaintiff’s claim. 

In Gary Miller v. Norfolk Southern Railway Company, Plaintiff Miller sued his railroad employer based on the Federal Employer’s Liability Act (“FELA”).  Miller claimed to have sustained cumulative injuries caused by defective locomotive cab seats.  Specifically, he claimed that the railroad’s cab seats were “loose and wobbly” and they failed to protect him from excessive shock, jarring and vibration. This negligence caused him to suffer back injuries.   The jury was instructed on two theories of recovery for Miller under the FELA:  general negligence and negligence per se for violation of the Locomotive Inspection Act (“LIA”, 49 U.S.C. s. 20701 et seq.).   The jury found for the railroad on both theories.

On appeal, Miller asserted that the trial court erred by refusing his proffered verdict director relating to his negligence per se theory, and by submitting an instruction that did not properly state the law applicable to his claim.  The Court of Appeals agreed.  

The Court of Appeals observed that the LIA supplements the FELA by imposing on railroads an absolute duty to provide safe locomotives.  The LIA provides that railroads may only use locomotives that “are in proper condition and safe to operate without unnecessary danger of personal injury”.  Pursuant to the LIA, the Federal Railroad Administration (“FRA”) promulgated regulations governing standards of care for locomotives, including cab seats.  These regulations include 49 C.F.R. s. 229.119(a) which states that cab seats “shall be securely mounted and braced”.

The Court further noted that a railroad can violate the LIA by breaching the broad statutory duty to provide locomotives that are “safe to operate without unnecessary danger of personal injury” (the general statutory duty) or by failing to comply with regulations issued by the FRA (a specific regulatory duty). 

Miller requested a verdict directing instruction on his negligence per se theory based on the railroad’s failure to comply with the specific regulatory duty, i.e. 49 C.F.R s. 229.119(a).  He intended to forgo a verdict director based on the general statutory duty, i.e. 49 U.S.C. s. 20701.  The approved instruction for an FELA claim based on an LIA violation tracks the language of the LIA’s general statutory duty.  There is no approved instruction that tracks a specific regulatory duty.  The trial court refused Plaintiff’s proffered instruction and instead gave Defendant’s instruction that was based on MAI.

The Court of Appeals concluded that the difference between proceeding under a theory that the railroad violated a specific regulatory duty - as opposed to the general LIA statutory duty - is significant.   A violation of the general statutory duty required Plaintiff to prove that the railroad’s cab seats were not “safe to operate without unnecessary danger of personal injury”.   This proof is not required when a railroad allegedly violates a specific regulatory duty because regulations promulgated by the FRA pursuant to the LIA have already been supported by a finding that the regulation is necessary to eliminate unnecessary danger of personal injury.

The Court added that the lack of an approved instruction based on the specific regulatory duty didn’t bar Miller from submitting his theory to the jury, nor did this relieve the trial court of its duty to accurately instruct the jury on applicable regulatory standards.

Related Services: Railroad

Attorneys: John Lord

Personal Jurisdiction in Missouri: Just One Touch May be Enough

December 4, 2019 | Joshua Davis and Kyra Short

On October 29, 2019, the Supreme Court of Missouri, in State ex rel. Key Insurance Company v. Roldan, held Missouri courts may exercise personal jurisdiction over a foreign corporation when the corporation has made at least one contact with Missouri and Plaintiff’s tortious cause of action arises out of that contact.

Plaintiff Phillip Nash, a resident of Missouri, was involved in a motor vehicle collision with Josiah Wright in Jackson County, Missouri. Defendant Key Insurance Company, a Kansas corporation, insured Nash’s vehicle, through its policy issued to Nash’s daughter, a Kansas resident. Key Insurance denied Nash’s claim for coverage. Wright sued Nash in Jackson County and was later awarded $4.5 million in arbitration. Jackson County Circuit Court confirmed the award as a final judgment. Nash then sued Key Insurance in Jackson County Circuit Court to collect insurance proceeds in a classic § 537.065 agreement. (See our July 2017 blog on amendments to § 537.065, and how these agreements work.) Nash specifically alleged that Key Insurance committed the tort of bad faith refusal to settle. Key Insurance moved to dismiss Nash’s claim for lack of personal jurisdiction. The trial court denied the Motion to Dismiss. Key Insurance thereafter petitioned the Missouri Court of Appeals for a Writ of Prohibition, which was denied. But in January 2019, Key Insurance petitioned the Supreme Court of Missouri, and the Supreme Court surprisingly issued a Preliminary Writ of Prohibition, agreeing to hear defendant’s claim of lack of jurisdiction.

Key Insurance argued that the Circuit Court usurped its jurisdiction on two grounds: (1) Key
Insurance’s alleged conduct did not fall within Missouri’s long-arm statute, and (2) Key Insurance did not have sufficient minimum contacts with Missouri to satisfy the requirements and protections of the Due Process Clause.

The Missouri Supreme Court held that Missouri’s long-arm statute gives Missouri courts personal jurisdiction over a foreign corporation that commits a tortious act within Missouri. The Court found that Nash made a prima facie showing as to his tort claim against Key Insurance. In so finding, Key Insurance’s alleged conduct – its alleged bad faith refusal to settle - did fall within Missouri’s long-arm statute. The Court reasoned that because Nash’s cause of action arose out of a contract to insure property at risk in Missouri, Nash’s claim was proper under Missouri’s long-arm statute. Additionally, Nash resided in Jackson County, Missouri, and the $4.5 million judgment against Nash was confirmed by the Jackson County Circuit Court.

The Supreme Court also held that one contact with Missouri – the contact being the tortious act itself – is sufficient to satisfy constitutional due process protections. The Court reasoned that because Nash’s claim arose out of Key Insurance’s tortious contact with Missouri, Key Insurance’s contact was sufficient alone to satisfy constitutional due process.

The Supreme Court of Missouri therefore concluded that Key Insurance was not entitled to a Writ of Prohibition, and that the trial court had personal jurisdiction over the Kansas insurer. The Supreme Court quashed its preliminary writ of prohibition, allowing Nash to proceed to trial, and pursue damages against Key Insurance for bad faith refusal to settle.

Insurers and insureds alike take notice of these cases and the protections and pitfalls afforded under RSMo. § 537.065. Even with the recent statutory changes and additional requirements of a valid § 537.065 agreement, insurers should be wary and cautious in coverage determinations and any cases where § 537.065 could be properly exercised by the insured defendant. 

Illinois Court of Appeals Draws Careful Distinctions for Access to Mental Health Records

November 26, 2019 | Terrence O'Toole, Jr. and Ashtyn Kean

In Sparger v. Yamini, plaintiff, on behalf of his minor-daughter, filed a medical malpractice lawsuit against a Chicago-area hospital and a neurosurgeon (collectively “defendants”). Plaintiff alleged that the surgeon’s negligence in repairing the minor-plaintiff’s spinal fluid leak caused her to subsequently develop meningitis. Plaintiff’s Complaint included a claim for compensation for brain damage suffered by minor-plaintiff, including a detrimental effect on the minor plaintiff’s “cognitive, emotion[al], and behavioral presentation.”

Defendants sought minor-plaintiff’s medical records from two hospitals predating the medical care at issue. Plaintiff’s counsel declined to produce the records, asserting that they were privileged and non-discoverable under the Illinois Mental Health and Developmental Disabilities Confidentiality Act (“MHA”) as containing information pertaining to the minor-plaintiff’s mental health treatment. In lieu of production, plaintiff’s counsel provided a limited and redacted version of one of the records sought, while declining entirely to produce the records pertaining to a different hospitalization.

Defendants argued that the minor-plaintiff placed her mental health at issue by claiming the alleged injury affected her cognitive, emotional, and behavioral presentation and that the records sought were relevant to her presentation before the alleged injury, thereby falling into a narrow exception to the MHA regarding mental condition. The circuit court granted defendants’ Motion to Compel ordered plaintiff’s counsel to produce the entirety of the records withheld.

Plaintiff’s counsel refused to produce the records and was placed in “friendly” contempt of court for violation of the discovery order. Plaintiff’s counsel appealed the finding of contempt (a finding of which is final and appealable under Illinois case law (see Reda v. Advocate Health Care, 199 Ill. 2d 47, 54 (2002)). On appeal, plaintiff’s counsel argued that because plaintiff was not seeking compensation for any emotional injuries to minor-plaintiff, her mental health had not been placed at issue.

On review, the Illinois Appellate Court for the First District reversed the trial court’s ruling and stated that plaintiff had not placed minor-plaintiff’s mental condition at issue by claiming brain damage and cited the prior decision of the Illinois Supreme Court in Reda v. Advocate Health Care, 199 Ill. 2d 47, 50 (2002). 

In Reda, plaintiff alleged medical negligence in diagnosis and treatment of an acute thrombosis in his right leg which allegedly resulted in a subsequent stroke. Id. at 50-51. Plaintiff’s treating healthcare providers refused to provide records, citing their protection under MHA. Id. at 51. The trial court ordered production of the records, and the Appellate Court affirmed. The Supreme Court reversed both lower courts, stating “neurological injury is not synonymous with psychological damage…[n]or does neurological injury directly implicate psychological damage.” Id. at 58.

The Appellate Court further distinguished a case from the Appellate Court for the Third District, Phifer v. Gingher, 2017 IL App (3d) 160170.  In Phifer, plaintiffsought damages for “psychiatric, psychological, and/or emotional injuries” resulting from an automobile collision.  Defendant requested medical records prior to the collision, plaintiff refused, and the trial court granted defendant’s Motion to Compel. Id. at 13-19.  The Phifer Court, distinguishing Reda, held that plaintiff placed her mental condition at issue by alleging that she was caused “great pain and anguish both in mind and body.” Id. at 28.

The Appellate Court distinguished the facts of the current case from Phifer because plaintiff specifically stipulated that he was “not seek[ing] damages based on psychiatric, psychological and emotional damages and did not allege [minor-plaintiff] suffered pain and anguish in mind and body, nor [that he claimed] psychiatric or psychological injuries.”

The Appellate Court also rejected defendants’ argument that fundamental fairness required disclosure of the records and distinguished another case cited by defendants, D.C v. S.A., 178 Ill. 2d 551 (1997). In D.C v. S.A., the Illinois Supreme Court held that an exception to the MHA privilege may exist in certain circumstances where the medical records sought have the potential to absolve defendant of all liability and fully negate plaintiff’s claim. Id. at 570. Such an exception included those records establishing that the plaintiff suffered an injury as a result of an attempted suicide, and not an unrelated negligent act, as the plaintiff had initially contended. In distinguishing the present case, the Appellate Court found that the records sought here did not pertain to the absolution of defendants’ liability, but rather to minor-plaintiff’s damages.

The Sparger opinion is notable not only in its ruling regarding the narrow exceptions prescribed by the MHA, but also in the fact that none of the courts and their respective opinions referenced herein attempted to define what specific claims constitute a “neurological injury” versus a “psychological injury.” Instead, the Appellate Court in the instant case held that because the plaintiff’s neuropsychology expert concluded that minor-plaintiff experienced a traumatic brain injury as a result of the alleged negligence, the claims were neurological rather than psychological. 

Defense counsel should expect plaintiffs’ attorneys to continue pursuing the argument that plaintiffs’ alleged injuries are neurological as opposed to psychological, even in light of alleged emotional and behavioral effects, in an effort to conform their cases to this decision and attempt to prevent access to relevant mental health records.

Sparger v. Yamini, 2019 IL App (1st) 180566.

Eastern District Missouri Court of Appeals Overturns Talc Verdict

November 20, 2019 | Robert Chandler

On October 15, 2019 the Missouri Court of Appeals for the Eastern District overturned a jury verdict, including punitive damages, to an out of state plaintiff. The Court ruled that the trial court lacked personal jurisdiction to render the verdict pursuant to recent United States Supreme Court authority.


Plaintiff Lois Slemp, a resident of Virginia, was one of sixty-two plaintiffs alleging claims against defendants Johnson & Johnson, Johnson & Johnson Consumer Companies, Inc. and Imerys Talc America, Inc. for personal injuries related to use of talc products produced, manufactured and sold by defendants. Plaintiff’s claim was tried separately, and the jury awarded a verdict in her favor for actual and punitive damages in May 2017. Judgment was entered on August 3, 2017, including a finding by the trial court pursuant to Missouri Rule of Civil Procedure 74.01(b) that there was no just reason to delay entry of final judgment for purposes of proceeding with appeal. 

After the verdict but before judgment was entered, the landmark United States Supreme Court personal jurisdiction case, Bristol-Myers Squibb v. Superior Court of Ca., 137 S.Ct. 1773 (2017), was handed down. Following entry of judgment, defendants filed a timely post-trial motion on September 1, 2017 seeking dismissal of plaintiff’s claims for lack of personal jurisdiction based upon the BMS case. Defendants argued that under the Bristol-Myers case, there was no basis for the trial court to exercise specific personal jurisdiction over the non-resident plaintiff’s claims where none of the circumstances leading to the plaintiff’s claim occurred in the State of Missouri. 

Plaintiff later filed a motion requesting the Court temporarily vacate the judgment, and allow discovery on the issue of personal jurisdiction. On November 29, 2017, the trial court denied both defendants’ motions to dismiss for lack of personal jurisdiction and plaintiff’s motion to vacate and reopen discovery. The trial court also issued an order striking the Rule 74.01(b) language from its original judgment.   Defendants’ subsequently appealed. 


The Court of Appeals reversed the trial court’s ruling denying defendants’ motion to dismiss on the personal jurisdiction issue, and vacated the trial court judgment in plaintiff’s favor. Key to the appeal was whether the judgment entered by the trial court was final for purposes of appeal. Because claims remained pending as to other plaintiffs, a rule 74.01(b) finding was necessary for defendants to proceed with an appeal. The Court originally entered the finding on August 3, 2019, then modified the judgment on November 29, 2017.

Under Missouri law, a trial court maintains control of its judgment for thirty days and may modify the judgment, for good cause, within this window, regardless of whether either party requests a change. After expiration of this original thirty-day window, a judgment may be modified only upon grounds asserted in a timely-filed post-trial motion, which must be filed within thirty days of entry of judgment.

Because neither party filed a timely, authorized post-trial motion requesting the Rule 74.01(b) language be removed, the appellate court ruled that the trial court was without authority on November 29, 2017 to modify its judgment to remove the language certifying the judgment as final for purposes of appeal. The Appellate Court therefore ruled that the Order removing the Rule 74.01(b) certification language exceeded the authority of the trial court, and the appeal was properly before the Court pursuant to the language in the August 3, 2017 Judgment. 

After determining the judgment was final for purposes of appeal, the Court found that specific personal jurisdiction may not be established by out of state plaintiffs under circumstances arising outside the state merely by joining the claim with a Missouri plaintiff. Accordingly, the rulings on the personal jurisdiction motions were reversed, and plaintiff’s judgment was reversed.

Guidance for the Future

When filing post-trial motions, all parties should be certain to timely request all post-trial relief, including any desired modification of judgment language, within the time allowed under procedural rules. Additionally, under the Bristol-Myers case personal jurisdiction against a defendant must be established for each claim made against it.

Federal Aviation Administration Certifies UPS to Become First-ever Drone Airline.

November 7, 2019 | Elizabeth Miller

The Federal Aviation Administration (FAA) issued the first-of-its-kind Part 135 certification to UPS subsidiary, UPS Flight Forward, Inc. (UPS).

The Part 135 certificate declares two core matters: (1) UPS is exempt from certain federal rules and regulations governing flight operations, and (2) UPS is explicitly authorized to perform certain flight operations otherwise prohibited by the FAA.

Specifically, the Part 135 certificate issued to the UPS subsidiary waives the following federal regulations:

14 CFR § 107.31, Visual line of sight aircraft operation, is waived to allow operation of the small unmanned aircraft (sUA) beyond the direct visual line of sight of the remote pilot in command (PIC) and any visual observer (VO) who is participating in the operation.

14 CFR § 107.33(b) and (c)(2), Visual observer, is waived to the extent necessary to allow operation of the small unmanned aircraft (sUA) when any VO who is participating in the operation may not be able see the unmanned aircraft in the manner specified in §107.31.

14 CFR § 107.39, Operations over people, is waived to allow sUA operations over people who are not direct participants, necessary for the safe operation of the small unmanned aircraft.

The certificate provides as authorized operations:

Small unmanned aircraft system (sUAS) operations for the purpose of 135 certification, beyond the visual line of sight of the remote pilot in command (PIC) and Visual Observer (VO), in lieu of visual line of sight (VLOS) and sUAS operations over human beings.

Notably, Amazon Air and Uber Eats have yet to secure Part 135 certification status. Until now, one or all of the above UPS exemptions limited Part 135 operators, including Google’s Wing Aviation LLC, which received only a waiver for a single pilot. 

While Part 135 certifications were already used for drone deliveries, UPS is using its certificate to go one step further to build out the first drone airline thanks to the far-reaching parameters of the waiver. UPS’s Part 135 certificate removes limits on the size and scope of the company’s potential drone operations. The company is now also exempt from the FAA rule that mandates that drones fly within the sight of the drone operator. In other words, the certificate allows UPS to fly an unlimited number of drones with an unlimited number of remote operators. The certificate also lifts previous restrictions on drone flights, permitting a drone and its cargo to exceed 55 pounds and to fly at night. This allows the company to develop new technology to create and use different drones.

In recent press statements, UPS CEO David Abney stated UPS worked closely with the Department of Transportation and the FAA to achieve this goal. Mr. Abney stated the certification will be used to accomplish multiple unmanned aircraft deliveries to multiple locations. UPS’s first focus will be a strategic healthcare initiative to expand its drone delivery service to further support hospital campuses throughout the United States. Abney stated the company has contemplated numerous campus-like settings for drone delivery and he believes the drone expansion will serve 20 or more locations during the rollout phase of the newly authorized drone deliveries. When regulations are complete, Abney expects expansion to residential delivery. 

In anticipation of Part 135 approval, but before receipt of the certificate, UPS began to develop a ground-based fleet of drones that help detect and avoid technology. UPS has also already begun to organize and develop technologies to create a consolidated control center that will allow the company to dispatch and operate drones from one consolidated area, thereby minimizing costs associated with infrastructure. 

The immediate concern of economists is that of American jobs while yet another industry inches closer towards automated functionality. The certificate and control center allow the company to facilitate its drone program with a fraction of the number of drone operators otherwise required by the FAA, and to avoid a need for jobs that would support additional drone operation locations. Economists speculate that as drone deliveries increase, reliance on UPS truck deliveries will decrease thereby eliminating at least some of the need for UPS drivers. 

As with all developments in this ever-evolving field, only time will tell what and how the legal and regulatory environment mesh with the actual uses that UPS finds for its drones.

The "Insurance Question" in Missouri - the Right to Ask is Not Absolute

October 30, 2019 | John Mahon, Jr. and Ashtyn Kean

In Eoff v. McDonald, the Supreme Court of Missouri upheld a St. Louis County circuit judge’s refusal to allow plaintiffs’ counsel additional time during jury selection to ask the “insurance question”, after counsel forgot to do so earlier when it was his turn to question potential jurors. The decision hinged on the determination that the right to ask the question is not absolute and must follow a procedure designed to balance the plaintiff’s right to ask the question to ensure a fair and impartial jury with potential prejudice to the defense by unduly highlighting the insurance issue. 

It is common practice for  Missouri plaintiff counsel, consistent with the holding in Ivy v. Hawk, 878 S.W.2d 442 (Mo. banc 1994) (reversing and ordering new trial where trial court failed to allow plaintiffs’ counsel to ask prospective jurors the preliminary insurance question), to question potential jurors whether they have a financial interest in the defendant’s malpractice insurer. Ivy is one in a long line of Missouri cases holding a trial court must permit this even though evidence of a defendant’s liability insurance is inadmissible under the collateral source rule. The Ivy opinion explains the proper procedure: (1) obtain the court’s approval outside the jury panel’s presence; (2) ask only one "insurance question;" and, (3) do not ask it first or last in a series of questions so as to avoid unduly highlighting it. The form of the question is at the trial court's discretion – it generally encompasses whether any members of the panel or their families work for or have a financial interest in the named insurance company.   

The Eoff plaintiffs sued a physician and her employer for the alleged wrongful death of their daughter during delivery at birth. During discovery, the physician disclosed the identity of her medical malpractice insurer, a small insurance company located nearly 300 miles from St. Louis County. At trial, Plaintiffs’ counsel submitted to the court in writing his proposed insurance question for jury selection. Defense counsel did not object, and counsel proceeded with lengthy jury selection, covering 173 pages of trial transcript. Plaintiffs’ counsel concluded his questioning without asking the insurance question, apparently forgetting to do so. After realizing his mistake, Plaintiffs’ counsel sought the court’s permission for additional time to ask the question after defense counsel’s final question. Plaintiffs’ counsel indicated he would ask the question as the second of three additional questions. The trial judge denied the request because she believed the risk of prejudice to the defense by unduly highlighting the insurance issue outweighed any prejudice to plaintiffs, especially considering the insurance company was small and located across the state.   

After a six-day jury trial resulting in a defense verdict, the trial judge denied the plaintiffs’ motion for new trial. The plaintiffs appealed, and the Missouri Court of Appeals, Eastern District, reversed and remanded for a new trial based on the trial judge’s refusal to allow Plaintiffs’ counsel to ask the insurance question. The Supreme Court of Missouri accepted the case for review.

The Supreme Court of Missouri disagreed with the Court of Appeals, and affirmed the trial court’s decision and jury verdict.  The Supreme Court held that Ivy neither affords plaintiff counsel the unqualified right to ask the insurance question nor divests a trial court’s discretion to control the timing and sequence of jury selection. The Eoffs’ counsel failed to follow the procedure set forth in Ivy, and therefore waived the right to ask the insurance question.  Under Ivy, a new trial is warranted only if a trial court denies the right to ask a proper insurance question. Here, it was not incumbent on the trial court to permit the Eoffs’ counsel a second chance.

The Eoff opinion breathes new life into a mainstay of the jury selection process for many Missouri medical negligence jury trials. The holding confirms the right to ask the insurance question.  But it also emphasizes both the importance of following proper procedure, and the trial court’s discretion in conducting jury selection and balancing the right to ask the question with the risk of potential prejudice. Eoff serves as a stark warning to trial counsel to remember to ask the insurance question, and to do so at the appropriate time.

The Buck Stops Here: When Agents May Become Liable for the Wrongful Acts of their Principal.

October 17, 2019 | Brandy Simpson and Andreea Sharkey

Missouri courts have long held that when an agent for another makes a contract with a third party without disclosing the agency, the individual will be bound by the contract and the third party may hold the agent or the undisclosed principal responsible at his election. On September 24, 2019, the Missouri Court of Appeals, Western District, in Alpha Petroleum Company vs. Hani Daifallah, et al. applied this principle, and held that agents who did not properly disclose the agency relationship when entering into a business relationship with a third party were personally liable for the ensuing transactions.

The case involved the lease of a convenience store with gasoline services, between Plaintiff Alpha Petroleum’s sister company, A.J. Partnership, and the Defendants. Under the lease agreement, Defendants were required to purchase gasoline products from Alpha Petroleum. In the regular course of the dealing between the parties, Alpha Petroleum would ship the fuel to the convenience store location and subsequently invoice the Defendants. After Alpha Petroleum advised the Defendants that it was terminating the lease of the convenience store, the parties agreed to a six month extension to allow Defendants additional time to vacate the premises. Before the premises were vacated, Defendants received two more fuel deliveries, both of which went unpaid. Alpha Petroleum sued, seeking damages for nonpayment on account and unjust enrichment. Defendants contended that a separate entity, Zik Moe, Inc., a corporation owned in part by Defendant Mohammed Daifallah, operated the convenience store and was therefore liable for any debt owed to Alpha Petroleum. The trial court entered a judgment against Defendants, jointly and severally, for the entirety of the unpaid balances.

On appeal, Defendants argued that (1) there was no substantial evidence in the record to support the trial court’s conclusion that Defendants were personally liable for the debt owed by Zik Moe, and (2) the trial court misapplied the law by piercing the corporate veil to find Defendant’s personally liable for the debt owed to Alpha Petroleum. The Court of Appeals affirmed the ruling below. It noted that to prevail on a substantial evidence challenge, a defendant must demonstrate that there was no evidence in the record tending to prove a fact necessary to sustain the trial court’s judgment as a matter of law. But here, the trial court record contained evidence that the Defendants failed to disclose they were purported agents of a corporation during the five years they had done business with Alpha Petroleum, which was sufficient for the trial court to conclude that Defendants were personally liable for the unpaid invoiced, based on their failure to disclose an alleged agency relationship. Having upheld the judgment in favor of the Plaintiff on the first point, the Court of Appeals concluded it did not need to consider whether the trial court properly found Defendants personally liable for the debt Alpha Petroleum by piercing Zik Moe’s corporate veil.

The ruling reinforces the need for agents to be fastidious in disclosing the agency relationship, and in ensuring that the existence and identity of the principal are known, in order to avoid potential personal liability for future misdeeds of their principal.

Alpha Petroleum Company vs. Hani Daifallah, et al. (Missouri Court of Appeals, Western District, WD82222 and WD82230)

Related Services: Appellate and Commercial

Attorneys: Brandy Simpson and Andreea Sharkey

Jury Instructions in Railroad Employment Case Rejected Again by 8th Circuit

October 14, 2019 | John Lord

The U.S. Court of Appeals for the Eighth Circuit has, for the second time, reversed and remanded a railroad employment case. Both reversals were based on jury instructions the Court deemed erroneous.            

Edward Blackorby was an employee of the BNSF Railway. He sustained an eye injury while on duty, but the existence and severity of the injury was not immediately apparent. Several days after Blackorby experienced eye irritation at work, a doctor removed a small metal shard from his eye.

Shortly after the shard was removed, Blackorby notified his supervisor of the injury. According to Blackorby, his supervisors discouraged him from reporting the injury by telling Blackorby that he would be investigated for not reporting the injury immediately after it occurred. Nevertheless, Blackorby filed a formal injury report and was later notified by BNSF that he would be investigated. After the investigation, BNSF assessed discipline against Blackorby for a late report of personal injury.

Blackorby filed a complaint with OSHA based on alleged violations of the whistleblower provisions of the Federal Rail Safety Act, 49 U.S.C. §20109. OSHA determined that BNSF violated Blackorby’s rights under the FRSA. These findings were challenged before an administrative law judge, but while the challenge was pending, Blackorby filed the present lawsuit in federal court for de novo review.               

The case was tried to a jury, which was instructed that Blackorby was not required to show that BNSF had a retaliatory motive in disciplining him. The jury returned a verdict for Blackorby and awarded him $58,240 in damages. The 8th Circuit reversed and remanded, holding that the jury instruction was erroneous, because Blackorby was in fact required to show that BNSF acted with retaliatory animus. Blackorby v. BNSF Railway Co., 849 F. 3d 716 (8th Cir. 2017).               

On remand, the court held a second jury trial on liability only. This time, the jury returned a verdict for BNSF. On appeal, Blackorby challenged several of the trial court’s instructions to the jury. The 8th Circuit again agreed that the trial court committed prejudicial instructional error. Blackorby v. BNSF Railway Co., No. 18-2372 (8th Cir. 2019).

First, the 8th Circuit found error in an instruction stating that BNSF could not be held liable if it disciplined Blackorby based on an honestly held belief that he engaged in misconduct or committed a rules violation. The Court held that liability can still exist notwithstanding such a belief, (1) if the employer’s retaliatory motive also contributed to the decision to discipline, and (2) if the employer fails to carry the burden of proving by clear and convincing evidence that it would have taken the same action in the absence of the protected activity.

The Court also determined that the instructions were erroneous because they misallocated and misstated the burden of proof. The instructions erroneously described the “honestly held belief” issue as part of Blackorby’s prima facie case and not a part of BNSF’s burden under the “clear-and-convincing-evidence standard”.   The case was remanded to the District Court where we anticipate the case will again be tried before a jury with modified instructions.

Related Services: Railroad, Employment & Labor

Attorneys: John Lord

Update: House Passes SAFE Banking Act

September 28, 2019 | Megan Stumph-Turner

In August we reported on the challenges that financial institutions face in Missouri now that medical cannabis use is permitted, and we suggested that the SAFE Banking Act of 2019, H.R. 1595, would provide a much-needed safe harbor for banks handling cannabis money.

Although there was doubt even a month ago that the SAFE Banking Act would pass, the bill was approved by 321-103, far more than the required 2/3 majority to pass through the House.

The SAFE Banking Act is unique in that it draws both praise and objection from each side of the legislative aisle. While some Republicans support the bill due to its benefit to commerce and the financial services industry, other more socially conservative legislators refuse to support the bill because marijuana remains illegal under federal law, and some believe marijuana to be dangerous.

Conversely, while the bill has garnered some Democratic support due to its progress toward future decriminalization of marijuana and scaling back the war on drugs, others simply do not want to give more power or leniency to financial institutions.

This dichotomy of perspectives even within each party makes it difficult to predict how the SAFE Banking Act will fare in the Senate. But, there is no doubt that Missouri financial institutions would benefit from its passage, and proponents of the bill continue to push hard for it to be put into law.

As a reminder, the SAFE Banking Act would not change the status of cannabis as a Schedule I controlled substance under federal law. But it would permit financial entities to provide checking and savings accounts, credit cards, loans, and other financial products to marijuana-related businesses, and it would also prohibit the feds from seizing assets or taking punitive action against those banking institutions.

We will continue to monitor the status of this legislation.

Ninth Circuit Allows Class Action Against Facebook under Illinois' Biometric Information Privacy Act to Proceed in California

September 25, 2019 | Lisa Larkin

Those on Facebook know the site is quite good at recognizing others in posted photos and suggesting friends to tag. Most click on the tag suggestion and move on with little to no thought on just how this happens behind the scenes. A class action filed in the Northern District of California will be allowed to proceed to consider whether Facebook’s behind-the-scenes face-recognition technology violates Illinois’ Biometric Information Privacy Act (BIPA). Patel v. Facebook, Inc., 932 F.3d 1264 (9th Cir. 2019). 

Nimesh Patel, individually and on behalf of all others similarly situated, filed a purported class action against Facebook alleging Facebook subjected the named plaintiffs and the purported class to facial-recognition technology without complying with BIPA, which is intended to safeguard their privacy. BIPA, 740 ILCS 14/1 et seq. (2008), prohibits the collecting, using, and storing of biometric identifiers, including a “scan” of “face geometry”. Plaintiffs alleged Facebook used scans of their photos without obtaining a written release and without establishing a compliant retention schedule.

For years, Facebook has allowed its users to “tag” their Facebook friends in photos. In 2010, Facebook launched a feature called “Tag Suggestions.” This feature uses facial-recognition technology to analyze whether the user’s Facebook friends are in photos and then “suggest” a tag. It does so by scanning the photo, extracting various geometric data points that make a face unique, and creating a face signature or map. It then compares the face signature to other faces in Facebook’s database and matches it to other user profiles. These user templates are stored on Facebook servers in nine data centers, none of which is in Illinois. The named Plaintiffs are all Illinois residents who uploaded photos to Facebook while in Illinois. Facebook created and stored face templates for each of them.

Facebook moved to dismiss the complaint for lack of standing on the ground that the Plaintiffs had not alleged any concrete injury. Plaintiffs, in turn, moved to certify the class. The district court denied the Motion to Dismiss and certified a class of “Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011.”

On appeal of the standing issue, the 9th Circuit noted standing is established where a plaintiff has suffered an “injury-in-fact” defined as an invasion of a legally protected interest which is: (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical. It is not enough for a plaintiff to allege that a defendant has violated a statutory right without also showing that the plaintiff suffered a concrete injury-in-fact due to the statutory violation.

In terms of BIPA, the appellate court noted that the Illinois General Assembly found that the development and use of biometric data presents risks to Illinois’ citizens. Citing to the Illinois Supreme Court’s opinion in Rosenbach v. Six Flags Entm’t Corp., 2019 IL 123186, which we previously discussed here, the court concluded that the statutory provisions at issue in BIPA were established to protect an individual’s “concrete interests” in privacy, not merely his procedural rights related to how his biometric information was stored and used.

The question then became whether the specific statutory violations alleged by the Plaintiffs in this case actually harmed or presented a material risk of harm to such privacy interests. The relevant conduct according to Plaintiffs was Facebook’s collection, use and storage of biometric identifiers without a written release and a failure to maintain a retention schedule or guidelines for destroying biometric identifiers. Plaintiffs asserted this allows Facebook to create and use a face template and retain it indefinitely. The court noted that because the privacy right protected by BIPA is the right not to be subject to such collection and use, Facebook’s alleged violation would necessarily violate the Plaintiffs’ substantive privacy interests. It concluded, therefore, that Plaintiffs have alleged a concrete injury-in-fact sufficient to confer standing.

On the class certification issue, Facebook argued the district court erred in certifying the class because the Illinois legislature did not intend for BIPA to have extraterritorial effect. Because Facebook’s collection, storage, and template creation took place on its serves outside Illinois, Facebook argued the district court would have to consider whether each relevant event took place inside or outside Illinois. The Court of Appeals disagreed. It is reasonable to infer that the General Assembly contemplated BIPA’s application to individuals located in Illinois, even if some relevant events occurred outside the state. The court held that these are threshold questions of BIPA’s application which can be decided on a class-wide basis. 

