The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Party Hosts (and Their Insurers) Beware – An Entry Fee to Cover Costs May Expose You to Liability

By on Posted in California

Trying to have a party on a budget, albeit an underage party with alcohol, the host required a cover charge to help cover the costs of the party. Both the trial court and the Court of Appeal agreed that this was not a sale of alcohol, making the social host immune from liability for the actions of the drinkers. However, in Ennabe v. Manosa, the California Supreme Court reversed both lower courts; holding instead that a host charging an entrance fee which entitles guests to alcoholic is a sale. As a result, this falls into an exception to the general immunity and the host is potentially liable for selling alcohol to an obviously intoxicated minor. This is true whether or not she required a liquor license, since she would still qualify as “any other person” who sells alcohol. (Bus. & Prof. Code §25602.1.) While the Court initially stated that it was only reversing summary judgment based on a question of fact on the existence of a sale, the opinion is not so limited.

In this case, Manosa was hosting a mostly underage party at an empty rental house and charged an entrance fee to any unknown guest to help pay for drinks. The money collected was later used to buy more drinks. One underage guest, Garcia, arrived intoxicated, paid an entrance fee, and reportedly drank more at the party. Ennabe was a friend of Manosa, and so apparently did not pay, but was also intoxicated. Garcia became obnoxious and was asked to leave, and an altercation between Ennabe and Garcia’s friends on their way out ended when Garcia struck Ennabe with his car, killing him. Defendant won a summary judgment and the Court of Appeal affirmed. (See, our blog entry when the Supreme Court initially granted review here.)

After a detailed history of alcohol related immunities in California, the Court followed the definition in the Alcohol Beverage Control Act that any transaction involving any consideration for alcohol constitutes a sale, regardless of the intent behind the fee. As such, the Court found that this exception to immunity extends to a private person who, for whatever reason, charges a fee for drinks, even if only as a cover charge, regardless of whether the host is part of any commercial enterprise or has any intention to profit. The Court expressed confidence that this holding would not interfere with the wide variety of social and commercial settings in which alcohol is provided (gallery openings, political fundraisers, etc.). In any case, it found no reason to be concerned about extending liability to anyone selling alcohol to an intoxicated minor.

While not addressed in this opinion, there is an underlying coverage issue which may ultimately need to be addressed. It is interesting to note that Manosa’s parents were unaware that she was throwing this party. It is also unknown whether the applicable premises policy terms assumed that the immunity provisions for social hosts would apply. An exclusion regarding commercial or business activities may provide little protection to the insurer, given the apparent evidence that this was not a commercial enterprise, but merely an attempt to defray party costs. Presumably, this opinion will inspire premises insurers to review their policy terms to confirm that this opinion does not create unexpected exposure.

Image courtesy of Flickr by Carl Malamud (no changes).

A Brief Overview of the Case Law Regarding “Failure to Train” Claims – And Its Implications for Medical Device Manufacturers

By on Posted in Drug & Device

[The following was originally published in Westlaw Journal Medical Devices.  It is reprinted here with permission © 2014 Thomson Reuters.]

In recent years, causes of action for “failure to train,” or allegations predicated on a duty to train, have been on the rise in cases against medical device manufacturers. Historically, however, such claims and allegations have made relatively few appearances in the case law – even fewer in the context of prescription products. Where they have arisen, the case law seems to have congealed into three approaches. First are cases refusing to recognize a duty to train or, conversely, allowing a “failure to train” claim as a mere derivative of a “failure to warn” claim. Second are cases either allowing or disallowing such claims as a form of an educational malpractice cause of action. Third are cases – specifically involving a PMA-approved medical device – either recognizing or denying that such claims are preempted by the Food, Drug, and Cosmetic Act (“FDCA”). Each approach is outlined briefly below.

Failure to Train v. Failure to Warn

Some courts consider any alleged duty to train as a novel allegation with no basis in law. Probably the most prominent example comes from the Minnesota Supreme Court, and involves an aircraft, rather than a medical device. In Glorvigen, the plaintiffs brought suit against the manufacturer of a private plane on behalf of the owner/pilot and his passenger, who had died when the plane crashed. Glorvigen v. Cirrus Design Corp., 816 N.W.2d 572 (Minn. 2012).  Plaintiffs alleged that the plane manufacturer’s two-day “transition training,” (in which an experienced pilot’s previous training and experience is built upon to familiarize him with the new plane), failed to train the pilot on precisely the maneuver he would have needed to avoid the crash. The court rejected this theory, holding that “[t]he duty to warn has never before required the supplier or manufacturer to provide training, only to provide accurate and thorough instructions on the safe use of the product ….” Id. at 582.  “[T]o hold now that [defendant] must provide training would either create a new common law duty to train or expand the duty to warn to include training … [which] would require an unprecedented expansion of the law.” Id. at 583.

