Announcing a Biweekly Series Analyzing the Restatement of the Law of Liability Insurance

Ever wonder how the Restatements of the Law which we all read in law school (and have seen in even some modest law libraries throughout our careers) are written – and exactly who the American Law Institute – the credited authority behind the Restatements – is?  As a prelude to our new biweekly series of posts analyzing the Restatement of the Law of Liability Insurance, today we’re taking a brief look at the ALI’s history and structure, how ALI defines the purpose of its two primary classifications of treatises – the “Restatements” and the “Principles” – and how the Restatement of the Law of Liability Insurance, which was given the ALI membership’s final approval in the spring of 2017, came to be.

According to the ALI’s website, the Institute was founded in 1923 following a report from a group of well-known judges, lawyers and teachers calling themselves “The Committee on the Establishment of a Permanent Organization for the Improvement of the Law.”  The ALI’s incorporators included Chief Justice (and former President) William Howard Taft, future Chief Justice Charles Evans Hughes, and former Secretary of State Elihu Root.  Justice Benjamin Cardozo and Second Circuit Judge Learned Hand were early leaders of the group.

Membership in the ALI is by election of the ALI Council following nominations by members.  The membership is limited to 3,000, not including life, honorary and ex-officio members, and the group is more-or-less evenly divided between practicing attorneys, judges and academics.  All members are expected to participate actively in the Institute’s work, generally by serving as Advisors or Member Consultants to new Restatements and Principles.  The ALI is governed by its officers, its directors, and its Council, whose members are elected by the general membership from among its ranks and includes members in all three categories (judges, attorneys and academics).

I was elected to the ALI in October 2006.  Since that time, I have served as a Member Consultant for many projects, including the Insurance Restatement.

The most well-known writings of the ALI are Restatements, which are now in their third cycle, and for a few subjects, their fourth.  According to the ALI reporters’ manual, “Restatements are primarily addressed to courts.  They aim at clear formulations of common law and its statutory elements or variations and reflect the law as it presently stands or might appropriately be stated by a court.”  By dealing with an entire area of the law in one document, the Restatements aspire to “discern the underlying principles that gave it coherence and thus restore the unity of the common law as properly apprehended.”  Although a Restatement is supposed to be “attentive to and respectful of precedent,” when facing a question where one view merely preponderates, the treatise is permitted to “propose the better rule and provide the rationale for it.”  The “Principles” treatises, on the other hand, are permitted to be more aspirational.  According to the reporters’ manual: “Principles are primarily addressed to legislatures, administrative agencies, or private actors.  They can, however, be addressed to courts when an area is so new that there is little established law.  Principles may suggest best practices for these institutions.”  All ALI projects go through multiple drafts and are debated by various groups within the Institute: the Preliminary Draft, the Council Draft, the Tentative Draft, the Discussion Draft and the Proposed Final Draft.  Projects routinely take seven years from start to finish, and sometimes even more.

In recent years, several commentators have suggested that ALI projects might be straying from those guidelines.  As Justice Antonin Scalia wrote in his partial dissent in State of Kansas v. States of Nebraska and Colorado, 574 US —, (2015):

I write separately to note that modern Restatements – such as the Restatement (Third) of Restitution and Unjust Enrichment (2010) . . . are of questionable value, and must be used with caution.  The object of the original Restatements was “to present an orderly statement of the general common law.”  [citing the Restatement of Conflict of Laws Introduction].  Over time, the Restatements’ authors have abandoned the mission of describing the law, and have chosen instead to set forth their aspirations for what the law ought to be . . . Section 39 of the Restatement of Restitution and Unjust Enrichment is illustrative . . . Restatement sections such as that should be given no weight whatever as to the current state of the law, and no more weight regarding what the law ought to be than the recommendations of any respected lawyer or scholar.”

The Insurance Restatement began in 2010 as the Principles of the Law, Liability Insurance.  The draft Principles caused controversy almost from its earliest drafts, both in debates during Annual Meetings of the entire membership and increasingly among outside commentators.  In 2014, the ALI Council reclassified the treatise as a Restatement.  Although the draft was revised after that point, controversy continued to spread.  I should note in the interests of full disclosure that I voted against every draft of the Insurance Principles and Restatement which came before the Annual Meeting for discussion and approval.

