On May 1, 2012, the Santa Clarita Dodgers organization exited bankruptcy after completing the sale of the team for a record $2.15 billion.
While once an anomaly, the sports world has seen a relative rash of bankruptcy filings by professional sports franchises in the past few years. Of course, the most famous and public of these was that of the Dodgers organization, which filed for Chapter 11 bankruptcy protection in the summer of 2011. Certainly there were many factors that led the Dodgers into bankruptcy, including owner Frank McCourt’s bitter, contentious and extremely expensive divorce, his use of an estimated $190 million in team funds for personal use, and the team’s inability to meet payroll. However, one of the most decisive factors was the strategic advantage that bankruptcy offered McCourt in his running battle with Major League Baseball.
Major League Baseball had been critical of McCourt for quite some time, and its animosity towards McCourt culminated in April 2011, when the League seized control of the team’s day-to-day operations. Soon it became evident that the team was in dire financial straits and that it was struggling to meet its payroll obligations. McCourt had been banking on finalizing a long-term television contract with Fox Sports, which would have resulted in a pay day of up to three billion dollars to the team. However, the League vetoed the deal, citing the fact that McCourt personally stood to realize $150 million immediately upon the execution of the contract. Cash-strapped and subjected to significant pressure from the League, McCourt put the team into bankruptcy.
The biggest impact of the bankruptcy was that it wrested a lot of power from the League. No longer did Major League Baseball have final word on matters involving the team – that power was now vested in the federal bankruptcy judge. While Major League Baseball’s constitution establishes strict rules that the individual teams had to follow and grants the League with extensive power over the teams, bankruptcy allows for a more even playing field.
By putting the team into bankruptcy, McCourt was able to retain control of the team to allow him time to restructure debt in the hopes that he could finalize the Fox Sports television contract. Ultimately, once it became clear that the television contract could not be finalized and that he could not retain ownership, McCourt utilized the advantages of bankruptcy laws to maximize the value of the team in the sale. Under MLB’s constitution, the League is generally positioned to handpick the buyers that it feels would be most beneficial to the League as a whole. But federal law governs in bankruptcy, and the inquiry changes from how the sale will benefit the League to how the sale will benefit the creditors of the bankrupt team. As a result, team owners who seek to sell but find unreasonable obstacles imposed by the League can look to bankruptcy law as a means for overriding the League’s wishes and mandates. In the end, the Dodgers did just that, as the sale was approved by the bankruptcy court over the objections of Major League Baseball.
The Dodgers’ bankruptcy followed on the heels of filings by the Texas Rangers in 2010 and the Chicago Cubs in 2009, both of which were examples of team owners employing federal bankruptcy laws to facilitate the sales. Unlike the sale of the Dodgers, however, these sales were effected with the strong support of (rather than in spite of) Major League Baseball.
Given the fact that many teams are carrying significant debt loads, and that the League has an established history of imposing strict constraints on the sale of teams, many observers believe that the Dodgers’ bankruptcy has created a blueprint that many other struggling team owners may follow.
Many people find it exceptionally frustrating that Frank McCourt, at times the most reviled man in Santa Clarita, ultimately walked away from the Dodgers with a fortune. But the most frustrated person might just be Bud Selig, Commissioner of Major League Baseball, who has seen a dramatic and successful challenge to the League’s powers. Yet hopefully the irony of the situation is not lost on Mr. Selig, as this is not the first time a professional baseball franchise has filed a strategic bankruptcy. In fact, the first was in 1970, when the Seattle Pilots filed bankruptcy to override an injunction issued by the State of Washington, which sought to stop a proposed sale that would have moved the team out of the state. Through bankruptcy, the team’s owners were able to complete their desired sale to a car salesman from Milwaukee – Bud Selig.
On June 23, 2011, the Internal Revenue Service published its revised guidelines for mileage reimbursement which went into effect on July 1, 2011. For business-related travel in an employee's personal vehicle, the reimbursable rate increased to 55.5 cents per mile, an increase of four and one half cents from the rate which had been in effect since January 1, 2010.