Facebook also argued that the possibility of a large class-wide statutory damages award defeats the superiority requirement for a class action. Again, the appellate court disagreed. The question of whether the potential for enormous liability can justify a denial of class certification depends on legislative intent. Here, there is nothing in BIPA’s text or legislative history indicating a large statutory damages award would be contrary to the intent of the Illinois General Assembly. The court, therefore, affirmed the district court’s order certifying the class.

The law surrounding BIPA continues to develop, which is unsurprising considering the speed with which relevant technological capabilities develop. With this opinion, the extraterritorial reach of BIPA is established and may well lead to more litigation outside the confines of the Illinois state and federal courts.

Eighth Circuit Affirms Single Captioned Theatre Performance for Hearing Impaired not Good Enough Under ADA

September 17, 2019 | Brandy Simpson

Title III of the Americans with Disabilities Act specifically prohibits discrimination on the basis of disability in the activities of places of public accommodation. This includes restaurants, schools, movie theatres, doctor’s offices and performing arts theatres. 42 U.S.C. §12182(a). 

In Childress v. Fox Associates, LLC, two hearing-impaired patrons of The Fabulous Fox Theatre in St. Louis (“The Fox”) argued the theatre failed to provide appropriate accommodations under the ADA as a result of the theatre’s offering of only a single captioned performance (Saturday matinee). Plaintiffs argued the ADA requires “equal services,” meaning the theatre was required to offer captioning when requested for any performance, subject only to the ADA’s “undue burden” affirmative defense. During discovery, the Fox objected to providing financial information to support the “undue burden” defense, arguing the information was irrelevant. Plaintiffs argued the Theatre waived the defense by failing to provide financial information. The Fox argued that on-demand captioning was not a reasonable modification to their policies and procedures.  

The district court reasoned that failing to offer captioning at any and every performance where captioning was requested “results in deaf persons being excluded, denied services, or otherwise treated differently than other individuals merely because of the absence of [an auxiliary] aid.” Because The Fox did not assert and prove an undue burden defense, it was required to provide accommodations in the form of auxiliary aids. The District Court awarded injunctive relief requiring The Fox to provide captioning whenever it received a request two weeks prior to the show. The Court also awarded plaintiff $97,920 in attorney’s fees.

On appeal, The Fox argued it should be permitted flexibility to consolidate multiple captioning requests into one performance due to the expense of captioning. It further challenged the award of attorney’s fees, arguing the court used an inflated hourly rate, allowed plaintiff’s counsel to bill for tasks he should not have included, and failed to reduce the fee award to account for plaintiffs’ partial success on the summary judgment motion.

The Court of Appeals first addressed the ADA requirements regarding public accommodations. Under the ADA, public accommodations must provide auxiliary aids and services to individuals with disabilities if the aids are necessary to enjoy “meaningful access” to the public accommodation. In a previous opinion, Argenyi v. Creighton University, the Eighth Circuit explained that under the ADA, a public accommodation shall provide auxiliary aids if the aids would be necessary for an individual to enjoy “meaningful access” to the public accommodation. The definition of “meaningful access” is an “equal opportunity to gain the same benefit” as a person without a disability. Argenyi v. Creighton University, 703 F.3d 441, 449 (8th Cir. 2013). 

The form of auxiliary aid necessary can be determined by the public accommodation, but once it is determined an auxiliary aid is needed, it must be provided unless doing so would “be an undue burden or would fundamentally alter the nature of the provided benefit.” 42 U.S.C. 12182(b)(2)(A)(iii). Both fundamental alteration and undue burden are affirmative defenses that must be raised at the outset or are waived.

The Fox argued that deaf and hearing-impaired patrons received meaningful access to the Fox’s productions because it had never denied a request for captioning and provided a captioned performance of each production. Appellees and the court disagreed, noting hearing impaired patrons received access to a single matinee show on a Saturday for each production while other patrons had access for evening and weekday performances.

The Court also found The Fox had failed to raise “undue burden” as an affirmative defense and had explicitly stated in its summary judgment briefing that it was not asserting an undue burden defense.    The Court further found the district court did not abuse its discretion in awarding attorney’s fees.

Ultimately, the Eighth Circuit Court of Appeals held The Fox’s policy required hearing-impaired individuals to attend a single Saturday matinee performance of each production and prevented them from attending a performance during the week or in the evening, thus excluding the individuals from “economic and social mainstream of American life.” 

Arbitration Agreements 101: they require - you guessed it - agreement.

September 13, 2019 | Elizabeth Miller

The Eighth Circuit has issued a reminder to those seeking to bind employees and consumers to arbitrate future disagreements: don’t gloss over contract basics.

In Shockley v. PrimeLending, 929 F.3d 1012, Jennifer Shockley sued her former employer under the Fair Labor Standards Act, alleging she was not paid for all earned wages and overtime pay. PrimeLending moved the district court to compel arbitration based on a mandatory arbitration provision contained in its employee handbook. The district court denied the motion because it found no agreement to arbitrate existed between Shockley and the company. PrimeLending appealed the denial to the Eighth Circuit, which affirmed the district court’s denial for the same reason.

The Court reiterated in the Shockley opinion that arbitration agreements are favored by federal law and are enforced as long as the agreements are valid, and the dispute at issue falls within the scope of the agreement. Whether parties can be compelled to arbitrate any given dispute is a matter of contract law. Thus, while arbitration is preferred, parties may only be compelled to arbitrate if they contractually agreed to be bound by arbitration. A party seeking to compel arbitration must therefore show, as a threshold matter, that a valid and enforceable agreement to arbitrate exists. To do so, the three elements of a contract – offer, acceptance, and consideration – must be proven. 

Like most large employers today, PrimeLending made its employee handbook accessible electronically, and as part of Shockley’s required annual policy review, the click of a mouse on the handbook in PrimeLending’s computer network automatically generated an acknowledgement of review. PrimeLending employed Shockley for 13 months. In that time, Shockley completed the policy review process twice. PrimeLending claimed the two e-acknowledgments and Shockley’s continued employment with the company were sufficient to carry its burden to prove Shockley accepted the arbitration provisions contained in the handbook. Both the district court and the Eighth Circuit held these facts were insufficient to prove Shockley accepted any purported offer related to arbitration. 

The employment handbook contained two arbitration-related provisions: (1) a “delegation provision”, and (2) a run-of-the-mill arbitration provision. A delegation provision is an agreement to arbitrate threshold issues concerning the arbitration agreement, mainly placing “gateway questions of arbitrability into the hands of an arbitrator.” In other words, a delegation provision is a separate agreement within the agreement to arbitrate, which, if valid, mandates that certain issues be determined by an arbitrator rather than by a judge before the core dispute is arbitrated. When successful, the challenge of a delegation provision renders the remainder of an arbitration agreement open to review by the courts. Accordingly, the Eighth Circuit in Shockley first reviewed the delegation provision contained in the handbook.

The Eighth Circuit assumed, for the sake of discussion, that the delegation provision at issue constituted an offer. And it then reviewed the record to determine whether Shockley accepted the purported offer. Under Missouri law, “mere continuation of employment [does not] manifest the necessary assent to [the] terms of arbitration.” While continued employment may in some circumstances constitute acceptance when the employer informs all employees that continued employment constitutes acceptance, no such message was relayed to PrimeLending employees. Thus, Shockley’s continued employment was not evidence that she accepted the delegation offer contained in the employee handbook. Next, the Court entertained the e-acknowledgments as means of Shockley’s acceptance.

Specifically, the Court explained that acceptance is present when the offeree (here, Shockley) – the person receiving the offer – signifies assent in a “positive and unambiguous” manner generally by affirmative words or action to the terms of the offer. The Court outlined the pertinent facts: Shockley’s initial review of the handbook was not conditioned on her offer of employment, she had no memory of reviewing the handbook, nor did the record establish she actually reviewed the handbook. The Court held that PrimeLending could, at best, show Shockley acknowledged the existence of the arbitration provisions and was thus aware of the terms of her then-employer’s purported contract offer. The Court held that Shockley’s review of the handbook and the subsequent system-generated acknowledgment did not create clear acceptance and therefore no contract was created.

Following review of the delegation provision, the Court turned its attention to the arbitration provision. Because both the delegation and arbitration provisions are grounded in contracts law and involve the same set of facts, the Court succinctly explained that the legal analysis of the arbitration provision was the same as analysis of the delegation provision, and that both analyses suffered from the same fatal flaw. The fact that the Court could not find that Shockley accepted any purported offer was dispositive of both analyses. Thus, PrimeLending failed to meet its burden to prove a valid agreement to arbitrate existed and the Court could not compel Shockley to arbitrate her claims.

The lesson for businesses seeking to compel arbitration of employee or consumer claims is clear: the “offeree” of the arbitration clause should be asked, in the first instance, to affirmatively accept the arbitration clause.

Terms of "Confidential" Co-Defendant Settlement Prove Party Bad Faith and Earn Counsel a Disciplinary Referral

September 5, 2019 | Lisa Larkin

A well-established and often referred to as sacred part of American jurisprudence is the confidential nature of settlement negotiations and terms. In a recent opinion, Illinois’ First District Appellate Court reminded litigants that such confidentiality, in fact, can be lost. 

In Chernyakova v. Puppala, et al., 2019 IL App (1st) 173066, Plaintiff Elena Chernyakova sued Northwestern Memorial Hospital, McGaw Medical Center of Northwestern University and Vinaya Puppala, M.D. alleging that while she was hospitalized at Northwestern for alcohol intoxication, Dr. Puppala, an employee of McGaw, electronically accessed Plaintiff’s medical chart and took and posted photos of her on social media. Plaintiff and Dr. Puppala knew each other socially, and while she was admitted, Dr. Puppala visited Plaintiff twice just hours after admission. He used his credentials to view Plaintiff’s electronic medical chart and spoke with Plaintiff’s treating physicians regarding her progress and possible discharge. On his second visit, Dr. Puppala took photographs of Plaintiff in what was still an intoxicated state and posted them to Facebook and Instagram. Plaintiff contested that she had consented to Dr. Puppala accessing her medical records, speaking to her treating physicians, or taking and posting her photograph.

The Cook County Circuit Court granted summary judgment to Northwestern and McGaw, and Plaintiff proceeded to trial against Dr. Puppala. During trial, Plaintiff settled with Dr. Pappula and the parties requested an on the record “hearing” wherein the attorneys outlined the terms of the “confidential” settlement for the trial judge. Separately, Plaintiff pursued an appeal of the summary judgment in Northwestern and McGaw’s favor.

During the pendency of the appeal, Northwestern and McGaw’s counsel obtained information that the terms of the “confidential” settlement called in question the validity of the factual underpinnings of the lawsuit. Defense counsel moved the trial court to unseal the transcript of the settlement hearing so that it might be considered by the appellate court on a motion to dismiss the appeal even though those proceedings had no direct connection to the summary judgment proceedings. The trial court ultimately unsealed the transcript, and the parties agreed it would be filed in the appellate court under seal.

While generally the appellate court’s review of summary judgment orders is strictly limited to the materials of record before the Circuit Court at the time the summary judgment was entered, this case presented a unique situation. As the appellate court noted, it implicated the appellate court’s responsibility to “strive to enhance and maintain confidence in our legal system.” The appellate court found the contents of the settlement transcript lead to the inescapable conclusion that the appeal was frivolous and being pursued in bad faith. The transcript disclosed that at the hearing counsel stated the amount Dr. Puppala agreed to pay and that Plaintiff agreed to write favorable letters on the doctor’s behalf stating that her underlying allegations were “mistaken” and that she consented to the photos and postings. Significantly, the appellate court learned that after the Circuit Court ordered the settlement hearing transcript unsealed, Plaintiff’s counsel had nevertheless instructed the court reporter to not provide a copy to Defendants.

On appeal, Plaintiff argued there is a presumption that favors the validity of confidentiality provisions in settlement agreements such that the settlement hearing transcript could not be unsealed as a matter of law. The appellate court explained that Plaintiff’s argument demonstrated a misunderstanding of the confidentiality protection afforded to settlement agreements. Once Plaintiff’s counsel described the terms of the settlement to the trial judge, any confidences evaporated and sealing the confidential terms did nothing to save them. By informing the trial judge of the settlement terms on the record, counsel made those terms a part of the public record which could not be sealed.

The appellate court also found Plaintiff’s counsel was incorrect in his assertion that Illinois Supreme Court Rule 408 protected the confidential nature of the settlement terms. Rule 408 provides that evidence of “furnishing or offering or promising to furnish – or accepting or offering or promising to accept – a valuable consideration in compromising or attempting to compromise the claim” and “conduct or statements made in compromise negotiations regarding the claim” is inadmissible “to prove liability… or to impeach through a prior inconsistent statement or contradiction[.]” Such evidence may, however, be admissible to establish bad faith. Here, the inquiries into settlement negotiations was to establish wrongdoing and Rule 408 offered no protection to Plaintiff.

The appellate court found it significant that Plaintiff did not directly question the substantive accuracy of the settlement terms, which on their fact are irreconcilable with Plaintiff’s continued pursuit of her claim against the Defendants. Plaintiff, through counsel, affirmatively agreed to fully exonerate Dr. Puppala by providing a letter completely contradicting the factual bases of the lawsuit. She knew those letters would be sent to favorably influence regulatory or financial decisions involving Dr. Puppala, while simultaneously continuing her quest for money damages against the Defendants under theories she asserted were “mistaken.”

The appellate court dismissed the appeal as frivolous and not pursued in good faith. Further, it found Defendants entitled to their reasonable attorney fees and costs incurred as a result of defending against the frivolous appeal. The court also concluded that it could not turn a blind eye to Plaintiff’s counsel’s instruction to the court reporter to not provide the Defendants will a copy of the hearing transcript in contravention of the trial court order. As a result, the court instructed the clerk of the appellate court to forward a copy of the opinion to the Attorney Registration and Disciplinary Commission.

The decision corrects any misconceptions that settlement negotiations and terms are absolutely protected. One must question how far this holding might reach as there are many proceedings which are held “on the record” but with the transcripts later sealed. Perhaps more importantly, the opinion cautions counsel against showing a lack of respect for the Circuit Court and for the appellate process in a blind drive for a successful outcome.

Missouri Supreme Court Affirms Prospective Only Application of Amendments to Sect. 537.065 RSMo Providing for Notice to the Insurer and Intervention as a Right

August 28, 2019 | Lisa Larkin

The Missouri Supreme Court recently held that amendments to RSMo. § 537.065 requiring a valid § 537.065 contract and written notice to insurers for an opportunity to defend did not apply retroactively to a case where the plaintiff and tortfeasor executed the § 537.065 contract before the effective date of the amended statute. The dissent argued that the amended statute should apply retroactively despite the timing of § 537.065 contract in this case because the amended statute was not a new enactment, but rather a continuation of the existing law.

In Desai v. Seneca Specialty Insurance Co., 2019 WL 2588572, No. SC 97361 (June 25, 2019), Seneca sought to intervene in a 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. Garcia rejected Seneca’s offer to defend Garcia subject to a full and complete reservation of rights regarding coverage. 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 Garcia’s 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. Seneca argued the rights afforded to insurers under the amended statute should apply to it and its efforts to intervene in the lawsuit.

The trial court denied Seneca’s motion to intervene, holding the legislature did not expressly provide for retroactive application of the August 2017 amendments to § 537.065 to cases where the parties executed the § 537.065 contract before the amendments. As discussed in our previous blog post found here, the Court of Appeals for the Western District of Missouri affirmed.

The Missouri Supreme Court began its analysis by looking to the language of the 2017 amendments. The amended statute permitted the same type of contract where the plaintiff agrees that, in the event of a judgment against the tortfeasor, the plaintiff will collect money solely from the tortfeasor’s insurer or other specified assets, rather than directly from the tortfeasor. The amended statute, however, included two notable additional requirements. First, it provided that before creation of such a contract between the plaintiff and a tortfeasor, the insurer must be given the opportunity to defend the tortfeasor without reservation and refuse to do so. Second, the amended statute provided that before a judgement may be entered against a tortfeasor after such tortfeasor “has entered into a contract under this section” (emphasis added), the insurer must be provided with written notice of the contract and be given the opportunity to intervene as a matter of right.

The key issue before the Supreme Court in terms of whether the amended statute applied in this case was to determine the meaning of “under this section.” First, the court looked to the relevant differences between the former and amended statutes. Then, it looked to whether the amended statute was merely a continuation of the former statute. This was because any change to the law that could be said to be a continuation of the prior law would not be a new enactment and could be applied retroactively to § 537.065 contract executed before the amendments.

The court found that the amended statute and the former statute both permitted the same type of contracts. Because the amended statute contained the two additional requirements noted above, i.e., that a valid § 537.065 contract exists, and that the insurer be given written notice of the execution of the contract and the opportunity to intervene before a judgment is entered, “under this section” cannot refer to the statute’s prior version. The Desais and Garcia could not have “entered into a contract” pursuant to a prerequisite and requirements that were not yet law. Thus, because the Desais and Garcia executed their contract under the provisions and requirements of the former statute, the amended statute was an inapplicable new enactment. It is important to note that the Supreme Court did not question the validity of the amended statute to any case where the § 537.065 contract was entered into after August 28, 2017 (the effective date of the amendments). 

The dissent argued that the 2017 amendments simply added a condition precedent to the entry of judgment after a tortfeasor has entered into a § 537.065 contract and did not affect the substantive terms of any contract entered into under that section. It argued that “under this section” referred to both the amended and prior versions of the statute because the revisions simply gave an insurer the right to written notice and an opportunity to intervene. The revisions did not purport to give an insurer an automatic right to set aside a judgment entered or any other rights beyond what any intervenor would have.

As was the case with the Western District’s prior opinion in this case, this Supreme Court opinion provides an excellent road map for the court’s likely approach to the issue of retroactive vs. prospective application of statutory amendments of not only this statute, but others under Missouri law.

* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a 3L student at the University of Missouri-Columbia.

Related Services: Insurance, Appellate and Commercial

Attorneys: Lisa Larkin

Taxation of Lost Wages Awards Under the FELA: the Illinois Appellate Court Applies Loos v. BNSF

August 21, 2019

In Munoz v. Norfolk Southern Railway Company, 2018 IL App (1st) 171009 (Munoz I), Plaintiff Munoz sued his railroad employer under the FELA for an on-duty personal injury. A jury awarded Munoz a large sum attributed to past and future lost wages. After the verdict, the railroad moved for a setoff, claiming Munoz owed taxes on the lost wages award under the Railroad Retirement Tax Act (RRTA). Munoz argued that the award of lost wages should be treated the same as personal injury awards that are not subject to income taxes. 

The trial court denied the railroad’s motion, relying on the Missouri Supreme Court’s opinion in Mickey v. BNSF Railway Co., 437 S.W. 2d 207 (Mo. banc 2014). In Mickey, the Missouri Supreme Court held that, like the exclusion for personal injury awards under Internal Revenue Code § 104(a)(2), an FELA lost wages award does not constitute income. Therefore, lost wages do not qualify as taxable compensation under the RRTA.

The railroad appealed, arguing that the plain language of the RRTA, when read in conjunction with the Railroad Retirement Act, supports a finding that an FELA lost wages award is compensation subject to withholding taxes. The Illinois Appellate Court disagreed and affirmed the trial court. The Appellate Court found that the RRTA defines “compensation” as money paid to an employee for “services rendered” and lost wages cannot be paid to an employee for “services rendered”.

Shortly thereafter, the U.S. Supreme Court considered the same issue in BNSF Railway Co. v. Loos, 129 S. Ct. 893 (2019), and held that FELA lost wages awards are compensation subject to taxation. The Illinois Supreme Court then directed the Appellate Court to vacate its initial judgment in Munoz I and consider the effect of the Loos case. Upon reconsideration, the Appellate Court concluded that Munoz’s lost wages award was taxable compensation under the RRTA. Munoz v. Norfolk Southern Railway Company, 2019 IL App (1st) 171009-B (Munoz II).

The Munoz II  Court observed that in Loos the Supreme Court looked to the Social Security Act (SSA) and the Federal Insurance Contributions Act (FICA) for guidance as to the meaning of “compensation.”  The Supreme Court found that the RRTA’s definition of compensation was “materially indistinguishable” from FICA’s definition of “wages”, to include remuneration for “any service, of whatever nature, performed . . . by an employee.”

Previous Supreme Court cases held that “wages” under the SSA and FICA included awards of backpay and severance payments.  These cases held that such awards represented pay for active service, in addition to pay for periods of absence from active service.  As a result, the Supreme Court held that “compensation” under the RRTA can encompass pay for periods of absence from active service, as long as the remuneration in question “stems from the employer-employee relationship.”

The Supreme Court found that damages for lost wages awarded under the FELA “fit comfortably” within these parameters. Wage loss damages compensate an employee for time during which he or she is “wrongfully separated” from employment, and this is akin to an award of back pay. An award of back pay that compensates an employee for wrongful discharge constitutes wages under the SSA, even though the wages were awarded because of the employer’s wrongdoing.  Based on this reasoning, “there should be no dispositive difference between a payment voluntarily made and one required by law.”

The Munoz II Court reiterated the distinction between personal injury damages that are not taxable under the Internal Revenue Code with FELA lost wage awards. Personal injury damages are excluded from “gross income” by the Code. And, “gross income” cannot be conflated with “compensation” under the RRTA, which Congress treated as discrete tax bases.


The Illinois Appellate Court is likely the first of many courts that will apply the Loos decision and find that an award of lost wages in an FELA case is subject to taxation. The resolution of the split on this issue will have practical ramifications in FELA litigation, including modification of jury instructions and, potentially, attempts to allocate settlement proceeds to sources other than lost wages.

* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a 3L student at the University of Missouri-Columbia.

Does Obesity Qualify as a Disability Under the ADA? – The Courts are Divided

August 12, 2019

The Americans with Disabilities Act (“ADA”) prohibits employers from discriminating against a qualified individual on the basis of a disability. In 2008, Congress amended the ADA, to ensure that the ADA’s definition of disability was construed broadly. The amendment added a “regarded as” disabled component, meaning that applicants and employees who cannot prove that they have an actual disability within the meaning of the ADA may still be able to show that their employer regarded them as having such a disability. This broader reading provides obese plaintiffs a greater opportunity for success in disability discrimination claims; however, this amendment has created differences in interpretation regarding the extent to which obesity is considered a disability under the ADA.

The Seventh Circuit is the Fourth Federal Appeals Court to Hold That Obesity, Alone, is Not a Protected Disability Under the ADA.

On June 12, 2019, the Seventh Circuit Court of Appeals joined the Second, Sixth, and Eighth Circuits holding obesity must be the result of an underlying physiological disorder to qualify as a disability under the ADA in the case of Richardson v. Chicago Transit Authority. In Richardson the plaintiff, a bus driver who weighed over 400 pounds took medical leave due to hypertension and influenza. After he resolved the medical issues and was deemed fit to return to work, his employer required him to take an assessment because the bus seats were not designed to accommodate drivers over 400 pounds. The assessment determined that the plaintiff could not make hand-over-hand turns, he simultaneously used both of his feet on the gas and brake pedals, and he rested his leg near the door handle. His employer transferred him because of safety concerns regarding his operation of the equipment in question. He sued under the ADA, claiming that he should be “regarded as” disabled due to his obesity. The Seventh Circuit affirmed summary judgment for the employer. The court determined that under the ADA, the plaintiff must allege that he suffers from a medical impairment, and that obesity is a physical characteristic -- not an impairment -- and should not be regarded as an impairment.  

The Second, Sixth, Eighth, and now Seventh Circuit Courts are applying what they consider a “natural reading” of the EEOC’s interpretative guidance. This reading concludes that physical characteristics, such as obesity, that are not the result of a physiological disorder do not qualify as a disability under the ADA. The opinion in Richardson suggests that if claims for obesity without an underlying physiological condition are allowed, interpretation of what could be “regarded as” a disability would become overly broad and open the court to results that are inconsistent with the ADA’s text and purpose, including potential claims for weight-based claims from individuals with weight slightly outside of a normal range without any physiological basis as the cause, and making the “regarded as” amendment a catch-all for discrimination based on appearance, size, and more, none of which are disabilities the ADA was designed to protect.  

What Are Other Jurisdictions Saying?

In the First Circuit case of Cook v. State of R.I., Dept. of Mental Health, Retardation, & Hosps., the First Circuit held that obesity, by itself, should be protected without evidence of an underlying physiological disease or disorder. The Court took the position that the issue is a question of fact for a jury to decide.

Likewise, although the Fifth Circuit has not directly ruled on this issue, a case arising in the U.S. District Court for the Eastern District of Louisiana, a federal trial court within the Fifth Circuit, EEOC v. Res. for Human Dev., Inc., held that severe obesity can be a disability under the ADA, without evidence of an underlying physiological disorder. 

Lastly, a 2018 Ninth Circuit case, Taylor v. Burlington N.R.R. Holdings, Inc., arising under Washington’s state anti-discrimination law, involved a plaintiff who was rejected for a job because he was considered outside of the company’s weight standards for the position. The Court certified to the Washington Supreme Court for guidance the question of under which circumstances obesity qualified as an impairment under the state law. Interestingly, although not arising under the ADA, the EEOC filed a brief in the case, arguing that weight is not an impairment when it is within the “normal” range and lacks a physiological cause, but may be an impairment when it is either outside the “normal” range or occurs as the result of a physiological disorder. The Ninth Circuit acknowledges that whether obesity is to be “regarded as” a disability under the ADA remains an open question in that jurisdiction. The Washington Supreme Court responded this year that obesity is an impairment under the Washington law.

Guidance for the Future

The Second, Sixth, Seventh, and Eighth Circuits “natural reading” of the EEOC’s interpretative guidance rejects the EEOC’s stance that obesity should be “regarded as” a disability. The Richardson opinion makes clear that a court can reject a federal agency’s interpretation when they feel that deference to the agency is inconsistent with the regulation. However, employers should proceed cautiously when taking adverse action against an employee due to obesity and should ensure compliance with the law in their particular jurisdiction. The scope of obesity as a disability is divided amongst circuits and remains a question of fact in others, and the ADA may still protect an employee if there is evidence that an underlying physiological condition causes the employees obesity. 

* Jasmine Riddick, Summer Law Clerk, assisted in the research and drafting of this post. Riddick is a rising 2L student at Emory University in Atlanta, Georgia. 

Insurer Joins Long, Strange Legal Trip of a Used Car Dealer's Legacy in Missouri Law

August 7, 2019

In 2008, Chad Franklin became a party to several lawsuits related to the “Drive for Life” promotion at his used car dealership, Chad Franklin National Auto Sales North, LLC. A full explanation of the details of the “Drive for Life” promotion can be found within a previous BSCR blog post here. At the time, Franklin was insured by Universal Underwriters Ins. Co. (“Universal”).  Universal denied defense and coverage for the claims.  Franklin filed suit for wrongful denial of coverage for the “Drive for Life” claims which were eventually settled in 2010 for $900,000. This $900,000 settlement would eventually trigger another round of litigation. 

Soon thereafter, Lewellen filed suit against Franklin alleging fraudulent misrepresentation and violations of the MMPA, resulting in a 2012  award of $25,000 in actual damages and $1 million in punitive damages against Chad individually for his fraudulent misrepresentation, and $25,000 in actual damages and $500,000 in punitive damages against Chad Franklin National Auto Sales North, LLC for a violation of the MMPA. Lewellen was also awarded attorneys’ fees totaling $82,810. In 2013, Lewellen sued Universal and Franklin, alleging that the $900,000 settlement between Universal and Franklin was fraudulent.  The Clay County Circuit Court entered the following in that action, which were appealed to the Western District: 

  • Denial of insurance coverage on the Lewellen’s claim that Franklin committed fraudulent misrepresentation in the sale of a vehicle;
  • Awarding insurance coverage under Lewellen’s policy with Universal for the actual and punitive damages on the Lewellen’s MMPA claim against Franklin;
  • Summary judgment in favor of Universal on Lewellen’s claims that the settlement agreement was a civil conspiracy to commit a fraudulent transfer and violated the MMPA;
  • Denial of Lewellen’s claim for tortious interference with a business expectancy;
  • Striking Franklin’s pleadings after several alleged discovery violations and entering default judgment on Lewellen’s fraudulent transfer and MMPA claims against him.

After Franklin’s pleadings were stricken, a jury awarded Lewellen $266,370in actual damages and $450,000 in punitive damages on each of her two claims. The court merged the actual damages on the two claims but granted the total amount of punitive damages and awarded Lewellen $189,060 in attorneys’ fees.

1.      The Court of Appeals upheld the denial of insurance coverage for Lewellen’s claim that Franklin committed fraudulent misrepresentation in the sale of a vehicle.

Lewellen contended the court erred in denying insurance coverage for the damages awarded on her fraudulent misrepresentation claim against Franklin. The Western District appellate court disagreed, and found that the policy’s exclusion of dishonest and fraudulent acts was valid, rejecting Lewellen’s contention that the language was ambiguous. The court also held that the definition of “occurrence” in Franklin’s Universal policy did not provide insurance coverage for damages on Lewellen’s fraudulent misrepresentation claim.

2.      The Court of Appeals reversed the finding of insurance coverage under Lewellen’s policy with Universal for the actual and punitive damages on the Lewellen’s MMPA claim against Franklin.

Universal argued on appeal that the trial court erred in finding Franklin’s policy covered Lewellen’s MMPA claim, asserting that the fraud exception and the policy definition of “occurrence” noted above should preclude coverage.  Lewellen argued that not only did Franklin’s policy afford coverage to her MMPA claim, but the coverage of that claim triggered the concurrent proximate cause rule granting coverage to her extinguished fraudulent misrepresentation claim.

The appellate court first turned to the policy definition of “loss” which was defined as “all sums the INSURED legally must pay as DAMAGES because of INJURY to which this insurance applies caused by an OCCURRENCE.” The court held that the conduct underlying Lewellen’s fraudulent misrepresentation and MMPA claim was the same conduct. Because the Court had already determined that Franklin’s actions were intentional and, therefore, not an “occurrence” under the policy, it found the same for the MMPA claims. The Court reversed summary judgment in Lewellen’s favor and denied coverage for the MMPA claims. In reaching this decision, the Court found that the concurrent proximate cause rule did not apply to Lewellen’s claims.

3.      The Court of Appeals affirmed summary judgment in favor of Universal on Lewellen’s claims that the settlement agreement was a civil conspiracy to commit a fraudulent transfer and violated the MMPA.

Lewellen contended the trial court erred in granting Universal’s motion for summary judgment on her claims that Universal’s settlement agreement with Franklin amounted to a civil conspiracy to commit a fraudulent transfer with Franklin. In granting summary judgment in Universal’s favor, the trial court noted that the “[f]acts that may cause the bad faith settlement payments to Tiffany Franklin to appear suspicious (or even if arguably fraudulent) do not offset” the common law requirement that without a lien, a mere general creditor does not have a sufficient right or interest in his debtor’s property to give him standing to maintain a suit against a third person converting the debtor’s property with the intent to defraud the debtor's creditors. Lewellen argued that the Missouri Uniform Fraudulent Transfer Act (“UFTA”) removed the common law rule that a lien was a condition precedent for standing to maintain a lawsuit against a third party.

After a lengthy discussion of the language of the UFTA and analysis of opinions rendered in other jurisdictions on the issue, the Court adopted  the majority viewpoint that absent a proper lien, a claim of civil conspiracy against a third party cannot be maintained under the UFTA.

4.      The Court of Appeals affirmed denial of Lewellen’s claim against Universal for tortious interference with a business expectancy.

Lewellen argued that the circuit court erred in granting Universal’s motion for summary judgment on her claim that Universal tortiously interfered with a business expectancy. The appellate court affirmed the trial court’s finding that there was no authority for the proposition that a plaintiff in a lawsuit possesses “a valid business expectancy” in the future collection of a judgment either before or after a judgment is entered. 

5.      The Court of Appeals upheld the trial court’s entry of default judgment against Franklin after several alleged discovery violations.

Franklin claimed that striking his pleadings as a discovery sanction was inappropriate because Lewellen was not prejudiced by his failure to appear at his scheduled deposition, which the appellate court rejected. The Court of Appeals noted that even with threats of sanctions, Franklin still failed to make appearances and it was not until later that his counsel learned that he was in a rehabilitation center. Additionally, Franklin claimed that the circuit court abused its discretion by improperly considering and taking judicial notice of his discovery violations in other cases. The court of appeals found that the circuit court had not its discretion because the other cases were related, and even consolidated, with the current case at issue. Furthermore, the court reasoned that Franklin was an experienced businessman who was “no stranger” to the legal system, and who knew or should have known of the dire consequences of disappearing, without notice, during pretrial proceedings.

6.      The Court of Appeals reversed the jury’s award of punitive damages.

Franklin argued that the trial court committed instructional error by providing a damage instruction and verdict director that removed the threshold finding of outrageousness for an award of punitive damages.  The Court of Appeals agreed, holding that the modification of 10.01 removing the requirement that the jury find that Franklin’s conduct was outrageous was “unnecessary and improper” and materially affected the merits and the outcome of the case. The appellate court also agreed with Franklin that the trial court erred in the exclusion of evidence as to the nature and structure of the settlement with Universal.  The case was remanded for a new determination of punitive damages.

Lewellen v. Universal Underwriters Insurance Company et al., WD81171.

* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a rising 3L student at the University of Missouri-Columbia.

Now That Missouri is Accepting Marijuana-related Business Licensure Applications, What is the Plan for the Other Green Stuff?