As Justice Scalia said in concluding his dissent in Kansas v. Nebraska: “[I]t cannot safely be assumed, without further inquiry, that a Restatement provision describes rather than revises current law.”  And that will be our project, in biweekly installments, over the coming months: to ascertain how well the Restatement conforms with state law – concentrating on California law, both because of the importance of the state and the location of my firm, but with occasionally forays into other states.

Join us back here next week for the second installment of our series on the law of the Foreign Trade Antitrust Improvement Act, and in two weeks, we’ll return to the Insurance Restatement.

Image courtesy of Flickr by Tony Webster (no changes).

Announcing a Biweekly Series on the Law of the Foreign Trade Antitrust Improvement Act

Section One of the Sherman Act is written in simple, straightforward language: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

Okay, maybe a little too simple, since, as the courts quickly realized, interpreted according to its plain language, the Sherman Act outlaws all contracts, since contracts by definition are a restraint of trade (albeit, in nearly all cases, a minor one).

Nevertheless, most antitrust and international law scholars agree that the United States has one of the most stringent systems of antitrust law in the world.  This was not a tremendous problem in the early decades of the twentieth century, since in that era, companies large enough to conduct business, either directly or through a subsidiary, in a foreign country were not commonplace.  Besides, to the extent the courts had considered many entirely foreign transactions in antitrust, most had concluded that the question was simply one of extraterritorial jurisdiction, and the United States had no business reaching out to regulate entirely foreign transactions.

But as the nation entered the sixties and seventies, US-based companies increasingly were entering into transactions wholly overseas.  At the same time, the bright line rule of no-foreign-application was becoming significantly muddier.  As a result, Congress began to hear complaints from companies arguing that they were unfairly handicapped in competing overseas by the possibility that the Sherman Act would apply in full force to their foreign transactions.  Plus – as you might imagine – our international neighbors were getting increasingly testy about the United States at times imposing its own antitrust laws on transactions occurring entirely on foreign soil.

So in 1982, Congress passed the Foreign Trade Antitrust Act — Title IV of the Export Trading Company Act.  The FTAIA reads like this:

Sections 1 to 7 of this title shall not apply to conduct involving trade or commerce (other than import trade or import commerce) with foreign nations unless –

(1)    Such conduct has a direct, substantial, and reasonably foreseeable effect –

(A)    On trade or commerce which is not trade or commerce with foreign nations, or on import trade or import commerce with foreign nations, or

(B)    On export trade or export commerce with foreign nations, of a person engaged in such trade or commerce in the United States, and

(2)    Such effect gives rise to a claim under the provisions of sections 1 to 7 of this title, other than this section.

If sections 1 to 7 of this title apply to such conduct only because of the operation of paragraph (1) (B), then sections 1 to 7 of this title shall apply to such conduct only for injury to export business in the United States.

If you’re thinking the statute is hardly a model of crystal-clear draftsmanship, the courts are way ahead of you.  The language abounds with terms which can reasonably be interpreted in different ways: what does “conduct involving trade or commerce” mean?  What is “import trade or import commerce” – what about a product your client sold overseas which was then imported into the US by a third party?  How “direct” must a “direct” effect be?  What is “substantial” or “reasonably foreseeable”?  And what is the test for whether an “effect” gave “rise to a claim”?  And can it be any claim – or does it have to be the specific claim of the plaintiffs sitting across the courtroom from you?  And there’s the most fundamental obscurity of all – is this statute a jurisdiction-stripping statute, meaning that foreign conduct is still an antitrust violation, but federal courts can’t hear those cases?  Or is it a substantive statute, describing the elements of an antitrust claim with significant foreign ties?

Today, we’re beginning a new biweekly series here on Appellate Strategist – the law of the Foreign Trade Antitrust Improvement Act.  In two weeks, we’ll be back to take a look at the legislative history of the FTAIA.  Two weeks after that, we’ll review the law on foreign transactions as it stood before the statute was passed, as a foundation for launching into the hundreds of FTAIA cases which have been published in the thirty-seven years since the statute was enacted.