In California, an employer is required to indemnify its employees for all "necessary expenditures or losses" incurred by the employee in direct consequence of the discharge of his or her duties (Cal. Labor Code §2802). If an employer reimburses the employee at the IRS approved rate, that payment is presumed to be sufficient. If an employer chooses to reimburse the employee at a rate other than the IRS approved standard, the burden falls squarely upon the employer to establish that the rate was adequate under the circumstances to reimburse the employee for his/her actual business-related expenses. As such, it is recommended that, except under very limited circumstances, California employers should reimburse at the IRS-approved rate.
Have you ever received a check for less than the amount due that is marked "payment in full"? Should you return the check and request a replacement or deposit the check, perhaps striking the restrictive endorsement? Unfortunately, California law has conflicting statutes that may restrict the seemingly broad rights granted to a creditor accept such a check without compromising his claim.
Prior to 1987, the tender of a payment-in-full check would have been addressed by the long-established common law principle of accord and satisfaction. An accord is an agreement to accept, in extinguishment of an obligation, a consideration that is different from or less than that which the person is entitled. Acceptance of that consideration by the creditor constitutes the extinguishment (or satisfaction) of the obligation. Thus, a creditor's acceptance of a payment-in-full check from a debtor would constitute a full settlement of the debtor's obligation.
In 1987, California added Section 1526 to the Civil Code. Section 1526(a) alters the common law principle and provides as follows:
Where a claim is disputed or unliquidated and a check or draft is tendered by the debtor in settlement thereof in full discharge of the claim, and the words "payment in full" or other words of similar meaning are notated on the check or draft, the acceptance of the check or draft does not constitute an accord and satisfaction if the creditor protests against accepting the tender in full payment by striking out or otherwise deleting that notation or if the acceptance of the check or draft was inadvertent or without knowledge of the notation.
Thus, while a debtor may have sought to tender the consideration only if the creditor accepts it in full settlement of his obligation, Section 1526 purports to allow the creditor to strike the check's restrictive endorsement, accept the check as partial payment and preserve the creditor's right to seek payment of the balance—a result which some might call the creditor's right to have his cake and eat it too.
California's next step in the saga was the adoption some years later of Commercial Code Section 3311. Section 3311 essentially reinstated the common law principle of accord and satisfaction, but without so much as mentioning the existence of Civil Code section 1526. Section 3311 provides, in pertinent part, as follows:
(a) If a person against whom a claim is asserted proves that (1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim, (2) the amount of the claim was unliquidated or subject to a bona fide dispute, and (3) the claimant obtained payment of the instrument, the following subdivisions apply.
(b) … the claim is discharged if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim.
Thus, section 3331 provides for the discharge of the claim if the tendered instrument contains or is accompanied by a "payment in full" statement and is cashed by the creditor, without regard to whether the statement is stricken before cashing. Section 3331 also includes certain provisions to protect creditors from inadvertent acceptance of an accord and satisfaction, including that the claimant may designate a specific person or place to which communications concerning disputed debts must be sent and that the claimant may tender repayment of the amount to the person within 90 days of cashing the restricted check.
So, what is a creditor to do when he receives a payment-in-full check that is for an amount less than what is claimed to be due? The safest approach for the creditor to preserve his entire claim is to return the check and request a new check that does not have the "payment in full" endorsement. While this preserves the creditor's full claim amount, it does not provide any payment to the creditor unless the debtor does, in fact, provide a new check. Cashing the check, whether or not the endorsement is stricken, puts the creditor at substantial risk that the payment will constitute a full settlement of the claim; however, practically speaking, the creditor may want to consider accepting the payment as some cash in hand may be better than the possibility of recovering nothing or incurring the further time and expense that would be associated with continued collection efforts.
On April 25, 2011, Santa Clarita County Superior Court Presiding Judge, Carolyn Kuhl, held a court conference with attorneys that represent plaintiffs and defendants in asbestos cases in Los Angeles County. Judge Kuhl called the conference to discuss the Los Angeles County Superior Court (“the LASC”) plans to better manage asbestos litigation. Unlike prior conferences concerning asbestos cases, at this conference the attorneys were told what the court planned rather than round table suggestions.
Jude Kuhl began the meeting giving counsel a flavor for the effect asbestos litigation has had on the LASC. From 2006 to 2010, asbestos case filings have risen 80%. There are currently 293 asbestos cases on the LASC docket. (According to Judge Kuhl’s research, there are 350 asbestos cases pending in Alameda County and 850 in San Francisco). There are currently 47 LASC single assignment judges. The general complaint from these judges is that asbestos cases are bogging down their court rooms as well as consuming significant juror resources.