August 2, 2019

From now until August 17, 2019, Missouri entities may apply for a license to cultivate, dispense, manufacture, test, and transport marijuana, pursuant to last year’s passage of Amendment 2, permitting marijuana use for serious medical conditions. A cloudy haze remains, however, over how financial institutions doing business with marijuana-related businesses (“MRBs”) will be governed.

As most are aware, while cannabis is now legal in some form or fashion in more than 30 states as well as D.C., cannabis manufacture and use is still prohibited by federal law. Consequently, handling of proceeds from MRBs is considered money laundering, and financial institutions are required to submit Suspicious Activity Reports (“SARs”) with FinCEN when certain red flags are raised in relation to suspected cannabis business.

The SAFE Banking Act of 2019, H.R. 1595, would provide a safe harbor for financial institutions handling MRB money while the legality of cannabis continues to be debated at the federal level. More specifically, the SAFE Banking Act would prevent federal regulators from interfering with relationships between financial institutions and MRBs in states where cannabis is legal, and it would allow MRBs to access traditional banking services without threat of seizure or prosecution. The bill, if passed, would not change the status of cannabis as a Schedule 1 controlled substance.

In recent weeks, several Missouri credit unions and banks have joined together to urge passage of the SAFE Banking Act, in anticipation of this month’s open application process. Unfortunately, there is not much confidence that it will be passed.

So, how much money are we talking about? Last year, cannabis reportedly generated over $8 billion. The revenues are expected to triple over the next 5 years. Even though Missouri’s share will be a fraction of anticipated revenues, that’s still going to be a whole lot of green. Now, Missouri financial institutions and prospective MRBs will remain in the sticky situation of figuring out what to do with all of it.

United States Supreme Court Holds Counterclaim Defendants May Not Remove Diverse Lawsuits

July 25, 2019

In Home Depot U.S.A., Inc. v. Jackson, 139 S.Ct. 1743 (May 28, 2019), the U.S. Supreme Court affirmed in a 5-4 decision authored by Justice Thomas that neither the general removal provision (28 U.S.C. §1441(a)) nor the removal provision in the Class Action Fairness Act of 2005 (28 U.S. C. §1453(b)) permits a third-party counterclaim defendant to remove a class-action from state to federal court.

Citibank filed a debt-collection action against George Jackson alleging he was liable for charges he incurred on a Home Depot credit card. In response, Jackson filed a counterclaim against Citibank and third-party class-action claims against Home Depot U.S.A. and Carolina Water Systems. Jackson alleged that Home Depot and Carolina Water induced homeowners to buy water treatment systems at inflated prices and engaged in unlawful referral sales and deceptive and unfair trade practices. Jackson also alleged that Citibank was jointly and severally liable for the conduct of Home Depot and Carolina Water and that his obligations under the sale were null and void. After Citibank dismissed its claims against Jackson, Home Depot removed the case to federal court under the Class Action Fairness Act (“CAFA”). Jackson moved to remand, arguing that precedent barred removal by a third-party/additional counter-defendant like Home Depot.

The District Court remanded and the Fourth Circuit affirmed, relying on some almost-80 year old precedent that the general removal provision (§1441(a)) did not allow Home Depot as a third-party defendant to remove the class-action claims; and concluding that CAFA’s removal provision (§1453(b)) likewise did not allow removal. The Supreme Court affirmed.

The general removal statute, 28 U.S.C. §1441(a), provides that “any civil action” over which a federal court would have original jurisdiction may be removed to federal court by “the defendant or the defendants.” Similarly, CAFA provides that a “class action” may be removed to federal court by “any defendant without the consent of all defendants.” 28 U.S.C. §1453(b).

Home Depot argued that because a third-party counterclaim defendant is a “defendant” to the claim against it, it may remove pursuant to §1441(a). The Supreme Court disagreed based on the structure of the statute and precedent. When determining whether a district court has original jurisdiction over a civil action, it must evaluate whether that action could have been brought originally in federal court, either because it raises claims arising under federal law or because it falls within the court’s diversity jurisdiction. The Court noted that the presence of a counterclaim is irrelevant to whether the district court has “original jurisdiction” over the civil action because the “civil action” of which the district court must have original jurisdiction is the action as defined by the plaintiff’s complaint and the “defendant” to that action is the defendant to that complaint, not a party named in a counterclaim. Further, the Court noted that Congress did not intend for the phrase “the defendant or the defendants” in §1441(a) to include third-party counterclaim defendants because the Federal Rules of Civil Procedure differentiate between third-party defendants, counterclaim defendants, and defendants. Additionally, in other removal provisions, Congress clearly extended the reach of the statute to include parties other than the original defendant (See §1452(a) and §§1454(a) and (b)), whereas §1441(a) does not so clearly extend its reach. Section 1441(a) limits removal to “the defendant or the defendants” in a civil action over which the district courts have original jurisdiction. Section 1441(a), therefore, does not permit removal by any counterclaim defendant, including parties brought into the suit for the first time by a counterclaim.

Home Depot also argued that it could remove under §1453(b) because of the different wording of that statute. It argued that although §1441(a) permits removal only by “the defendant or the defendants” in a “civil action,” §1453(b) permits removal by “any defendant” to a “class action.” The Court disagreed, holding that there was no indication that this language does anything more than alter the general rule that a civil action may not be removed on the basis of diversity jurisdiction “if any of the … defendants is a citizen of the State in which such action is brought.” The Court found that the two clauses in §1453(b) that use the term “any defendant” simply clarify that certain limitations on removal do not limit removal under that section. The Court specifically found held that neither alters the limitation on who can remove, which suggests that Congress intended to leave that limit in place.

The Court also referenced and reaffirmed its holding in Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100 (1941), which held that an original plaintiff may not remove a counterclaim against it. The Court found that this decades-old holding applies equally to third-party counterclaim defendants.

Justice Alito wrote a lengthy dissenting opinion (joined by Justices Roberts, Gorsuch, and Kavanaugh), arguing that a “defendant” is a ‘person sued in a civil proceeding’ and that the majority’s decision leaves third-party defendants unprotected under §1441 and CAFA. He thus asserted that the majority opinion reads an irrational distinction into the removal statutes.

As noted by the dissent, this inability of a third-party defendant to remove raises concerns about out-of-state bias, the inability to take advantage of federal procedure rules, and the inability to use multidistrict litigation procedure.

What a Long, Strange Trip It's Been: Illinois Supreme Court Upholds Decision That Res Judicata Does Not Apply to Involuntary Dismissal of Multiple Prior Complaints Spanning Ten Years

July 23, 2019

Plaintiff Gerald Ward originally sued Decatur Memorial Hospital in 2009 alleging medical malpractice in the treatment of his brother who developed a post-surgery bed sore that became infected. Plaintiff alleged that his brother died from complications associated with a bacterial infection approximately one month after the Hospital discharged him.

Plaintiff initially filed a nine-count complaint against the Hospital, Decatur Memorial Hospital Home Health Services, and unknown employees of the Hospital. The trial court granted the Hospital’s Motion to Dismiss the majority of the counts but gave Plaintiff permission to refile. Plaintiff then filed first and second amended complaints. The court again dismissed both but with permission to refile. After plaintiff filed a third amended complaint, the Hospital filed responsive pleadings and the parties continued with discovery towards trial. 

In 2015, nearly four years later and only twenty days before the scheduled trial, the Hospital learned that the plaintiff intended to call a rebuttal expert not previously disclosed. The Hospital moved to bar the newly disclosed rebuttal expert, arguing that plaintiff had ample time during the six-year pendency of the case to obtain and properly disclose experts. Before the trial court ruled on the motion to bar, plaintiff moved for leave to file a fourth amended complaint to “more correctly and succinctly describe the alleged negligence of defendant’s nurses as a result of facts developed throughout discovery.”

Taking the motions together, the trial court granted the Hospital’s motion to bar the proposed rebuttal expert witness and denied plaintiff’s motion for leave to file a fourth amended complaint. The court cited the age of the case and noted that the allegations in the third amended complaint were substantially different from those in the proposed fourth amended complaint.  Plaintiff then voluntarily dismissed the action.

Four months later, plaintiff refiled the action and asserted nearly identical allegations as those set forth in the disallowed fourth amended complaint in the prior action. The Hospital moved to bar plaintiff from disclosing witnesses who had been barred in the previous case and to limit other witnesses to the opinions they gave in the initial action, arguing that plaintiff violated Illinois Supreme Court Rule 219(e) by using the dismissal and refiling to avoid having to comply with the previous court’s order. The trial court partially granted the Hospital’s motion and limited the opinions of witnesses to those provided in the prior case, but denied the Hospital’s request to bar the rebuttal witnesses. 

The Hospital then moved for summary judgment on the basis of res judicata, arguing that the trial court had dismissed “numerous counts of various iterations” of plaintiff’s complaint in the prior action and that he elected not to replead the counts. The Hospital asserted those dismissals constituted final adjudications on the merits as the complaints had been dismissed because of legal impediments, such that it was entitled to summary judgment on the basis of res judicata

Plaintiff opposed the motion, asserting that medical negligence was the sole cause of action in all the iterations of the complaint and no final judgment had been entered in the first action. The trial court ultimately granted the Hospital’s motion for summary judgment based on res judicata after initially denying the motion.

On appeal, the Fourth District Appellate Court reversed the trial court’s grant of summary judgment. It concluded that “by granting the plaintiff permission to file an amended complaint, the trial court vacated any suggestion of ‘with prejudice’ in its dismissal of individual counts of the original complaint.”  The appellate court further observed that the trial court had permitted the plaintiff to amend “over and over again, all the way to the third amended complaint…which remained pending and completely unadjudicated at the time of the voluntary dismissal.”

The Illinois Supreme Court affirmed the decision of the appellate court, concluding that res judicata was inapplicable and did not prohibit plaintiff’s refiled lawsuit because there had not been a final judgment on the merits. Each previous dismissal had been dismissals without prejudice and with permission given to refile. As such, the dismissals were not final, did not terminate the litigation, and did not firmly establish the parties’ rights. 

Despite affirming the decision, the Court criticized the “tortured history of litigation” and lack of urgency on the part of the parties and the trial judge to resolve the matter in a timely or efficient manner. Additionally, while conceding that a plaintiff has the absolute right to refile a dismissed complaint, the Court cited the admission made by plaintiff’s counsel on the record that he voluntarily dismissed the initial action because of his disagreement with the trial court’s rulings. Noting that Rule 219(e) “strikes the delicate balance between preserving a plaintiff’s absolute right to refile, while discouraging noncompliance with the trial court’s orders,” the Court commented that while the Rule does not change the existing law as to a plaintiff’s right to seek a voluntary dismissal, “this paragraph does clearly dictate that when a case is refiled, the court shall consider the prior litigation in determining what discovery will be permitted, and what witnesses and evidence may be barred.”     

Thus, while the Supreme Court reaffirmed a plaintiff’s absolute right to refile a dismissed complaint, the Court’s dictum regarding the applicability of Rule 219(e) offers hope to litigants defending refiled actions regarding the potential for limiting the scope of evidence in the face of demonstrated noncompliance with prior orders.

Second Update: Hopping On The Missouri Bandwagon? Not So Fast Out Of State Litigants.

July 16, 2019

In this March 18, 2019 blog post and in this May 20, 2019 blog post we reported on important pending legislation that could substantially change Missouri’s venue rules.

In May, the House passed the venue and joinder bill (Senate Bill 7) by a 100-46 vote. The bill primarily aims to restrict non-Missouri plaintiffs from joining their claims, in the same lawsuit, with those of a Missouri resident, where the non-residents’ claims have no legal nexus to Missouri. Read more here and here. Senate Bill 7, however, was still waiting for the Governor’s signature to become law in May.

In case you missed the news (again), look no further…..

Governor Mike Parson has officially signed Senate Bill 7 (along with three other tort reform bills) into law on July 10, 2019. This move was anticipated based on prior, favorable statements he made about the bill. 

Opponents of the bill continue to believe that the passage of this bill “will harm state citizens by favoring corporations over individuals.” Proponents of the bill, now law, believe that this move will make Missouri “a pro-business state.”

Illinois Counties Remain Top Jurisdictions for Asbestos Litigation in 2018

July 8, 2019

Asbestos litigation in Illinois is generally trending down.

Although 2018 data is still populating, according to the KCIC Asbestos Litigation: 2018 Year in Review, asbestos litigation, overall, is in a downward trend. Filings are down approximately 11% from 2017 and 17% from 2016. Even though many of the main venues for asbestos litigation saw major decreases, the only notable increase occurred in St. Clair County, IL. St. Clair County experienced a 30% increase with 207 cases filed in 2017 to 268 in 2018. Madison County, IL remains the epicenter for asbestos litigation making up 27% of all 2018 filings.

Mesothelioma remains the main disease type, but it did experience about a 6% decrease; however, the largest decreases were from non-malignant and other cancer filings, which are down 40% and 31%, respectively, compared to 2017. Of note, even though asbestos filings as a whole are decreasing there is a notable increase in the number of females filing suit and not only in talc cases.

Madison and St. Clair County remain popular venues for asbestos filings. 

Even with the slight decrease in filings, Illinois, specifically Madison and St. Clair Counties, remains the most popular venue.  The vast majority of those claims filed in Illinois are “tourist filings” with only 7% of the complaints filed in Illinois by Illinois residents, with the remaining 93% of filings by non-residents. According to KCIC, although “tourist filings” are still the norm they have noticed the same plaintiff filing multiple lawsuits, for the same claim, in several jurisdictions which may be the result of recent personal jurisdiction rulings.  While KCIC states that this has not become common practice, should it become more common it does have the potential to increase the number of asbestos lawsuits filed.

Bankruptcy and recent legislation regarding trust claims may be impacting the number of asbestos filings.

Bankruptcy and recent legislation addressing trust claims could be another reason we are seeing a decrease in asbestos filings. Many asbestos claims are now paid out through post-bankruptcy trusts as many of the original asbestos defendants have declared bankruptcy. This has brought attention to how the bankruptcies affect solvent defendants left in the litigation and the recovery plaintiff’s collect. Unlike the tort system, these trusts may have as many as 18,000 non-malignant claims per year. The higher volume of claims is attributed to lower evidentiary standards and transactional costs. Therefore, State legislatures have focused their attention on BTT litigation by creating a more transparent trust claim submission process. This process requires plaintiffs to share certain information in the torts system regarding their trust filing history and, sometimes, even mandating certain time restrictions for such filings. These submissions include listing all personal injury claims they have made or anticipate making against a trust and require the plaintiff to consent to discovery of trust information. In some jurisdictions, including Kansas and Michigan, failure to comply with these requirements is sanctionable conduct. Kansas, North Carolina, and Michigan are the latest states enacting legislation, bringing the total count to sixteen states nationwide. 

Talc litigation is bucking the trend.

Talc litigation is the one area of asbestos litigation that is not decreasing.  There was a 68% increase in filing of Talc claims from 2017 to 2018.  Talc use is widespread; therefore, it carries a risk of an enormous potentially exposed population. There are claims that the cosmetic use of the talc itself caused ovarian cancer; while, there are also claims that asbestos within talc caused mesothelioma or lung cancer. It has been easier for courts to focus on personal jurisdiction in these types of cases because there are fewer defendants. Therefore, suits tend to be filed where defendants do business rather than forum shopping as they do in Mesothelioma cases. Still, the top venue for Talc litigation is St. Louis, MO, with Madison and St. Clair County close behind.

The plaintiffs’ bar continues to find ways to keep asbestos litigation alive.

Original forecasting models did not consider alternative or non-traditional routes of exposure; therefore, there has not been the reported decrease that historical studies initially predicted. While overall mesothelioma incidence is decreasing, the propensity to sue, especially for females, is actually increasing which can be attributed to increase in cosmetic talc exposure and it allegedly causing ovarian cancer. KCIC reports that women make up the majority of secondary exposure claims with Madison County, IL, becoming the top jurisdiction for female claimants alleging secondary exposure only. Madison County is also the top jurisdiction for claims of non-occupational exposure filed in 2018.

While 2018 showed the usual course for asbestos litigation, there were some fluctuations. The most significant change is the potential effects of talc-related filings and state legislatures taking an active role in BTT litigation.

For more details and statistics regarding asbestos litigation in 2018, read the industry report from KCIC here.

* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a rising 3L student at the University of Missouri-Columbia.

Hegger v. Valley Farm Dairy Co. – A Retroactive Election?

July 1, 2019

Effective 2014, the Missouri legislature amended certain provisions of the Workers Compensation Act, Mo.Rev.Stat. 287.010 et seq. A key goal was to make the Workers Compensation Act the exclusive remedy for employees who suffered occupational diseases like asbestos-caused mesothelioma. In Hegger v. Valley Farm Dairy Co. decision, 2019 Mo. App. LEXIS 816, 2019 WL 2181663 (Mo. App. May 21, 2019), the Missouri Court of Appeals addressed the application of the Act’s new occupational disease provisions in the situation where the employer went defunct before the enactment of the amended statute.


The facts of Hegger are straightforward:  Vincent Hegger worked for Valley Farm Dairy Company maintaining industrial equipment from 1968 to 1984.  Over this time, Mr. Hegger had continued exposure to asbestos fibers in the equipment he maintained.   Amerisure Insurance Company provided Valley Farm workers compensation coverage from 1983 to 1984 while Travelers Indemnity Company provided coverage from 1984 to 1985.  Valley Farm later went out of business, in 1998.  

In 2014 Hegger was diagnosed with mesothelioma caused by asbestos exposure.   In March 2014, Mr. Hegger filed for workers compensation benefits.   Specifically at issue was whether Hegger was entitled to the enhanced workers compensation benefits for mesothelioma provided for in the recently enacted Mo.Rev.Stat. 287.200.4, even though his employer Valley Farm went defunct long before the statutory amendment.   The administrative law judge and subsequently the Labor and Industrial Relations Commission ruled that because Valley Farm went defunct well before the 287.200.4 came into effect, Hegger was not entitled to enhanced workers compensation benefits. The Court of Appeals reversed.

The Statute

Section 287.200.4 of the Workers Compensation Act provides in relevant part:

For all claims filed on or after January 1, 2014, for occupational diseases due to toxic exposure which result in a permanent total disability, or death, benefits in this chapter shall be provided as follows:

(2) For occupational disease due to toxic exposure, but not including mesothelioma, an amount equal to two hundred percent of the state's average weekly wage as of the date of diagnosis for one hundred weeks paid by the employer; and

 (3)  In cases where occupational diseases due to toxic exposure are diagnosed to be mesothelioma:

(a)  For employers that have elected to accept mesothelioma liability under this subsection, an additional amount of three hundred percent of the state’s average weekly wage for two hundred twelve weeks shall be paid by the employer or group of employers such employer is a member of.  Employers that elect to accept mesothelioma liability under this subsection may do so by either insuring their liability, by qualifying as a self-insurer, or by becoming a member of a group insurance pool.  A group of employers may enter into an agreement to pool their liabilities under this subsection.  If such group is joined, individual members shall not be required to qualify as individual self-insurers.  Such group shall comply with section 287.223.  In order for an employer to make such an election, the employer shall provide the department with notice of such an election in a manner established by the department.  The provisions of this paragraph shall expire on December 31, 2038; or

(b)  For employers who reject mesothelioma under this subsection, then the exclusive remedy provisions under section 287.120 shall not apply to such liability.  The provisions of this paragraph shall expire on December 31, 2038 . . .

(Emphasis added.). The trade-off for employers is clear.  Elect to provide enhanced workers compensation benefits and enjoy the exclusivity protections of the Act; versus potentially being exposed to civil lawsuits for your employees’ asbestos-related occupational diseases.

Defunct employers can elect to provide enhanced workers compensation benefits

In holding that Valley Farm’s insurers were liable for enhanced workers compensation benefits, the Court of Appeals focused on the “elect to accept” language in the statute, and the three aforementioned ways an employer can accept the enhanced mesothelioma benefits (and thus become immune from a civil action for personal injuries based thereon):  (1) "insuring their liability," (2) qualifyingas a self-insurer, or (3) becoming a member of a group insurance pool.   The Labor and Industrial Relations Commission held that this election required an affirmative act, possibly entailing the purchase of new insurance policies providing for the enhanced benefits.

The Court of Appeals disagreed, holding that the plain language of 287.200.4 does not require the employer to purchase a new policy and does not state when a policy covering these enhanced benefits must be purchased.   Rather, the court observed that because the workers compensation law required an employer to insure their entire liability under the workers compensation law, Valley Farms’ provision of workers compensation coverage back in 1984 retroactively satisfied the section 287.200.4 election requirements.  This is so even if the subject insurance policies did not provide for the enhanced benefits now contemplated by the statute.   The court reasoned that Missouri precedent had typically held that the insurer providing coverage at the time of last exposure (here 1984) was liable for workers compensation benefits, while the law in effect at the time of diagnosis (here 2014) governed the amount of the claim.  Given this precedent, the Court of Appeals had no problem holding Valley Farms’ insurers liable for enhanced benefits that were not contemplated in 1984. 

The Court of Appeals criticized the Labor and Industrial Relations Commission ruling, observing that the Commission’s requirement of an affirmative election would yield what it believed to be inconsistent results with regard to defunct employers or employers that had moved out of state.   As noted, defunct employers would always yield a rejection of enhanced workers compensation benefits for mesothelioma because they were not capable of making an affirmative election.

The court compared this result to the statute’s treatment of occupational diseases other than mesothelioma under section 287.200.4(2).  That section does not provide a similar election requirement for these other diseases.   The court reasoned that in the cases of defunct employers, mesothelioma sufferers may not be entitled to workers compensation benefits while the sufferers of other diseases would be.  The court found this potential disparate result untenable given the severity of mesothelioma compared to “other serious but less virulent occupational diseases due to toxic exposure.”

The Dissent

At the heart of the Court of Appeals’ majority opinion is the desire to protect sick employees who may be without civil recourse against a judgment-proof defunct employer.   But this appears to be a results-oriented decision that effectively removes any requirement that the employer make an affirmative election, despite express statutory language requiring the same.

In arguing that the Commission’s ruling was correct, the dissent observed that the majority was playing “temporal” games interpreting the phrase “by insuring” to include any past acts.   However, the phrase “elect to accept” connotes a present action.  By interpreting the statute to allow past acts to fulfill the present election requirement, the majority rewrote the statute.

The dissent also observed that the majority’s reading of the statute now allows one to make an election by simply relying on a past act or abstaining from a decision, both incompatible with the ordinary meaning of the phrase “elect to accept.”  The majority’s interpretation also presents a problem when viewed in the context of an employer that is still in business but that has failed to add enhanced benefits coverage to their workers compensation policy.  Per the majority analysis, that employer has still elected to adopt the enhanced benefits despite doing nothing.  Finally, the dissent noted that the majority’s reading would render 287.400.4(3)(b) meaningless, as an employer who previously had workers compensation insurance could not then reject the enhanced benefits available under (3)(a). 

While sympathizing with the majority’s concern that numerous employees could be without recourse against defunct employers who never made an election, the dissent noted that this was an issue that doubtlessly was analyzed and taken into account by the legislature.


Perhaps encouraged by the strong and well-reasoned Court of Appeals dissent, defendants are seeking transfer of the case to the Missouri Supreme Court.  The majority decision appears to take substantial liberties with the statutory language used by the legislature.  Under the majority's reasoning, the election contemplated by section 287.200.4 has two different meanings depending on whether the subject employer is still a going concern or defunct.   Regardless of the ultimate judicial outcome, the legislature may want to circle back and address the specific circumstances raised in Hegger

From the East to the West, Does Arbitration in Missouri Reign Best? Missouri Courts Uphold and Invalidate Arbitration Agreements

June 25, 2019

This past May, the Missouri Supreme Court, Missouri Court of Appeals, and both United States District Courts in Missouri analyzed the validity and enforceability of arbitration provisions. Three key concepts have emerged from these recent decisions:

(1) A challenge to the delegation clause in an arbitration agreement (one that says the arbitrator gets to decide who decides whether the dispute is fit for arbitration) must be pleaded separately from a challenge to the contract

(2)   Incorporation of the AAA rules in an arbitration agreement generally constitutes clear and unmistakable evidence of the parties’ intention to arbitrate.

(3)   Under long-standing Missouri law, an employee’s continued employment, without more, does not in and of itself constitute adequate consideration for an agreement to arbitrate.

Consideration for the Entire Contract is Separate from Consideration for the Delegation Provision

Newberry v. Jackson
, 2019 WL 2181859 (Mo. banc. 2019)

The Missouri Supreme Court affirmed, en banc, the circuit court’s motion to compel arbitration and stay court proceedings. Employees brought discrimination and retaliation claims against their former employer, Dollar General. The employer responded with Motions to Compel Arbitration and Stay Further Proceedings, to which the employees responded that there was no consideration for the arbitration agreements. More specifically, the employees claimed that the delegation provisions were unconscionable and there was no clear and unmistakable evidence of the parties’ intent to incorporate them. Although the employees admitted to signing the documents and knew they would be bound to arbitration, they did not necessarily understand the documents. Nevertheless, the circuit court sustained the motions to compel arbitration and stay the proceedings under the Missouri Supreme Court’s Pinkerton decision (which upheld a delegation clause in an arbitration agreement), and alternatively held the arbitration agreements valid because they were not unconscionable on their face and supported by consideration by mutuality of enforcement and continued at-will employment.

The Missouri Supreme Court accepted the case for review, and affirmed its earlier Pinkerton decision, which it found to be consistent with the U.S. Supreme Court decision in Rent-A-Ctr v. Jackson. The court found the employee’s allegations of unconscionability to be inadequate because they challenged the entire contract—not the delegation provision, specifically. Under Rent-A-Center, the “delegation clause must be treated as a separate contract within the larger arbitration contract and must be challenged on an additional ground or basis beyond the fact it is contained in an arbitration contract that the party also contends is invalid.” The court found that because the lack of consideration that the employees assert is the same lack of consideration they claim should invalidate the overall arbitration agreements, “they do not raise a unique challenge to the delegation clauses. Accordingly, the delegation provisions are valid,” and the employer “did not have a burden in the circuit court to show legally sufficient consideration.”

Incorporation of AAA Rules Is Clear and Unmistakable Evidence of Intent to Arbitrate

Hughes v., 2019 WL 2260666 (Mo. App. Ct. W.D. May 28, 2019) (not officially published)

Although Missouri state courts have consistently held that continued at-will employment alone does not constitute consideration for an arbitration agreement, they continue to hold that the incorporation of the AAA rules in an arbitration agreement shows clear and unmistakable evidence of intent to arbitrate. In this consumer action, the Missouri Court of Appeals for the Western District reversed the trial court’s denial of a motion to compel arbitration. Consumers brought an action against for allegedly releasing their private health information to third parties without their expressed permission. The company responded with a Motion to Compel Arbitration and Stay Litigation which was subsequently denied by the circuit court. The Court of Appeals reversed and remanded because the consumers failed to separately contest the validity of the delegation provision.

The court reviewed the case de novo because arbitrability is a matter of contractual interpretation, which is a question of law. The court had to first determine whether the parties’ agreement contained a provision that clearly and unmistakably delegated threshold issues of arbitrability to the arbitrator. The provision in the agreement incorporated the AAA rules, which has been held to constitute clear and unmistakable evidence of the parties’ intent to arbitrate. The court then had to determine the validity of the provision. The Missouri Court of Appeals also reasoned that under Rent-A-Center, the validity of the delegation provision must be challenged separately from a challenge against the agreement, as a whole.

Hobby Lobby Stores, Inc. v. Bachman, 2019 WL 2331006 (E.D. Mo. May 23, 2019)

In this employment discrimination case, the United States District Court of Missouri for the Eastern District had to determine if the Mutual Arbitration Agreement was valid and enforceable in order to grant the employer’s Petition to Compel Arbitration. For the reasons discussed above, the court held that because the Mutual Arbitration Agreement incorporated the AAA rules and the employees had not challenged the delegation provision specifically, the agreement was, indeed, enforceable.

Continued At-Will Employment and Presentation of Agreement Does Not Manifest Mutual Assent

Wilbur v. Securitas Security Services USA, Inc. 2019 WL 1980703 (W.D. Mo. May 3, 2019)

In this employment discrimination case, the United States District Court for the Western District of Missouri had to determine if there was a valid arbitration agreement and if the dispute fell within the terms of the agreement. As the party seeking to compel arbitration, the employer bore the burden of proving the existence of the valid and enforceable arbitration agreement. The “Dispute Resolution Agreement Acknowledgment” stated, inter alia, that all claims against the parties must be solved by Arbitration instead of in a court of law. The employee signed and printed his name; however, the lines for the employer representative signature and printed name were left blank. The employer argued that even though the agreement lacked their signature, the presentation of the agreement, the employee’s acceptance of the agreement, and their continued employment provided adequate consideration and gave rise to mutual assent. The court cited Missouri state court precedent, in Baier v. Darden Restaurants, in holding that an “acknowledgment” of this type was not adequate evidence of mutual assent to arbitrate, and that continued employment, without more, did not constitute adequate legal consideration for an agreement to arbitrate.


Missouri has continued to hold that incorporation of the AAA Rules is clear and unmistakable evidence of the parties’ intent to engage in arbitration. When challenging arbitration, the delegation provision must be challenged separately from a challenge to the whole contract. Presentation of an arbitration agreement to an employee, the employee’s acknowledgement of receipt, and the employee’s continued at-will employment are not enough to form an enforceable arbitration agreement. An employer should always obtain the employee’s expressed assent - i.e., a signature agreeing to the terms of the arbitration provision, and not merely acknowledging its receipt. Additionally, an employer should always specifically express its agreement in order to avoid a mutual assent challenge.

* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a rising 3L student at the University of Missouri-Columbia.

Can't satisfy both the FDA and the State? The judge will be the judge of that.

June 20, 2019

In May 2019, in a move rejecting the reasoning of the Third Circuit, the U.S. Supreme Court dove into two critical aspects of preemption analysis in Merck Sharp & Dohme Corp. v. Albrecht et al., No. 17-290, slip op. (U.S. May 20, 2019). The Court addressed who will decide whether preemption exists (a judge), and how to decide whether preemption exists where FDA action and state law conflict thereby destroying a plaintiff’s related state claims.

Specifically, the Court held a plaintiff’s claim that a drug manufacturer failed to warn pursuant to state law will fail when a judge applies a “clear evidence” standard and finds that the relevant federal and state laws “irreconcilably conflict.”

Petitioner drug manufacturer, Merck Sharp & Dohme Corporation, sought Supreme Court review of the Third Circuit’s decision to vacate and remand the lower court’s Order granting Merck’s Motion for Summary Judgment.  The Respondents, more than 500 individuals who filed individual suits which were consolidated into a multi-district litigation (MDL), were prescribed an osteoporosis drug manufactured by Merck (Fosamax) and subsequently suffered rare thigh bone breaks (referred to in litigation as “atypical femoral fractures”).  The Respondents alleged Merck breached a legal duty imposed by the state to warn of the risk of atypical femoral fractures associated with using Fosamax.  Merck countered these claims with an “impossibility preemption” defense, arguing the Respondents’ state law claims should be dismissed because conflicting federal law displaces, or preempts, the state requirement.  The Court fleshed out preemption standards set forth in an earlier Supreme Court case (Wyeth v. Levine) in an explicit attempt to aid lower courts when conducting preemption analyses, and remanded the case with these new understandings.  While the Court remanded the case, it did opine that “there is sufficient evidence to find that Merck violated state law by failing to add a warning about atypical femoral fractures to the Fosamax label.”

Under Wyeth v. Levine, 555 U.S. 555 (2009), a state-law failure-to-warn claim is preempted where there is “clear evidence” that the FDA would not have approved a change to the label.  Since Wyeth, courts have struggled to both define and apply this “clear evidence” standard.  In Merck, the Court elaborated on the clear evidence standard set out in Wyeth and held that Merck would have to show two things to trigger state law preemption: (1) Merck gave the FDA an evaluation or analysis concerning the specific dangers that would have merited the additional warning, and (2) Merck presented the would-be-state-compliant warning but was prohibited from adding said warning by the FDA.

The original Fosamax label was approved by the FDA in 1995.  The original label did not warn of the risk of atypical femoral fractures.  While the Court points to the fact that Merck scientists knew of at least a “theoretical risk” of these fractures, Merck brought the theoretical considerations to the FDA’s attention and the FDA approved a Fosamax label without requiring mention of the risk.  In 2008, Merck applied to change the Fosamax label in two ways: (1) add reference to “low-energy femoral shaft fracture” in the Adverse Reactions section of the label, and (2) provide longer discussion focused on the risk of stress fractures in the Precautions section.  The FDA approved the first addition, but rejected the second on the basis that the discussion of “stress fractures” was not sufficiently related to the risk of the specific atypical femoral fracture.  This is because atypical femoral fractures are low energy fractures that are the result of stress fractures, and have different pain symptoms and more severe repair remedies.  At that time, the FDA did however invite Merck to resubmit its application to address label change deficiencies.  Instead, Merck withdrew its application and changed the Adverse Reactions section through the “changes being effected” (CBE) process.  The CBE process is provided within the FDA regulations and permits drug manufacturers to change labels without prior FDA approval where “newly acquired information … based on reasonable evidence” warrants a new or stronger warning.  A warning about “atypical femoral fractures” appeared on the Fosamax label in 2011, after the FDA ordered a label change based on its own analysis. 