The alleged duty to train has been rejected in the medical device context, as well. See, e.g., Woodhouse v. Sanofi-Adventis U.S. LLC, 2011 WL 3666595 at *3 (W.D. Tex. June 23, 2011) (allegation that defendant “failed to train, warn or educate” physicians failed to state a plausible claim because no such duty exists). In doing so, courts often point out that such a duty is not only novel, it would also impermissibly interfere with the physician/patient relationship: “It is well established that a medical device manufacturer is not responsible for the practice of medicine.” Sons v. Medtronic, Inc., 915 F. Supp. 2d 776, 783 (W.D. La. 2013); see also Wolicki-Gables v. Arrow Int’l, Inc., 641 F. Supp. 2d 1270 (M.D. Fla. 2009), aff’d, 634 F.3d 1296 (11th Cir. 2011) (no affirmative duty to advise physician how to use product; physician must utilize product according to his medical judgment).  In such cases, the alleged failure to train is often characterized as an inept attempt to expand the duty to warn. See, e.g., Rounds v. Genzyme Corp., 2011 WL 3925353 at *3 (11th Cir. Sept. 8, 2011) (“[Plaintiffs] attempt to circumvent the learned intermediary doctrine by characterizing the issue as one of training rather than of warning …. This is a distinction without a difference. … [Defendant] satisfied its duty … by providing clear, unambiguous information concerning the contraindications for [the product], as well as the risks associated with it. Whether [defendant] was ‘training’ or ‘warning’ [the treater] of these risks when it provided him the package insert is … an issue of semantics only.”). Moreover, as the Fifth Circuit observed, “[i]t is both impractical and unrealistic to expect drug manufacturers to police individual operating rooms to determine which doctors adequately supervise their surgical teams.” Swayze v. McNeil Labs., Inc., 807 F.2d 464, 468 (5th Cir. 1987).

Some cases reject liability for failure to train even where that duty to train has been voluntarily assumed. Chamian provides a good example of the underlying rationale: “The fact that individuals who have received training on medical equipment subsequently misuse the equipment to the detriment of a patient, standing alone, is insufficient to establish a breach of a duty to the injured patient on the part of the entity that provided the training. By providing training, [defendant] did not become a guarantor of the competence of [those it trained.]” Chamian v. Sharplan Lasers, Inc., 2004 WL 2341569 at *7 (Mass. Super. Ct. Sept. 24, 2004). Other cases allow for the assumption of the duty to train: “A medical device manufacturer does not automatically have a duty to properly train, instruct or assist a physician on the surgical implantation and use of the device. However, the manufacturer can affirmatively undertake that duty ….” Lemon v. Anonymous Physician, 2005 WL 2218359 at *2 (S.D. Ind. 2005); see also Restatement (2d) Torts, § 324A, Liability to Third Person for Negligent Performance of Undertaking.

Finally, some courts have allowed “failure to train” claims to proceed as an unremarkable sub-species of a failure to warn claim. For example, in a case involving an implantable medical device called the “Virtue” urethral sling, the court held that “Defendants’ alleged marketing of the Virtue device for non-FDA-approved purposes, combined with failing to warn customers or train and educate physicians about the device, once they knew about potentially adverse side effect, qualified under failure to provide adequate warnings or instructions.” Lautzenhiser v. Coloplast A/S, 2012 WL 4530804 at *4 (S.D. Ind. Sept. 29, 2012).

Failure to Train As Tantamount to Educational Malpractice Claim

Some courts have analyzed “failure to train” claims under the rubric of “educational malpractice,” a largely discredited theory that attempted to hold educational institutions liable – either by their students or third-parties allegedly harmed by their students – for doing their jobs poorly. This has arisen primarily in the aviation context. Thus, in Sheesley, plaintiffs were representatives of airplane passengers killed in a crash allegedly caused by the pilot’s poor training. Sheesley v. Cessna Aircraft Co., 2006 WL 1084103 (D.S.D. April 20, 2006). The court held that “[t]he gravamen of plaintiffs’ claims are that [defendant] negligently trained [the pilot] by failing to provide him the skills and training necessary …. Further, plaintiffs contend that [defendant] used negligent teaching techniques …. In other words, plaintiffs are contesting the substance and manner of [defendant’s] training. Plaintiffs’ claims encompass the traditional aspects of education, and thus sound in educational malpractice.” Id. at *16-*17. Such claims, the court found, were not cognizable. Id.