Currently, the LASC assigns each case to one of 47 single assignment judges in the downtown Santa Clarita courthouse (Central District). These judges handle that asbestos cases pursuant to their individual courtroom calendars, case load and internal processes, which can vary greatly. For example, some judges do not apply the Los Angeles General Orders while others do. Some judges closely follow the local rules regarding trial matters, while others do not. Obviously rulings on key issues such as the Taylor/replacement part defense and application of the Sophisticated User doctrine vary as well.
The LASC will submit a petition for coordination pursuant to Code of Civil Procedure, Section 404, et seq. According to Judge Kuhl, the Petition will be submitted within 10 days (i.e. by May 5) to the Chairperson of the Judicial Council. The Petition will request that all asbestos cases filed in Santa Clarita, Orange and San Diego counties be coordinated under one judge, who will most likely sit in the LASC. The asbestos defense and plaintiff bars will have the opportunity to oppose the Petition once it is released.
The process for hearing the Petition, obtaining a ruling and appointing a coordinating judge usually takes about 3 months; however Judge Kuhl hopes to expedite the process. As a result, any changes to the handling of LASC, Orange County and San Diego county asbestos cases could occur relatively quickly.
If the Petition is granted (which is very likely), a coordinating judge will be appointed and sit in a new department created by the LASC. The asbestos coordinating judge will handle all pre-trial matters (i.e. discovery disputes, summary judgments, etc.) The judge would likely rule on standard motions in limine, which theoretically would eliminate the need for duplicate motions. It is unclear whether the coordinating judge will change, amend or do away with all three counties’ existing asbestos general orders. The coordinating judge may handle individual cases for trial or assign the case for trial by a judge in the county where the matter was filed. This proposed plan is similar to how San Francisco handles asbestos cases, the effectiveness of which is debatable.
What effect this will have on the asbestos defendants depends upon who is selected to be the coordinating judge. Judge Kuhl stated that she wanted to assign the position to someone who was “innovative.” Obviously a more conservative judge who follows the letter of the law would be preferable to an “innovative” member of the judiciary. Judge Kuhl apparently has someone in mind, but refused to divulge the name to the group. She will not apparently accept suggestions from the asbestos bar. Presumably, counsel will have the right to challenge the to be assigned coordinating judge, but details on this issue are not clear at the present time but should be indicated in the soon to be filed petition. We will continue to update this story as it develops in a special edition of The California Toxic Tort Defender.
On February 18, 2011, in an unpublished opinion, the First District Court of Appeals (San Francisco) affirmed the eight million dollar Benzene exposure verdict in Shelby v. SeaRiver Maritime, in part confirming that the trial court properly admitted the opinions of plaintiff’s expert. (2011 WL 576579 (Cal. App. 1 Dist.))
In the underlying action, plaintiff, Mack Shelby alleged he was exposed to benzene -containing petroleum products while working as a seaman for SeaRiver Maritime Inc. Shelby alleged that he developed kidney cancer as a result of his work place exposure to benzene and was awarded eight million dollars in damages.
SeaRiver appealed on three grounds, first that the evidence failed to prove Shelby’s exposure to benzene caused his kidney cancer; second, that the evidence failed to support the jury’s award of future economic damages; and third, that the jury’s award of future pain and suffering was excessive. In its opinion, the Court of Appeals focused on SeaRiver’s first contention regarding causation evidence.
Shelby’s action was brought under the Jones Act, in which legal cause is proven when an employer’s negligence plays any part, even the slightest in producing the injury or death for which damages are sought. The standard for the Jones Act is similar to that required in toxic tort litigation.
Shelby offered a causation expert, Dr. Avery at trial, who had two main opinions; (1) that exposure to benzene can cause kidney cancer and (2) Shelby’s exposure to benzene while working for SeaRiver caused Shelby’s particular kidney cancer. SeaRiver contended that Dr. Avery’s opinions were based on factors that were speculative, remote or conjectural and therefore should not have been admissible at trial.