Finally, the Court reiterates the long-standing principle that the only FDA agency actions capable of answering whether preemption exists are those taken pursuant to the FDA’s congressionally delegated authority.  Where, as in Merck, the answer to preemption revolves around a question of agency disapproval, the Court unambiguously held the question of agency disapproval is a question of law for a judge to decide, not a jury.  Chatter of the role of a jury, specifically regarding factual questions about the meaning and effect of an agency decision in preemption cases, was silenced by the Court’s Opinion.  The Court unabashedly admits there are such factual questions within a preemption analysis, but held that those questions are “subsumed within an already tightly circumscribed legal analysis and do not warrant submission alone or together with the larger pre-emption question to a jury.”  Ultimately, the Supreme Court remanded the case because the Third Circuit improperly analyzed the question of preemption as one of fact for a jury, rather than a question of law, and because the Court has now clarified how to properly apply the clear evidence standard.

What does this mean for your company?

If you, like Merck, are in the business of manufacturing drugs, you can take solace in the fact that an FDA preemption argument is in the hands of a judge.  Because the Supreme Court has now held this issue is one exclusively for the Court, it may be ruled upon during motion practice with less strife related to facts “subsumed” in this kind of complex legal analysis.  But this strategic advantage cuts both ways.  Drug-manufacturers will now have to show that the company submitted a state law required warning to the FDA.  Litigation of these issues to date has largely involved questions about what exactly the FDA rejected when disapproving label changes.  The Court makes clear that the manufacturer’s proposed label change cannot be of some broader, less threatening risk – like stress fractures – when the company has knowledge of a specific, less appeasing risk – like atypical femoral fractures.  This is to say, while the power that comes with an impossibility preemption defense can be a great litigation tool, the responsibility to fully inform and present the FDA with state-compliant warnings is equally great. 

Kansas Supreme Court Strikes Down Statutory Caps on Noneconomic Damages

June 17, 2019

On June 14, 2019, in the case of Hilburn v. Enerpipe, Ltd., the Kansas Supreme Court struck down the state’s statutory cap on noneconomic damages in personal injury cases. The court held that the damages cap deprives plaintiffs of the Constitutional right to have a jury decide damages. 

By eliminating one of the key protections Kansas has traditionally extended to businesses, insurers, and other personal injury defendants, the decision dramatically increases both the unpredictability of civil litigation in the state and the risk of being surprised by a potentially devastating runaway verdict. Furthermore, because the Kansas Supreme Court has ruled the statutory damages cap “facially unconstitutional,” the ruling will affect not only future claims, but also those currently pending in Kansas courts.

I.  The Judicial Invalidation of the Kansas Noneconomic Damages Cap

The Hilburn case arose out of a motor vehicle accident. Plaintiff Diana Hilburn was a passenger in a car that was rear-ended by a semi-truck owned by Defendant Enerpipe, Ltd. Enerpipe admitted liability but contested damages. After a trial solely on the damages question, the jury awarded Ms. Hilburn $33,490 for medical expenses and $301,510 for noneconomic losses. The trial court reduced the award of noneconomic damages to the noneconomic damages cap of $250,000, pursuant to K.S.A. §60-19a02.

Hilburn appealed on several bases, including a challenge to the constitutionality of the damages cap. The Supreme Court held that Section 5 of the Kansas Constitution provides that “the right of trial by jury shall be inviolate.” Courts have interpreted this language to preserve the right to a jury trial “in those causes of action that were triable to a jury under the common law extant in 1859, when the Kanas Constitution was ratified by the people of our state.” The plurality opinion emphasized that that “the determination of noneconomic damages was a fundamental part of a jury trial at common law” and, therefore, ought to be protected as “inviolate” under Section 5 of the state constitution. 

“The cap’s effect,” Justice Beier concluded, “is to disturb the jury’s finding of fact on the amount of the award. Allowing this substitutes the Legislature’s nonspecific judgment for the jury’s specific judgment. The people deprived the Legislature of that power when they made the right to a trial by jury inviolate. Thus we hold that the cap on damages imposed by K.S.A. §60-19a02 is facially unconstitutional because it violates Section 5 of the Kansas Constitution Bill of Rights.”

Until recently, the cap on noneconomic damages seemed to be very well entrenched in Kansas law.  The limits were codified in the statute books, and judges and practitioners had become familiar with their application and importance in personal injury cases. As recently as 2012, the Kansas Supreme Court, in Miller v. Johnson, affirmed the constitutionality of a very similar cap applicable in medical malpractice cases. The majority held that the legislature’s cap on noneconomic damages was “an adequate and viable substitute” to the common-law right to a jury trial on the question of damages. With its decision in Miller, Kansas had become the eighteenth state to affirm the constitutionality of some type of cap on noneconomic damages. 

In Hilburn, the Kansas Supreme Court tossed out the same statutory cap that it had affirmed a mere 7 years ago. The recent case illustrates the importance a single judicial appointment can have. Justices Johnson, Beier, Biles, and Luckert remained consistent in their opinions from Miller (2012) to Hilburn (2019). Justices Rosen, who did not participate in the Miller decision, and Stegall, who was not on the Court in 2012, both sided with the plurality in Hilburn to hold the damages cap unconstitutional.

II.  Conclusion

Kansas law still presents advantages to civil defendants. It follows a modified comparative fault rule that precludes any recovery by a plaintiff who bears more than 50% of the fault for an occurrence. It allows the comparison of fault of non-parties and has enacted a “one-action rule,” requiring that all parties have their fault determined in a single trial. It has abandoned joint and several liability, holding each defendant responsible only for its percentage of the damages awarded. 

But make no mistake, the cap on noneconomic damages provided by K.S.A. §60-19a02 was one of the more important protections Kansas law offered to defendants in personal injury cases. That protection is now gone, and it seems unlikely to come back with the current court makeup.

Negligent References- Is there a duty in Missouri to refrain from making a negligent recommendation to a prospective employer?

June 12, 2019

In recent years, the plaintiffs’ employment bar has continued to explore new and more creative avenues to state claims in Missouri. In Doe v. Ozark Christian College, Plaintiff filed a negligence action against Ozark Christian College, claiming the college negligently recommended a prospective employee to the employer church, which directly resulted in the employee then injuring Plaintiff after two years. The employee in question had been a student at Ozark Christian College from 1982 to 1989. The employer, a church, contacted Defendant for recommendations on filling an open position. Plaintiff alleged that based upon Defendant’s positive recommendation, the church hired the employee in 2004. Plaintiff further alleged that as a result of that employment, employee then sexually abused Plaintiff from 2006 through 2010.

The Southern District of the Missouri Court of Appeals, however, affirmed the trial court’s ruling that Missouri has not defined or recognized a duty to make recommendations to a prospective employer, whether such a recommendation is done appropriately, or as alleged here, negligently. The Court of Appeals found that while some other states like California, New Mexico and Texas have permitted a “negligent job reference” cause of action, Missouri had not yet done so. The Court of Appeals reasoned that a whether a duty exists is purely a question of law, either imposed by a controlling statute, ordinance, contract, or by common law. While Plaintiff conceded there was no established case law or statutory authority for such a duty in Missouri, he argued that Missouri should recognize this duty because: Defendant assumed the duty under Section 324A of the Restatement Second of Torts; Section 311 of the Restatement Second of Torts imposes a duty and liability for negligent misrepresentation involving risk of physical harm; other states have recognized this as a duty of common law; and public policy facts support an imposition of this duty upon the Defendant. In a case of first impression, the arguments were ultimately struck down.

The Court of Appeals found that Plaintiff’s arguments contemplated the declaration of a new common-law duty rather than supporting the existence of a current duty. The threshold application of Section 324A is whether a defendant assumed an obligation or intended to render services for the benefit of an employer. Because Plaintiff lacked proper pleadings to support this legal conclusion, there could be no finding regarding Defendant’s undertaking to render services to the employer and therefore application of Section 324A was not appropriate.

The Court also held that there is no precedent in Missouri jurisprudence to allow the application of Section 311, where Plaintiff had failed to identify any controlling duty that exists under Missouri common law. While Plaintiff provided case law from New Mexico, Texas, and California in support of his arguments, the Court found numerous contrary cases in Indiana, Kentucky, Washington, Illinois, and New York. The Court of Appeals further stated that it is an error-correcting court, whereas the Supreme Court of Missouri is a law-declaring court and therefore declaration of a new duty is not properly within the Court of Appeals’ purview.

While numerous jurisdictions, like Missouri, that have declined to recognize a duty related to employment recommendations and prospective employers, the rise of these new theories of liability have caused great concern among employers who face a variety of challenges for giving a good reference, a bad reference or an incomplete reference. For this reason, many employers uniformly follow a policy that if asked for a reference for a former employee, they will provide only the person’s dates of employment and positions held. Because the law in this area varies from state to state, employers with blanket policies of referrals need to reconsider and make sure that each such request is reviewed using common criteria and guidelines. Questions regarding hiring and employment procedures and policies can always be directed to counsel.  

John Doe v. Ozark Christian College, SD35573.

Supreme Court of Missouri Issues First-Of-Its-Kind Ruling Overturning a $2.3 Million Negligent Credentialing Verdict

June 12, 2019

ALERT 06.12.2019:
The Supreme Court has taken the unusual step of granting rehearing in this case. We will keep you apprised of future developments. 

ORIGINAL POST 03.28.2019:
In Thomas E. Tharp, et al. v. St. Luke's Surgicenter – Lee's Summit, LLC, the Supreme Court of Missouri overturned a $2.3 million jury verdict in favor of a patient and his wife against a hospital, because there was no proof the hospital negligently granted staff privileges to a surgeon. The opinion is the first from the Supreme Court of Missouri to address the requirements of a negligent credentialing claim. 

The plaintiff alleged injuries stemming from a surgical procedure to remove his gallbladder. The plaintiff and his wife settled their claims with the surgeon, but went to trial against the hospital alleging it negligently granted privileges to the surgeon. At trial, plaintiffs presented evidence that the surgeon failed to disclose to the hospital all prior malpractice suits.

The hospital filed a motion for directed verdict at the close of all evidence on two grounds: (1) There was insufficient evidence to establish it had been negligent; and (2) the act of granting privileges to the surgeon was not the proximate cause of the injury. The trial court denied this motion, and the jury returned a verdict in favor of the plaintiffs. The trial court also overruled the hospital’s post trial motion for judgment notwithstanding the verdict, asserting the same arguments set forth above.

In a 6-1 decision, the Supreme Court held that a breach of the hospital’s bylaws (requiring the surgeon to report all prior malpractice suits) was not enough to support a negligent credentialing claim, and found no evidence that the grant of staff privileges to the surgeon was the proximate cause of the injury.

Addressing the nature of the relationship between a modern healthcare facility and its medical staff, the Court observed that “Physicians working under staff privileges are typically independent contractors, not hospital employees,” and that “staff privileges allow physicians to utilize a healthcare facility to admit and treat patients as independent care providers rather than as employees of the facility.” Under appropriate circumstances, a negligent credentialing claim can provide an avenue for potential liability against a hospital for injury caused by an independent contractor. The focus is whether the hospital gathered pertinent information to make a reasonable decision as to whether to grant privileges. The proper inquiry is whether the physician was competent and possessed the necessary knowledge, skill and experience to perform his job without creating unreasonable risk of injury to others.     

One of the requirements in the hospital’s bylaws was full disclosure of all prior malpractice suits, and the failure to do so was grounds to automatically remove a physician from staff privilege consideration. The evidence at trial showed the surgeon failed to list on his application each suit he had defended over his career, but there was no evidence that addressed the surgeon’s qualifications to perform surgery. The plaintiff’s own expert admitted there was no “magical number” of malpractice suits that shows a surgeon is unqualified. Further, plaintiff’s expert cited a statistical study showing physician malpractice claim rates vary widely depending, in large part, on the medical specialty involved. “Even acts of repeated negligence do not support a finding a surgeon is incompetent when there is no evidence that shows a surgeon generally lacks a professional ability.” Thus, the Court found the plaintiffs failed to make a submissible case of negligent credentialing. 

The Court also found the plaintiffs failed to prove the credentialing of the surgeon was the proximate cause of the injury. It was not enough to prove that but for the credentialing, the surgeon could not have performed the surgery that produced the injury. Rather, the plaintiffs needed to prove the injury was the natural and probable consequence of the surgeon’s incompetence. “Even a supremely qualified, competent, and careful physician may nevertheless injure a patient through an isolated negligent act.” Because plaintiffs failed to show the surgeon was incompetent, they could not prove the injury was the result of the surgeon’s incompetence and thus failed to make a submissible case.    

In this first ruling of its kind in Missouri, the Missouri Supreme Court has provided guidance to Missouri lower courts and practitioners prosecuting or defending a negligent credentialing claim. These claims are difficult to prove, as they require proof beyond that which is required to support a malpractice claim against a physician. Absent credible evidence of a physician’s incompetence generally, and the negligent failure of a hospital to discover the incompetence and act accordingly, courts should dispose of these claims via dispositive motion.     

The opinion did not address whether the negligent credentialing theory conflicts with Mo.Rev.Stat. § 538.210.4, which provides, in part, that “[n]o health care provider whose liability is limited by the provisions of this chapter shall be liable to any plaintiff based on the actions or omissions of any other entity or individual who is not an employee of such health care provider . . . .” Negligent credentialing liability necessarily depends on the negligent act or omission of a non-employee physician. In the event this argument is raised, it is unclear how the Court would address the apparent conflict of law.   

Compliance Check for Financial Institutions: Is Your Website ‘Accessible' to those with Disabilities?

June 10, 2019

What do Amazon, Domino’s, and Beyoncé have in common? Their websites have all have been the subject of high profile lawsuits alleging failure to comply with the Americans with Disabilities Act of 1990 (the “ADA”). Your financial institution could be, too, if it has not taken measures to ensure its website is ADA compliant.

We most often associate the ADA with physical limitations of brick and mortar buildings. But in recent years, several courts have extended the protections of the ADA to customers using websites in times where we conduct most of our business online. The relevant portion of the ADA provides that “No individual shall be discriminated against on the basis of disability in the full and equal enjoyment of the goods, services, facilities, privileges, advantages, or accommodations of any place of public accommodation by any person who owns, leases (or leases to) or operates a place of public accommodation.” 42 U.S.C. §12182(a). Even though the ADA has not been amended to specifically address websites, several courts have held that the ADA applies to website accessibility, whether by nexus to a physical location or by the website’s public nature.

There is currently a split among the circuits as to whether or not a website falls under the scope of the ADA, but recent cases show a tilt in favor of holding that websites are either places of public accommodation in their own right, or have a sufficient nexus to services provided out of a brick and mortar location to fall under the ADA. In one of the more recent cases, the Ninth Circuit Court of Appeals held that an ADA lawsuit could proceed against Domino’s for alleged failure to comply with appropriate accessibility standards for its website. The Court reasoned, “The statute applies to the services of a place of public accommodation, not services in a place of public accommodation. To limit the ADA to discrimination in the provision of services occurring on the premises of a public accommodation would contradict the plain language of the statute.” Domino’s had not established that compliance would be an undue burden or would materially alter its business, such that the ADA claim was permissible.

While ADA website litigation is not altogether new, it has gained traction in the past couple of years. Financial Services Litigators are closely monitoring these cases across the country and expect these filings against banks and credit unions to increase, due to increasing popularity of, and reliance upon, online banking by customers. Financial institutions are encouraged to ensure their websites comply with the current industry standard for accessibility, as well as state-level requirements. In evaluating its website, a financial institution should ask these questions:

  • Is the website “perceivable”? Does it:
    • Provide text alternatives for non-text content
    • Provide captions and other alternatives for multimedia
    • Create content that can be presented in different ways
    • including by assistive technologies, without losing meaning
    •  Make it easier for users to see and hear content
  • Is the website “operable”? Does it:
    • Make all functionality available from a keyboard
    • Give users enough time to read and use content
    • Avoid content that causes seizures
    • Help users navigate and find content
  • Is the website “Understandable”? Does it:
    • Make text readable and understandable
    • Make content appear and operate in predictable ways
    • Help users avoid and correct mistakes
  • Is the website “Robust”? Does it:
    • Maximize compatibility with current and future user tools.

The Eighth and Tenth Circuits have not yet issued rulings applicable to this topic. We will continue to monitor for new cases and provide updates.

Coming Soon to Kansas City: Shorter Job Applications

June 6, 2019

The Kansas City, Missouri City Council has unanimously passed an ordinance banning private employers in the City from asking job applicants about their salary history.

Last year, KCMO passed a similar resolution banning the City from requesting salary history information from persons applying for city positions. Starting October 31, 2019, that ban will extend to all employers in Kansas City with six or more employees. The ordinance will ban employers from requesting salary history information, relying upon it, or discriminating against job applicants who do not provide it. “Salary history” includes “current or prior wages, benefits, or other compensation.” The ban applies to all conversations between employers and applicants, and includes public record searches. Violations will be punishable by a fine of as much as $500 or up to 180 days in jail.

Of course, the ordinance comes with exceptions. The ban does not apply to the following:

  • Applicants for internal transfer or promotion with their current employer;
  • An applicant’s voluntary and unprompted disclosure of salary history information;
  • Salary history inadvertently disclosed during an employer’s attempt to verify an applicant’s disclosure of non-salary related information or conduct a background check, so long as the information is not relied upon for purposes of determining the applicant’s compensation.
  • Employee positions for which salary, benefits, or other compensation are determined pursuant to procedures established by collective bargaining; and
  • Applicants who are rehired by an employer within five years of termination if the employer already possesses salary information from the applicant’s prior employment.

The explicit goal of the new ordinance is to help narrow the gender pay gap. While women nationwide earn roughly 80% of every dollar their male counterparts earn, women in Missouri and Kansas earn roughly 78% and 77%, respectively. In Kansas City, the gender pay gap is almost 22%, which is one of worst wage divides among major U.S. cities. 

The ordinance will undoubtedly benefit male applicants as well. Wage history has long been used by employers to set the compensation for new hires. However, requiring the disclosure of prior wages creates bias and can cause many applicants, both men and women, to feel stuck in their social class with a capped earning capacity. With the new ordinance, applicants’ wage history will no longer follow them into job interviews. Hiring will instead be about the job duties and the applicant’s skill set.

Kansas City is not the first to enact a salary history ban. In the last several years, many other states and municipalities have enacted similar bans, including California, Connecticut, Delaware, Hawaii, Massachusetts, Oregon, Vermont, New York City, Philadelphia, and San Francisco.

Supreme Court Holds Plaintiff's Failure to Include Allegations Later Sued Upon, in Her Charge of Discrimination, Is Not "Jurisdictional"

June 3, 2019

We would have thought that every lawyer who took Employment Law 101 in law school learned that:

(1) A plaintiff who files a lawsuit alleging violation of a federal employment law statute like Title VII, or its state law counterpart, must exhaust administrative remedies by filing a charge of discrimination with the EEOC or the state equal employment agency;

(2) Failure to do so can lead to dismissal of the claim; and

(3) It is incumbent upon defense counsel to point out a Plaintiff’s failure to exhaust.

But perhaps the third point was not so obvious. On June 3, 2019, the U.S. Supreme Court in Fort Bend County v. Davis, affirmed a Fifth Circuit ruling, and held that where a Plaintiff alleged sexual harassment and retaliation in her EEOC charge, but did not properly include a claim for religious discrimination, the religious discrimination claim could still go forward, because the defendant has not raised her failure to include this in her charge as a defense, and rather waited until years into the litigation to first bring up the issue.

In a unanimous decision by Justice Ginsburg, the Court ruled that Title VII’s charge-filing precondition to suit is not a “jurisdictional” requirement that can be raised at any stage of a proceeding; rather, is it a procedural prescription that is mandatory and can lead to dismissal if timely raised, but subject to forfeiture if tardily asserted. In other words, it is a claim-processing rule that a plaintiff is required to follow, but whose breach must be properly asserted by a defendant.

Practice tip for defense counsel: Don’t be stupid. When a court case is filed, compare the charge of discrimination and the Complaint with the utmost care. If the Complaint alleges claims or conduct that were not within the scope of the charge, raise the defense that the plaintiff has failed to exhaust administrative remedies as to those claims.

Court Awards Nearly Twenty Times Damages in Illinois Wage Payment Act Case

May 28, 2019

On December 27, 2018 the Illinois Appellate Court for the First District affirmed an award of attorney’s fees and costs to plaintiff which was nearly twenty times the damages awarded at trial for an Illinois Wage Act claim. The Court ruled that the trial court did not abuse its discretion by awarding $178,449.97 in attorneys’ fees after a trial ending in a $9,226.52 judgment against the defendant.


Plaintiff Raymond Thomas sued defendant Weatherguard Construction Company, Inc. for $47,666.00 in commissions for contracts that he had procured on Weatherguard’s behalf. A key issue at trial was whether Weatherguard employed Thomas. Plaintiff claimed violations of the Illinois Sales Representative Act and the Illinois Wage Payment Act, breach of contract and unjust enrichment. The trial court granted summary judgment to Weatherguard on one count, and, after nearly ten years of litigation, the matter proceeded to trial on the remaining claims. The trial court found that Thomas was indeed an employee of Weatherguard, but awarded Thomas only $9,226.52. The verdict was upheld on appeal but remanded to the trial court for a determination of an attorneys’ fee award to Plaintiff pursuant to the Wage Payment Act. Upon briefs submitted by the parties, the trial court awarded plaintiff $178,449.97 in attorney’s fees and $1,124.68 in costs. Weatherguard appealed the award arguing that the award by the trial court was “excessive.” The Court of Appeals affirmed the award.

The Attorney Fee Award.

On appeal, Weatherguard argued, amongst other things, that the fee award was excessive because it represented work for claims for which there was no basis for Thomas to recover attorney fees. Weatherguard contended the recovery of fees should be limited only to work done to further the Wage Payment Act claim. Additionally, Weatherguard argued that the disparity between the amount of the damages award and the amount of the fee award constituted an abuse of discretion by the trial court. The Court rejected Weatherguard’s argument that Thomas was entitled only to fees for his statutory Wage Payment Act claim. The statute allows for employees successfully recovering under the Act to “also recover costs and all reasonable attorney’s fees.” Weatherguard argued that, because attorney fees are ordinarily not recoverable without contract or statutory authority, plaintiff should only be entitled to recover for work by his attorney directly attributable to pursuing the statutory Wage Act Claim.

The Appellate Court found that Thomas could recover fees and costs for all of his claims involving a common core of facts and related legal theories, even where he was successful only on some of the claims. The Wage Payment Act calls for recovery of “all reasonable attorney’s fees” in a “civil action.” The Court noted that the only limiting language in the statute was that the attorney fees be “reasonable,” and concluded that the statute did not contain an exception to the rule allowing for attorney fees for claims stemming from the same common core of facts and related legal theories. The Court stated that an exploited worker ordinarily would not be in a position to bring a civil action against his employer without the statutory incentive of fee recovery by the prevailing attorney.

The Court also determined that legislative history of the Wage Payment Act supported the finding that Thomas was entitled to fees for all of his claims. The Illinois legislature contemplated that litigation costs associated with bringing claims under the Act would not be borne by plaintiff employees.

The Court rejected Weatherguard’s argument that the vast difference between the amount of the damages award and the amount of the fee award constituted an abuse of discretion. Noting that in a matter involving fee shifting either by contract or statute an abuse of discretion does not automatically justify rejection of the amount sought in fees, the Court considered the conduct of Weatherguard in making the choice “to aggressively litigate the case” for ten years on a suit seeking “only $47,666 in commissions.” While courts may look to whether there is a reasonable connection between the fees and the amount involved in the litigation, the Appellate Court found that the “years of attorney time expended and the amount at issue was deemed reasonable by defendant” in defending the claims, and defendant “cannot be heard to complain now.”

Weatherguard also argued that Thomas only received a fraction of the recovery that he sought and should receive only a fraction of the fees incurred. While the Appellate Court agreed that the amount of the fees in relation to the benefit is a relevant consideration, it noted that Thomas was successful on the primary issues of employment and compensation. Accordingly, the Court found no abuse of discretion.

Guidance for the Future

This case underscores that when litigating cases involving either contractual or statutory fee-shifting provisions, it is possible that fees may be awarded far exceeding the damages award. This possibility should be considered when assessing case value.

Update: Hopping on the Missouri Bandwagon? Not so Fast Out-of-State Litigants.

May 20, 2019

In this March 18, 2019 blog post, we reported on important pending legislation that could substantially change Missouri’s venue rules. In case you missed the news, look no further….

At the beginning of May, the Missouri House passed the venue and joinder bill (Senate Bill 7) by a 100-46 vote. The bill primarily aims to restrict non-Missouri plaintiffs from joining their claims, in the same lawsuit, with those of a Missouri resident, where the non-residents’ claims have no legal nexus to Missouri. Read more here and here.

Next stop? Governor Mike Parson’s desk for signature, which will likely occur based on positive statements he has made about the bill: “[p]assing venue and joinder reform is a huge win and will provide long overdue relief to Missouri businesses that have been taken advantage of by rampant abuse of our state’s legal system….I look forward to signing these positive reforms to improve our state’s competitiveness, strengthen our legal climate, and bring fairness to our courtrooms.” 

Prior to its passage, while the House did not change the Senate’s language, there was not a lack of effort by some opponents in the House. For example, the “innocent seller” provision of the bill caused a bit of an uproar with some members. This provision discourages lawsuits against a defendant whose liability is based only on its status as a seller in the stream of commerce, permitting such a defendant to seek to be dismissed from a lawsuit. Certain House members challenged this provision in light of the current law not divesting a Missouri court of venue or jurisdiction  against  such a defendant in the event of a dismissal that was otherwise proper at the time the lawsuit began. However, Senate Bill 7removes that protection. Opponents of the bill argued that removing the current provision could force a lawsuit naming such a protected innocent seller entity to move to another county or state. Proponents of the bill countered that this was a prudent way to prevent plaintiffs from unnecessarily suing anybody and everybody in the manufacturing and distribution chain.

The House opponents were unsuccessful, Senate Bill 7 was passed.  It will officially become law once it receives the Governor’s stamp of approval.

Illinois Legislature Proposes to Amend the Biometric Informational Act, Deleting Private Right of Action

May 16, 2019

Proposed amendments to Illinois’ Biometric Information Privacy Act “BIPA” are welcomed by employers who have been bombarded with class action lawsuits in Illinois since the Rosenbach decision. SB 2134 provides that any violation resulting from the collection of biometric information by an employer for employment purposes is subject to the authority of the Department of Labor and must be enforced by the Attorney General. The proposed amendments would likely eliminate the influx of class action litigation into our court system, shifting the claims for violations to the Illinois Department of Labor from the State and Federal Courts. 

This is not the only proposed amendment to BIPA, which shows the legislators’ realization of much needed clarification to the Act. HB3024 was introduced to further define biometric identifier as to include electrocardiography results from a wearable device.  

Until the proposed amendments to BIPA are passed, stripping an individual’s right of action and clarifying the definition of biometric identifiers, Illinois employers will likely face a slew of class action lawsuits.  

The proposed amendments to the BIPA are referred to committee but no hearing dates have been set at this time. We will follow the process of the proposed amendments and update this post as necessary.

SCOTUS Strikes Another Blow to Class-Action Claims, Favoring Individual Arbitration

May 13, 2019

A divided United States Supreme Court recently handed down the latest in a series of wins for employers, manufacturers, retailers, and other businesses looking to use arbitration as a means to mitigate the risks of possible class-action litigation. This time, in Lamps Plus, Inc. v. Varela, the Supreme Court overturned the Ninth Circuit Court of Appeals, finding that an employer could not be compelled to arbitrate similar claims by its employees on a class-wide basis, even though its employment agreement was ambiguous as to whether the arbitration of similar claims be conducted on a class-wide basis, instead of individually. 

I.                    A clear, albeit controversial, trend in favor of individual arbitration

Arbitration agreements, which are strongly favored under the Federal Arbitration Act (“FAA”), can be a powerful tool for potential class-action defendants, both to mitigate the risks of potential exposure and to make those risks more predictable. But a contract is only useful to the extent it can be enforced. Fortunately for potential defendants, there has been a string of Supreme Court decisions in recent years empowering businesses to use arbitration clauses to narrowly define the procedures by which class-wide claims can be asserted. 

These decisions have been controversial, and most have been decided along roughly the same ideological divide. But there has been a clear trend in favor of the enforceability of arbitration agreements that limit or exclude class-wide arbitration actions.

For example, Stolt-Nielsen S.A. v. AnimalFeeds International Corp. was a 2010 case in which the Supreme Court concluded that silence was no substitute for the requisite “affirmative consent” to class arbitration, meaning that class-wide arbitration cannot be compelled based on an agreement that is simply silent as to the availability of class-wide remedies.   

The following year, in AT&T Mobility LLC v. Concepcion, the Supreme Court found that the FAA preempted a California statute providing that any class-action waiver in a consumer contract was unconscionable and, therefore, unenforceable. This 5-4 decision held the state statute was inconsistent with the FAA’s “overarching purpose” of ensuring “the enforcement of arbitration agreements according to their terms, so as to facilitate informal, streamlined proceedings.”

Then in the 2013 case of American Express Co. v. Italian Colors Restaurant, SCOTUS rebuffed another attempt to invalidate contracts that affirmatively waived the right to class arbitration. There, the Second Circuit had found a class-action waiver in American Express’s merchant agreement to be unenforceable, on the grounds that individually arbitrating each claim would be prohibitively expensive, since the costs of the arbitration would almost always exceed the potential recovery on any one claim. On appeal, a divided Supreme Court found that this sort of practical analysis was beyond the courts’ authority and ran counter to the principle, embodied in the FAA and recent case law, that parties should be free to agree to arbitrate, or not, as they see fit.

And just last year, in Epic Systems Corp. v. Lewis, the high court—once again split 5-4 along ideological lines—found that the National Labor Relations Board had overstepped its authority by finding that the National Labor Relations Act’s protection of employee “concerted activities” taken for their “mutual aid or protection” gave employees the right to pursue class claims and displaced the FAA in interpreting arbitration agreements between employers and employees. Recognizing that whether to arbitrate on an individual or class-wide basis is one of the “fundamental attributes” of an arbitration agreement’s character, the majority held that class-action waivers are just as enforceable in employment agreements as in any other arbitration agreement.

II.                  The recent Lamps Plus decision

This brings us to the recent Lamps Plus case, decided on April 24, 2019. It arose from a corporate data breach in which a hacker gained access to the personal financial and tax information of 1,300 company employees. Many of these employees had been required by the employer to sign contracts at the start of their employment, each of which included a clause requiring disputes regarding their employment to be submitted to binding arbitration. The arbitration language, however, was ambiguous as to whether similar claims would be arbitrated in separate proceedings or together, on a class-wide basis.

Frank Varela was one of the employees whose personal information had been compromised in the data breach, and he filed a civil lawsuit in the Central District of California seeking to assert claims under state and federal law, both individually and as a representative of a putative class of similarly situated employees. The employer moved to dismiss the civil case and to compel arbitration, specifically requesting that arbitration be on an individual rather than class-wide basis.

The trial court granted the employer’s motion to dismiss, but its order specified that arbitration would proceed on a class-wide basis. The employer appealed to the Ninth Circuit, which affirmed the trial court’s ruling, reasoning that ambiguities in the employment agreement—which was mandatory for the employees and was drafted exclusively by the employer—should be construed against the employer and in favor of the employees’ right to assert claims as a class.

The Supreme Court granted certiorari and struck down the lower courts’ rulings. Chief Justice Roberts authored the majority opinion and was joined by the court’s four other conservative-leaning justices (Thomas, Alito, Gorsuch, and Kavanaugh). The remaining four justices each filed dissenting opinions.

The court accepted the Ninth Circuit’s conclusion that the arbitration clause was ambiguous as to whether arbitration would be conducted individually or on a class-wide basis. Even though the agreement never specifically mentioned class-wide proceedings, some of its language—for example, its statement that arbitration would be “in lieu of any and all lawsuits or other civil legal proceedings”—was “capacious enough to include class arbitrations” as a potential remedy. 

But that ambiguity was not enough to force class-wide arbitration. Irrespective of state-law principles that ambiguous contractual language should be construed against its drafter, arbitration remains “a matter of consent, not coercion,” according to the majority, so there must be an “affirmative contractual basis for concluding that the parties agreed to class arbitration.” Relying heavily on the Stolt-Nielsen opinion discussed above, the majority ruled that without a clear expression of the parties’ intent to arbitrate on a class-wide basis, courts cannot force them to do so. An ambiguous contract is, by its very nature, not a clear expression of intent. Therefore, each employee’s claim was subject to individual arbitration, rather than a single class-action.

In a scathing dissent, Justice Ginsberg lamented what she sees as the Court’s consistent use of the FAA “to deny employees and consumers effective relief against powerful economic entities.” She found it ironic for the majority to invoke “the first principle” that “arbitration is strictly a matter of consent,” when employment agreements like the one at issue here are often presented on a take-it-or-leave it basis, and she decried the “Hobson’s choice employees face: accept arbitration on their employer’s terms or give up their jobs.” 

Justice Sotomayor authored a dissent of her own, in which she took issue with the majority’s characterization of class arbitration as fundamentally different from individual arbitration, characterizing it as “simply a procedural device,” which “an employee who signs an arbitration agreement should not be expected to realize that she is giving up.”

Justice Kagan’s dissent focused on the authorship of the employment agreement, arguing that it should be construed against its drafter—the employer—under general principles of contract law adopted in every state, which are not abrogated by the FAA.

Justice Breyer also authored a dissent, focused largely on the threshold question of whether the order compelling arbitration a “final” order was vesting the appellate courts with jurisdiction even to hear the appeal.