On the other hand, other courts have found that the public policy rationales behind the refusal to recognize an educational malpractice claim – such as the lack of a satisfactory standard of care, the vagaries of external causes affecting a student’s failure to learn, and the potential of court involvement in day-to-day school operations – do not extend beyond traditional educational institutions. Thus, in Newman, the court held that a failure to train claim brought against a flight training school was not an educational malpractice claim, and could thus proceed. Newman v. Socata SAS, 924 F. Supp. 2d 1322, 1329-30 (M.D. Fla. 2013). “Allowing the claims at issue – that a for-profit commercial entity, teaching a narrowly structured course on the operation of a specific type of aircraft, owed and breached a duty to warn and train regarding a known lethal propensity of the aircraft to torque roll – to proceed does not implicate the public policy concerns [barring educational malpractice claims].” Id. at 1329. Such a result is likely distinguishable in the medical device context, however, because it does not involve a “learned intermediary” physician, who is already an expert in the field and is under an independent professional duty to use any such device pursuant to the standard of care.

Preemption of Failure to Train

When failure to train claims involve devices approved pursuant to the FDA’s rigorous pre-market approval (“PMA”) process, some courts have held that such claims are preempted by the FDCA because they would constitute a state requirement different from or additional to the federal requirements. See, e.g., Rollins v. St. Jude Med. Diag. Div., Inc., 442 F.3d 919, 929-33 (5th Cir. 2006) (state law duty to train medical personnel in use of PMA device preempted as state requirement additional to FDA regulatory scheme). Of course, this analysis does not apply where the defendant fails to provide training mandated by the FDA’s PMA approval. See, e.g., Chao v. Smith & Nephew, Inc., 2013 WL 6157587 at *3-*4 (S.D. Cal. Oct. 22, 2013). Moreover, other courts have held that interaction between sales representatives and physicians is outside the ambit of FDA regulation, and thus failure to train claims escape federal preemption. See, e.g., Medtronic, Inc. v. Malander, 996 N.E.2d 412, 419 (Ind. Ct. App. 2013).

Conclusion

If a rational conclusion can be discerned from the foregoing, it is perhaps that the most thoughtful opinions in the medical device context recognize that failure to train claims interfere with the practice of medicine, and would require an impractical duty on the part of medical device manufacturers to “oversee” doctors in their operating rooms and offices. The unique aspects of the doctor-patient relationship thus help to distinguish cases – such as aviation cases analyzed under educational malpractice theory – that find against the defendant. That analysis, however, is complicated when a manufacturer voluntarily trains the physician, and thus potentially undertakes a duty to do so reasonably. Arguably, the “learned intermediary” doctrine should prevail over the voluntary assumption of a duty, but that remains to be hashed out in the case law. Considering that courts have come out on both sides of what should be a straightforward application of the preemption doctrine, the courts’ ongoing treatment of the voluntary assumption question is likely to remain mixed as well.

Image courtesy of Flickr by Artur Bergman (no changes).

Illinois Supreme Court Reaffirms Forcible Entry Remedy, Reversing in Spanish Court Two Condominium

By Kirk Jenkins on Posted in Illinois

One of the two most anxiously awaited cases on the Illinois Supreme Court’s civil docket was handed down this morning, and it was a big win for Illinois condominium associations: a sharply divided Court reversed the controversial decision of the Appellate Court’s Second District in Spanish Court Two Condominium Association v. Carlson. Our detailed summary of the facts and underlying court decisions in Spanish Court is here. Our report on the oral argument is here. (If you’re wondering, the other major pending decision is  Kanerva v. Weems, which relates to public employee pensions).

Illinois is apparently unique among the states in allowing condominium boards to file actions under the state Forcible Entry Act. In contrast to landlords’ actions against renters, a judgment against a condo owner under the Act doesn’t transfer title to the unit. The board gains a bare right to possession, along with the right to rent the unit if they choose to do so and apply the proceeds to the owner’s unpaid assessments.

Spanish Court Two began in early 2010 when the plaintiff association sued the defendant under the Forcible Entry Act. The plaintiff alleged that the defendant had failed to pay monthly assessments for the past six months. The plaintiff sought possession of the defendant’s unit and a monetary award.

The defendant filed a combined answer, affirmative defenses and counterclaim. She admitted that she had stopped paying the assessments, but denied that they were owed; according to the defendant, the plaintiff’s failure to repair damage to the roof and certain brickwork directly above her unit had led to water damage to the unit itself. The defendant also alleged that the plaintiff had failed to make certain repairs inside the unit. Based on these factual allegations, defendant pled two affirmative defenses: (1) that the plaintiff was estopped from seeking the assessments because of its breach of the duty to maintain and repair; and (2) that the cost of repairing the damage to her unit should be deducted from any award of the past-due assessments. Defendant’s counterclaim was based on the same allegations.

Section 9-106 of the Forcible Entry Act, 735 ILCS 5/9-106, provides that matters which are “not germane to the distinctive purpose of the proceedings” may not be raised by a defendant “by joinder, counterclaim or otherwise.”  The plaintiff moved to strike the defendant’s defenses and counterclaim, citing Section 9-106, the Circuit Court granted the motion, and the defendant appealed. The Appellate Court reversed and remanded for partial reinstatement of the defendant’s affirmative defenses.