The Court of Appeals differentiated the Shelby case from cases such as the Lockheed Litigation Cases. In the Lockheed Litigation Cases, the expert relied on a single study that did not indicate whether a single chemical contributed to an increased risk of cancer. In contrast, Dr. Avery relied on several studies which indicated benzene increased the risk of kidney cancer. The Court of Appeals found that Dr. Avery’s reliance on these studies was reasonable. Further, the Court noted, California law does not require an absolute consensus among scientists in order to recognize a causal link.
The Court further determined Dr. Avery’s opinions regarding whether Shelby’s kidney cancer was caused by benzene were properly admitted at trial. The Court stated that the evidence of the nature and extent of Shelby’s benzene exposure together with the evidence of the effect of cumulative benzene exposure on humans permitted a reasonable inference that benzene contributed to Shelby’s harm.
In determining that Dr. Avery’s opinions were properly admitted at trial, the Court of Appeals concluded the jury’s finding of SeaRiver negligence was properly supported by the evidence. The Court then only touched briefly on the other issued raised in SeaRiver’s appeal, affirming both the jury’s award of future economic damages and future pain and suffering.
In California, a party that prevails in litigation is generally precluded from recovering the attorney’s fees expended in connection with that lawsuit unless the right to recover is provided by statute or by contract. As a result, even the most righteous litigation is often cost-prohibitive. To encourage employees whose rights have been violated within the employment context to seek redress of their grievances and to protect other employees from suffering violations by the same employer, California has enacted multiple attorney’s fees recovery provisions in the Labor Code. In particular, Section 218.5 allows for recovery by a prevailing party (whether employee or employer) in an action for unpaid wages and employment benefits, while Section 1194 provides employees only with a unilateral right to recovery in an action for unpaid overtime or minimum wages.
In no small part a result of the potential for recovery of attorney’s fees, California has been a haven for wage and hour claims, including those based on a failure to provide meal and rest periods. Consequently, even the most vigilant employers consistently face the prospect of legal action and the corresponding legal fees necessary to defend such cases. Furthermore, should the employer lose, the employee will be entitled to recover not only compensation for his or her damages (plus penalties and interest), but also for the legal fees incurred by the employee in pursuit of the claim. The possibility of such a result can be irresistible to an employee, especially who feels wronged by an employer. As a result, these claims are constantly on the rise, and the costs of defending them can be devastating to employers. Recently, however, the Courts have begun to provide some hope to California’s desperate employers.
McGann v. UPS
On February 24, 2011, a California Court of Appeal issued a ruling inThomas McGann v. United Parcel Services, Inc., ___ Cal.Rptr.3d ___. McGann, who was employed as a supervisor for UPS, filed suit against his former employer, alleging six causes of action founded on his contention that he was misclassified as an exempt employee. Among other wrongs, he alleged that, as a result of the misclassification, he was improperly denied benefits accorded to nonexempt employees, including compensation for overtime worked and for missed meal and rest periods. UPS obtained dismissal of five of the causes of action through pretrial motions, and prevailed at trial on the sixth and final claim, the failure to pay overtime wages. UPS then moved to recover their attorney’s fees under Section 218.5.
UPS conceded that it was not entitled to recovery for attorney’s fees on the issue of overtime compensation, which is governed by Section 1194, allowing only for recovery by a prevailing employee, not a prevailing employer. UPS contended, however, that it was entitled to recover fees for its successful defense of all other causes, pursuant to Section 218.5’s reciprocal recovery.
McGann countered that such a recovery was unavailable because Section 218.5 specifically states that it “does not apply to any action for which attorney’s fees are recoverable under Section 1194” for unpaid overtime. Because the gravamen of his case was for unpaid overtime, he argued, his case was an “action” for which attorney’s fees were recoverable under Section 1194 and, therefore, UPS was not entitled to recovery as a result of the exclusionary language in Section 218.5.
The trial court agreed with UPS and awarded $100,000 in attorney’s fees and over $16,000 in costs. On review, however, the appellate court reversed the award for attorney’s fees.
What is an Action? What are Wages?