This case fits the mold of recent Supreme Court cases addressing class arbitration, which have consistently affirmed the validity of arbitration agreements and pushed back on efforts to limit their applicability or enforceability. Although the dissenting opinions evidence just how controversial the use of arbitration clauses remains, the majority opinion further entrenches arbitration agreements as a bulwark against class-action liability. Given the current makeup of the Supreme Court, the trend is unlikely to be reversed any time soon.

Restatement of the Law of Liability Insurance - Additional Insureds and Other Insurance

May 9, 2019

The Restatement of the Law of Liability Insurance (“RLLI”) passed in May 2018 after a one-year delay in voting, following strong negative reactions from practitioners, insurers, and states. Indeed, following the release of the 2017 draft, several governors sent letters of protest – Iowa, Maine, Nebraska, South Carolina, Texas and Utah – stating that the ALI was usurping the state legislatures and the RLLI was at odds with their states’ common law.

Although changes were made to that draft, the version that was eventually passed remains extremely policyholder-oriented and not a “restatement” of existing legal principles in any real sense of the word. This is not surprising, as it began as a Principles of Law project – aspirational rather than reflecting settled legal holdings.  Following its passage, a number of state legislatures have passed laws or resolutions to prevent the adoption of the RLLI.  These include:

  • Arkansas (Ark. Code § 23-60-112);
  • Indiana (2019 House Concurrent Resolution No. 62);
  • Kentucky (2018 Kentucky House Resolution 222);
  • Michigan (Mich. Comp. Laws § 500.3032);
  • North Dakota (N.D. Cent. Code § 26.1-02 (2019));
  • Ohio (Ohio Rev. Code § 3901.82); and
  • Tennessee (Tenn. Code § 56-7-102).

Idaho and Texas are currently considering bills to preclude the adoption of the RLLI.

In this series of blog posts regarding provisions of the RLLI, we will examine how it is not a “restatement” of settled common law, but instead adopts minority or even entirely novel principles. The RLLI reflects a profound lack of insight into practical claims handling practices, and in many respects is internally inconsistent or unworkable. We will periodically update these posts as a type of “scorecard,” tracking how various jurisdictions have responded to the RLLI.

Our seventh post considers RLLI’s thoughts on additional insureds and other insurance.


§ 20. When Multiple Insurers Have a Duty to Defend

When more than one insurer has the duty to defend a legal action brought against an insured:

(1) The insured may select any of these insurers to provide a defense of the action;

(2) If that insurer refuses to defend or otherwise breaches the duty to defend, the insured may select any of the other insurers that has a duty to defend the action; and

(3) The selected insurer must provide a full defense until the duty to defend is terminated pursuant to § 18 or until another insurer assumes the defense pursuant to subsection (4)(a).

(4) If the policies establish an order of priority of defense obligations among them, or if there is a regular practice in the relevant insurance market that establishes such a priority, that priority will be given effect as follows:

(a) An insurer selected pursuant to subsection (1) or (2) may ask any insurer whose duty to defend is earlier in the order of priority to assume the defense; and

(b) An insurer that incurs defense costs has a right of contribution or indemnity for those costs against any other insurer whose duty to defend is in the same position or earlier in the order of priority.

(5) If neither the policies nor the insurance-market practice establish an order of priority:

(a) The duty to defend is independently and concurrently owed to the insured by each of the insurers;

(b) Any nonselected insurer has the obligation to pay its pro rata share of the reasonable costs of defense of the action and the noncollectible shares of other insurers; and

(c) A selected insurer may seek contribution from any of the other insurers for the costs of defense.


It is admittedly not a restatement of the law – Comment a, acknowledges that courts have developed a body of case law regarding “other insurance” clauses and priority of coverage. This is presented as a reimagining of the approach under the common law. The RLLI also suggests that it is necessary to “protect” insureds from having to hire an insurance-coverage expert to determine which insurer to ask for a defense.” Comment a. This is frankly absurd – insureds with multiple potentially-applicable policies routinely tender to carriers for all potentially-triggered policies and leave the carriers to ascertain how the defense is provided. The notion that the insured has, or should be entitled to enforce, any preference as to which policy defends is not well-founded, and certainly not a “restatement” of the state of existing law.

Furthermore, in the additional insured context, the AI is given the option to choose which policy defends. This disregards that the loss risk for general contractors is priced into their policies based upon the expectation that they will, in the ordinary course of business, have additional insured status under subcontractors’ policies that would ordinarily defend. The RLLI approach proposes to usurp the terms of the subcontract agreements, which typically address whether AI coverage is available on a primary, co-primary, or secondary basis, and whether contribution is permitted. These contracts are separate and distinct from the insurance policies at issue, and the RLLI cites no well-established body of case law that would override the enforceable provisions of underlying indemnity agreements. 


As of the date of this writing, we have not seen reported decisions addressing § 21 of RLLI.

This concludes our series of blog posts regarding provisions of the RLLI, although we will periodically update the series to provide a “scorecard” of how various jurisdictions have responded to the RLLI. Our prior posts in the series can be found at:

RLLI – Exclusions

RLLI – Duty to Defend

RLLI – The Tripartite Relationship

RLLI – Independent Counsel

RLLI – The Insured’s Duty to Cooperate

RLLI – Bad Faith

Restatement of the Law of Liability Insurance - Bad Faith

May 7, 2019

The Restatement of the Law of Liability Insurance (“RLLI”) passed in May 2018 after a one-year delay in voting, following strong negative reactions from practitioners, insurers, and states. Indeed, following the release of the 2017 draft, several governors sent letters of protest – Iowa, Maine, Nebraska, South Carolina, Texas and Utah – stating that the ALI was usurping the state legislatures and the RLLI was at odds with their states’ common law.

Although changes were made to that draft, the version that was eventually passed remains extremely policyholder-oriented and not a “restatement” of existing legal principles in any real sense of the word. This is not surprising, as it began as a Principles of Law project – aspirational rather than reflecting settled legal holdings.  Following its passage, a number of state legislatures have passed laws or resolutions to prevent the adoption of the RLLI.  These include:

  • Arkansas (Ark. Code § 23-60-112);
  • Indiana (2019 House Concurrent Resolution No. 62);
  • Kentucky (2018 Kentucky House Resolution 222);
  • Michigan (Mich. Comp. Laws § 500.3032);
  • North Dakota (N.D. Cent. Code § 26.1-02 (2019));
  • Ohio (Ohio Rev. Code § 3901.82); and
  • Tennessee (Tenn. Code § 56-7-102).

Idaho and Texas are currently considering bills to preclude the adoption of the RLLI.

In this series of blog posts regarding provisions of the RLLI, we will examine how it is not a “restatement” of settled common law, but instead adopts minority or even entirely novel principles. The RLLI reflects a profound lack of insight into practical claims handling practices, and in many respects is internally inconsistent or unworkable. We will periodically update these posts as a type of “scorecard,” tracking how various jurisdictions have responded to the RLLI.

Our sixth post considers RLLI’s thoughts on an insurer’s bad faith failure or refusal to settle. Bad faith is very much a creation of state law, and the RLLI’s proposals here are not a “restatement” so much as an entirely novel approach to bad faith law. 


§ 24. The Insurer’s Duty to Make Reasonable Settlement Decisions

(1) When an insurer has the authority to settle a legal action brought against the insured, or the insurer’s prior consent is required for any settlement by the insured to be payable by the insurer, and there is a potential for a judgment in excess of the applicable policy limit, the insurer has a duty to the insured to make reasonable settlement decisions.

(2) A reasonable settlement decision is one that would be made by a reasonable insurer that bears the sole financial responsibility for the full amount of the potential judgment.

(3) An insurer’s duty to make reasonable settlement decisions includes the duty to make its policy limits available to the insured for the settlement of a covered legal action that exceeds those policy limits if a reasonable insurer would do so in the circumstances.

§ 27. Damages for Breach of the Duty to Make Reasonable Settlement Decisions

An insurer that breaches the duty to make reasonable settlement decisions is subject to liability for any foreseeable harm caused by the breach, including the full amount of damages assessed against the insured in the underlying legal action, without regard to the policy limits.

§ 36. Assignment of Rights Under a Liability Insurance Policy

(1) Except as otherwise stated in this Section, rights under a liability insurance policy are subject to the ordinary rules regarding the assignment of contract rights.

(2) Rights of an insured under an insurance policy relating to a specific claim that has been made against the insured may be assigned without regard to an anti-assignment condition or other term in the policy restricting such assignments.

(3) Rights of an insured under an insurance policy relating to a class of claims or potential claims may be assigned without regard to an anti-assignment condition or other term in the policy restricting such assignments, if the following requirements are met:

(a) The assignment accompanies the transfer of financial responsibility for the underlying liabilities insured under the policy as part of a sale of corporate assets or similar transaction;

(b) The assignment takes place after the end of the policy period; and

(c) The assignment of the rights does not materially increase the risk borne by the insurer.

§ 49. Liability for Insurance Bad Faith

An insurer is subject to liability to the insured for insurance bad faith when it fails to perform under a liability insurance policy:

(a) Without a reasonable basis for its conduct; and

(b) With knowledge of its obligation to perform or in reckless disregard of whether it had an obligation to perform.

§ 50. Remedies for Liability Insurance Bad Faith

The remedies for liability insurance bad faith include:

(1) Compensatory damages, including the reasonable attorneys’ fees and other costs incurred by the insured in the legal action establishing the insurer’s breach of the liability insurance policy and any other loss to the insured proximately caused by the insurer’s bad-faith conduct;

(2) Other remedies as justice requires; and

(3) Punitive damages when the insurer’s conduct meets the applicable state-law standard.


Bad faith is a highly state-specific cause of action

Bad faith, as a cause of action, is one of the most distinct and individualized expressions of each jurisdiction’s public policy. There is no uniform agreement as to whether “bad faith” is a contractual or tort cause of action, and state-specific expressions of what conduct rises to the level of “bad faith.” It is, therefore, a difficult subject for a “restatement” of the law.

Failure to settle

Initially, RLLI reformulates an existing cause of action commonly known as “bad faith failure to settle” or “bad faith refusal to settle” as simply a “breach of the duty to make reasonable settlement decisions.” Comment a to § 24 makes it clear that liability is imposed for less than a bad faith state of mind on the part of the insurer, but for simple negligence. RLLI construes the standard of care in terms of “commercial reasonableness.” As is clear from Comment c, it is a “disregard the limits” remedy, which blows up the limits even in the absence of wrongful intent by the insurer. Amazingly, the RLLI argues that this is a more lenient approach than “strict liability,” with Comment b being the only nod in the entire RLLI to any interest in preventing the bad faith setup, while citing no authority for the proposition that any jurisdictions presently impose a strict liability standard for failure to settle.

This is not a “restatement.” The Reporter’s Note to § 24 cites treatises rather than case law in support of the contention that this is a “majority rule,” and admits, without clearly addressing the issue, that liability for failure to settle is determined by different standards of “bad faith” or negligence by the various jurisdictions. Remarkably, the Reporter’s Note to § 27, in claiming that the majority of jurisdictions have adopted the principle, cite to cases establishing the measure of damages for “bad faith failure to settle,” without noting that this section is the measure of damages for a breach of duty to settle that is not predicated in “bad faith.”

The RLLI approach would eliminate the minimal protections afforded to insurers in some notorious “set up” states like Missouri. Every reported Missouri case involving insurer bad faith, beginning with Zumwalt v. Utilities Ins. Co., 228 S.W.2d 750 (Mo. 1950), limits liability to a bad faith refusal of an offer to settle within or for the liability policy’s limitsSee Id. at 754 (bad faith for insurer to refuse reasonable settlement offer within liability limits and instead gamble on escaping liability by favorable verdict); Landie v. Century Indem. Co., 390 S.W.2d 558, 564-66 (Mo. App. K.C. 1965) (the insurer’s duty is to give good faith consideration to settlement offers within the liability limits; insurer’s refusal to accept such offer, if in bad faith, entitles insured to recover); Levin v. State Farm Mut. Ins., 510 S.W.2d 455, 458 (Mo. banc 1974) (offer to settle within liability limits is a “necessary predicate” to bad faith claim); Bonner v. Auto. Club Inter-Ins. Exch., 899 S.W.2d 925, 928 (Mo. App. E.D. 1995) (not only must there be an offer to settle within the liability limits, but also the offer must be definite in amount); Ganaway v. Shelter Mut. Inc. Co., 795 S.W.2d 554, 556 (Mo. App. S.D. 1990) (insurer liability results from failure to exercise good faith in considering offers to compromise within liability limits). An offer to “settle” within policy limits is a “necessary prerequisite” for a claim for bad faith in Missouri. Levin, 510 S.W.2d at 458. The “good faith” contemplated by the law is a duty to give consideration to settlement offers within the liability limits. Landie, 390 S.W.2d at 564-66. The RLLI would eliminate the need for the policy-limits demand to trigger potential bad faith liability in Missouri, and other similar jurisdictions.

Moreover, the RLLI would propose to blow up the policy limits without addressing circumstances in which the insurer’s position on settlement was based upon its coverage analysis. Again, even in insurer-hostile jurisdictions, this kind of liability generally requires more than an erroneous denial of coverage. See, e.g., Shobe v. Kelly, 279 S.W.3d 203, 211-12 (Mo. App. W.D. 2009).

Bad faith

Punitive damages are the only additional remedy brought to the table by the bad faith cause of action, with RLLI’s proposed standard for failure to settle already accomplishing the elimination of the policy’s liability limits and recovery of the insured’s attorneys’ fees and consequential damages. Again, the RLLI is lacking in case law support for this approach. 

Many courts will define “bad faith” as a “state of mind” consisting of the insurer’s “‘intentional disregard of the financial interest of [the] insured in the hope of escaping the responsibility imposed upon [the insurer] by its policy.’”  Scottsdale Ins. Co. v. Addison Ins. Co., 448 S.W.3d 818, 828 (Mo. banc 2014). Often, evidence must establish that the insurer “intentionally disregarded” the insured’s financial interests in the hope of escaping its responsibility under the policy. Rinehart v. Shelter Gen. Ins. Co., 261 S.W.3d 583, 595 (Mo. App. W.D. 2008). The principle is that the insure

The measure of damages

The RLLI fails to address a critical topic – how to measure the insured’s damages for bad faith failure to settle. There is a significant question as to whether courts should presume that the amount of the underlying judgment equals the amount of the judgment or settlement entered into by the insured. 

This includes circumstances in which the insured has protected itself from the impact of a judgment in excess of its policy limits by virtue of a covenant not to execute against the insured’s assets, a/k/a a “Mary Carter” agreement, an agreement pursuant to Mo. Rev. Stat. § 537.065, etc. The essence of a bad faith cause of action is that the insured suffered tangible economic loss as a result of its insurer’s tortious refusal to settle claims against it. However, where the insured has not suffered these tangible economic losses, including by virtue of a covenant not to execute, there is case law in many jurisdictions holding that the insured has sustained no actual damages. Allowing a party in such circumstances 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. Such a result should be against public policy, because it allows, as here, parties to take a sham judgment by agreement, without any trial or evidence concerning the merits, and then collect all or a part of that judgment from a third party. Allowing recovery in such a case encourages fraud and collusion and corrupts the judicial process by basing the recovery on a fiction.... [T]he courts are being used to perpetrate and fund an untruth.

H.S.M. Acquisitions, Inc. v. West, 917 S.W.2d 872, 882 (Tex. App. Corpus Christi 1996) (citations omitted). The Texas court found that the consent judgment entered by the parties pursuant to the covenant not to execute could not be enforced against the insurer in a bad faith action. Id.

Moreover, Courts have found that a judgment entered into by the insured with the injured party need not even have been collusive for a court to refuse to give it any weight in determining the amount of insured’s damages in a bad faith action against his insurer. See Hamilton v. Maryland Casualty Co., 117 Cal. Rptr. 2d 318, 327 (Cal. 2002). “A defending insurer cannot be bound by a settlement made without its participation and without any actual commitment on its insured’s part to pay the judgment.” Id. RLLI is astonishingly silent on these issues.


As of the date of this writing, we have not seen reported decisions addressing these RLLI provisions.

Watch for our final post in this series, which considers RLLI’s thoughts on additional insureds and other insurance.  Our prior posts in the series can be found at:

RLLI – Exclusions

RLLI – Duty to Defend

RLLI – The Tripartite Relationship

RLLI – Independent Counsel

RLLI – The Insured’s Duty to Cooperate

Illinois Appellate Court Affirms Double Whammy Dismissal of Medical Negligence Case Based on Statute of Limitations and Statute of Repose

May 6, 2019

The Illinois First District Appellate Court recently affirmed a Cook County Circuit Court’s dismissal of a medical negligence action as time-barred by both the statute of limitations and the statute of repose. In reaching its decision, the appellate court relied upon long-standing Illinois case law as to when a medical negligence action accrues in a wrongful death action. 

In January 2017, plaintiff Joseph M. Osten (Osten), surviving husband of Gail Osten (decedent), filed a Complaint alleging medical negligence.  In the Complaint, Osten alleged that defendant physician, one of decedent’s treating doctors, ordered a screening mammogram on April 21, 2011, which was subsequently conducted by defendant radiologist technician and interpreted by defendant radiologist.

According to the Complaint, a non-party technologist noticed a slightly inverted left nipple with a brown discharge, which decedent specifically denied she had ever seen. The mammogram revealed a bilateral benign calcification with no masses or other findings suggestive of malignancy. The results of the mammogram were not transmitted to the defendant physician, the screening mammogram was not converted to diagnostic mammography, and no ultrasound tests were ordered.   Decedent was diagnosed with breast cancer in December 2011 and passed away in March 2015.

Plaintiff’s Complaint asserted five counts of professional negligence and wrongful death against defendants, alleging negligence in (1) failing to convert the screening mammogram to a diagnostic mammography, (2) failing to perform an ultrasound, and (3) failing to recognize the risk factors for breast cancer of an inverted nipple and brownish discharge.

Defendants filed motions to dismiss plaintiff’s Complaint, asserting plaintiff’s claims were time-barred by both the two-year statute of limitations and the four-year statute of repose applicable to medical negligence claims. Defendants contended the statute of limitations began to run on decedent’s medical negligence claims in April 2011, when the screening mammogram was performed or, at the latest, in December 2011, when she was diagnosed with breast cancer.  Defendants argued that, under either date, the statute of limitations expired on the medical negligence claims no later than December 2013.

Defendants also asserted the four-year repose period on any medical negligence claims began to run on the date of the alleged negligence, and therefore the repose period lapsed on April 21, 2015. Defendants further argued the plaintiff could not bring a wrongful death claim premised on defendants’ alleged medical negligence because the statute of limitations on those claims expired before decedent’s death in March 2015.

In response, the plaintiff argued his Complaint was timely because it was filed within two years of decedent’s death, the same date plaintiff contended was the date the statute of limitations and statute of repose began to run on his wrongful death claims. Plaintiff argued defendants advanced no facts to show that in December 2011, decedent knew or reasonably should have known of defendants’ alleged negligence, making the date of death the only relevant date for measuring the timeliness of his claims.

The appellate court held that:

“[i]n a wrongful death action, the cause of action is the wrongful act, neglect, or default causing death and not the death itself.” Wyness v. Armstrong World Industries, Inc., 131 Ill. 2d 403, 411 (1989). Claims under the Wrongful Death Act must be commenced within two years of the person’s death. 740 ILCS 180/2 (West 2016).  Under the Wrongful Death Act, there can be no recovery ‘where the decedent once had a cause of action, but was not entitled to maintain that action and recover damages at the time of [her] death.’ Lambert v. Village of Summit, 104 Ill. App. 3d 1034, 1037-38 (1982).

With respect to the statute of repose issue, the appellate court held that the Illinois Supreme Court:

has observed that “the statute of repose is triggered by the ‘act or omission or occurrence’ causing an injury, rather than by the patient’s discovery of the injury,” and that “the statute of repose cannot start to run until the last date of negligent treatment.” Cunningham v. Huffman, 154 Ill. 2d 398, 405-06 (1993); see also Kanne v. Bulkley, 306 Ill. App. 3d 1036, 1040 (1999) (“In failure-to-diagnose cases *** where a plaintiff blames a defendant’s omission for his injury, the omission at issue is deemed to have occurred on the date defendant rendered his final treatment.”).

Based upon the above case law, the appellate court found that both the statutes of limitations and repose began to run either in April 2011 or, based on the allegations in plaintiff’s Complaint, no later than December 2011.

The Osten court noted multiple times that its decision was based solely upon the allegations contained in plaintiff’s original Complaint and “at no point did plaintiff seek leave to amend his Complaint to allege any additional facts to defeat the motion to dismiss.”  The opinion goes so far as to point out that “[p]laintiff failed to allege a single fact that might allow an inference that defendants provided [decedent] with any treatment—negligent or otherwise—after April 21, 2011.” 

Presumably, the Court was insinuating plaintiff could have potentially defeated the motions to dismiss if he had shown an “ongoing course of continuous negligent medical treatment”, which the Illinois Supreme Court found in Cunningham v. Huffman, 154 Ill. 2d 398, 609 N.E.2d 321 (1993), could extend the start date for the statute of repose.

The Cunningham court concluded the statute of repose does not bar a plaintiff's action if s/he can demonstrate an ongoing course of continuous negligent medical treatment. To prove such, the plaintiff must demonstrate: (1) the existence of a continuous and unbroken course of negligent treatment, and (2) the treatment was so related as to constitute one continuing wrong. Thus, under Cunningham, not only does there need to be treatment, but the treatment must be negligent, a continuous and unbroken course, and so related as to constitute one continuing wrong. Whether plaintiff could have asserted facts to support such an argument is unknown.

Although the Osten decision does not plow any new ground for calculating when Illinois’ statutes of limitations and repose issues begin to run, a consistent approach and analysis by the Illinois appellate courts should be reassuring to our healthcare industry clients on what will undoubtedly continue to be a frequently litigated issue in medical negligence cases.

Osten v. Northwestern Memorial Hospital, 2018 IL App (1st) 172072

Restatement of the Law of Liability Insurance - The Insured's Duty to Cooperate

May 2, 2019

The Restatement of the Law of Liability Insurance (“RLLI”) passed in May 2018 after a one-year delay in voting, following strong negative reactions from practitioners, insurers, and states. Indeed, following the release of the 2017 draft, several governors sent letters of protest – Iowa, Maine, Nebraska, South Carolina, Texas and Utah – stating that the ALI was usurping the state legislatures and the RLLI was at odds with their states’ common law.

Although changes were made to that draft, the version that was eventually passed remains extremely policyholder-oriented and not a “restatement” of existing legal principles in any real sense of the word. This is not surprising, as it began as a Principles of Law project – aspirational rather than reflecting settled legal holdings.  Following its passage, a number of state legislatures have passed laws or resolutions to prevent the adoption of the RLLI.  These include:

  • Arkansas (Ark. Code § 23-60-112);
  • Indiana (2019 House Concurrent Resolution No. 62);
  • Kentucky (2018 Kentucky House Resolution 222);
  • Michigan (Mich. Comp. Laws § 500.3032);
  • North Dakota (N.D. Cent. Code § 26.1-02 (2019));
  • Ohio (Ohio Rev. Code § 3901.82); and
  • Tennessee (Tenn. Code § 56-7-102).

Idaho and Texas are currently considering bills to preclude the adoption of the RLLI.

In this series of blog posts regarding provisions of the RLLI, we will examine how it is not a “restatement” of settled common law, but instead adopts minority or even entirely novel principles. The RLLI reflects a profound lack of insight into practical claims handling practices, and in many respects is internally inconsistent or unworkable. We will periodically update these posts as a type of “scorecard,” tracking how various jurisdictions have responded to the RLLI.

Our fifth post considers RLLI’s thoughts on the insured’s duty to cooperate.

§ 29. The Insured’s Duty to Cooperate

When an insured seeks liability insurance coverage from an insurer, the insured has a duty to cooperate with the insurer. The duty to cooperate includes the obligation to provide reasonable assistance to the insurer:

(1) In the investigation and settlement of the legal action for which the insured seeks coverage;

(2) If the insurer is providing a defense, in the insurer’s defense of the action; and

(3) If the insurer has the right to associate in the defense of the action, in the insurer’s exercise of the right to associate.

§ 30. Consequences of the Breach of the Duty to Cooperate

(1) An insured’s breach of the duty to cooperate relieves an insurer of its obligations under an insurance policy only if the insurer demonstrates that the failure caused or will cause prejudice to the insurer.

(2) If an insured’s collusion with a claimant is discovered before prejudice has occurred, the prejudice requirement is satisfied if the insurer demonstrates that the collusion would have caused prejudice to the insurer had it not been discovered.

§ 25. The Effect of a Reservation of Rights on Settlement Rights and Duties

(1) A reservation of the right to contest coverage does not relieve an insurer of the duty to make reasonable settlement decisions stated in § 24, but the insurer is not required to cover a judgment on a non-covered claim.

(2) Unless otherwise stated in an insurance policy or agreed to by the insured, an insurer may not settle a legal action and thereafter demand recoupment of the settlement amount from the insured on the ground that the action was not covered.

(3) When an insurer has reserved the right to contest coverage for a legal action, the insured may settle the action without the insurer’s consent and without violating the duty to cooperate or other restrictions on the insured’s settlement rights contained in the policy if:

(a) The insurer is given a reasonable opportunity to participate and is kept reasonably informed of developments in the settlement process;

(b) The insured makes a reasonable effort to obtain the insurer’s consent or approval of the settlement;

(c) The insurer declines to withdraw its reservation of rights after receiving prior notice of the proposed settlement; and

(d) The settlement agreed to by the insured is one that a reasonable person who bears the sole financial responsibility for the full amount of the potential covered judgment would make.


Initially, the recognition that collusion with a claimant would constitute a breach of the duty to cooperate is useful, though why the insurer must still demonstrate that such “collusion” would be prejudicial (rather than such prejudice being implied) is questionable. Notable is how the duty to cooperate is conceived of as very much bare-minimum conduct by the insured – even collusion is not a breach unless it is or, if completed would have been, prejudicial to the insurer. The RLLI thus conceives of the obligations under an insurance policy as almost entirely running in one direction, from the insurer to the insured.

Allowing the insured to settle a claim without the insurer’s consent merely because it has issued a reservation of rights letter is not a “restatement” of the law. This is the bad faith set up, in many ways worse than the Missouri problem. Missouri allows this because it treats a reservation of rights as an inherent, unwaivable conflict of interest between the insurer and insured. But Missouri does not provide for independent counsel. RLLI requires provision of independent counsel, not controlled by the insurer, if there is a reservation of rights, to address the perceived conflict, then still allows the insured to settle/submit to judgment. The insurer has no meaningful right to control the defense/settlement if it issues a reservation of rights. RLLI proposes that an insurer can only exercise its contractual right to control the defense and settlement of claims if it waives its contractual rights to limit or deny coverage based on its policy language.


§ 29

Adopted or cited with approval:

Mid-Continent Cas. Co. v. Petroleum Solutions, Inc., No. 4:09-0422, 2016 U.S. Dist. LEXIS 182174, at *11 n.28 (S.D. Tex. Dec. 16, 2016) (citing the 2016 discussion draft, along with case law, for the proposition that “the substantive test for breach of the duty to cooperate is whether the conduct was ‘reasonable and justified under the circumstances.’”).

Watch for our next post in this series, which considers RLLI’s thoughts on an insurer’s bad faith failure or refusal to settle. Our prior posts in the series can be found at:

RLLI – Exclusions

RLLI – Duty to Defend

RLLI – The Tripartite Relationship

RLLI – Independent Counsel

Restatement of the Law of Liability Insurance - Independent Counsel

April 30, 2019

The Restatement of the Law of Liability Insurance (“RLLI”) passed in May 2018 after a one-year delay in voting, following strong negative reactions from practitioners, insurers, and states. Indeed, following the release of the 2017 draft, several governors sent letters of protest – Iowa, Maine, Nebraska, South Carolina, Texas and Utah – stating that the ALI was usurping the state legislatures and the RLLI was at odds with their states’ common law.

Although changes were made to that draft, the version that was eventually passed remains extremely policyholder-oriented and not a “restatement” of existing legal principles in any real sense of the word.  This is not surprising, as it began as a Principles of Law project – aspirational rather than reflecting settled legal holdings.  Following its passage, a number of state legislatures have passed laws or resolutions to prevent the adoption of the RLLI.  These include:

  • Arkansas (Ark. Code § 23-60-112);
  • Indiana (2019 House Concurrent Resolution No. 62);
  • Kentucky (2018 Kentucky House Resolution 222);
  • Michigan (Mich. Comp. Laws § 500.3032);
  • North Dakota (N.D. Cent. Code § 26.1-02 (2019));
  • Ohio (Ohio Rev. Code § 3901.82); and
  • Tennessee (Tenn. Code § 56-7-102).

Idaho and Texas are currently considering bills to preclude the adoption of the RLLI.

In this series of blog posts regarding provisions of the RLLI, we will examine how it is not a “restatement” of settled common law, but instead adopts minority or even entirely novel principles. The RLLI reflects a profound lack of insight into practical claims handling practices, and in many respects is internally inconsistent or unworkable. We will periodically update these posts as a type of “scorecard,” tracking how various jurisdictions have responded to the RLLI.

Our fourth post considers RLLI’s thoughts on an insurer’s obligation to provide independent counsel to defend the insured.


§ 16. The Obligation to Provide an Independent Defense

When an insurer with the duty to defend provides the insured notice of a ground for contesting coverage under § 15 and there are facts at issue that are common to the legal action for which the defense is due and to the coverage dispute, such that the action could be defended in a manner that would benefit the insurer at the expense of the insured, the insurer must provide an independent defense of the action.

§ 17. The Conduct of an Independent Defense

When an independent defense is required under § 16:

(1) The insurer does not have the right to defend the legal action;

(2) The insured may select defense counsel and related service providers;

(3) The insurer is obligated to pay the reasonable fees of the defense counsel and related service providers on an ongoing basis in a timely manner;

(4) The insurer has the right to associate in the defense of the legal action under the rules stated in § 23; and

(5) The rules stated in § 11 govern the insured’s provision of information to the insurer.


Right to independent counsel upon issuance of reservation of rights

The majority rule is that an insurer has a duty to defend a liability claim if there is even an arguable basis for coverage. The accepted approach, where the insurer must defend but reasonably questions coverage, is to issue a reservation of rights letter. The insurer is at a clear disadvantage, as compared to the parties embroiled in the dispute, regarding the underlying facts of the claim. RLLI suggests that there is something nefarious about an insurer’s reservation of rights, but insurers are routinely obligated to undertake a defense on short notice with minimal knowledge of the facts. 

Even in jurisdictions that provide for Cumis counsel, there is rarely any absolute requirement to provide independent counsel at the insurer’s expense merely upon the issuance of a reservation of rights letter. California does not require provision of Cumis counsel upon issuance of a reservation of rights. See, e.g., Dynamic Concepts v. Truck Ins. Exch., 61 Cal. App. 4th 999, 1006-07, 71 Cal. Rptr. 2d 882 (1998); Gafcon, Inc. v. Ponsor & Associates, 98 Cal. App. 4th 1388, 1421, 120 Cal. Rptr. 2d 392 (2002) (“a conflict of interest does not arise every time the insurer proposes to provide a defense under a reservation of rights”). If the insurer must provide independent counsel, and surrender control of the defense as suggested by RLLI, the insurer is precluded from exercising its contractual right to control the defense if it asserts its contractual rights to disclaim coverage. This is an outlier position, not a “restatement.”

Communications with the insurer are not shielded by attorney-client privilege

Where counsel is independent, he/she does not have an attorney-client relationship with the insurer. Accordingly, communications with the insurer are not protected by the attorney-client privilege. Instead, the RLLI assures us that these communications would be protected by a “common interest” doctrine. However, many jurisdictions do not have a well-developed body of law on the common interest doctrine. Where such law exists, often the interests must be identical for the common interest to apply. See, e.g., Ayers Oil Co. v. Am. Bus. Brokers, Inc., 2009 U.S. Dist. LEXIS 111928, *5 (E.D. Mo. Dec. 2, 2009). The RLLI establishes, by virtue of the provisions on reservations of rights and the supposed resulting need for independent counsel, as well as by the tripartite provisions discussed above, that the interests of the insured and insurer are not identical. 

The insurer must provide independent counsel, but the insured “may” select that counsel.

Under § 16, if the insurer issues a reservation of rights, it “must” provide independent counsel. However, under § 17, the insured “may” select that counsel. The gap here anticipates that there will be circumstances in which the insurer is obligated to supply independent counsel, but the insured leaves that selection up to the insurer. Under other provisions of the RLLI discussed above, the insurer would, presumably, then face potential liability for the conduct of the defense by the counsel that it selected, all the while being precluded from controlling the defense and existing in a tenuous environment with respect to attorney-client privilege for its communications. Liable for failing to supervise defense counsel, but unable to do so.


§ 16


Outdoor Venture Corp. v. Phila. Indem. Ins. Co., No. 6:16-cv-182-KKC, 2018 U.S. Dist. LEXIS 167986, at *55 (E.D. Ky. Sep. 27, 2018). The insured cited a 2016 draft of the RLLI, instead applying Kentucky law.