Join us back here next Friday as we announce a separate biweekly series on a new topic.

Image courtesy of Flickr by Jay Buangan.  (No changes)

 

Welcoming Three New Appellate Experts to Our Growing San Francisco Office

I’m delighted to welcome three new experienced and talented appellate specialists to our growing San Francisco office!  Here’s the firm’s press release –

Horvitz & Levy Expands San Francisco Office with Three Experienced Appellate Hires

Bay Area Office for Nation’s Largest Appellate Boutique Offers Unmatched Expertise

Horvitz & Levy LLP, the country’s largest boutique law firm dedicated to civil appeals and trial  consulting, has expanded its San Francisco presence with three strategic hires. The firm operates on an experienced-hire model and in keeping with this strategy has added appellate experts Beth Jay, Christopher Hu, and Andrea Russi.

Beth Jay, former principal attorney to three California chief justices, brings 35 years of California Supreme Court experience and three years of federal appellate court insights to Horvitz & Levy’s clients. In addition to serving as a senior adviser to the Chief Justice,  Jay has served on numerous Supreme Court, Judicial Council, and State Bar committees with a focus on judicial ethics and multi-jurisdictional issues. She served former Chief Justices Malcolm M. Lucas and Ronald M. George for their entire tenure on the Supreme Court, and assisted Chief Justice Tani Cantil-Sakauye from the beginning of her term in January 2011 until Jay’s retirement in 2015.  Jay is a recipient of the Bernard E. Witkin Medal for her lifetime body of work and influence on the legal landscape.

Christopher (Chris) Hu brings to bear significant appellate expertise, having served as a judicial law clerk to Judge Kim McLane Wardlaw of the Ninth Circuit and Justice Goodwin Liu of the Supreme Court of California.  Hu is a graduate of Stanford Law School and won the Judge Thelton E. Henderson Prize for Outstanding Performance in Stanford’s Supreme Court Litigation Clinic.

Andrea Russi most recently served as a staff attorney to Presiding Justice Ignazio Ruvolo (retired) of the California Court of Appeal, First Appellate District, Division Four.  She also served as an Assistant United States Attorney in the Central District of California, worked as an associate at Latham & Watkins, and was a Lecturer in Residence for the UC Berkeley School of Law where she was the Managing Director and Director of Criminal Justice for The Chief Justice Earl Warren Institute on Law & Social Policy.     Horvitz & Levy’s Bay Area office opened in June of 2018 at 505 Sansome Street in the city’s iconic Transamerica Pyramid Center, and is led by Kirk C. Jenkins, the former Chair of Sedgwick LLP’s Appellate Task Force. “The business growth in the Bay Area and the need for deep and strategic insights into the appellate process before, during, and after trial, is the catalyst for our swift expansion. Each of these hires brings unique and highly sought-after skills to our already robust platform,” said Jenkins.  Horvitz & Levy has 40 attorneys focused on civil appeals in state and federal courts nationwide and is known throughout the legal community as the nation’s premier appellate boutique.

About Horvitz & Levy

Horvitz & Levy is the largest law firm in the nation specializing exclusively in civil appellate litigation and trial strategy consultation.  Clients turn to Horvitz & Levy for its demonstrated collaborative think-tank culture and its unmatched skill in preserving and developing issues for appellate review, helping to shape the law for the firm’s clients. For more information visit www.horvitzlevy.com.

Image courtesy of Flickr by Tiocfaidh ar la 1916 (no changes).

 

Join Me on Tuesday for a Strafford Data Analytics Webinar!

Tuesday, March 12, I’ll be a panelist for a Strafford webinar on Data Analytics and Litigation.  The other two panelists are Steve Embry, publisher of Tech Crossroads (and a former colleague of mine many years ago) and Evan Moses, a partner at Ogletree Deakins, Nash, Smoak and Stewart.  The time is 10:00 – 11:30 Pacific.  Here’s the link and the full description is below. 