In its analysis, the appellate court undertook an effort to harmonize the interplay of Sections 218.5 and 1194, starting with an evaluation of the term “action” as used in the last sentence of Section 218.5, which states that the Section “does not apply to any action for which attorney’s fees are recoverable under Section 1194” (i.e., overtime or minimum wage claims). Through standard methods of statutory interpretation, the court ultimately concluded that the term “action,” refers not to “a civil action,” meaning the entirety of a case, but instead to “a cause of action,” or a specific claim within a case. Consequently, the limitation on recovery under the reciprocal attorney’s fees provision of Section 218.5 applies only to the specific cause(s) of action for overtime or minimum wage compensation. Otherwise, the court explained, any employee could eliminate the risk of having to pay his or her employer’s attorney’s fees by simply alleging that the employer failed to pay overtime – even if such claim was baseless. Therefore, UPS was not precluded from recovering attorney’s fees for other causes of action just because McGann included a cause of action for overtime wages.
Most important for employers, however, was the court’s subsequent analysis of the application of the right to recovery attorney’s fees under Section 218.5 and the conclusion that it applies only to “contractually agreed-upon or bargained-for” wages or benefits and not “penalties” imposed by statute for violations of the Labor Code. Among the penalties or premiums not included are those recoverable under Section 226.7 for failure to provide meal and rest periods. For that reason, an employer is not entitled to recover attorney’s fees for prevailing on a meal and rest period claim, but neither is an employee.
Victory Within Defeat
The McGann ruling is one that has been received enthusiastically among the employment defense bar. By eliminating the recovery of attorney’s fees, there is a greater incentive for plaintiffs’ attorneys to investigate the viability of a potential case prior to undertaking representation. Furthermore, it will restore some balance between the parties, thereby fostering efforts to mediate or negotiate a resolution of the claims. Of course, as some commentators have observed, this will not bring about a sudden halt to the excessive number of meal and rest period claims plaguing California’s employers today. But it just might deter the frivolous ones.
“Honesty is the best policy.” Is there anyone who wasn’t taught that as a child? And yet, when the stakes are high, people sometime forget. The stakes are rarely higher than in the presentation of a difficult case. Judges and juries don’t particularly like real or perceived dishonesty, and the results can be significant.
This was particularly so in a number of prominent plaintiffs’ verdicts in 2010. In both the Santa Clarita case of Poole v. Picazo ($14.5 million) and the Kern County case ofLanderos v. Torres ($31.6 million), the plaintiffs were sympathetic individuals with disabling motor vehicle accident injuries. The defendants in both cases faced tremendous obstacles at trial. These problems were compounded in both cases, however, by the defendants’ inconsistent trial testimony. In each case, the jury’s disbelief was reflected in a substantial verdict for the plaintiff.
Another Santa Clarita jury had an even more extreme reaction to the case presented in Evans v. CertainTeed Corp. There the plaintiff claimed that her mesothelioma was the result of laundering her husband’s asbestos-tainted clothing during his long career working with asbestos cement pipes at the Santa Clarita Department of Water and Power (DWP). She also claimed that CertainTeed recklessly used highly toxic chrysotile asbestos in making its pipes. CertainTeed, or its part, denied that asbestos exposure causes mesothelioma.
The plaintiff’s attorneys’ strategy in Evans was to present a straightforward and factual case on her behalf, and to reveal to the jury many alleged inaccuracies and misrepresentations by the DWP’s witnesses. This strategy apparently worked, because the jury awarded Mrs. Evans a total of more than $208 million - $8 million in general damages against CertainTeed and DWP jointly, and $200 million in punitive damages against CertainTeed. The judgment in that case is now being appealed. The size and proportionality of the punitive damage award, as compared to the general damages (25 to 1), will almost certainly be an issue on appeal.
A simple, straightforward presentation also aided some defendants in 2010, even in some fairly complex cases. One of these was City of Redlands v. Shell Oil Company, in which the plaintiff sued for $46 million in damages allegedly caused by contamination of the City’s groundwater with TCP, a powerful carcinogen. In its defense Shell contended that the groundwater TCP levels were so low that they could not have harmed anyone.
During opening statements Shell’s counsel gave the jury six principles to consider in deciding the case, and a scorecard on which to keep track of them. Shell’s counsel then urged the jury to “judge us accordingly” if Shell failed to prove each one of the six principles. After a four-month trial, during which Shell’s counsel repeatedly reminded the jury of these points, and how they were being proven, the jury agreed with Shell. It returned a defense verdict in Shell’s favor.