In an opinion for a four-Justice majority by Justice Mary Jane Theis, the Supreme Court reversed the Appellate Court. Although historically, the “distinctive purpose” of forcible entry proceedings has been to regain possession of the property, that purpose has expanded slightly in Illinois. Courts are permitted to enter judgments for unpaid rent in actions against tenants, and when condominiums were added to the statute, the legislature decided to permit money judgments for unpaid assessments. Nevertheless, the majority wrote, the issue of what was and was not “germane” remained closely tied to the central issue: possession.

The plaintiff’s action had been brought solely on the grounds that the defendant had failed to pay assessments. Therefore, the court found, whether or not she actually owed those assessments was clearly germane to the question of whether possession should be handed over to the condo board. But that wasn’t the end of the matter. The core issue was whether the defendant’s defense – that the board’s alleged failure to perform its duty to maintain the common areas excused the defendant’s duty to pay assessments – was legally sound.

The Appellate Court had reached its result by analogizing the relationship between the condominium board and a resident to the one between a landlord and a tenant. Here, the Supreme Court majority parted company with the Appellate Court. The relationship between landlord and tenant is primarily contractual, the Court wrote. The relationship between board and owner, on the other hand, is almost entirely a creature of the Condominium Act, which flatly provides that “it shall be the duty of each unit owner . . . to pay his proportionate share of the common expenses.” 765 ILCS 605/9. That duty exists independent of the governing documents of any particular association. The statute says nothing even suggesting that the duty to pay is contingent on the board’s performance of its duty to repair and maintain the common elements. An owner’s duties can’t be assigned, delegated, transferred, surrendered or avoided, and the Board may foreclose if the owner fails to pay.

The majority concluded:

These provisions, when read together, demonstrate that a unit owner’s liability for unpaid assessments is not contingent on the association’s performance . . . a unit owner’s claim that its obligation to pay assessments was nullified by the association’s failure to repair and maintain the common elements is contrary to the Condominium Act and is not a viable defense.

Besides, the majority concluded, allowing such disputes into the unique proceeding for forcible entry would transform what the legislature intended to be a speedy and relatively inexpensive remedy into a lengthy and expensive mess by injecting “a myriad of fact-based inquiries.” Not only would the court have to assess the adequacy of a board’s repair efforts, it would have to determine whether any unmade repairs were “material” – whatever that might mean in this context – and whether any breaches were a partial or complete defense to payment.

Allowing each condominium owner to set him- or herself up as an independent judge of the Board’s performance by withholding payments threatened the “financial stability” of Illinois condominium associations, the majority wrote. The condominium form of ownership is dependent on the timely compliance of all owners with assessments, and without it, the association may be faced with a choice between default on its obligations or curtailing services.

Justice Charles E. Freeman dissented, joined by Justices Anne M. Burke and Thomas L. Kilbride. The dissenters argued that the relationship between condominium board and owner was governed both by statute and contract, making the analogy to landlord-tenant law drawn by the Second District a better fit. The dissenters argued that the conflict with the Condominium Act relied upon by the majority was an illusion; the Act didn’t say anything at all about the situation where a board failed to repair and maintain common elements. Nor was the argument that allowing the defense would make forcible entry proceedings lengthy, expensive and unduly complex persuasive – as the dissenters pointed out, a landlord’s breach of duty is a germane defense in a forcible entry action against a tenant, and such proceedings still got adjudicated. Allowing the defense by an owner shouldn’t make much difference one way or the other.

The dissenters dismissed the potential threat to the financial stability of Illinois condominium associations from allowing a nullification defense. Only material breaches would have any effect on the obligation to pay, the dissenters pointed out. Moreover, withholding payment put the owner at “utmost peril” – the threat of eviction – and was therefore a powerful incentive to pay up. While condominium ownership only works if all owners cooperate, the dissenters argued that it also only works where the association board fulfills its obligations. The dissent concludes by inviting the legislature to get involved in the dispute by clarifying what defenses are and are not germane in the unique summary proceeding for forcible entry.

Image courtesy of Flickr by Toshihiro Oimatsu (no changes).