This CLE webinar will guide litigators on how to use big data leading up to, and during, litigation. The panel will explore how data is being used to govern decisions as trial approaches, including settlement conditions, surveying potential jury member demographics, and use of psychographics for desired outcomes at trial.

Description

The legal profession is entering its data-driven phase. With the advent of litigation analytics, attorneys can finally quantify the prospects of success or the scope of risk for almost every option during a case.

Analytics has a role to play in every phase of litigation, from evaluating the plaintiff and opposing counsel, to the consideration of appellate issues. Understanding how to obtain and use this data is critical for litigators.

Previously, big data was only available to jury consultants or large law firms with deep pockets and enough resources to wade through immense and confusing amounts of information. But investigative programs that provide easy access to data are emerging as powerful everyday tools for lawyers seeking the bests outcomes for their clients.

Listen as our distinguished panel guides litigators on how to harness big data analytics for use during litigation. The panel will also discuss how data governs business decisions for corporations and law firms alike leading up to trial.

Outline

I.      Overview of big data and what types of analytics it offers to litigators

II.      Discussion of pre-trial data analytics, including case budgets and business decisions

III.      Discussion of data analytics during litigation, including panel selection, AFAs and exposure calculations

IV.      Best practices for obtaining and using big data analytics before and during litigation all the way from pre-trial motions through the appeal

Benefits

The panel will review these and other relevant topics:

·      What does big data include?

·      How can big data be used to govern business decisions leading up to trial?

·      How can big data analytics be leveraged both in the trial court and on appeal?

Image courtesy of Flickr by Luckey_Sun (no changes).

I’ve Joined Horvitz & Levy – and We’re Opening a San Francisco Office!

Exciting&  news from a press release this morning:

Horvitz & Levy LLP, the country’s largest boutique law firm dedicated to civil appeals and trial strategy consulting, is opening a San Francisco office at 505 Sansome Street in the city’s iconic Transamerica Pyramid Center, strengthening the firm’s California roots. The new office will be led by Kirk C. Jenkins, the former Chair of Sedgwick LLP’s Appellate Task Force.

Horvitz & Levy has 40 attorneys focused on civil appeals in state and federal courts nationwide. “Given the nature of our practice and the business growth in the Bay Area, it makes sense to increase our presence in Northern California for our clients’ benefit and for all of our attorneys who frequent the area to serve those clients,” said Barry Levy, a member of the firm’s management committee. “We’re looking forward to having Kirk lead our San Francisco office.”

Jenkins, a well-known appellate authority, has served as appellate counsel in more than 200 appeals and writs in state and federal courts across the country. He is a Vice President of the California Academy of Appellate Lawyers, an elected fellow of the American Academy of Appellate Lawyers, and an elected member of the American Law Institute, where he has been active in helping develop the new generation of Restatements of the Law.

“Horvitz & Levy’s focus on appeals and trial strategy consulting is a perfect platform for my practice which, in the last few years, has included litigation support through data analytics and artificial intelligence,” said Jenkins. “More and more legal departments are taking a closer look at analytics to determine the best approach to each case,” added Jenkins. “Nowhere is this more evident than in San Francisco and Silicon Valley where the legal industry is keen to embrace the latest technologies.”

Jenkins will continue to write his data analytics blog The California Supreme Court Review, which studies decision making in the California Supreme Court from a data analytics point of view.

“Horvitz & Levy is known throughout the legal community as the nation’s premier appellate boutique, and I’m looking forward to working with my new colleagues to expand our existing practice in Northern California.”

Image courtesy of Flickr by AG Gilmore.