Watch for our next post in this series, which considers RLLI’s thoughts on the insured’s duty to cooperate. Our prior posts in the series can be found at:

RLLI – Exclusions

RLLI – Duty to Defend

RLLI – The Tripartite Relationship

Restatement of the Law of Liability Insurance - The Tripartite Relationship

April 26, 2019

The Restatement of the Law of Liability Insurance (“RLLI”) passed in May 2018 after a one-year delay in voting, following strong negative reactions from practitioners, insurers, and states. Indeed, following the release of the 2017 draft, several governors sent letters of protest – Iowa, Maine, Nebraska, South Carolina, Texas and Utah – stating that the ALI was usurping the state legislatures and the RLLI was at odds with their states’ common law.

Although changes were made to that draft, the version that was eventually passed remains extremely policyholder-oriented and not a “restatement” of existing legal principles in any real sense of the word. This is not surprising, as it began as a Principles of Law project – aspirational rather than reflecting settled legal holdings.  Following its passage, a number of state legislatures have passed laws or resolutions to prevent the adoption of the RLLI.  These include:

  • Arkansas (Ark. Code § 23-60-112);
  • Indiana (2019 House Concurrent Resolution No. 62);
  • Kentucky (2018 Kentucky House Resolution 222);
  • Michigan (Mich. Comp. Laws § 500.3032);
  • North Dakota (N.D. Cent. Code § 26.1-02 (2019));
  • Ohio (Ohio Rev. Code § 3901.82); and
  • Tennessee (Tenn. Code § 56-7-102).

Idaho and Texas are currently considering bills to preclude the adoption of the RLLI.

In this series of blog posts regarding provisions of the RLLI, we will examine how it is not a “restatement” of settled common law, but instead adopts minority or even entirely novel principles. The RLLI reflects a profound lack of insight into practical claims handling practices, and in many respects is internally inconsistent or unworkable. We will periodically update these posts as a type of “scorecard,” tracking how various jurisdictions have responded to the RLLI.

Our third post considers RLLI’s thoughts on the tripartite relationship amongst insurer, defense counsel, and insured. The reimagining of the tripartite relationship is perhaps the part of the RLLI that ventures farthest afield from any “restatement” of existing legal principles.


§ 11. Confidentiality

(1) An insurer or insured does not waive rights of confidentiality with respect to third parties by providing to the insured or the insurer, within the context of the investigation and defense of a legal action, information protected by attorney–client privilege, work-product immunity, or other confidentiality protections.

(2) An insurer does not have the right to receive any information of the insured that is protected by attorney–client privilege, work-product immunity, or a defense lawyer’s duty of confidentiality under rules of professional conduct, if that information could be used to benefit the insurer at the expense of the insured.

§ 12. Liability of Insurer for Conduct of Defense

(1) If an insurer undertakes to select counsel to defend a legal action against the insured and fails to take reasonable care in so doing, the insurer is subject to liability for the harm caused by any subsequent negligent act or omission of the selected counsel that is within the scope of the risk that made the selection of counsel unreasonable.

(2) An insurer is subject to liability for the harm caused by the negligent act or omission of counsel provided by the insurer to defend a legal action when the insurer directs the conduct of the counsel with respect to the negligent act or omission in a manner that overrides the duty of the counsel to exercise independent professional judgment.


It is not a “restatement”

A restatement should express the majority view of the law, except in rare instances where that majority view has become outdated and there is a clear trend away from it. These changes are not a “restatement” of existing law, but rather a wholesale creation of new law. As noted by DRI in its opposition to the 2017 draft, Section 12 “would create new direct liability on the part of the insurer to the insured for the acts of defense counsel” with no support from the case law.

This is not an entirely insurer-oriented problem. Policyholders, too, should be concerned about greater intrusion into the attorney-client relationship between insured and defense counsel. Facing potential liability for negligent selection or “supervision” of counsel, we would expect insurers to exert greater influence over defense counsel. Moreover, this is in tension with provisions that defense counsel is not permitted to share certain information or communications with the insurer. If these provisions of RLLI are adopted, there would be a new and real conflict of interest between the insurer and the insured, placing defense counsel in an untenable and practically unworkable position.

The insurer faces potential liability but is foreclosed from managing the defense in such a way as to limit its exposure.

These sections of the RLLI propose to render insurers liable to insureds for mistakes by defense counsel, while at the same time preventing the insurer from receiving a full account from defense counsel of any information that defense counsel deems he/she should not share with the insurer. Indeed, as discussed in the above section, if the insurer is defending under a reservation of rights, the insurer is required to pay for independent counsel, and the insured is free to act without the insurer’s consent. It appears that the actions of independent counsel, who are not controlled by the insurer but who might be “selected” by the carrier, could subject the insurer to liability even though the insurer has no meaningful opportunity to supervise or control defense counsel.

Some jurisdictions have case law addressing insurer liability for the professional negligence of insurer-retained defense counsel. However, there is by no means a consensus on this issue such that the RLLI’s approach could be said represent a “restatement” of the law. “The question of whether an attorney appointed to represent an insured to defend a claim is an agent for the insurer is one that has divided courts, and often turns on specific facts.” Remodeling Dimensions, Inc. v. Integrity Mut. Ins. Co., 819 N.W.2d 602, 615 (Minn. 2012). Some jurisdictions hold that the insurer does not have the necessary opportunity to control defense counsel’s conduct that would justify rendering the insurer vicariously liable for acts or omissions of the attorney. See, e.g., Ingersoll-Rand Equip. Corp. v. Transp. Ins. Co., 963 F. Supp. 452, 454 (M.D. Pa. 1997) (stating that an attorney's ethical obligations to the insured "prevent the insurer from exercising the degree of control necessary to justify the imposition of vicarious liability"); Lifestar Response of Ala., Inc. v. Admiral Ins. Co., 17 So. 3d 200, 214-18 (Ala. 2009) (imposing no vicarious liability for defense attorney's alleged negligence because insurer could not control attorney's professional judgment). 

Others take a compromise approach:

In the typical situation in which an insurer hires an attorney to defend an insured, the relationship of the insurer and its attorney is precisely that of principal to independent contractor. For example, the attorney is engaged in the distinct occupation of practicing law, and this occupation is one in which the attorney possesses special skill and expertise. . . . Finally, and obviously, the practice of law is not, nor could it be, part of the regular business of an insurer.

Givens v. Mullikin, 75 S.W.3d 383, 393-94 (Tenn. 2002). However, “an insurer can be held vicariously liable for the acts or omissions of an attorney hired to represent an insured when those acts or omissions were directed, commanded, or knowingly authorized by the insurer.” Id. at 395. 

Even under this approach, however, the insurer can face liability only if it expressly directed the conduct of defense counsel at issue. The RLLI approach would render the insurer liable for “negligent selection of defense counsel,” not for specific actions or omissions that the insurer directed the defense attorney to undertake. 

Defense counsel is required to “hide the ball” from the insurer

Defense counsel hired by the insurer is required to keep from the insurer any privileged information if the information could be used to benefit the insurer at the expense of the insured. While there is existing case law in many jurisdictions that prevents an insurer from directing defense counsel to develop a coverage case against the insured, what is new is this notion that defense counsel, who typically does represent the insurer in the tripartite relationship, is obligated to hide from the insurer information that is pertinent to the insurer’s interests. 

Unfettered communication with both clients on the subject of the joint representation is therefore a practical necessity. Both are directly interested in the case, its progress and any material developments, counsel's litigation and trial strategy, his assessments of the merits and likelihood of success, his views on whether the case ought to be tried or settled, and myriad other issues, many of which require expression of counsel's strategic judgments and mental impressions. In communicating with the insurer on these matters, the attorney is rendering advice and counsel to a client as a necessary aspect of his representation, both of the insurer and of the insured.

RFF Family P'ship, LP v. Burns & Levinson, LLP, 32 Mass. L. Rep. 88 (2013).

Some jurisdictions expressly hold that both defense counsel and the insured have a duty to disclose to the insurer relevant information regarding the claim and defense. See, e.g., Cont'l Cas. Co. v. St. Paul Surplus Lines Ins. Co., 265 F.R.D. 510, 518 (E.D. Cal. 2010). This is a contractual duty on the part of the insured, and an ethical obligation by the defense counsel. Furthermore, some courts have held that the insured does not have a reasonable expectation that information it communicates to defense counsel will be privileged and withheld from the insurer that has hired defense counsel for the action. Northwood Nursing & Convalescent Home, Inc. v. Continental Ins. Co., 161 F.R.D. 293, 297 (E.D. Pa. 1995). 

Notably, there is a significant absence of established case law regarding what information an attorney may ethically withhold from its insurer client in a tripartite relationship, so the RLLI’s position is in no respect a “restatement” of the existing law on this question. A number of courts to have considered the issue have held that the insurer is entitled to be completely informed of information related to the defense of the claim. Obviously, information that is relevant to a coverage issue (such as intent) is likely to be highly relevant to the defense as well. RLLI proposes no practical approach to defending claims here, and fails to recognize that in the ordinary course of the defense facts discovered will bear on both the defense to liability and the insurer’s coverage position. 

Moreover, RLLI seeks to intrude upon the individualized ethical obligations imposed upon attorneys by weighing in upon what defense counsel may or may be required to withhold from insurers in a tripartite relationship in which defense counsel is also deemed to represent the insurer. This is not the place of RLLI, and is not a “restatement” of insurance law, but a statement on professional ethics. It would also seem to open the door for plaintiffs’ counsel to seek to discover information communicated to the insurer by defense counsel on the argument that, where the insurer is not permitted to receive the information under § 11, there is no attorney-client relationship between the insurer and defense counsel.


§ 12

The insured’s reliance upon § 12 of the RLLI was found to be “premature.” Progressive Northwestern Ins. Co. v. Gant, No. 15-9267-JAR-KGG, 2018 U.S. Dist. LEXIS 163624, at *16 (D. Kan. Sep. 24, 2018). “[T]he notes to the Restatement acknowledge that ‘there is a dearth of reported cases holding liability insurers directly liable for negligent selection [of defense counsel].’ Accordingly, this Court is not inclined to use a nonbinding Restatement as a means to overturn or expand Kansas law.” Id. at *16-17.

Watch for our next post in this series, which considers RLLI’s thoughts on an insurer’s obligation to provide independent counsel to defend the insured. Our prior posts in the series can be found at:

RLLI – Exclusions

RLLI – Duty to Defend

Restatement of the Law of Liability Insurance - Duty to Defend

April 23, 2019

The Restatement of the Law of Liability Insurance (“RLLI”) passed in May 2018 after a one-year delay in voting, following strong negative reactions from practitioners, insurers, and states. Indeed, following the release of the 2017 draft, several governors sent letters of protest – Iowa, Maine, Nebraska, South Carolina, Texas and Utah – stating that the ALI was usurping the state legislatures and the RLLI was at odds with their states’ common law.

Although changes were made to that draft, the version that was eventually passed remains extremely policyholder-oriented and not a “restatement” of existing legal principles in any real sense of the word. This is not surprising, as it began as a Principles of Law project – aspirational rather than reflecting settled legal holdings.  Following its passage, a number of state legislatures have passed laws or resolutions to prevent the adoption of the RLLI.  These include:

  • Arkansas (Ark. Code § 23-60-112);
  • Indiana (2019 House Concurrent Resolution No. 62);
  • Kentucky (2018 Kentucky House Resolution 222);
  • Michigan (Mich. Comp. Laws § 500.3032);
  • North Dakota (N.D. Cent. Code § 26.1-02 (2019));
  • Ohio (Ohio Rev. Code § 3901.82); and
  • Tennessee (Tenn. Code § 56-7-102).

Idaho and Texas are currently considering bills to preclude the adoption of the RLLI.

In this series of blog posts regarding provisions of the RLLI, we will examine how it is not a “restatement” of settled common law, but instead adopts minority or even entirely novel principles. The RLLI reflects a profound lack of insight into practical claims handling practices, and in many respects is internally inconsistent or unworkable. We will periodically update these posts as a type of “scorecard,” tracking how various jurisdictions have responded to the RLLI.

Our second post considers RLLI’s thoughts on the duty to defend.


§ 13. Conditions Under Which the Insurer Must Defend

(1) An insurer that has issued an insurance policy that includes a duty to defend must defend any legal action brought against an insured that is based in whole or in part on any allegations that, if proved, would be covered by the policy, without regard to the merits of those allegations.

(2) For the purpose of determining whether an insurer must defend, the legal action is deemed to be based on:

(a) Any allegation contained in the complaint or comparable document stating the legal action; and

(b) Any additional allegation known to the insurer, not contained in the complaint or comparable document, stating the legal action that a reasonable insurer would regard as an actual or potential basis for all or part of the action.

(3) An insurer that has the duty to defend under subsections (1) and (2) must defend until its duty to defend is terminated under § 18 by declaratory judgment or otherwise, unless facts not at issue in the legal action for which coverage is sought and as to which there is no genuine dispute establish that:

(a) The defendant in the action is not an insured under the insurance policy pursuant to which the duty to defend is asserted;

(b) The vehicle or other property involved in the accident is not covered property under a liability insurance policy pursuant to which the duty to defend is asserted and the defendant is not otherwise entitled to a defense;

(c) The claim was reported late under a claims-made-and-reported policy such that the insurer’s performance is excused under the rule stated in § 35(2);

(d) The action is subject to a prior and pending litigation exclusion or a related claim exclusion in a claims-made policy;

(e) There is no duty to defend because the insurance policy has been properly cancelled; or

(f) There is no duty to defend under a similar, narrowly defined exception to the complaint-allegation rule recognized by the courts in the applicable jurisdiction.

§ 14. Duty to Defend: Basic Obligations

When an insurance policy obligates an insurer to defend a legal action:

(1) Subject to the insurer’s right to terminate the defense under § 18, the insurer has a duty to provide a defense of the action that:

(a) Makes reasonable efforts to defend the insured from all of the causes of action and remedies sought in the action, including those not covered by the liability insurance policy; and

(b) Requires defense counsel to protect from disclosure to the insurer any information of the insured that is protected by attorney–client privilege, work-product immunity, or a defense lawyer’s duty of confidentiality under rules of professional conduct, if that information could be used to benefit the insurer at the expense of the insured;

(2) The insurer may fulfill the duty to defend using its own employees, except when an independent defense is required; and

(3) Unless otherwise stated in the policy, the costs of the defense of the action are borne by the insurer in addition to the policy limits.

§ 18. Terminating the Duty to Defend a Legal Action

An insurer’s duty to defend a legal action terminates only upon the occurrence of one or more of the following events:

(1) An explicit waiver by the insured of its right to a defense of the action;

(2) Final adjudication of the action;

(3) Final adjudication or dismissal of parts of the action that eliminates any basis for coverage of any remaining parts of the action;

(4) Settlement of the action that fully and finally resolves the entire action;

(5) Partial settlement of the action, entered into with the consent of the insured, that eliminates any basis for coverage of any remaining parts of the action;

(6) If so stated in the insurance policy, exhaustion of the applicable policy limits;

(7) A correct determination by the insurer that it does not have a duty to defend the legal action under the rules stated in § 13; or

(8) Final adjudication that the insurer does not have a duty to defend the action.

§ 19. Consequences of Breach of the Duty to Defend

An insurer that breaches the duty to defend a legal action forfeits the right to assert any control over the defense or settlement of the action.

§ 21. Insurer Recoupment of the Costs of Defense

Unless otherwise stated in the insurance policy or otherwise agreed to by the insured, an insurer may not seek recoupment of defense costs from the insured, even when it is subsequently determined that the insurer did not have a duty to defend or pay defense costs.

§ 33. Timing of Events That Trigger Coverage

(1) When a liability insurance policy provides coverage based on the timing of a harm, event, wrong, loss, activity, occurrence, claim, or other happening, the determination of the timing is a question of fact.

(2) A liability insurance policy may define a harm, event, wrong, loss, activity, occurrence, claim, or other happening that triggers coverage under a liability insurance policy to have taken place at a specially defined time, the timing of which is also a question of fact, even if it would be determined for other purposes to have taken place at a different time.

§ 45. Insurance of Liabilities Involving Aggravated Fault

(1) Except as barred by legislation or judicially declared public policy, a term in a liability insurance policy providing coverage for defense costs incurred in connection with any legal action is enforceable, including but not limited to defense costs incurred in connection with: a criminal prosecution; an action seeking fines, penalties, or punitive damages; and an action alleging criminal acts, expected or intentionally caused harm, fraud, or other conduct involving aggravated fault.

(2) Except as barred by legislation or judicially declared public policy, a term in a liability insurance policy providing coverage for civil liability arising out of aggravated fault is enforceable, including civil liability for: criminal acts, expected or intentionally caused harm, fraud, or other conduct involving aggravated fault.

(3) Whether a term in a liability insurance policy provides coverage for the defense costs and civil liability addressed in subsections (1) and (2) is a question of interpretation governed by the ordinary rules of insurance policy interpretation.


Duty to defend continues until the insurer has made a “correct determination” that it has no duty to defend under § 13, or “final” adjudication that it has no duty to defend.

Initially, the insurer cannot make its own “correct determination” that it has no duty to defend where there is no “occurrence,” offense, “wrongful act,” etc., even though it is the insured’s burden to prove that the claim is within the scope of the insuring agreement under the default rule of the common law. Similarly, § 13 does not identify the insured’s failure to satisfy the policy’s conditions for coverage, including, significantly, the duty to give notice and to cooperate, as bases upon which the insurer may deny or terminate a defense. Many jurisdictions hold that it is the insured’s burden to prove compliance with the policy’s conditions, including the duty to cooperate. See, e.g., Steadfast Ins. Co. v. Purdue Frederick Co., No. X08CV020191697S, 2005 Conn. Super. LEXIS 3286, at *8 (Super. Ct. Nov. 29, 2005). There is ample case law supporting the proposition that not only does pre-suit conduct by the insured in breach of its obligations under the policy obviate a duty to defend, the duty to defend may be terminated by the insured’s breach during the course of the claim. See, e.g., Arton v. Liberty Mutual Ins. Co., 163 Conn. 127, 302 A.2d 284 (1972). RLLI simply abrogates the insurer’s contractual rights under the policy, with no firm support in well-established case law.

The RLLI proposes that the insurer must also litigate the applicability of any exclusions other than the prior/pending litigation exclusion. This would include exclusions such as the sexual molestation, criminal acts, “your work,” professional liability, and many similar commonly-applicable exclusions. One of the most common coverage questions presented is the contractor seeking coverage under a CGL policy for faulty work, and under the RLLI the insurer would apparently have a duty to defend these claims to the bitter end despite clear case law in most jurisdictions that CGL policies do not afford coverage for professional errors and omissions by contractors in the performance of their contracts. See, e.g., Owings v. Gifford, 237 Kan. 89, 94, 697 P.2d 865 (1985) (“the [CGL] insurance policy is not a performance bond or a guarantee of contract performance. A house built or being constructed by an insured builder is the work product of the builder and under the exclusion clause of the policy no coverage is provided the insured for damages due to faulty construction.”).

“Final adjudication” means the exhaustion of all appeals. Because the appellate process can reasonably be expected to take longer than the course of litigation of the underlying civil claim, this proposition effectively negates the insurer’s contractual right to deny a defense for uncovered claims. RLLI also proposes that the insurer has no right to recoupment of defense costs. Moreover, the RLLI’s position is inconsistent with the position of a significant number of jurisdictions (including what are regarded as policyholder-friendly jurisdictions) that an insurer may terminate its defense upon its discovery of facts placing the claim outside of coverage. See, e.g., Scottsdale Ins. Co. v. MV Transportation, 36 Cal. 4th 643, 661, 31 Cal. Rptr. 3d 147, 115 P.3d 460 (2005); Certain Underwriters at Lloyd's London v. Mestmaker, No. F066016, 2014 Cal. App. Unpub. LEXIS 3021, at *27 (Apr. 29, 2014).

Requires the insured’s consent to settlement of covered claims

Where the insurer is defending without a reservation of rights, it has the contractual right to control the investigation, defense, and settlement of claims under the policy. The RLLI cites no legal authority for the proposition that a majority of courts have held, as the ALI suggests in § 18(5), that the insured’s consent is required to settle covered claims under the policy, leaving uncovered claims unresolved. Why would the presence of uninsured claims in the action give the insured veto power over the insurer’s contractual right to control settlement of covered claims?

Whether there was an occurrence within the policy period becomes a fact question that precludes summary disposition.

One of the most remarkable positions taken by the RLLI is in § 33, which suggests that it is a fact question whether there is a trigger of coverage. In describing this language, Comment a, expressly discusses this “trigger” in terms of whether there is an occurrence within the policy period. In Comment b, “Because all liability insurance policies are issued for a defined policy period, all liability insurance policies have some trigger of coverage.” Comment d expressly suggests that, “Determining whether the required event took place during the required period involves the application of the policy, as interpreted by the court, to the facts,” and suggests that unless the facts are undisputed the matter cannot be resolved with a trial. 


§ 19


  • Catlin Specialty Ins. Co. v. J.J. White, Inc., 309 F. Supp. 3d 345, 363 (E.D. Pa. 2018) discusses the insured’s argument that the 2017 draft of § 19, which then provided that “an insurer that breaches the duty to defend without a reasonable basis for its conduct must provide coverage for the legal action for which the defense was sought, notwithstanding any grounds for contesting coverage.” The court declined to adopt such a position, and the language changed substantially from the 2017 draft to the 2018 final.

Adopted or cited with approval:

  • Nationwide Mut. Fire Ins. Co. v. D.R. Horton, Inc., Civil Action No. 15-351-CG-N, 2016 U.S. Dist. LEXIS 160148, at *20 n.6 (S.D. Ala. Nov. 18, 2016) cited a 2015 draft of § 19 RLLI and a Florida federal opinion for “the longstanding principal of law that an insurer which ‘breaches its duty to defend or unjustifiably refuses to defend its insured . . . forfeits control of the suit to the insured and may be held liable to its insured for costs incurred in providing its own defense.’”

§ 21


  • Catlin Specialty Ins. Co. v. CBL & Assocs. Props., No. N16C-07-166 PRW CCLD, 2018 Del. Super. LEXIS 342, at *8 (Super. Ct. Aug. 9, 2018) (applying Tennessee law) declined to adopt § 21. “Restatements are mere persuasive authority until adopted by a court; they never, by mere issuance, override controlling case law. And this Restatement itself acknowledges that ‘[s]ome courts follow the contrary rule[.]’”

Adopted or cited with approval:

  • Selective Ins. Co. of Am. v. Smiley Body Shop, Inc., No. 1:16-cv-00062-JMS-MJD, 2017 U.S. Dist. LEXIS 215904, at *15-16 (S.D. Ind. July 28, 2017) cites the 2017 discussion draft of the RLLI, specifically § 21, in support of its holding that an insurer may not seek recoupment of defense costs for uncovered claims unless the policy provides for recoupment.

Watch for our next post in this series, which considers RLLI’s thoughts on the tripartite relationship amongst insurer, defense counsel, and insured. Our prior post in the series can be found at:

RLLI – Exclusions

Restatement of the Law of Liability Insurance - Exclusions

April 18, 2019

The Restatement of the Law of Liability Insurance (“RLLI”) passed in May 2018 after a one-year delay in voting, following strong negative reactions from practitioners, insurers, and states. Indeed, following the release of the 2017 draft, several governors sent letters of protest – Iowa, Maine, Nebraska, South Carolina, Texas and Utah – stating that the ALI was usurping the state legislatures and the RLLI was at odds with their states’ common law.

Although changes were made to that draft, the version that was eventually passed remains extremely policyholder-oriented and not a “restatement” of existing legal principles in any real sense of the word. This is not surprising, as it began as a Principles of Law project – aspirational rather than reflecting settled legal holdings.  Following its passage, a number of state legislatures have passed laws or resolutions to prevent the adoption of the RLLI.  These include:

  • Arkansas (Ark. Code § 23-60-112);
  • Indiana (2019 House Concurrent Resolution No. 62);
  • Kentucky (2018 Kentucky House Resolution 222);
  • Michigan (Mich. Comp. Laws § 500.3032);
  • North Dakota (N.D. Cent. Code § 26.1-02 (2019));
  • Ohio (Ohio Rev. Code § 3901.82); and
  • Tennessee (Tenn. Code § 56-7-102).

Idaho and Texas are currently considering bills to preclude the adoption of the RLLI.

In this series of blog posts regarding provisions of the RLLI, we will examine how it is not a “restatement” of settled common law, but instead adopts minority or even entirely novel principles. The RLLI reflects a profound lack of insight into practical claims handling practices, and in many respects is internally inconsistent or unworkable. We will periodically update these posts as a type of “scorecard,” tracking how various jurisdictions have responded to the RLLI.

Our first post considers RLLI’s suggestions on the interpretation of policy language, and specifically exclusions:

§ 32 Exclusions

(1) An “exclusion” is a term in an insurance policy that identifies a category of claims that are not covered by the policy.

(2) Whether a term in an insurance policy is an exclusion does not depend on where the term is in the policy or the label associated with the term in the policy.

(3) Exclusions are interpreted narrowly.

(4) Unless otherwise stated in the insurance policy, words in an exclusion regarding the expectation or intent of the insured refer to the subjective state of mind of the insured.

(5) An exception to an exclusion narrows the application of the exclusion; the exception does not grant coverage beyond that provided in the insuring clauses.


The RLLI proposes that any exclusion related to the expectation or intent of the insured should be determined by the subjective state of mind of the insured. RLLI proposes that even the insured’s statement of his/her state of mind can be disregarded – “even an insured’s admission of intent to harm is subject to cross-examination and the jury’s assessment of credibility.” Comment d. 

Furthermore, RLLI suggests that as to exclusions such as sexual abuse, physical and mental abuse, etc., “The default rule is that such exclusions are severable, meaning that they apply only to insureds whose conduct meets the requirements of the exclusion.” Comment c. That is not an accurate statement of the law, which depends upon the precise language of the exclusion, including whether the exclusion applies to “the insured” or to “any insured.” In policies with severability or “separation of insureds” language, claims against each insured are evaluated separately for coverage, but there is considerable case law distinguishing between “the insured” and “any insured” language, where “any insured” language will exclude coverage for all insureds if any of them has engaged in the excludable conduct. See, e.g., Am. Family Mut. Ins. Co. v. Copeland-Williams, 941 S.W.2d 625, 629-30 (Mo. App. E.D. 1997) (“The use of the phrase ‘any insured’ makes the exclusionary clause unambiguous even in light of the severability clause. . . . [it] unambiguously precludes coverage to all persons covered by the policy if any one of them engages in excludable conduct.”).

Moreover, many modern exclusions are written to exclude coverage for particular claims and losses, without regard to the insured’s intent, including the sexual, physical, and mental abuse exclusions. Courts interpreting this kind of policy language have found that it “serves to exclude an entire category of injury based on the cause, not just the person who committed the harmful act.” Safeco Ins. Co. v. Thomas, No. 13-CV-0170-AJB (MDD), 2013 WL 12123852, at *5 (S.D. Cal. Nov. 26, 2013) (emphasis added); see also, accord, Universal N. Am. Ins. Co. v. Colosi, No. 217CV00113JADGWF, 2018 WL 3520118, at *4 (D. Nev. July 20, 2018); Liberty Mut. Fire Ins. Co. v. Shaibaz S., 2017 WL 2118312 (N.D. Cal. May 16, 2017); Travelers Indem. Co. of Am. v. Isom, 2014 WL 1092542 (D. Ariz. Mar. 20, 2014). RLLI does not address the modern language of sex abuse exclusions in suggesting that there is a “default” rule that applies the exclusion only to the abuser.

RLLI mentions, in passing, that some states have adopted an inferred-intent approach to the insured’s subjective intent with sexual molestation claims, but otherwise takes no position that intent may (and should) be inferred or determined on an objective basis in many circumstances. Not only does this raise significant questions of how the insurer could prove the insured’s subjective state of mind, it is inconsistent with well-established law in all jurisdictions that will infer intent as to certain conduct as a matter of public policy, including sex abuse and other criminal conduct.

As discussed below, it is clearly distasteful and inappropriate to allow insureds who have engaged in certain conduct to advance an argument regarding whether they subjectively believed that their victims would welcome, rather than be harmed by, offensive behavior. Moreover, the principle that the insured is deemed to intend the reasonable and probable consequences of his/her voluntary acts, an objective standard for intent, is a widely-accepted standard that serves public policy and preserves the resources of the courts and parties.

Sexual abuse and expected/intended exclusions

Many modern policies will have a specific sexual abuse/molestation exclusion. However, practitioners can face a lack of case law interpreting their specific exclusion(s) or a policy that lacks a sex abuse-specific exclusion, including in older policies. Historically, sex abuse has been addressed, in whole or in part, through expected/intended exclusions.

A person who sexually molests a minor is deemed as a matter of law to have expected and intended to cause harm or injury. See, e.g., B.B. v. Cont’l Ins. Co., 8 F.3d 1288, 1296 (8th Cir. 1993) (applying Missouri law). 

Forcing the insurer to indemnify the insured “subsidizes the episodes of sexual abuse of which its victims complain, at the ultimate expense of other insureds to whom the added costs of indemnifying child molesters will be passed.” . . . “The average person purchasing homeowner’s insurance would cringe at the very suggestion that he was paying for [coverage for liability arising out of his sexual abuse of a child]. And certainly he would not want to share that type of risk with other homeowner’s policy holders.”

B.B., 8 F.3d at 1295 (citations omitted). 

“The inference or inferred-intent standard in cases of sexual molestation is now the unanimous rule among jurisdictions that have considered the issue.” B.B., 8 F.3d at 1293. 

The rationale behind the inferred-intent standard is based on the inherently harmful nature of child molestation. . . . Courts have stated that “‘acts of sexual molestation against a minor are so certain to result in injury to that minor that the law will infer an intent to injure on behalf of the actor without regard to his . . . claimed intent.’” . . . . “in the exceptional case of an act of child molestation, cause and effect cannot be separated; that to do the act is necessarily to do the harm which is its consequence; and that since unquestionably the act is intended, so also is the harm.” . . . “the very essence of child molestation is the gratification of sexual desire. The act is the harm. There cannot be one without the other. Thus the intent to molest is, by itself, the same thing as intent to harm.”

B.B., 8 F.3d at 1293.

When an adult subjects a minor to “unwanted and unconsented to sexual contact,” the perpetrator is deemed as a matter of law to have intended and expected the resulting physical and psychological damages, even if the perpetrator “believed in some perverse way” that his conduct would be welcomed by the minor. State Farm Fire & Cas. Co. v. Caley, 936 S.W.2d 250, 252 (Mo. App. W.D. 1997). “Missouri case law specifically holds that a person engaging in sexual misconduct against a minor intends to cause any resulting injuries.” California Cas. Gen. Ins. Co. v. Nelson, 2014 U.S. Dist. LEXIS 191438, *15-16 (W.D. Mo. Dec. 22, 2014).

With a “unanimous rule” for legally inferred intent as to acts of sexual abuse, is there a place for the RLLI’s subjective intent standard? In the modern climate of “me too” and a growing awareness and litigation of sex abuse, who has the appetite to argue for a subjective standard of intent as to such conduct? Although we might expect any jurisdictions tempted to adopt the subjective intent standard to try to carve out sex abuse against minors, for the same reasons that intent is inferred for this type of behavior, intent is properly inferred or judged on an objective basis for many types of conduct.

Criminal acts and expected/intended exclusions

Although many policies will include a criminal acts exclusion, the expected/intended exclusion is often used to address conduct that constitutes a crime, particularly under commercial policies. Many jurisdictions apply an inferred-intent standard to this exclusion as a matter of public policy.

In James v. Paul, 49 S.W.3d 678 (Mo. 2001), the Missouri Supreme Court agreed with an insurer that it was entitled to summary judgment on the question of the applicability of its intended/expected acts exclusion based upon the insured’s plea of guilty in a criminal case arising out of the same underlying conduct that gave rise to the civil case. 49 S.W.3d at 682.

If issue preclusion is not permitted, Paul will, in effect, be insulated by an insurer from the full brunt of economic responsibility resulting from his admittedly intentional criminal act. This runs contrary to the public policy of Missouri. . . . Both James and Paul stood to profit from Paul’s duplicity in admitting intentional wrongdoing in the criminal proceeding while, in effect, denying it in the present case. Applying collateral estoppel in this situation serves to prevent the potential of collusive litigation as well as promoting the other policies of finality, consistency and judicial economy discussed above.

James, 49 S.W.3d at 687-88 (citation omitted).

“[W]here the insured made a judicial admission as part of a prior judicial determination in a criminal case that the insured's conduct was intentional,” a court considering the application of an intended/expected exclusion is also required to presume that the insured’s conduct was intentional. James, 49 S.W.3d at 689. “The criminal conviction foreclosed [the insured] and any party claiming through him from asserting that his conduct was not intentional.” Id. (emphasis added).

Again, there are significant public policy considerations underlying an inferred-intent approach to the expected/intended acts exclusions commonly found in liability policies. RLLI’s suggestion that a subjective intent standard is preferred, which would place the burden on the insurer to establish the insured’s state of mind, is inconsistent with well-developed precedent in most jurisdictions.


To date, the only available decision to address RLLI § 32 cited it, along with preexisting case authority, for the proposition that an insurer bears the burden of proving the applicability of exclusions. Akorn, Inc. v. Fresenius Kabi AG, No. 2018-0300-JTL, 2018 Del. Ch. LEXIS 325, at *137 n.619 (Ch. Oct. 1, 2018) (citing Restatement of the Law of Liability Insurance § 32 cmt. e (Am. Law. Inst. 2018); “It is the insurer that has identified the excluded classes of claims and will benefit from being able to place a specific claim into an excluded class. Thus, assigning the insurer the burden of proving that the claim fits into the exclusion is appropriate.”)