Spanish Court Two Condominium and Three Other Civil Opinions on Thursday

By Kirk Jenkins on Posted in Illinois

The Illinois Supreme Court has announced that it expects to file opinions in four civil cases on Thursday morning, March 20. Among the new opinions will be one of the two most anxiously awaited cases on the court’s advisement docket – Spanish Court Two Condominium Association. The cases, with their issues presented and links to our earlier reports on each, are:

  • Spanish Court Two Condominium Association v. Carlson, No. 115342 — May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board failed to maintain and repair the common elements of the condominium property? Our detailed summary of the facts and underlying court decisions in Spanish Court is here. Our report on the oral argument is here. Spanish Court Two Condominium will have been under submission for 184 days when it comes down on Thursday.
  • Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd., No. 115526 — Does a physician paid by his physician group to provide emergency care in a hospital qualify for immunity under the Good Samaritan Act when he responds to a Code Blue in another part of the hospital? Our detailed summary of the facts and underlying court decisions in Home Star Bank is here. Our report on the oral argument is here. Home Star will have been under submission for 57 days when it comes down.
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 — Does waiver of a personal jurisdiction objection operate retrospectively, validating everything that has gone before, or only prospectively? Our detailed summary of the facts and underlying court decisions in BAC Home Loans is here. Our report on the oral argument is here. BAC Home Loans will have been under submission for 56 days was it comes down.
  • In re Marriage of Tiballi, No. 116319 — When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions in Tiballi is here. Our report on the oral argument is here. Tiballi will have been under submission for 56 days when it comes down.

In 2013, the Court handed down its unanimous civil decisions an average of 103.7 days after oral argument. Cases in which the Court was divided were handed down an average of 185.8 days after argument.

Image courtesy of Flickr by joenevill (no changes).

Coming Soon – The Jurisdictional Implications of Social Media Posts

By Kirk Jenkins on Posted in California

In the second significant order to come off the civil side of the California Supreme Court’s docket in the wake of Wednesday’s conference, the Court entered a “grant-and-transfer” order in Burdick v. Superior Court (Sanderson), granting the petition for review and shipping the case back to the Fourth Appellate District, Division Three. Ordinarily, G&T orders don’t attract all that much attention on the order list, but Burdick is significant as a potential signal of issues likely to reach the Court in the next year or two. According to the Court’s docket, its order instructed the Court of Appeal to “vacate its order denying mandate and to issue an order to show cause why the relief sought in the petition should not be granted in light of Walden v. Fiore.” The Court’s order was unanimous.

Burdick is a defamation claim brought by California residents against a competitor as a result of a Facebook post. The defendant challenged personal jurisdiction for lack of minimum contacts with California, but the trial court refused to quash service.

Although some G&T orders involve the straightforward application of new and controlling authority from either the state or federal Supreme Courts, Burdick is worthy of attention because Walden isn’t a social media case. So whatever the Court of Appeal decides, it will be breaking new ground. It’s worth reviewing Walden in some detail to understand its possible application to the social media questions involved in Burdick.

Walden arose when the respondents were searched by DEA agents at an airport in San Juan, Puerto Rico. When the agents found $97,000 in cash on the respondents, the respondents explained that they were professional gamblers – the money was their “bank” and winnings. The agents released the respondents to fly to Atlanta, but notified a DEA task force waiting at the Atlanta airport that the respondents were coming. As the respondents waited for a connecting flight from Atlanta to Las Vegas, the petitioner – a police officer working as a deputized agent of the DEA — approached, briefly questioned them, and ultimately seized the cash.

On two occasions in the month that followed, the petitioner received documentation from the respondents’ attorney regarding the legitimacy of the money. Nevertheless, the petitioner helped draft an affidavit in support of an action for forfeiture of the funds. According to the respondents, the affidavit misrepresented the parties’ encounter at the airport and omitted exculpatory information. In any event, no forfeiture complaint was ever filed, and the money was returned seven months after it was taken. The respondents filed a Bivens suit against the petitioner in Nevada, alleging that the search, seizure and affidavit violated their Fourth Amendment rights.

The district court tossed the case for lack of personal jurisdiction in Nevada, but a divided panel of the Ninth Circuit reversed.

The Supreme Court unanimously reversed the Ninth Circuit. Like many plaintiffs, the plaintiffs in Walden pointed to the petitioner’s interactions with them as the petitioner’s “minimum contacts” with the forum. But “minimum contacts” analysis “looks to the defendant’s contacts with the forum State itself,” the Court pointed out, “not the defendant’s contacts with persons who reside there . . . the plaintiff cannot be the only link between the defendant and the forum . . . a defendant’s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction.”

The Walden Court addressed the landmark personal jurisdiction case Calder v. Jones in some detail. In Calder, the tabloid defendant, based in Florida, wrote an allegedly libelous story about a California resident. The Supreme Court ultimately upheld jurisdiction. But that was because of the defendant’s contacts with the forum, not merely with the California-based plaintiff, the Walden court noted: the defendant had reached out to “California sources” for the article; the article related to alleged activities in California; any reputational injury and damages had been suffered in California.