Join Me on November 15 for “Patterns and Practice: How Analyzing the Illinois Supreme Court Can Boost Your Appeals”

On November 15 at the Union Club in Chicago, I’ll have the pleasure of joining the members of the Appellate Lawyers Association and the South Asian Bar Association of Chicago for a discussion of the data analytics revolution as it applies to appellate law – “Patterns and Practice: How Analyzing the Illinois Supreme Court Can Boost Your Appeals.”  From the event announcement:

Please join us for an innovative exploration of data analytics and how it can enhance your appellate practice.  Kirk C. Jenkins, chair of the Appellate Task Force at Sedgwick LLP, has created an analytic database that includes roughly 275,000 data points from decisions handed down by the Illinois Supreme Court between 1990 and 2016.  Drawing on that robust analytic framework, Mr. Jenkins will share insights on and explore topics such as whether one can predict a case’s result by counting the questions at oral argument; which justices most often vote together and on what areas of law; and whether the Court (as well as individual justices) more often votes to reverse Appellate Court wins by plaintiffs or defendants.  A regular practitioner in California, Mr. Jenkins also will address distinctions between that state’s highest court and the Illinois Supreme Court.

Mr. Jenkins has exclusively practiced appellate litigation for more than 20 years.  He has served as lead counsel in over 200 appeals in state and federal courts across the nation and recently was elected a Fellow in the American Academy of Appellate Lawyers, an organization whose members have demonstrated the highest skill level and integrity in the practice of appellate law.

To register for the event, click here.

Image courtesy of Pixabay by Pexels.

 

Coming Next Week: My 1,000th Blog Post

Last week, I was looking at our archives, pulling up old research, and I stumbled onto this two-year old post – my 500th on Appellate Strategist. Now that our other two blogs, Illinois Supreme Court Review and California Supreme Court Review, have been publishing for a while, I decided to check the dashboards there too. And it turns out that this summer – next week, in fact – I’ll be publishing my 1,000th blog post.

Since I’ve always got data to quote, here are the numbers:

My first post on Appellate Strategist was published February 23, 2010. In all, I’ve published 604 posts there.

My first post on Illinois Supreme Court Review was published January 9, 2015. In all, I’ve published 264 posts on ISCR.

And finally, my first post on California Supreme Court Review was published April 27, 2016. I’ve published 129 posts on CSCR, making my total for the past seven years and five months 997 posts (and no, I’m not counting this simultaneous post on all three blogs – that would be cheating . . .)

So join us next week as we count down towards 1,000 – and if you’ve got a suggestion for what you’d like to see in the 1,000th post – let me know in the comments. And in the meantime, for an ongoing collection of news and analysis from a wide variety of sources, visit our Flipboard curated magazines on the California Supreme Court and the Illinois Supreme Court.

Image courtesy of Flickr by Chad Kainz (no changes).

Are You Affiliated? The Supreme Court Further Limits Forum Shopping in the Mass Tort Context

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Pardon the Jimi Hendrix allusion, but it seemed appropriate given yesterday’s Supreme Court decision in Bristol-Myers Squibb Co. v. Superior Court of California, No. 16-466 (June 19, 2017), in which the California Supreme Court’s finding of specific jurisdiction against a drug manufacturer was reversed as to non-California plaintiffs, who sued alleging personal injuries due to their ingestion of Plavix, a prescription drug that inhibits blood clotting. While for defendants the decision is undoubtedly welcome, the Court relies on an “affiliation” threshold, requiring a relationship between the defendant and forum arising from the plaintiff’s claim before specific jurisdiction over the defendant can be maintained. “Affiliation” works well for the facts of the case, but perhaps not so well for broader applications. Just as the 1960’s square had no clue what Hendrix meant, it may be that “affiliation” lacks sufficient precision to give judges guidance on more complicated facts patterns in the future.

California and non-California plaintiffs filed eight separate state court complaints alleging personal injuries due to use of Plavix. As to the non-residents, BMS moved unsuccessfully to quash service of process for want of personal jurisdiction, arguing that because these plaintiffs alleged no California connection to their injuries (they didn’t get Plavix through a California source, and weren’t injured or treated in California) there was no basis for the exercise of jurisdiction. The California Court of Appeal reversed on general jurisdiction, citing Daimler, but affirmed on specific jurisdiction. The California Supreme Court affirmed the appellate court, agreeing there was no general jurisdiction, but finding specific jurisdiction under a “sliding scale approach to specific jurisdiction.” Since BMS had other California contacts, unrelated to plaintiffs’ claims, the exercise of jurisdiction was justified since a “less direct connection between BMS’s forum activities and plaintiffs’ claim” was all that need be shown.