Watch for our next post in this series, which considers RLLI’s thoughts on the duty to defend.

Illinois Appellate Court Holds Employer's Alleged Biometric Information Privacy Act Violation Is Not Subject to Arbitration

April 16, 2019

Not all employment-related claims are subject to an employment agreement’s mandatory arbitration clause, according to the Illinois Appellate Court for the First District.

In Liu v. Four Seasons Hotel, LTD., 2019 IL App (1st) 182645 (April 9, 2019), the plaintiffs, all employees of the defendant hotels, filed a class action alleging their employer violated the Biometric Information Privacy Act (740 ILCS 14/1 et seq. (West 2016)) in their method of collecting, using, storing, and disclosing employees’ biometric data, namely fingerprints taken for timekeeping purposes.  Defendants filed a motion to compel arbitration, arguing that each employee signed an employment agreement requiring “wage and hour violation” claims, as well as the initial question of arbitrability, be submitted to and decided by an arbitrator. 

Illinois enacted the Biometric Information Privacy Act in 2008 to help regulate the collection, use, safeguarding, handling, storage, retention, and destruction of biometric identifiers and information.  These identifiers include things like retina or iris scans, fingerprints, voiceprints, hand scans, or face geometry scans.  The Act provides a private right of action that permits a prevailing party to recover damages of $1000 or actual damages (if greater) for negligent violation of the Act and $5000 or actual damages (if greater) for intentional or reckless violations, in addition to attorney’s fees and costs. 

The plaintiffs, on behalf of themselves and all those similarly situated, claimed defendants scanned their fingerprints, placed and maintained that biometric data in a database, and then used it for timekeeping purposes.  They alleged violations of the Act in defendants’ failure (1) to inform employees that it discloses fingerprint data to an out-of-state third party vendor; (2) to inform employees in writing of the specific purpose and length of time for which their fingerprints were being collected, stored, and used; (3) to provide a retention schedule and guidelines for permanent deletion of biometric information; and (4) to acquire written releases from employees to collect biometric information.

The trial court denied the defendant’s Motion to Compel Arbitration, and the Appellate Court affirmed.  The Appellate Court held the claims did not fit within the “wage or hour violation” category of disputes subject to mandatory arbitration under the employment agreements.  The defendants argued the sole purpose for requiring employees to scan their fingerprints was to monitor the hours worked, which necessarily makes it a “wage or hour violation” claim.  The Court, however, looked to how this phrase has been used in other contexts, such as under Illinois’ Wage Payment Act or Minimum Wage Law or the federal Fair Labor Standards Act.  In all those enactments, wage and hour violation claims involve allegations of an employer wrongfully withholding compensation or failing to pay employees overtime rates.  Plaintiffs here, in contrast, alleged nothing beyond violations of the Biometric Information Privacy Act.  They made no claims of improperly withheld compensation or hours violations. 

The Court noted, citing to Rosenbach v. Six Flags Entertainment Corp., 2019 IL 123186, that the Act is a privacy rights law that applies inside and outside the workplace.  “Simply because an employer opts to use biometric data, like fingerprints, for timekeeping purposes does not transform a complaint into a wages or hours claim.” 

This opinion, as we noted in an earlier blog post addressing Rosenbach, creates a strong incentive for employers to conform to the Act to prevent problems before they occur and subject them to potential civil litigation, as mandatory arbitration clauses may not cover the claims.   

In a case of first impression, the Appellate Court of Illinois allows counsel to withdraw previously disclosed testifying expert

April 12, 2019

In a case of first impression, the Illinois Appellate Court, First District, applying federal law principles, held that a party who discloses a testifying expert may later redesignate that witness as a consultant whose opinions and work product are privileged and protected from discovery absent a showing of exceptional circumstances.

In Dameron v. Mercy Hospital and Medical Center, plaintiff Alexis Dameron disclosed Dr. David Preston in her interrogatory answers as a testifying expert witness on May 30, 2017.  She further disclosed, pursuant to the applicable rules, that Dr. Preston would provide testimony regarding the results of testing he was to perform on Ms. Dameron on June 1, 2017.  Dr. Preston did perform tests of the Plaintiff and later prepared a report in which he discussed his findings and opinions, but the report was never disclosed, despite Illinois Supreme Court Rule 213(f)(3) requiring disclosure of “any” reports prepared by a controlled expert about the case. 

Almost two months later, on July 27, 2017, Ms. Dameron notified opposing counsel that she had “inadvertently” disclosed Dr. Preston as a testifying expert and amended her discovery answers excluding Dr. Preston as a testifying expert. 

On August 3, 2017, shortly after notifying opposing counsel of the inadvertent disclosure, Ms. Dameron filed a motion to designate Dr. Preston as a non-testifying expert consultant pursuant to Illinois Supreme Court Rule 201(b)(3), which states as follows:

A consultant is a person who has been retained or specially employed in anticipation of litigation or preparation for trial but who is not to be called at trial. The identity, opinions, and work product of a consultant are discoverable only upon a showing of exceptional circumstances under which it is impracticable for the party seeking discovery to obtain facts or opinions on the same subject matter by other means.

The circuit court denied Ms. Dameron’s motion to redesignate Dr. Preston and ordered Plaintiff to produce Dr. Preston’s records and report regarding the testing he performed.  Plaintiff refused, and the trial court found her in contempt, imposing a $100 fine. Plaintiff filed a motion to reconsider, which was likewise denied by the trial court, but reduced the fine to $1.  Plaintiff then appealed the matter to the Appellate Court for the First Circuit.

The Appellate Court ultimately reversed the circuit court’s decision and held, as a matter of first impression, that where a previously disclosed testifying expert is timely withdrawn prior to disclosing his or her report in discovery, the expert may be redesignated as a Rule 201(b)(3) consultant and entitled to the consultant’s privilege against disclosure, absent exceptional circumstances.

Given it was a matter of first impression, the Appellate Court found sufficient similarities between Illinois and federal discovery rules and rendered federal case law on this issue persuasive.  Federal case law supported the contention that both the disclosure of the expert as well as the expert’s required report is necessary to fully disclose a testifying expert under Federal Rule of Civil Procedure 26.  In this case, Ms. Dameron had only disclosed Dr. Preston’s identity, but had not disclosed or identified his report because at the time she filed her answers to interrogatories, Dr. Preston had not yet conducted his testing. 

Defendants made several arguments in an attempt to gain access to Dr. Preston’s examination results.  They argued that Dr. Preston was a treating physician and, consequently, Plaintiff waived any right to withhold the results.  The Appellate Court disagreed and found Dr. Preston was hired to testify, not to treat.  They also argued that Ms. Dameron’s disclosure of Dr. Preston was a judicial admission, but the court disagreed arguing Plaintiff was permitted to withdraw Dr. Preston as a witness and/or supplement her discovery answers. 

Defendants further argued that because Dr. Preston was initially disclosed as a testifying expert, Plaintiff waived any privilege to Dr. Preston’s report.  However, the court stated that the rules only required Plaintiff to turn over a report if Dr. Preston was going to testify at trial.   Defendants also argued that they were entitled to the report because it contained relevant facts, but the court disagreed and found that Dr. Preston’s report was protected by the consultant’s work product privilege only subject to discovery upon showing of exceptional circumstances.

Finally, Defendants argued that Plaintiff was attempting to subvert the legal process.  The timeline of these events does appear to be highly suspicious in that the motion to redesignate Dr. Preston was filed after he presumably drafted his report and almost two months after disclosure.  One may assume that Dr. Preston’s report was unfavorable to Plaintiff and, consequently, prompted her to withdraw Dr. Preston as an expert.  Nevertheless, the court found that Defendants failed to identify any evidence to support their claim of Plaintiff’s subversion of the legal process.

The Appellate Court ultimately held that where a previously disclosed testifying expert witness has been timely withdrawn prior to disclosing his or her report in discovery, the expert may be redesignated a Rule 201(b)(3) consultant and entitled to the consultant’s privilege against disclosure, absent exceptional circumstances.  The court found no exceptional circumstances in this case.

The implications of this case are significant, and this is probably not the end of the story, as this issue will likely be relitigated in the future should parties employ this as a tactical litigation strategy.

Dangerous Advertising: Violations of a fair trade practices statute creates new liability for firearm manufacturers and sellers

April 4, 2019

On December 14, 2012, Adam Lanza used his mother’s XM15-E2S to shoot his way into the locked Sandy Hook Elementary School. Lanza killed twenty-six persons and wounded two others. The attack lasted four and one-half minutes. One hundred fifty-four rounds from Lanza’s XM15-E2S were fired.

The XM15-E2S Bushmaster is an AR-15 assault style semi-automatic rifle. It is similar to the standard issue M16 military service rifle used by the United States Armed Forces. Following the shooting, plaintiffs (Sandy Hook parents and others) filed actions against the Bushmaster Firearms International, LLC company (Remington) alleging a number of distinctive theories of liability. Among these was the claim that defendant wrongfully advertised and marketed Lanza’s assault rifle, emphasizing its character as a military style assault rifle suitable for offensive combat missions. Plaintiffs alleged, among other things, that this advertising was unethical, oppressive, immoral, unscrupulous, and in violation of the Connecticut Unfair Trade Practices Act (“CUTPA”). Defendants countered that the CUTPA was not broad enough to encompass such a claim and that defendants were immunized from suit by the federal Protection of Lawful Commerce in Arms Act (“PLCAA”).

The trial court agreed. On appeal, however, the Connecticut Supreme Court in Soto v. Bushmaster Firearms International, et al. concluded that the PLCAA did not immunize firearms manufacturers or suppliers who engage in wrongful marketing practices promoting criminal conduct. The Court also found that the CUTPA was indeed broad enough to address wrongful advertising practices and that it would fall to a jury to decide whether or not the defendant’s advertising violated standards set forth in Connecticut’s Unfair Trade Practices Act.

The CUTPA is an unfair and deceptive acts and practices statute with counterparts in every state. These acts prohibit deceptive, unfair and unconscionable practices and commonly create private rights of action for individuals harmed by the practices prohibited. Many such statutes also create authority for governmental entities or state consumer protection officials to bring suit.

Historically, firearms manufacturers and sellers have relied on the PLCAA bar to claims and immunize them from suits for injuries caused by the criminal conduct of third-party gun users. The Court in Soto, however, held that the PLCAA did not insulate Bushmaster from claims related to its advertising and marketing of the XM15-E2S assault style weapon.

The Connecticut Supreme Court also found that while prior interpretations limited the reach of the CUTPA with respect to such claims, plaintiffs’ claims in this case would be permitted. The holding expands the scope of the Connecticut statute in at least three important respects: (1) plaintiffs no longer need to have a “commercial relationship” with defendant; (2) personal injuries are now a cognizable harm under the CUTPA; and (3) continuous advertising up to and including the date of plaintiffs’ filing prohibits the tolling of applicable statutes of limitation.

While this ruling greatly changes the use and landscape of the CUTPA in Connecticut, the Court has only addressed the issue of standing in this case and no disposition has yet been made on the merits of plaintiffs’ claims.

The ruling is likely to encourage plaintiffs in other states to challenge advertising and marketing by firearm manufacturers under similar and applicable unfair practices acts. Plaintiffs’ challenge in Connecticut may be the first of many such efforts yet to come.

Soto v. Bushmaster Firearms Int'l, LLC, 331 Conn. 53, 157 (2019)

SCOTUS Rebuffs Ninth Circuit's Attempt to "Soften" Deadline to Appeal Class Action Certification

March 25, 2019

The deadline to appeal an order granting or denying class certification is a rigid one that is not subject to equitable tolling, according to a unanimous United States Supreme Court. Reversing the Ninth Circuit Court of Appeals, the high court found that lower courts lack the power to relax the 14-day deadline for filing a petition for permission to appeal class-certification rulings.

Nutraceutical Corporation v. Lambert arose from a putative consumer class action filed against the maker of a dietary supplement. Although the Central District of California initially certified a class of similarly situated plaintiffs, it later changed its decision and entered an order decertifying the class. Rule 23(f) of the Federal Rules of Civil Procedure provides that a petition for permission to appeal that order had to be filed with the Ninth Circuit Court of Appeals within 14 days. 

However, 10 days after the ruling, the plaintiffs’ lawyers informed the district court at a status hearing that they intended to file a motion for reconsideration of the order decertifying the class. The district judge instructed them to do so within 10 days of the hearing—20 days from the decertification order—which they did. Several months later, the trial court denied the motion for reconsideration, and the plaintiffs’ lawyers then filed their petition for permission to appeal. While the petition for permission to appeal was filed within 14 days of the order denying reconsideration, it was more than four months after the initial order decertifying the class action. 

Notwithstanding this apparent procedural defect, the Ninth Circuit accepted the appeal. It rejected the manufacturer’s argument that the appeal was untimely, primarily because the plaintiffs’ lawyers had told the trial court of their intention to seek reconsideration within the initial 14-day window and then sought permission to appeal within 14 days of the denial of that motion for reconsideration. To reach this result, it invoked the doctrine of equitable tolling to “soften” the deadline and permit the appeal. True to its reputation as a judicial outlier, the Ninth Circuit acknowledged contrary authority from the Second, Third, Fourth, Fifth and Seventh Circuits and admitted those courts “would likely not toll the Rule 26(f) deadline” under these circumstances.  

The United States Supreme Court took a far more rigid view of the 14-day deadline imposed by Rule 26(f), describing it as “purposefully unforgiving.” Writing for a unanimous court, Justice Sonia Sotomayor framed the issue as whether the text of the rules left room for flexibility in how this deadline is imposed. Although appellate courts have very broad authority under the Federal Rules of Appellate Procedure to “suspend any provision of these rules in a particular case,” that flexibility comes with an important caveat: Appellate Rule 26 expressly provides that courts of appeals “may not extend the time to file […] a petition for permission to appeal.” The court found that this language shows “a clear intent to compel rigorous enforcement” of the 14-day deadline to file with the appellate court. “Courts may not,” Justice Sotomayor concluded, “disregard a properly raised procedural rule’s plain import any more than they may a statute’s.”

The plaintiffs’ lawyers tried to draw a distinction between “extending the time to file” a petition to appeal, which Appellate Rule 26 expressly forbids, with a decision “to excuse late filings on equitable grounds after the fact.” Relying on prior Supreme Court precedent under the analogous rules of criminal procedure, the high court rejected this type of hair-splitting. No matter how it is described, the acceptance of a late filing is a de facto extension of time.

But this opinion does not completely dash these plaintiffs’ attorneys’ hopes of appealing the decertification of their class. The Supreme Court declined to weigh in on two of their primary arguments for certification, because those were not addressed by the underlying court of appeals opinion. This leaves the Ninth Circuit free to revive those arguments on remand. 

First, the plaintiffs’ lawyers argued that regardless of whether the deadline for a petition for permission to appeal could be extended, the trial court could extend the time to file a motion for reconsideration, and they claimed the district court did just that when it instructed them to file their motion for reconsideration within 10 days of the hearing.  Alternatively, they argued that the order denying reconsideration was itself an “order granting or denying class-action certification,” starting a new 14-day window in which to file a petition to appeal, even if they had blown the initial deadline. In either case, the crux of the argument is that the deadline to file a petition for permission to appeal should have been calculated from the date the motion for reconsideration was denied, not the date of the initial class decertification.

And these arguments might have some legs, too. The Supreme Court carefully confined its analysis to the narrow issue of whether equitable tolling could be applied to the deadline to appeal class certification orders, since that was the sole basis for the Ninth Circuit’s ruling. Justice Sotomayor even acknowledged that a timely motion for reconsideration can render an otherwise final decision not final for appeal purposes.  The question of whether the motion for reconsideration was timely and, if so, its effect remains unanswered. This means the parties’ appellate battle is not over, with the next round back before the Ninth Circuit. And regardless of how that court rules, a second appeal to the Supreme Court may be necessary to untie the rest of this procedural knot.

Hopping on the Missouri Bandwagon? Not so Fast Out-of-State Litigants.

March 18, 2019

In an effort to overhaul Missouri’s current venue and joinder laws, Missouri lawmakers introduced Senate Bill 7, aimed at restricting non-Missouri plaintiffs from joining their claims in the same lawsuit, with those of a Missouri resident, even though the non-residents’ claims have no legal nexus to Missouri. The most immediate and prominent impact of the bill, if enacted, would be upon mass tort litigation. The bill also limits the use of joinder in product liability cases, prohibiting joining claims arising out of separate purchases or separate incidents related to the same product. 

Following its introduction, Senate Bill 7 was revised to adopt the February 13, 2019 Missouri Supreme Court ruling in State ex rel. Johnson & Johnson v. Burlison. The Missouri Senate subsequently passed the revised version on March 4, 2019.  The Johnson & Johnson case dealt with the talcum powder litigation filed in St. Louis City Circuit Courts, involving many plaintiffs with both non-Missouri and Missouri residents, and held that plaintiffs cannot use joinder rules to establish venue in a jurisdiction where it otherwise would not exist. 

Senate Bill 7 moved onto the House, which recently considered similar legislation. See House Bill 231.  As of March 6, 2019, the Senate bill was read and referred to the Judiciary Committee. 

Proponents of the legislation say that it will help address “a crisis” in Missouri’s courts, where out of state plaintiffs have flocked to litigate their claims in perceived plaintiff-friendly venues, such as St. Louis City (which has been dubbed a “Judicial Hellhole” by the defense bar); and Jackson County, which includes the greater Kansas City area.  The Senate bill’s sponsor, Ed Emery, notes that out of the 13,252 mass tort plaintiffs involved in cases being heard in St. Louis City, only 1,035 are Missouri residents.

Proponents of the bill say that its passage will also have significant economic benefits, because Missouri taxpayers are currently paying for out of state plaintiffs to clog the Missouri courts with claims that have nothing to do with Missouri, thus taking up precious judicial resources that would better be used to adjudicate the claims of Missouri citizens.  Opponents of Senate Bill 7 primarily argue that it makes sense to have groups of plaintiffs, who all purportedly suffered similar injuries, to bring their claims together in the same court and lawsuit. 

The current bill contains “grandfather” provisions, making the legislation inapplicable to any action that meets two criteria:  (1) the action is pending as of February 13, 2019 (when the Supreme Court decided Johnson & Johnson), and (2) the action is set for trial on or before August 28, 2019 (the date on which the new legislation is scheduled to take effect.). 

If enacted, this legislation may significantly alter the landscape of tort litigation in Missouri, both for litigants, and for the judiciary (especially in St. Louis City and Jackson County).  Companies that do business in Missouri should follow its progress closely.

Jackson County Circuit Court's Fine of City of Raytown Is a Sunshine Law Cautionary Tale

March 13, 2019

A Jackson County, Missouri, Circuit Court Judge ordered the City of Raytown - specifically its City Clerk - to pay more than $42,000 in attorney fees and civil penalties after ruling in July 2018 that the city violated Missouri’s Sunshine Law. The City Clerk denied the release of records in an apparent attempt to shield the city from litigation involving the design of one of the city’s intersections.

Several months after Plaintiff Paula Wyrick’s mother died in a vehicle crash at an intersection in Raytown. Wyrick requested records from the City about the intersection, including its design, any traffic or other diagnostic studies conducted there, and any complaints about the safety of or accidents occurring at or around the intersection.  On multiple occasions, the City Clerk refused to produce the requested records, asserting all requests fell within the Sunshine Law’s litigation exception.  The litigation exception protects, in part, documents related to potential legal actions or litigation involving a public governmental body. 

Wyrick filed suit seeking declaratory and injunctive relief against the City Clerk.  Wyrick moved for summary judgment asserting that the City Clerk, on behalf of her office, “took a position completely unheard of under Sunshine Law, namely, that a specific category of records can be closed only to Plaintiff and her lawyers, but otherwise open to anyone else.  Put another way, the City Clerk has admitted that she would search for and produce records responsive to Paula Wyrick’s requests, if only the requests would come from a different person.”

The City Clerk countered that Wyrick only sought the records to use in potential litigation against the City of Raytown as a result of her mother’s death.  In the face of this clear and unequivocal threat of litigation in this matter, the City Clerk argued she was justified in closing and refusing to produce the records.

In July 2018, Jackson County Circuit Court Judge S. Margene Burnett granted Wyrick partial summary judgment and ordered production of the design records and traffic studies conducted at the intersection.  She ruled that while Wyrick admitted she was contemplating litigation against the City, the City Clerk’s use of the Sunshine Law as a “shield to hide behind rather than shed light on potentially inappropriate governmental activity…is precisely why the Sunshine Law was enacted.” 

Initially, Judge Burnett declined to order civil penalties against the City Clerk, finding that the refusal to comply was done under an incorrect reading of Missouri law.  However, the Judge reconsidered in November 2018 after hearing additional arguments, which convinced her that the city clerk’s actions rose to a knowing and purposeful violation of the Sunshine Law.  The Clerk had testified that she “implemented a policy to refuse the production of any requested documents to any citizen if that citizen has filed a notice of claim against the City of Raytown, regardless of the nature of the document requested.”  The Court awarded $38,550.00 in attorney fees and assessed civil penalties of $4,000.00, representing $1,000.00 for each of the four distinct violations of the Sunshine Law established by the evidence.  The City filed a Notice of Appeal on February 14, 2019.

This ruling is likely to encourage municipalities to take a closer look at their open-records policies to ensure they are encouraging the spirit of openness which is embodied in the state’s Sunshine Law.

Paula Wyrick v. Teresa M. Henry, in her capacity as City Clerk of the City of Raytown, No. 1716-CV-24321, Circuit Court of Jackson County, Missouri.  

Missouri Supreme Court: There Must be Sufficient Evidence at Trial to Support Each Alternative of a "Disjunctive" Jury Instruction

March 7, 2019

The Missouri Supreme Court's recent holding in Kader v. Bd. of Regents underscores the importance of ensuring that each alternative of a disjunctive verdict directing instruction is supported by sufficient evidence at trial. Because the Court found there was not substantial evidence to support each alternative of the circuit court's disjunctive instructions, the instructions were erroneous and prejudicial. As a result, it reversed the $2.5 million verdict in favor of plaintiff Kader, a former Harris-Stowe State University ("HSSU") professor, who filed claims of national origin discrimination and retaliation against HSSU under the Missouri Human Rights Act.

Kader, an Egyptian national, came to the United States in 1999 to pursue her graduate education. After working on the faculty at HSSU while completing her doctorate, she was promoted to assistant professor upon completion of her studies when she received her degree.  In a performance review several years later, Kader believed she received lower ratings because of her race, religion and national origin and filed a discrimination complaint with HSSU.  

Plaintiff worked at HSSU under a J-1 visa, which is a non-immigrant visa for individuals approved to participate in work and study based exchange visitor programs.   A J-1 visa requires an employer sponsor and the facility where she attended graduate school originally sponsored her visa from 2007 until 2010.  HSSU supplied information needed to maintain her visa while she was on the HSSU faculty and indicated it would assist her with obtaining a new visa when her J-1 expired.  Typically, exchange visitors on J-1 visas return to their home countries for at least two years when their visas expire and then apply for a new visa if they decide to return.  Kader did not want to return to Egypt so she filed for a waiver of the two year waiting period to obtain an H1-B visa and continue teaching at HSSU. 

While waiting to learn if she received a waiver of the two year waiting period, she applied for an O-1 extraordinary person visa as an alternate means to obtain work authorization.  She requested HSSU provide documentation to supplement her O-1 application, which HSSU supplied.  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.  Two days before her J-1 visa expired, plaintiff contacted HSSU about her O-1 application and the request for additional information.  HSSU denied receiving the request.  The O-1 application was then denied and HSSU did not appeal the denial. 

Kader then did not receive the waiver she sought in conjunction with her H1-B visa request before her J-1 visa expired.  Because she no longer had J-1 status, she was required to leave the U.S. within 30 days unless she obtained another visa. HSSU notified her that her contract for the next academic school year would not be renewed because she lacked a valid visa.

Kader filed suit against HSSU, alleging race and national origin discrimination and retaliation under the MHRA. The jury returned a verdict in plaintiff's favor on retaliation and national origin discrimination for $750,000 in actual damages and $1.75 million in punitive damages. HSSU appealed, asserting that two disjunctive jury instructions were erroneous and prejudicial.  Specifically, HSSU argued that the instructions permitted the jury to find HSSU liable for conduct that is not actionable under the MHRA.

During trial, the court instructed the jury to rule in plaintiff's favor on her national origin discrimination claim if: (1) the jury found HSSU failed to do one or more of five listed acts, including HSSU did not appeal the denial of the O-1 visa petition; (2) plaintiff's national origin or discrimination complaints were a contributing factor to HSSU's failure to do any of those acts; and (3) such failure damaged plaintiff.

Similarly, the other disjunctive jury instruction at issue on the retaliation claim also instructed the jury that it must return a verdict for plaintiff if (1) plaintiff made complaints of discrimination; (2) HSSU failed to do any one of five acts, one of which was not appealing the denial of the O-1 visa petition; (3) plaintiff's complaints of discrimination were a contributing factor in defendant's failure to do one of the five acts; and (4) defendant's actions directly cause or contributed to plaintiff's damages. 

The Missouri Supreme Court emphasized that for disjunctive verdict directing instructions to be appropriate, each alternative must be supported by substantial evidence.  Such an instruction is prejudicial when substantial evidence does not support each disjunctive alternative because there is no way to determine which theory the jury chose.  Therefore, there must have been substantial evidence at trial that HSSU's failure to appeal the denial of plaintiff's O-1 visa application constituted an unlawful employment practice under the MHRA.  Because there was no evidence, the circuit court erred by including a disjunctive instruction that HSSU's failure to seek an appeal of the O-1 visa application in its disjunctive jury instructions.

The outcome in this case serves as an important reminder to defendants that if the plaintiff has failed to introduce sufficient evidence at trial of some element of claimed unlawful conduct, any disjunctive jury instruction proffered by the plaintiff that includes the unsupported claim should be challenged. 

Missouri Supreme Court Compels Arbitration, Finding Adequate Consideration for Arbitration Agreement with At-Will Employee

March 4, 2019

In Soars v. Easter Seals Midwest, 563 S.W.3d 111 (Mo. banc 2018), the Missouri Supreme Court ordered that at-will employee’s case be arbitrated and denied the employee’s challenge to the validity of the arbitration agreement as a whole.

As a condition of employment with Easter Seals Midwest (ESM), a charitable organization, each new, at-will employee is required to sign an arbitration agreement. The arbitration agreement provides that, as consideration for employment, the employee will submit all disputes and claims arising out of the employment to binding arbitration. In turn, ESM also agrees to submit all disputes and claims arising out of the employment to binding arbitration. The ESM arbitration agreement also included a delegation clause providing that the arbitrator and not any court had the exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of the arbitration agreement. 

Plaintiff Lewis Soars signed the arbitration agreement as a condition of his at-will employment with ESM, and three months later. ESM terminated his employment after he refused to participate in an internal investigation involving accusations against him of abuse or neglect of ESM’s clients. In response, he filed suit against ESM in circuit court for wrongful discharge and race discrimination. ESM filed a motion to compel arbitration. Plaintiff argued the arbitration agreement and delegation clause lacked consideration and mutuality and were unconscionable. The circuit court denied ESM’s Motion to Compel Arbitration, and the Court of Appeals affirmed.

The Supreme Court, however, reversed. It held that arbitration must be compelled if the parties signed an arbitration agreement that contains a valid delegation clause mandating that the arbitrator has “exclusive authority to decide threshold issues of interpretation, applicability, enforceability, or formation.” Whether or not the arbitration agreement as a whole is valid is for the arbitrator to determine so long as the delegation provision, standing alone, is valid. In this case, the Court found that in the delegation provision both parties mutually agreed to arbitrate all threshold questions of arbitrability. “Because neither ESM nor Soars retains any unilateral right to amend the delegation clause nor avoid its obligations, the delegation clause is bilateral in nature and consideration is present.”  

Significantly, and surprisingly, this is the Missouri Supreme Court’s first opinion holding that referral to an arbitrator should occur, notwithstanding a party’s challenge to the validity of the arbitration agreement as a whole. While the United States Supreme Court has made this same ruling numerous times over many decades, this was the Missouri Supreme Court’s first occasion to consider the issue.

Notably, the Court found that an initial offer of at-will employment was sufficient consideration for the contractual promise to arbitrate claims. This was a major point of disagreement for the dissenting justice, who would have concluded that the arbitration agreement was unenforceable because at-will employment, which by its very nature is no employment contract at all, can provide no legal consideration for the arbitration agreement. According to the dissent, because a fundamental component of the at-will employment relationship is the ability for either party to terminate the relationship at any time, there was no valid contract to support the arbitration agreement or the delegation provision. 

Going forward, the majority’s decision should provide comfort to employers that, under Missouri law, their arbitration agreements with at-will new-hires are enforceable and may include provisions placing all claims and controversies into the hands, in the first instance, of the arbitrator, including all objections to the existence, interpretation, application, and enforceability of the arbitration agreement itself.

CFPB Proposes to Rescind Underwriting Requirement of 2017 Payday Loan Rule

February 26, 2019

Earlier this month, the CFPB took one of its first substantial steps under new leadership, with a Notice of Proposed Rulemaking seeking to rescind the underwriting requirements of the Bureau’s 2017 Final Rule regarding payday loans, vehicle title loans, and high-cost installment loans (the “2017 Payday Loan Rule”). Signed by new director Kathy Kraninger and published on February 6, this proposal is open for comment through May 7, 2019.

This recent proposal seeks to eliminate the “identification” provision in the 2017 Payday Loan Rule that makes it an unfair and abusive practice for lenders to make these types of loans without making a reasonable determination that the customer will have the ability to repay those loans. The new proposed rule also seeks to remove the “prevention” provision, which set forth certain underwriting guidelines that lenders were going to be required to use in an effort to prevent loans from issuing to borrowers not reasonably likely to be able to repay. Also subject to elimination were new recordkeeping and reporting requirements promulgated by the 2017 Rule. Director Kraninger’s new proposal did not seek to remove any of the new payment policies put into effect by the 2017 Rule.

In its Notice, the CFPB reasoned that there was not sufficient evidence to support the 2017 Rule, particularly where the 2017 Rule would prevent many consumers from accessing credit when needed. The CFPB also noted that most states have some degree of regulation in place as to payday loans, with varying levels of oversight and intricacy. To impose an additional federal, uniform requirement over the industry, it maintains, would be overly burdensome to both lenders and consumers seeking credit.

The CFPB acknowledged that, in response to the original proposed 2017 Payday Loan Rule, it received a substantial number of comments from those who observed undesirable consequences from payday lending. However, those comments were far outnumbered by those from consumers who reported that payday loans, title loans, and other applicable products had been a necessary tool for survival in hard times where no other financing was available due to poor or nonexistent credit history.

In the alternative, the CFPB also proposed that enforcement of the 2017 Payday Loan Rule underwriting requirements be delayed due to massive overhaul in technology and training payday lenders would have to undergo in order to meet these underwriting requirements.

Director Kraninger has welcomed comment on all sides regarding this proposal, but it seems likely at this point that the anticipated underwriting requirements of the 2017 Rule will not be implemented or enforced.

The Notice of Proposed Rulemaking to rescind the underwriting requirements may be found here. BSCR will continue to monitor until a final rule is issued.

Missouri Court of Appeals Rules Venue Proper Only in County Where Decedent First Ingested Opioid Pain Medication and Not Where Drug Prescribed

February 21, 2019

In State ex rel. Mylan Bertek Pharmaceuticals, Inc. v. Vincent, the Missouri Court of Appeals, Eastern District, held that, in a case alleging wrongful death, medical malpractice, and pharmaceutical liability, venue was proper only in the county where the decedent first ingested opioid pain medication, rather than the county where a defendant prescribed it.  

Decedent’s widow filed suit in St. Louis County, alleging that defendants’ negligence caused her husband to become addicted to opioid pain medication, leading to unbearable withdrawal symptoms that caused him to commit suicide. The defendants were the physician who prescribed the medication for a back injury and several pharmaceutical companies that manufactured it.  The plaintiff alleged the physician defendant first prescribed opioids at his medical office located in St. Louis County and continued to do so over a period of twelve years. Later, while travelling in Florida, the decedent ran out of medication and could not refill it. Plaintiff alleged the decedent suffered intense withdrawal symptoms and, as a result, shot himself in the chest and died. 

One of the pharmaceutical company defendants filed a motion to transfer venue asserting that venue was proper only in St. Charles County because that was the county where the decedent lived and first ingested the medication.  Plaintiff successfully opposed the motion, arguing that St. Louis County was the proper venue because that was where he was first exposed to the physician defendant’s negligent prescribing practices in his medical office. 

The appellate court analyzed § 508.010, RSMo, which sets venue in the county where the plaintiff was “first injured.” Section 508.010.14 provides that a plaintiff is “considered first injured where the trauma or exposure occurred rather than where the symptoms are first manifested.” 

The court explained the alleged bodily injury to the decedent – opioid addiction, resulting pain and suffering, and ultimately death – could only have occurred when he ingested the medication. In other words, no bodily injury could have occurred at the time of prescribing, and it was not until the decedent ingested the medication that he exposed his body to the ill-effects of the drug. Under that analysis, venue was proper only in St. Charles County (where decedent first ingested the drug) and not in St. Louis County (where the physician prescribed the drug).  