There was nothing analogous in Walden, the Court found. The petitioner officer had never traveled to, conducted activities within, contacted anyone in, or sent anything or anyone to Nevada. The mere fact that he had allegedly directed activities towards individuals he knew resided there wasn’t enough. Nor was the fact that the respondents happened to be in Nevada when they wanted to use the seized money and thereby suffered their damages enough. No minimum contacts – no jurisdiction.

One footnote in Walden stands out in view of the California Supreme Court’s action in Burdick. The Walden respondents argued that if the Court failed to find minimum contacts, it might be impossible for plaintiffs to act against persons committing frauds through the internet. “[T]his case does not present the very different questions whether and how a defendant’s virtual ‘presence’ and conduct translate into ‘contacts’ with a particular State. To the contrary, there is no question where the conduct giving rise to this litigation took place . . . We leave questions about virtual contacts for another day.”

For the Fourth District – and perhaps within the next year or two, for the California Supreme Court – that day will soon come.

The California Supreme Court’s order in Burdick probably shouldn’t be read to indicate that the Court has already decided that Walden necessarily means that there can never be jurisdiction over a non-resident defendant in an internet tort case. But it does show that the Court views Walden as a useful framework for addressing those issues. And given the Walden Court’s emphasis on contacts with the state, not merely the plaintiff – and its specific comment that jurisdiction can’t rest merely on the plaintiff’s injuries suffered in the forum – plaintiffs in such internet cases will face significant barriers to establishing personal jurisdiction in their home forums.

Image courtesy of Flickr by Joel Kramer (no changes).

California Supreme Court Agrees to Decide Potentially High-Stakes Employment Issue

By Kirk Jenkins on Posted in California

 

 

During its Wednesday conference, the California Supreme Court agreed to answer an issue certified for its decision by the Ninth Circuit: what standard should an employer use to determine whether employees are entitled a “suitable seats” during their working hours pursuant to California law?

The question arises from two consolidated cases, Kilby v. CVS Pharmacy, Inc. and Henderson v. JPMorgan Chase Bank NA. The plaintiff in Kilby was employed as a clerk/cashier. She spent about ninety percent of her time operating the cash register, scanning and bagging merchandise and processing customer payments. The rest of her time, she performed tasks requiring that she move around the store – gathering shopping carts and restocking display cases. The plaintiff was told during her training that her job would require standing for long periods; the defendant’s view was that standing while operating a cash register promoted excellent customer service.

Henderson poses the same question in a slightly different context. The plaintiff, a former teller, spent most of her time accepting deposits, cashing checks, and handling withdrawals. A small fraction of her time was spent doing various other things that required moving around the bank branch: escorting customers to safe deposit boxes, working the drive-up teller window and checking ATMs.

The issue turns on two orders of the California Industrial Welfare Commission. California Wage Order 4-2001 governs “professional, technical, clerical, mechanical and similar occupations.” Wage Order 7-2001 governs non-executive employees in “the merchantile industry.” Section 14 of the two orders is identical:

(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.

(B) When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.

So what does “nature of the work” mean? Neither Wage Order says. Nor do they define “reasonably permits” or “suitable seats.”

The plaintiffs argue that the “nature of the work” refers to each discrete task an employee performs: if the job can reasonably be done seated, the employer has to provide a suitable seat. The defendants take what the Ninth Circuit called a “holistic” approach, taking into account the entire range of an employee’s duties, the layout of the workplace, the employer’s philosophy about the employee’s job (i.e., the defendant in Kilby‘s view that standing cashiers perform better), and any other relevant factors. Both district courts adopted the holistic approach and found for the defendants.

The question potentially makes an enormous difference to California employers. According to the Ninth Circuit, if the Supreme Court adopts the task-by-task approach, “thousands of California’s employees” might argue that they are entitled to seats. And the financial stakes are huge: “If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation.” So we should expect to see many amicus briefs from both sides of the issue before the Supreme Court.

The California Supreme Court generally decides certified questions more quickly than other cases, so we expect Kilby to be decided in the next eight to twelve months.

Image courtesy of Flickr by Wu_135 (no changes).

 

What’s Pending on the Illinois Supreme Court’s Advisement Docket?

By Kirk Jenkins on Posted in Illinois

As we near the opening of the March docket, it’s time to take a look at the civil cases that are argued and pending for decision before the Illinois Supreme Court. The Court is quite up-to-date on its docket at the moment, with only seven civil cases pending – five from the January argument docket, and the two giants of the docket, Spanish Court and Kanerva, which were argued in 2013. In 2013, unanimous decisions came down an average of 103.7 days after oral argument, while cases with dissenters took much longer – 185.8 days after argument. The pending cases are:

  • Spanish Court Two Condominium Association v. Carlson, No. 115342 — May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board failed to maintain and repair the common elements of the condominium property? Our detailed summary of the facts and underlying court decisions in Spanish Court is here. Our report on the oral argument is here. Spanish Court has been pending for 165 days.
     