The Supreme Court, per Justice Alito, reversed, 8-1. While a court with general jurisdiction over a corporation (that is, a court sitting in a forum in which the corporation is “fairly regarded as at home”) may hear any claim against the defendant, the rules are different for forum where the defendant is not at home. To exercise specific jurisdiction, the suit must arise out of or relate to the defendant’s forum contacts. There must be an “affiliation” between the forum and the underlying controversy, to wit, activity or an occurrence in the forum state, sufficient to justify the exercise of jurisdiction. This requirement grows out of the territorial limitations on the power of the states, who retain sovereign authority to try causes in their courts. Under the Fourteenth Amendment, even if the forum is the most convenient, even if the defendant suffers minimal or even no inconvenience in litigating there, and even if the state has an interest in applying its law to the dispute, interstate federalism may divest a state of its power to render a valid judgment, in the absence of an adequate affiliation.

BMS sold all sorts of products in California (including Plavix to the California plaintiffs), but those sales, and other activities were unrelated to the non-residents’ claims, and therefore could not supply a constitutional basis for the exercise of jurisdiction. In a direct rebuff to the California Supreme Court, Justice Alito wrote “[o]ur cases provide no support for this approach, which resembles a loose and spurious form of general jurisdiction.”

While an “affiliation” standard works well in this context, where it appears that a group of non-California plaintiffs, probably gathered together by a bundler using advertising to secure representation, insinuate themselves into suits to take advantage of a plaintiff-friendly jurisdiction, it may not work so well at the margins. Assume, for example, foreign plaintiffs, without other connections to the forum, allege that forum-based activity, supported by a defendant not otherwise amenable to general jurisdiction, caused their injury. (Think use of opinion-leaders in the prescription drug context, or independent research done in California, but licensed by a foreign corporation.) Are opinion-leaders affiliated? Is the licensee of technology developed in the forum but marketed elsewhere affiliated with the forum where the research was independently conducted?

Corporate defendants no doubt welcome this restrictive approach to specific jurisdiction, and it will likely inhibit the ability of mass tort bundlers to concentrate the power of numbers in a jurisdiction perceived to be more receptive to such claims. But, since “affiliation” lacks precision, we can no doubt anticipate that the outer limits of Justice Alito’s doctrine will be tested, and if possible stretched by what is an ever aggressive mass tort bar.

Image courtesy of Flickr by Mattza (no changes).

Florida High Court Clarifies When an Insured Is Entitled to Attorneys’ Fees When an Insurer Initially Denies a Sinkhole Claim

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In Johnson v. Omega Insurance Co., 200 So. 3d 1207 (Fla. 2016), the Florida Supreme Court held that an insured was entitled to an award of attorneys’ fees under section 627.428, Florida Statutes and the confession of judgment doctrine based on an insurer’s post-suit tender of policy benefits for a sinkhole claim after the insurer initially denied the claim.  To view the Court’s slip opinion click here; to view the Court’s docket click here.

Omega Insurance Co. issued to Kathy Johnson a homeowner’s policy that included coverage for  sinkhole damage.  When Johnson noticed structural damage to her home, she filed an insurance claim with Omega, asserting that the damage was caused by sinkhole activity on her property.  Omega investigated the claim pursuant to chapter 627 by retaining a professional engineering and geology firm to conduct testing.  The firm’s report concluded that, while the property was damaged, there was no sinkhole activity on the property.  Based on the report, which is presumed correct by statute, Omega denied Johnson’s claim.  In turn, Johnson, at her expense, retained a civil engineering firm to evaluate the cause of the damage to her home.  Johnson’s firm found that sinkhole activity did cause the structural damage.