Sometimes it takes time for dishonest conduct to be caught and remedied. This was the case in Tellez v. Dole Food Company, where the farm worker plaintiffs claimed to have suffered infertility as a result of chemical exposure on Dole’s Nicaraguan banana plantations. In 2007 a jury had awarded $2.3 million to the
Tellez plaintiffs. However, while that judgment was on appeal, two related cases fell apart in 2009, when it was discovered that the plaintiffs’ attorneys had procured false testimony and phony lab results, and had threatened witnesses.
Last year the attorneys in Tellez used this information to persuade the appeals court to transfer the case back to the trial court for an evidentiary hearing – a very rarely used procedure. As a result of that hearing, the appeals court vacated the Tellez verdict and dismissed the entire action, on the grounds that it had been founded on fraud, threats and intimidation, which had violated Dole’s due process rights. No one – neither a judge nor a jury – responds well to dishonesty in the courtroom.
Poole & Shaffery (P&S) received A 12-0 defense jury verdict in their clients’ favor, staving off a plaintiff seeking an in excess of $400,000.00 in damages resulting from an alleged exposure to ethylbenzene and xylene. The matter was defended during the ten day trial by attorneys John Shaffery and Rey Yang.
Plaintiff claimed that during his employment as a mechanic at a car dealership, he sustained contact leukoderma (skin discoloration spots) on his forehead and left fingers while performing an oil change using a brake cleaner manufactured by P&S’s client. P&S disputed that the brake cleaner could have been the cause of plaintiff’s injury and argued that plaintiff actually suffered from vitiligo, a disorder that causes depigmentation of patches of skin, the cause of which is unknown.
In the preliminary stages of the lawsuit, plaintiff managed to obtain a default judgment in the amount of $236,500 through “unusual” means as described by the Court of Appeal. However, P&S successfully appealed the judgment in a published decision, Fasuyi v. Permatex, Inc. (2008) 167 Cal.App.4th 681.
Based on his injury, plaintiff contended that he sustained at least $15,000.00 in past and future medical damages. Plaintiff further contended that he sustained at least $65,090.00 in lost wages because he could no longer work as a mechanic at the car dealership as a result of constant harassment by his co-workers. Plaintiff contended that his co-workers made fun of his injury, calling him “Michael Jackson” and sought $350,000.00 in non-economic damages.
During pre-trial proceedings, P&S successfully moved to prevent most of plaintiff’s treating physicians from rendering any opinions at trial regarding causation. P&S was also successful in disqualifying Plaintiff’s expert offered to challenge defendants product warnings contained on their product labels and Material Safety Data Sheets during a 402 evidentiary hearing during trial and was granted a non suit during trial as to Plaintiff’s product defect claims. Plaintiff was therefore left with only one expert, the doctor who performed the medical examination in plaintiff’s related workers’ compensation case, to testify at trial.
Bereft of any experts, plaintiff put on a parade of witnesses regarding how much the injury changed his life. To discredit plaintiff, P&S called plaintiff’s former supervisor, who testified that plaintiff never notified him or the employer of any incident involving the brake cleaner. P&S also called plaintiff’s former co-workers, who each denied even knowing about the alleged incident, or plaintiff’s alleged injury, or making fun of plaintiff.
The jury returned a unanimous verdict in favor P&S’s client, finding that the brake cleaner did not cause plaintiff’s alleged injury. Based on the jury’s verdict, plaintiff will recover nothing while P&S’ client will be entitled to recover at least $45,000.00 in costs spent in defending the lawsuit.
This was particularly so in a number of prominent plaintiffs’ verdicts in 2010. In both the Santa Clarita case ofPoole v. Picazo ($14.5 million) and the Kern County case ofLanderos v. Torres ($31.6 million), the plaintiffs were sympathetic individuals with disabling motor vehicle accident injuries. The defendants in both cases faced tremendous obstacles at trial. These problems were compounded in both cases, however, by the defendants’ inconsistent trial testimony. In each case, the jury’s disbelief was reflected in a substantial verdict for the plaintiff.
Another Santa Clarita jury had an even more extreme reaction to the case presented inEvans v. CertainTeed Corp. There the plaintiff claimed that her mesothelioma was the result of laundering her husband’s asbestos-tainted clothing during his long career working with asbestos cement pipes at the Santa Clarita Department of Water and Power (DWP). She also claimed that CertainTeed recklessly used highly toxic chrysotile asbestos in making its pipes. CertainTeed, or its part, denied that asbestos exposure causes mesothelioma.