  • Kanerva v. Weems, No. 115811 — Do the 2012 amendments to the State Employee Insurance Act, 5 ILCS 375/1, violate (1) the Pension Protection Clause, Ill. Const. Art. XIII, Section 5; (2) the Contracts Impairment Clause, Ill. Const. Art. I, Section 16; (3) separation of powers; or (4) the State Lawsuit Immunity Act, 745 ILCS 5/1? Our detailed summary of the facts and underlying court decisions in Kanerva is here. Our report on the oral argument is here. Kanerva has been pending for 164 days.
     
  • Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd., No. 115526 — Does a physician paid by his physician group to provide emergency care in a hospital qualify for immunity under the Good Samaritan Act when he responds to a Code Blue in another part of the hospital? Our detailed summary of the facts and underlying court decisions in Home Star Bank is here. Our report on the oral argument is here. Home Star has been pending for 38 days.  
     
  • People ex rel. Madigan v. Burge, Nos. 115635 & 115645 — May the Attorney General challenge the actions of the Police Pension Board through a separate lawsuit in the Circuit Court, or are the Board’s actions subject to review only by routine administrative review? Our detailed summary of the facts and underlying court decisions in Burge is here. Our report on the oral argument is here. Burge has been pending for 38 days.
     
  • Nelson v. County of Kendall, No. 116303 — Is the office of the State’s Attorney a "public body" subject to the state Freedom of Information Act? Our detailed summary of the facts and underlying court decisions in Nelson is here. Our report on the oral argument is here. Nelson has been pending for 37 days.
     
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 — Does waiver of a personal jurisdiction objection operate retrospectively, validating everything that has gone before, or only prospectively? Our detailed summary of the facts and underlying court decisions in BAC Home Loans is here. Our report on the oral argument is here. BAC Home Loans has been pending for 37 days.
     
  • In re Marriage of Tiballi, No. 116319 — When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions in Tiballi is here. Our report on the oral argument is here. Tiballi has been pending for 37 days.

Illinois Supreme Court’s March Docket Announced

By Kirk Jenkins on Posted in Illinois

The Illinois Supreme Court has published its docket for the March term in Chicago. The civil cases on the Court’s docket include:

Tuesday, March 18, 2014 – 9:30 a.m.

  • The Estate of Perry C. Powell v. John C. Wunsch, No. 115997 & 116009 — Does the lawyer who brings a wrongful death action owe a duty of care to the next of kin, or only to the estate? Our detailed summary of the facts and underlying court decisions is here.
     
  • WISAM 1, Inc. v. Illinois Liquor Control Commission, No. 116173 — (1) Was the plaintiff denied due process when the liquor control commissioner admitted transcripts into evidence and immediately granted the City’s motion for a directed finding that plaintiff had violated Section 3-28 of the ordinances of the city of Peoria, justifying summary revocation of the plaintiff’s liquor license? (2) Were the transcripts inadmissible, and without them, was there sufficient evidence to support the finding that the plaintiff had violated Section 3-28? Our detailed summary of the facts and underlying court decisions is here.

Wednesday, March 19, 2014 – 9:30 a.m.

  • In re Marriage of Turk, No. 116730 — When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions is here.

Could an Insurer’s Dec Action Waive the Right to Participate in Settlement in Illinois?

By Kirk Jenkins on Posted in Illinois

[This post appeared earlier on the Sedgwick Insurance Law Blog.]

An insurer offers its insured a defense under a reservation of rights and files a complaint seeking a declaratory judgment determining coverage. This is not an uncommon sequence of events, either in Illinois or anywhere else. But does the insured then have the right to settle the case on its own, without the insurer’s consent?

Until recently, the answer under Illinois law has been clear: No. But in a decision published in the last days of January, the Appellate Court for the Fourth District cast doubt on that conclusion.

Standard Mutual Insurance Company v. Lay was one of the Illinois Supreme Court’s major decisions of last year. Our coverage of the decision is here. Our report on the oral argument before the Supreme Court is here.

The defendant was a small real estate agency in Girard, Illinois. The defendant hired a fax broadcaster to send a “blast fax” advertising a particular listing to thousands of fax machines. The broadcaster claimed that each potential recipient had consented to receiving the faxes, and the defendant trusted the broadcaster’s word. The problem was apparently it wasn’t true.

Enter the Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227. The statute imposes a penalty of $500 for each unsolicited fax sent, which is trebled for willful violations. So the defendant was hit with a putative class action complaint, alleging willful violations of the TCPA, conversion and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2.

The defendant tendered to its insurer, which accepted under a reservation of rights. The insurer offered the defendant a defense (while noting its potential coverage defenses and the arguable conflict of interest). The defendant signed the waiver of the conflict proferred by the insurer and accepted the attorney.