Johnson then filed suit against Omega for failing to pay her sinkhole benefits.  Upon motion by Omega, the trial court stayed the litigation to allow a neutral evaluation to take place.  The neutral evaluation agreed with the report issued by Johnson’s firm.  Upon receipt of the report, Omega paid the policy benefits.  Johnson then moved for an award of attorneys’ fees under § 627.428 which provides that “[u]pon the rendition of a judgment or decree  . . . against an insurer and in favor of any named . . . insured . . . under a policy or contract executed by the insurer, the trial court . . . shall” award the insured its reasonable attorneys’ fees.  Based upon the confession of judgment doctrine, which equates an insurer’s tender of policy benefits or a settlement agreement with a “judgment” under § 627.428, the trial court granted the motion.

Omega appealed to the Fifth District which reversed, finding that Omega’s initial denial was not wrongful or unreasonable.  The district court equated “wrongful” with an insurer’s bad faith denial of a claim.  The Court’s conclusion was buttressed by several facts:  (1) Omega complied with its statutory obligations under chapter 627 by retaining an engineer to identify the cause of loss and issue a report; (2) The report, which is presumed correct by statute, found that sinkhole activity was not the cause of the damage; (3) Before filing suit, Johnson failed to present her countervailing report to Omega, failed to at least notify Omega that she disagreed with its report or failed to further attempt to discuss her claim with Omega.

The Florida Supreme Court quashed the Fifth District’s decision, finding that it misapplied both the statutory presumption of correctness found in the sinkhole statutes and § 627.428.  The Court addressed two main issues:  (1) whether the statutory presumption of correctness for an insurer’s internal report during the investigation process in the sinkhole statutes extends to later proceedings; and (2) whether an insured’s recovery of attorneys’ fees under § 627.428 requires an insurer’s bad faith in denying a valid claim, or simply an incorrect denial of benefits.

The Court—based on prior precedent—concluded that the statutory presumption of correctness in the sinkhole statutes only applies to the sinkhole “initial claims process” and not to litigation instituted by an insured to recover policy benefits.  Johnson therefore did not have the burden of separately rebutting that initial presumption to recover attorneys’ fees under § 627.428.

The Court also concluded that “in the context of section 627.428, a denial of benefits simply means an incorrect denial.”  An insured does not need to prove that the insurer engaged in bad faith or malicious conduct in denying a claim.  Instead, if there is dispute between the insurer and the insured over policy benefits and there is a judgment in favor of the insured or the insurer pays without a judgment, then the insured is entitled to fees under § 627.428.

In its opinion, the Court rejected the insurer’s reliance on State Farm Florida Insurance Co. v. Colella, 95 So. 3d 891 (Fla. 2d DCA 2012), because it found the case to be distinguishable.  The Court’s discussion of the case, however, demonstrates that in determining whether an insured is entitled to fees under § 627.428 the insured’s conduct may also be considered.  In Colella, the Second District found that there was no breach of contract by an insurer—and hence no entitlement to fees under § 627.428—when the insured litigated “in bad faith to profit from a technicality” and engaged in “manipulation and foul play.”

The upshot of this decision is that once an insurer denies benefits and the insured files suit to dispute the denial, the insurer cannot then abandon its position “without repercussion.”  In other words, an insurer cannot “backtrack after the legal action has been filed” by paying the claim to avoid an insured’s fee entitlement under § 627.428.  In short, insurers should be absolutely positive of their denial of benefits before informing the insured.  If an insured files suit and the denial is proven “incorrect,” then an insured is entitled to fees.  Most importantly, it is irrelevant to the insured’s fee entitlement whether the insured fails to challenge the insurer’s denial before filing suit.

Image Courtesy of Flickr by Seattle Municipal Archives (no changes).

Sharply Divided Supreme Court Declines to Establish a Bright-Line Rule on Non-Lawyers Representing Corporations in Administrative Actions

2804456706_72b8c649d2_zA non-lawyer with no apparent formal connection to a corporation is the sole representative of the corporation at an administrative proceeding. When the decision comes down, it’s never properly served on the corporation. Is the non-lawyer’s participation imputed to the corporation, meaning that the corporation had notice of the adminstrative proceeding and it’s now final and binding? Two weeks ago, a sharply divided Illinois Supreme Court held in Stone Street Partners, LLC v. The City of Chicago Department of Administrative Hearings that the answer was no. Our detailed report of the underlying facts and lower court rulings is here. Our report on the oral argument is here.