Accordingly, the appellate court reversed the trial court’s order, issued a writ of prohibition directing the St. Louis County judge not to proceed with the case, and remanded with instructions to transfer to St. Charles County. The court’s analysis demonstrates that: (1) under Missouri venue law, the key inquiry is the location where the injury occurred, rather than where the allegedly negligent conduct occurred; and, (2) the alleged injury and alleged negligence do not necessarily occur in the same location. 

The opinion does not reference Section 538.232, which states that, in any action against a health care provider, “the plaintiff shall be considered injured by the health care provider only in the county where the plaintiff first received treatment by a defendant for a medical condition at issue in the case.”  It is unclear what effect that section, if discussed, would have had on the court’s analysis.     

Illinois Supreme Court Confirms State's Biometric Information Privacy Act Has Real Teeth

February 18, 2019

In this age of face recognition, digital fingerprints, and iris scans, what allegations and proof of damages is sufficient to state a claim for the mishandling of biometric identifiers? Must the aggrieved party have suffered any actual damages beyond the improper collection, retention or disclosure of his biometric identifiers themselves? 

In Stacy Rosenbach, as Mother and Next Friend of Alexander Rosenbach v. Six Flags Entertainment Corporation, 2019 IL 123186, the plaintiff alleged violations under Illinois’ Biometric Information Privacy Act (740 ILCS 14/1 et seq. (2016)). The Act imposes restrictions on how private entities collect, retain, disclose, and destroy biometric identifiers, such as retina or iris scans, fingerprints, voiceprints, scans of hand or face geometry, or other biometric information. Under the Act, any person “aggrieved” by a violation of its provisions “shall have a right of action… against an offending party” and “may recover for such violation” the greater of liquidated or actual damages, reasonable attorney fees and costs, and any other relief, including an injunction, that the court deems appropriate. The issue in this particular case was whether a person qualifies as an “aggrieved” person and may seek liquidated damages and injunctive relief pursuant to the Act if he has not alleged some actual injury or adverse effect, beyond violation of his rights under the statute. The First District Court of Appeals answered this question in the negative, holding a plaintiff who alleges only a technical violation of the statute without alleging some injury or adverse effect is not an aggrieved person under the Act.

Since at least 2014 defendant Six Flags has used a fingerprinting process when issuing season passes to its Great America theme park. Plaintiff alleged the system scans pass holders’ fingerprints; collects, records and stores biometric identifiers and information gleaned from the fingerprints; and then stores that data in order to quickly verify customer identities upon subsequent visits to the park. 

Plaintiff’s 14 year old son was to visit the park on a school field trip in May or June 2014, and plaintiff purchased a season pass for him online. When he arrived at the park with his class, he had to complete the season pass sign-up process, which included scanning his thumb into defendant’s biometric data capture system. The complaint alleged that plaintiff was not informed in advance that the minor’s fingerprints were to be used as part of defendant’s season pass system and that neither the minor son nor his mother were informed in writing of the purpose or length of term for which his fingerprint had been collected. Neither of them signed any release or written consent for the collection, storage, use, dissemination, disclosure, or trade of the fingerprint or the associated biometric information. The complaint also alleged that, although the minor child has not visited the park since that school field trip, defendant has retained his biometric identifiers and information and has not disclosed what was done with the information or how long it will be kept. 

Plaintiff’s complaint sought redress for the minor child, individually and on behalf of all other similarly situated persons under the Act. The defendant moved to dismiss on the basis that the plaintiff had suffered no actual or threatened injury and something more than just a violation of the Act must be alleged to state a claim. The Appellate Court for the First District agreed with defendant and held that while the injury or adverse effect alleged need not be pecuniary, it must be something more than a technical violation of the Act. 2017 IL App (2d) 170317. 

The Illinois Supreme Court reversed upon de novo review. Basic principles of statutory construction dictate that if the legislature had wanted to impose a requirement limiting a plaintiff’s right to bring a cause of action to circumstances where he or she had sustained some actual damages, beyond violation of the rights conferred by the statute, it could have made its intention clear. The Act contains no such requirement. It simply provides that any person aggrieved by a violation of the Act shall have a right of action. While the Act does not define “aggrieved”, the state Supreme Court more than a century ago held that to be aggrieved simply “means having a substantial grievance; a denial of some personal or property right.” Glos v. People, 259 Ill. 332, 340 (1913). As held in Glos, “[a] person is prejudiced or aggrieved, in the legal sense, when a legal right is invaded by the act complained of or his pecuniary interest is directly affected by the decree or judgment.” Id. This is consistent, the court noted, with the dictionary definition of “aggrieved”, which includes definitions such as “suffering from an infringement or denial of legal rights” or “having legal rights that are adversely affected.”

The Court concluded that when a private entity fails to comply with one of the Act’s requirements, that violation alone constitutes an invasion, impairment, or denial of the statutory rights of any person or customer whose biometric identifier or biometric information is subject to the breach. Such person or customer is clearly “aggrieved” within the meaning of the Act and is entitled to seek recovery under that provision with no need to plead or prove additional consequences. A contrary result would misapprehend the nature of the harm the legislature is attempting to mitigate through this legislation. “The Act vests in individuals and customers the right to control their biometric information by requiring notice before collection and giving them the power to say no by withholding consent.” When an entity violates the statutory procedures, such as what the defendant is alleged to have done here, the individual loses his right to maintain his biometric privacy, which is the precise harm the legislature sought to prevent by passing the Act in the first instance. “The injury is real and significant.”

This opinion creates a strong incentive for private entities, which might include not only theme parks but financial institutions, recreational facilities or health clubs, employers, etc., to conform to the law and prevent problems before they occur and cannot be undone.    

Buyer Beware: Illinois Supreme Court Protects Subcontractors from Implied Warranty Claims by Homeowners with No Contractual Relationship

February 12, 2019

The Illinois Supreme Court recently overturned 35 years of precedent in holding that a purchaser of a newly constructed home cannot pursue a cause of action for breach of an implied warranty of habitability against a subcontractor where there is no contractual relationship between the two, explicitly overruling Milton v. Richards Group of Chicago Through Mach, 116 Ill. App. 3d 852 (1st Dist. 1983). In a victory for construction subcontractors, the court held that the homeowner’s claim for breach of the implied warranty of habitability is limited to those parties with whom the homeowner has a direct contractual relationship, typically the general contractor. Specifically, a subcontractor hired by the general contractor owes no such implied warranty to the homeowner.

The case of Sienna Court Condominium Association v. Champion Aluminum Corp., et al. arose from claims of water intrusion and other construction defects at a newly constructed 111-unit condominium complex in Evanston, Illinois. Acting on behalf of the owners of the individual units, the complex’s condominium association filed a lawsuit claiming that latent construction defects rendered the complex unfit for habitation. The pleadings alleged a contractual warranty claim against the developer, as well as claims for breach of an implied warranty of habitability against the general contractor, the architects, the engineers, and numerous materials suppliers and subcontractors.

The subcontractors and material suppliers filed a motion to dismiss arguing that they owed no implied warranty of habitability, in part because they had no direct contractual relationships with the individual homeowners or the association. Although the trial court denied the motion, it promptly certified the ruling for interlocutory appeal under a state rule allowing appellate courts to examine certain preliminary issues.

On appeal, the state Supreme Court overruled the trial court and ordered it to dismiss the claims against the subcontractors, holding that “the purchaser of a newly constructed home may not pursue a claim for breach of an implied warranty of habitability against a subcontractor where there is no contractual relationship.”

The doctrine of implied warranty of habitability is a “creature of public policy” that was first recognized by the Illinois Supreme Court in 1979. See Peterson v. Hubschman Construction Co., 76 Ill. 2d 31 (1979). It protects the first purchaser of a new home against latent defects that may render the house not reasonably fit for habitation, under the reasoning that a buyer “has a right to expect to receive that for which he [or she] has bargained and that which the builder-vendor has agreed to construct and convey to him, that is, a house that is reasonably fit for use as a residence.” Id. at 40.  Such a warranty, whether or not explicitly stated in a contract, exists “by virtue of the execution of the agreement” between the builder and the buyer. Id. at 41.

While the doctrine has expanded and been developed through case law over the years, the Illinois Supreme Court has never held that a homeowner may pursue a claim for breach of an implied warranty of habitability against a subcontractor with whom it has not contracted. That said, one intermediate appellate decision had allowed such a claim only where the homeowner “has no recourse to the builder-vendor,” this newly decided Supreme Court opinion overrules that decision and limits the applicability of the implied warranty of habitability to only those parties who have a direct contractual relationship with the plaintiff.

At the heart of this decision is the distinction between contract and tort law. Here, the plaintiff had contended that privity of contract should not be a factor because the implied warranty of habitability was a tort claim developed by the courts. The Supreme Court disagreed. It characterized the warranty as an implied contractual term imposed by the courts as a matter of public policy. Because the cause of action was based on an implied contractual term, if no contract exists between parties, neither does an implied warranty of habitability.

The court found support for its reasoning in prior cases holding that parties were free to include in their contracts a waiver of the implied warranty of habitability. “A person may choose not to commence an action in tort,” the court wrote, “but he [or she] cannot waive a duty imposed by the courts” (emphasis added). The fact that the implied warranty of habitability is subject to waiver is “a conclusive indication that a cause of action for breach of the warranty must be based in contract, not in tort.”

The court also noted that if a claim for breach of an implied warranty of habitability was based in tort, as the plaintiffs had argued, it would be precluded by the “economic loss doctrine.” This somewhat complex doctrine grew out of product liability law but is now frequently applied in construction cases. In its simplest form, it provides that “an action for economic loss requires the plaintiff to be in contractual privity with the defendant,” preserving the “distinction between tort and contract” by denying remedies in tort for complaints that are based in contract. 

Under the economic loss doctrine, also known as the Moorman doctrine in Illinois, tort claims for purely economic losses—without accompanying claims of personal injury or damage to other property—are limited to cases of fraud or misrepresentation.  See Moorman Manufacturing Co. v. National Tank Co., 91 Ill. 2d 69 (1982).  Here, the court found that the latent defects that formed the basis of the condominium owners’ claims were “the definition of pure economic loss […], i.e., when the product disappoints the purchaser’s commercial expectations and does not conform to its intended use.”

This decision provides meaningful protection to Illinois subcontractors. It insulates them from tort claims asserted by dissatisfied homeowners whose complaints should be addressed with the general contractor whom they hired and with whom they have a contractual relationship. It is then left to the general contractor to seek defense, indemnity, and/or contribution from the various trades responsible for the claimed defects, all according to the terms of their respective contracts. 

The ruling protects subcontractors’ freedom to negotiate the allocation of risks and liabilities directly with the general contractor without fear that they will face some additional and unforeseen exposure in tort if the homeowner ends up unhappy with the finished product delivered by the general contractor. This security is especially important to subcontractors that did not agree to guarantee the quality of the entire home and often only worked on a small portion of the overall project. By not allowing homeowners to bring direct actions for breach of an implied warranty of habitability against a subcontractor with whom they have no contractual relationship, the Illinois Supreme Court has in one decision strengthened contract law in Illinois, reined in attempts to unnecessarily broaden tort law, and reaffirmed the legal distinction between the two. 

Jury trials in the Kansas City area slightly increase in number, but jury verdicts decline in amount

February 6, 2019

Data from the Greater Kansas City Jury Verdict Service shows that while there were slightly more jury trials in 2018 than in 2017, the average monetary awards for Plaintiffs declined significantly. 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 2018 indicate various shifts from 2017.

More Trials, with a Lower Percentage of Plaintiffs’ Verdicts

The Jury Verdict Service’s annual summary reported on 104 trials in 2018, compared to 97 in 2017.  Previously, there were 113 trials in 2016, 110 trials in 2015, and 133 trials in 2014. 

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 104 trials in 2018 resulted in 168 verdicts; and the 97 trials in 2017 resulted in 193 verdicts. 

While the number of jury trials slightly increased in 2018, the percentage of Plaintiffs’ verdicts decreased very slightly. In 2018, 48% of the verdicts were for Plaintiffs compared to 49% for Plaintiffs in 2017. These figures go against what had been a trend of increases in the percentage of Plaintiffs’ verdicts dating back to 2014.

Decrease in Average Monetary Awards for Plaintiffs 

The overall average of monetary awards for Plaintiffs experienced a significant decrease in 2018 from 2017, but was still higher than in earlier years. In 2018, the overall average monetary award was $1,810,693, down from $4,204,501 in 2017. However, first appearances are somewhat deceiving, since the Jury Verdict Service reported that the average in 2017 was greatly inflated by two verdicts of $217.7 million and $139.8 million. In 2018, in contrast, there was only one very large verdict for $76 million. Additionally, the 2018 figure of $1,810,693 represents an increase from the figures from the years prior to 2017. In 2016, the average Plaintiff’s verdicts was $1,383,549, while the average in 2015 was $1,376,323. 

Slight Increase in Number of Million-Dollar Verdicts 

In 2018, there were 14 verdicts of $1 million or more, compared to 11 such verdicts in 2017. But the 14 verdicts figure is slightly lower than in 2016, when there were 16 verdicts of $1 million or more. Of the 14 verdicts of $1 million or more in 2018, 6 were in Jackson County, MO Circuit Court (1 in Kansas City and 5 in Independence), 4 were in the Circuit Court of Clay County, MO, 2 were in the Circuit Court of Platte County, MO, and 2 were in the U.S. District Court for the Western District of MO. Finally, the number of verdicts between $100,000 and $999,999 decreased slightly in 2018 (29 verdicts) from 2017 (36 verdicts).

Key Observations and Conclusion 

While the percentage of Plaintiffs’ verdicts decreased ever-so-slightly in 2018, the 48% figure still remains much higher than where it stood 4 years earlier (38%). Additionally, the average Plaintiff’s verdicts ($1,810,693) – while down from the inflated figures of 2017 – continues to trend upward from the $1.3 million range of 2016 and 2015 and the low point figure of $350,730 in 2014. Almost half of the verdicts awarded in 2018 that were $1 million or more were in Jackson County, MO, which was again consistent with the view 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 2014 -2018

Despite 2017 Amendment to Statute, Court of Appeals Holds Section 490.715 Fails to Preclude Evidence of "Charged" Amounts of Medical Expenses at Trial

January 29, 2019

In what was widely seen as an attempt to prevent plaintiffs from introducing evidence at trial of the full, undiscounted “amounts charged” for medical treatment, a revised version of § 490.715 was signed into law in 2017. It provides that “parties may introduce evidence of the actual cost of the medical care or treatment rendered to a plaintiff or a patient whose care is at issue.” See § 490.715(5)(1), RSMo. (emphasis added). “Actual cost” is 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-offs by any person or entitySee § 490.715(5)(2) (emphasis added).

But in the recent case of Brancati v. Bi-State Development Agency, the Eastern District Court of Appeals held that evidence of the “amount charged” could still be introduced at trial, effectively rendering the revised version of § 490.715 meaningless. Brancati was a general liability case with stipulations that the “amount charged” for medical treatment totaled $77,515.48 while the actual “amount paid” to satisfy the financial obligation was $40,842.95. Before trial, Brancati filed a pre-trial Motion, arguing that the revised version of § 490.715 did not apply retroactively to this case. The trial court ruled that § 490.715.5, as amended, did not apply and that the parties could offer evidence of the value of medical treatment by allowing both the “amount charged” as well as the “amount paid” into evidence.

After a $625,000 adverse jury verdict, Bi-State appealed and argued, in part, that the revised version of § 490.715 applied retroactively to limit the evidence admissible regarding the cost of Brancati’s medical care to the “amount paid” and not the “amount charged.” 

The Eastern District affirmed the trial court and held that the revised version of § 490.715 did not eliminate the ability to introduce evidence of the “amount charged” for medical bills. The Court ruled that the statute did not expressly prohibit the introduction of “amounts charged” and merely permitted parties to introduce the “actual costs” of medical treatment. It also relied on Subsection 4, which provides that evidence admissible for “another purpose” may be introduced. Notably, the decision is devoid of any discussion about what other purpose was at issue to support the admission during trial of the “amount charged.” 

There are two other fundamental problems with the Eastern District’s decision, one dealing with legal and logical relevance, and the other with maxims of statutory construction. First, legal relevance requires a trial court to weigh the probative value of proffered evidence against its costs, such as unfair prejudice, confusion of the issues, misleading the jury, or wasting time. Reed v. Kansas City Missouri School District, 504 S.W.3d 235, 242 (Mo. App. W.D. 2016). Missouri courts have long held that a plaintiff may recover only those medical treatment expenses that he was liable to pay for the medical treatment, and actually incurred. See Cordray v. City of Brookfield, 88 S.W.2d 161, 164 (Mo. 1935); Zachary v. Korger, Inc., 332 S.W.2d 471, 475 (Mo. App. W.D. 1960). To allow the introduction of the full, undiscounted “amount charged” for medical expenses defies both basic principles of logical relevance (the evidence tends to make the existence of any material fact more or less probable than it would be without the evidence) and legal relevance. Evidence of the “amount charged” does not meet the litmus test of logical relevance because its introduction does not affect a plaintiff’s ability to recover the “amount paid” for medical treatment. Nor does it meet the litmus test of legal relevance because its probative value is far outweighed by the dangers of confusing the issue and misleading the jury. 

Second, this decision disregards the most basic canons of statutory construction. A fundamental principle of statutory construction is that a primary role of the courts in construing statutes is to “ascertain the legislature’s intent from the language used in the statute and, if possible, give effect to that intent.” State ex rel. Koehler v. Lewis, 844 S.W.2d 483, 487 (Mo. App. W.D. 1992). Under the “Reenactment Canon,” “when the Legislature amends a statute, it is presumed that the legislature intended to effect some change in the existing law.” State v. Liberty, 370 S.W.3d 537, 561 (Mo. banc 2012). This is because “to amend a statute and accomplish nothing from the amendment would be a meaningless act, and the legislature is presumed not to undertaken meaningless acts.” Id. By continuing to allow plaintiffs to introduce evidence of the “amount charged” for medical expenses, the Brancati court appears have rendered this legislative amendment meaningless. Further, in considering the landscape prior to the 2017 amendment, specifically that both the Eastern District and Missouri Supreme Court held that the “amount charged” for medical expenses could be introduced at trial, the language used in the 2017 statute clearly evinces an attempt to eliminate this practice. See Berra v. Danter, 299 S.W.3d 690 (Mo. App. E.D. 2009); Deck v. Teasley, 322 S.W.3d 536 (Mo. banc 2010). Likewise, this decision violates the canon that courts “must examine the language of the statutes as they are written [and] cannot simply insert terms that the legislature has omitted.” Loren Cook Co. v. Director of Revenue, 414 S.W.3d 451, 454 (Mo. banc 2013). 

A request that the Brancati case be transferred to the Missouri Supreme Court for review is presently pending.  Whether or not the Supreme Court takes the Brancati case, we are confident that we have not seen the last of litigation on this issue. 

Illinois Supreme Court Further Defines Product Liability Seller Exception

January 28, 2019

Plaintiff Mark Cassidy was injured while at work in Mendota, Illinois. He filed a Complaint in Cook County against U.S.-based China Vitamins, a distributor of an imported flexible bulk container of vitamins that allegedly broke and injured him.  He alleged strict product liability, negligent product liability and res ispa loquitur.  China Vitamins denied that it manufactured the container, and it identified the manufacturer of the containers as Chinese-headquartered Taihua Shanghai Taiwei Trading Company Limited (Taihua). 

Cassidy then filed an Amended Complaint adding Taihua.  Taihua filed an Answer, but its counsel then withdrew.  The court entered a default judgment after Taihau failed to retain new counsel.  After Cassidy presented evidence, the court entered judgment of over $9.1 million against Taihua. 

In the interim, China Vitamins sought and obtained summary judgment on the basis that it was a mere distributor pursuant to 735 ILCS 5/2-621(b).

Thereafter, Cassidy sought to discover and collect assets from Taihua, as well as third-parties.  He was unsuccessful and filed a motion to reinstate China Vitamins under 735 ILCS 5/2-621(b)(4).  China Vitamins opposed the motion.  The trial court denied Cassidy’s motion, finding that he had not met the statutory reinstatement requirements. The trial court made the order final and appealable under Illinois Supreme Court Rule 304(a). 

The Illinois Appellate Court for the First District rejected its prior interpretation of 2-621(b) as set forth in Chraca vs. U.S. Battery Manufacturing Co., 214 Il App. (1st ) 132325, 24  N.E.3d 183.  The court interpreted the statutory language to require a showing that the manufacturer is “judgment proof” or “execution proof” rather than “bankrupt or no longer in existence” before a previously dismissed seller or distributor could be reinstated as a party.  It remanded the case to the trial court for an initial determination of whether Taihua group was unable to satisfy the default judgment entered against it under this new standard.  The Illinois Supreme Court granted China Vitamins’ petition for leave to appeal pursuant to Supreme Court Rule 315(a).

The Illinois Supreme Court addressed how subsection 2-621(b)(4), requiring the plaintiff to show that “the manufacturer is unable to satisfy any judgment as determined by the court” prior to reinstatement of a seller or distributor, is be applied. 

The majority opinion, authored by Justice Kilbride, overruled Chraca to the extent it held that the plaintiff must show the manufacturer is either bankrupt or no longer in existence under 2-621(b)(4).  The court held that if a plaintiff asserting product liability claims can establish “other circumstances” that effectively bar recovery of the full damages awarded against a manufacturer, a non-manufacturer in the chain of distribution may be reinstated as a defendant under section 2-621(b)(4).  The court remanded the case to the trial court for consideration of the sufficiency of the evidence concerning Cassidy’s efforts to collect the default judgment.

While the Supreme Court declined to detail the specific evidentiary showing necessary, instead noting that “the precise formula needed to satisfy the plaintiff’s evidentiary reinstatement burden is best adduced by the trial court,” it appears to have impliedly provided some direction. For example, the Court noted there was evidence Taihua group had a functioning website which strongly suggested it has close continuing business ties with Europe and North America.  The website also mentioned a domestic sales office in the state of Georgia, foreign sales offices in France and Germany and a central warehouse in Germany.  The court found that the record suggests viable avenues for Cassidy’s collection efforts may remain untapped.

In reaching its conclusion, the majority noted that if section (b)(4) was interpreted to mean bankrupt or no longer in existence as Chraca suggests, it would be duplicative of section (b)(3), which is contrary to fundamental rules of statutory construction.  The court noted the language in (b)(4) is much broader than (b)(3).  The court also noted the fundamental policies underlying Illinois strict product liability law and public policy remain the same: “[T]o provide full compensation to plaintiffs injured due to defective or unsafe products whenever possible based on differences of the parties’ degree of culpability."  The majority found that its interpretation of (b)(4) “harmonizes the plain language of Section 2-621(b), when read in its entirety, the legislature’s intent, and the public policies underlying the enactment of our strict product liability laws to create cohesive and consistent statutory scheme.”

Justice Karmier authored the dissent, taking issue with how the majority framed the question before it.  He opined that the majority erroneously focused on a plaintiff’s ability to enforce a judgment rather than a manufacturer’ ability to satisfy it.  He opined a plaintiff must provide evidence that a manufacturer has no ability to meet its obligation, as opposed to evidence of his or her efforts to enforce it, in order to seek reinstatement a non-manufacturer defendant pursuant to 2-621(b)(4).  He further took issue with the majority’s emphasis on the public policy behind strict product liability law generally.  He argued that to the extent policy purposes are to be considered it should be those behind 2-621, which is to limit financial exposure of sellers, not to ensure full recovery for plaintiffs.

There remain open questions as to how 2-621(b)(4) is to be applied by a trial court.  Ultimately, the analytical dispute between the majority and the dissent may be one of semantics. Focusing on evidence of plaintiff’s efforts to collect the judgment from the manufacturer rather the manufacturer’s ability to satisfy it may be two sides of the same analytical coin. Both analyses will focus on the identification of a manufacturer’s assets and the plaintiff’s ability to secure those assets for payment.     

When it Comes to Nonconforming Goods, is the Customer Always Right?

January 23, 2019

There are two important lessons to be learned from Williams v. Medalist Golf, a recent case from the Eighth Circuit Court of Appeals, applying Missouri law. First, when a company guarantees customer satisfaction, only to leave the customer unsatisfied, it risks not only its business reputation, but also its legal right to collect payment. Second, when giving testimony about the meaning of a contract, it is almost always best to let the written document speak for itself.

Plaintiff Cane Creek Sod submitted a bid to provide almost a million square feet of grass for the construction of a new golf course at Big Cedar Lodge in Branson, Missouri. Cane Creek promised to provide premium Meyer Zoysia grass, and it offered a lower price than any other bidder. Defendant Medalist Golf, Inc., accepted the bid and provided a “Grass Supplier Agreement” for Cane Creek to sign.

The Grass Supplier Agreement provided that the seller “guarantees the quality and specification of the materials provided.” Supplier Cane Creek’s owner testified that he understood this to mean he “was guaranteeing that they were going to get Meyer Zoysia and that it would be the quality that satisfied the customer [or Cane Creek] would fix it.” The contract set a fixed price per square foot and provided an estimate of the quantity that would be need. But it also cautioned that this was “a target and not a guaranteed amount” and affirmed the parties’ understanding that the project “may use more or less than estimated quantities.”

Over the following months, Cane Creek devoted considerable time and resources to growing dozens of acres of Meyer Zoysia. Shortly before the sod was to be harvested, the golf course’s developer asked Medalist Golf to visit the sod farm to inspect the quality of the grass. After inspecting and photographing the sod, the developer decided the quality of the grass was unacceptable for the course and instructed Medalist Golf to reject it. Medalist did so, and then purchased the required grass from another bidder. Cane Creek was able to find alternative buyers for some, but not all, of what it had grown for Medalist.

The supplier sued Medalist for breach of contract, arguing that Medalist had been contractually obligated to purchase all of the grass needed for this golf course exclusively from Cane Creek. Medalist moved for summary judgment, arguing that: (1) no enforceable contract existed, and (2) even if a contract did exist, Medalist was relieved of any obligations, because Cane Creek’s sod failed to conform to the contract. The trial court granted Medalist’s motion, and Cane Creek appealed. The Eighth Circuit affirmed the summary judgment in Medalist’s favor.

The Eighth Circuit rejected Medalist’s first argument—that no enforceable contract ever existed between Medalist and Cane Creek. The “Grass Supplier Agreement” was an enforceable “requirements contract.” A requirements contract is one in which “one party promises to supply all the specific goods or services which the other party may need during a certain period at an agreed price, and the other party promises that he will obtain his required goods or services from the first party exclusively.” 

The court held that imprecise estimates of the quantity to be purchased were sufficient to support such a contract, and it saw ample evidence that the parties intended for Medalist to buy all of the grass needed for this golf course exclusively from Cane Creek, at an agreed-upon price. Thus, the court concluded, there was a valid agreement upon which Cane Creek could base its breach of contract claim.

But the breach of contract claim still failed as a matter of law, because the court agreed with Medalist that the sod failed to conform to the contract. The Uniform Commercial Code as adopted in Missouri allows a buyer to reject tendered goods without payment, if they “fail in any respect to conform to the contract.” Mo. Rev. Stat. § 400.2-601. Therefore, if the sod was not of the quality that was promised, Medalist had the right to reject it and no obligation to pay for it.

The case ultimately turned on the contract’s provision that Cane Creek would “guarantee the quality and specification of the materials provided.” This language, Medalist argued, required more than just sod that was acceptable to an expert or another golf course; it required that the sod be to the customer’s satisfaction.

Notably, though, the contractual language itself only required Cane Creek to “guarantee the quality and standards” of its product. It did not specify how the sod’s “quality and standards” were to be judged. Although it conceded that Medalist did not act in bad faith, Cane Creek tried to present other evidence that the grass lived up to the “quality and standards” required by the contract, including: (1) expert testimony that the sod was high quality, (2) the results of a test finding the sod to be free of “noxious weed contaminates,” and (3) the fact that some of the same sod was subsequently sold to and used by another golf course. Cane Creek argued that this evidence at least created a genuine factual dispute as to whether Medalist wrongfully rejected the sod. 

But Cane Creeks’ position was seriously undermined at its owner’s deposition, where he testified that he understood the “guarantee” to mean that he “was guaranteeing that they were going to get Meyer Zoysia and that it would be the quality that satisfied the customer, [or Cane Creek] would fix it.” This testimony arguably broadened Cane Creek’s duties under the contract. It made the customer’s judgment as to the sod’s quality—as subjective as that may be—the ultimate and final measuring stick for compliance with the contract. Unfortunately for Cane Creek, this rendered irrelevant all of its expert opinions, test results, and other evidence about the high quality of the sod. If Medalist was unsatisfied, the sod was nonconforming and could be rejected. Full stop.  (Had there been evidence that Medalist rejected the goods purely out of bad faith, the court would have been obliged to consider it; but concededly, this was not the case.)  

Customer satisfaction is always the goal, of course. But it is also an inherently subjective and often unpredictable concept. A customer may be dissatisfied simply because he or she is persnickety, capricious, or just misinformed. As tempting as it is to “guarantee” that a customer will be satisfied, businesses must understand the legal implications of doing so. Courts will enforce quality guarantees, and they will usually leave it to the parties to decide how quality should be measured.  A guarantee of customer satisfaction may make for a good sales pitch, but it is a poor legal standard.

Courts favor the Federal Arbitration Act, but some workers are exempt.

January 18, 2019

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 Record

January 8, 2019

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.

The Piper is Finally Paid - the Hatch-Goodlatte Music Modernization Act Becomes Law

January 2, 2019

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.

City of St. Louis – Still A Judicial Hellhole

December 26, 2018

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!

A Passive Website Is Insufficient to Confer Personal Jurisdiction in Missouri

December 20, 2018

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

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. 

10th Circuit Declares Adverse Employment Action Required For Failure To Accommodate Claims

December 11, 2018

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 duty

December 7, 2018

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.

Independent Duty

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.

Missouri Court of Appeals Declines to Adopt a Parking-Lot Right-of-Way Rule

December 4, 2018

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.

At-Will Employee Properly Paid Commission as Monthly Draw

November 29, 2018

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.

Fifth Circuit Denies Recovery of Attorneys' Fees Despite FDCPA's Mandatory Recovery Provision

November 26, 2018

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. 

Missouri Supreme Court Opinion Calls Into Question Many Consumer Arbitration Agreements

November 20, 2018

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.

Consider Playing By This Book's Rules: FDA-MITRE Cybersecurity Guidance

October 31, 2018

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.

Suggested Steps:   

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.


Identify and establish that an incident has occurred.

Suggested Steps:

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.


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).


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:

Missouri Supreme Court Explains Some Ground Rules for Using Multiple Experts

October 30, 2018

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. 

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. 

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. 

Eighth Circuit Takes a Hardline Position on Non-Retained Expert Witness Disclosures

October 25, 2018

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 Matter

October 22, 2018

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 breaches

October 17, 2018

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


In general

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.

FDA Announces Strengthened Focus On Cybersecurity

October 11, 2018

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:

Plead It or Concede It: Court May Not Raise Affirmative Defense Sua Sponte

October 4, 2018

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 Meat

September 27, 2018

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 and Fraudulent Conduct by an Out-of-State Defendant

September 18, 2018

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 Allowed

September 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. 

Enactment of Senate Bill 608 Affords Missouri Businesses Greater Protection

August 31, 2018

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:

  1. if the business has implemented reasonable security measures;
  2. the claimant was on the premises and was a trespasser, attempting to commit a felony, or engaged in the commission of a felony; or
  3. 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.

Federal Preemption Doesn't Bar Railroad's Suit Against Locomotive Seat Manufacturer

August 24, 2018

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.

$224 million sought in lawsuit against AT&T over cryptocurrency theft

August 22, 2018

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.

UPDATE: Local Payday Lender enters into $1 Consent Order with CFPB

August 16, 2018

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. 

Amended Missouri Interpleader Statute Tackles the Multiple Claimants, Insufficient Limits Problem

August 13, 2018

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


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.


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.


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.


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.


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.

Missouri Voters Overwhelmingly Reject "Right-to-Work" Law

August 8, 2018

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 Case

August 6, 2018

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 Actions

July 31, 2018

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 Only

July 25, 2018

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 Dismissal

June 22, 2018

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.

ANTI-FORUM SHOPPING: Limitation on Joinder in Missouri on the Horizon

June 18, 2018

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.

UPDATE: Major Financial Reform Bill Signed into Law

May 24, 2018

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.

Kansas Filing Deadline Differs by Filing Type

May 21, 2018

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 Agreements

May 21, 2018

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.

A Circuit Split is Born: Third Circuit Rejects the Discovery Rule for FDCPA Statute of Limitations

May 16, 2018

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.  

Is Debt Collection a "Merchandising Practice"? Missouri Supreme Court Says Yes

May 14, 2018

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. 

Intra-Corporate Immunity Rule Alive, Applied, and Affirmed in Dismissal of Missouri Defamation Suit

May 4, 2018

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 CASE Act - A Noble but Toothless Gesture Toward Fair Copyright Enforcement

April 24, 2018

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.

Damages Limitations

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" Remains Alive and Well in Missouri for Generic Drug Manufacturers

April 6, 2018

“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.

Breaking Up [Plaintiffs] Is [Not] Hard To Do

March 28, 2018

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. SeeBraun 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. 

Jury verdicts in the Kansas City area slightly decline in number, but increase in amount

March 26, 2018

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 instruction

March 23, 2018

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.

Bipartisan Financial Reform Bill Expected to Pass in Senate

March 13, 2018

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 Court

February 27, 2018

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.

Verdict Based on Disjunctive Jury Instruction Gets Junked

February 13, 2018

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.”