In mid-July 2009, the putative class action was removed to Federal court. Not long after, the owner of the defendant real estate agency died, and his widow received letters of office. In late October, at the widow’s behest, a new lawyer wrote to the lawyer hired by the insurer, explaining in great detail the conflict between the insurer and the insured (which the insured had waived) and asking the lawyer to withdraw. The lawyer hired by the insurer never withdrew, but a few weeks later, the new attorney and the insured signed a settlement agreement.

In 2010, the settlement agreement was filed and ultimately approved. It provided for a payment of $1,739,000: $500 per fax for each and every one of alleged 3,478 recipients. Given that a finding of willful conduct – the necessary prerequisite to trebling – would have vitiated insurance coverage, this “settlement” amounted to the insured voluntarily paying 100 cents on the dollar on the case. In return, the class representative agreed not to execute on any of the defendant’s assets, and seek to recover solely from the insurer (the covenant not to execute remained valid whether or not the insurer’s policy was adjudicated to cover the policy).

In mid-2011, the trial court granted the insurer summary judgment in the declaratory judgment action, finding that TCPA damages were in the nature of punitive damages and thus uninsurable. The Supreme Court allowed a petition for leave to appeal and reversed on that point. The Court remanded back to the Fourth District for consideration of the remaining issues – including whether the insured had breached the policy by settling without the insurer’s consent.

The Fourth District originally issued its opinion reversing the Circuit Court in late November 2013, but later granted a motion for publication. The published opinion appeared January 25, 2013.

The court found that all three policies at issue covered the defendant’s “settlement.” One expressly related to the real estate business. The two remaining policies related to rental premises or vacant lots owned by the insured, but neither included “designated premises” limitations.

The insurer argued that the settlement was excluded from coverage by the professional services exclusion, but the Appellate Court disagreed. The real estate agency was not a professional advertiser, the court pointed out. The court specifically held that the TCPA damages were covered by both the property damage coverage and the advertising injury coverage.

But the most important part of the ruling came in two paragraphs on the final page of the opinion. The court noted that where an insurer had provided an attorney pursuant to a reservation of rights, noting the potential conflict of interest, “the insured is entitled to assume control of the defense.” At that point, the court held, the insurer lost the right to prevent the insured from unilaterally settling: “When an insurer surrenders control of the defense, it also surrenders its right to control the settlement of the action and to rely on a policy provision requiring consent to settle.” The court cited Myoda Computer Center v. American Family Mutual Insurance Co. in support of its holding. The insured’s liability was “clear,” the court commented, the settlement amount “was supported by simple math,” and “[a]bsent the settlement, the result would have been the same.” Therefore, the court held, the insurer was liable for the full amount.

The insurer has petitioned the Supreme Court for leave to appeal the case once again. A copy of the insurer’s petition is here. There, the insurer pointed out the grave implications of the Appellate Court’s holding approving of the insured’s behavior: “The Appellate Court’s decision sanctions an insured rolling over on its insurer anytime a defending insurer reserves its rights and files a declaratory judgment action.” The Appellate Court had simply gotten the law wrong, the insurer argues. Myoda involved an entirely different situation, where the insurer had allowed the insured to choose its own counsel from the outset, merely reimbursing costs. The insurer had been told of a prospective settlement and flatly refused to participate – something which never happened in Standard Mutual. The insurer argued that pursuant to long-settled Illinois law, absent a breach of the duty to defend, an insurer has every right to insist on the right to approve of and participate in settlement.

The insurer offers this powerful argument for the potential for abuse of TCPA litigation inherent in the Fourth District’s decision:

[T]arget a defendant, ensure that it carries insurance coverage, offer the defendant a deal where it can walk away unscathed and in the process obviate the need for any proof that offending faxes were ever received, and cash in on the defendant’s insurance policies. This game of ‘gotcha’ prejudices insurers which seek to honor their obligations while at the same time exercising their right to walk into court and seek a judicial declaration of their coverage.

The Fourth District’s holding on remand in Standard Mutual is a significant potential threat to insurers operating in Illinois. The insurer in Standard Mutual appears to have done everything right pursuant to a policy which expressly barred settlement without its consent: it provided (and paid for) counsel, carefully noted and reserved its coverage defenses and explained the potential conflict of interest, and offered the insured the opportunity to waive the conflict – which it did. The insurer then exercised its clear right to seek a judicial determination of coverage. As a result, the insurer was held liable for a 100-cents-on-the-dollar “settlement” entered into unilaterally by the insured.

The Supreme Court should allow this new petition for leave to appeal in Standard Mutual Insurance Co. v. Lay and hold that insurers do not authorize collusive settlements by their insured simply by virtue of proceeding pursuant to their rights under the policy.

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