The plaintiff in Stone Street is the owner of property in the City of Chicago. In March 2009, the City recorded a judgment against the property for $1,050 in fines and costs for building code violations. The judgment had been entered ten years earlier.

Although much of the record from the 1999 action has been destroyed, what little remained failed to establish that anyone affiliated with the plaintiff had been contemporaneously notified of the matter. A “communication transmittal form” noting the purported building code violations listed the wrong property owner. The notices were mailed to an entirely different entity which was neither an agent or representative of the plaintiff. Copies were sent to “Stone Street Partners,” but the notices were sent to the wrong address and carried the wrong name.

Nevertheless, a non-lawyer entered a written appearance in the 1999 administrative proceeding. He left blank the section of the appearance form where he was asked to state under oath that he was the owner, lessee, attorney or authorized agent of the owner of the property. As best anyone could tell, the individual who appeared had no connection with the property or the owner – he was the private caretaker for one of the members of the plaintiff entity. However, because that member had diminished mental capacity due to a stroke, he could not have given the caretaker authority to represent the plaintiff.

After the plaintiff learned of the 1999 judgment in 2009, its counsel wrote to the City, demanding that the judgment be released and its title to the property be cleared. When that didn’t happen, the plaintiff sought relief with the Department of Administrative Hearings, asking that the judgment be set aside since the caretaker could not possibly have validly represented the corporation without being guilty of unauthorized practice of law. The Department denied the request, holding that it lacked jurisdiction to set aside the 1999 judgment. So the plaintiff filed a complaint for administrative relief, asking that the 1999 judgment be set aside. The City moved to dismiss. The court granted dismissal with respect to three claims, but affirmed the Department’s decision that it lacked jurisdiction over the 1999 judgment on the remaining claim. The Court of Appeal reversed in part, relying heavily on its view that the plaintiff could not have waived its objection to proper notice because the caretaker who appeared on its behalf was not a lawyer.

In an opinion for a narrow 4-3 majority by Chief Justice Karmeier, the Supreme Court affirmed. The majority agreed that the caretaker’s status was central to the question of whether the plaintiff could now challenge the 1999 judgment. Absent a holding that the caretaker’s presence was imputed to the plaintiff, there was no possible basis for concluding that the company had ever received notice. But that issue didn’t depend on whether or not the caretaker was a lawyer, since if he had no authority, either actual or potential, to represent the corporation, it didn’t matter whether or not he was an attorney. Where there’s no authority, even an attorney’s acts are a nullity against the party.

And in fact, there was no possible basis for finding that the caretaker had authority to appear. He didn’t own the subject property, he wasn’t the lessee, he wasn’t a lawyer, and he neither worked for nor represented the plaintiff company.   Finally, nothing the company had done or failed to do arguably gave him apparent authority to appear. Given that, the caretaker’s participation was not imputed to the corporation. Since the 1999 notice was neither served on the corporation’s registered agent nor sent to its principal place of business, the corporation was never served with the notice as a matter of law, and the Department failed to acquire personal jurisdiction over the plaintiff corporation. Since the 1999 judgment was void ab initio, it could be collaterally attacked at any time. Accordingly, the plaintiff was entitled to go forward with its claims to quiet title.

Justice Freeman dissented, joined by Justices Burke and Theis. According to the dissenters, the record was inadequate to conclusively establish that the plaintiff had never waived its jurisdictional challenge. The dissenters pointed out that there had been an additional hearing a month before the one where the caretaker appeared, and that the surviving order indicated that someone had appeared on the plaintiff’s behalf. The dissenters argued that there was no basis for concluding that no waiver of jurisdiction had happened at that hearing. Finally, the dissenters concluded that the Court should have addressed the unauthorized practice of law issue and held that appearing at an administrative hearing on behalf of a corporation did not constitute the practice of law.

Image courtesy of Flickr by Chris Brown (no changes).

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