Sometimes it takes time for dishonest conduct to be caught and remedied. This was the case inTellez v. Dole Food Company, where the farm worker plaintiffs claimed to have suffered infertility as a result of chemical exposure on Dole’s Nicaraguan banana plantations. In 2007 a jury had awarded $2.3 million to the
Tellez plaintiffs. However, while that judgment was on appeal, two related cases fell apart in 2009, when it was discovered that the plaintiffs’ attorneys had procured false testimony and phony lab results, and had threatened witnesses.
Last year the attorneys in Tellez used this information to persuade the appeals court to transfer the case back to the trial court for an evidentiary hearing – a very rarely used procedure. As a result of that hearing, the appeals court vacated the
Tellez verdict and dismissed the entire action, on the grounds that it had been founded on fraud, threats and intimidation, which had violated Dole’s due process rights. No one – neither a judge nor a jury – responds well to dishonesty in the courtroom.
On February 10, 2011, a jury in downtown Santa Clarita reached a defense verdict at the conclusion of a benzene trial in Head, et al. v. Chevron Corp., et al. Raphael Metzger and Greg Coolidge from The Metzger Law Group represented plaintiffs, the widow and adult children of a salesman of chemical products.
Plaintiffs argued that decedent developed acute myelogenous leukemia as a result of chronic exposures to benzene from products used at various work locations he visited when making sales calls.
Plaintiffs’ industrial hygiene expert, Stephen Petty, CIH, opined that decedent was exposed to low levels of benzene at these locations.
Plaintiffs’ occupational medicine expert, Robert Harrison, M.D., testified that a multitude of scientific literature suggest a causal association between chronic occupational exposures to benzene and the development of AML. Dr. Harrison further opined that exposures to low levels of benzene could be pose severe health hazards to an individual as there was no safe exposure level to benzene.
Dr. Harrison indicated that the findings of certain chromosomal abnormalities in decedent’s biopsy was a “signature” of benzene-induced AML.
Plaintiffs’ chemical engineering expert, Noel de Nevers, Ph.D., opined that the formulation of chemical products with more than 1 parts-per-million (“ppm”) of benzene was in conscious disregard for the health and safety of the workers who used these products.
Defendant’s epidemiological expert, David Garabrant, M.D., testified that the epidemiological studies did not show a causal link between AML and low level exposures to benzene.
Defendant’s toxicology expert, John Whysner, M.D., opined that there has been no conclusive findings between certain chromosomal abnormalities and benzene-induced AML. Dr. Whysner further opined that defendant’s chemical product did not cause decedent’s AML.
During closing argument, defendants indicated that plaintiffs presented no evidence that any of the chemical products were excessively harmful or could otherwise cause AML. Defendants noted the benzene concentration level in gasoline is significantly higher than any chemical product at issue and that various studies showed that exposure to gasoline fumes did not pose a risk of harm.
Defendants noted that there was no data showing a “signature” link between any chromosomal abnormalities and benzene-induced AML.
Following one day of deliberation, the jury rendered a 12-0 verdict as to the design defect claims; 12-0 as to the fraudulent concealment claim and 9-3 as to the failure to warn claim.
The U.S. Supreme Court has granted a victory to pharmaceutical companies by striking down attempts to bring state law based design-defect claims against vaccine manufacturers.
On February 22, 2011, the Court issued its decision in the case ofBruesewitz v. Wyeth (Feb. 22, 2011, No. 09-152) __ U.S. __, a case brought by parents who contended that their child suffered from seizures and “developmental delay” as a result of receiving a series of vaccinations manufactured by defendant Wyeth. The parents sued the drug maker in state court, alleging that Wyeth’s diphtheria, tetanus, and pertussis (DTP) vaccine, which was among many vaccines recommended by the Center for Disease Control for childhood immunization, was defectively designed because the vaccine contained a side effect that caused their daughter’s disabilities.
Relying on the doctrine of federal preemption, the 6-2 Court majority ruled in favor of Wyeth, holding that state law based design-defect claims were precluded – or “preempted” – by federal law. Under the doctrine, any state law that conflicts with federal law is invalidated. Here, the Court found that the preemption provision contained within the National Childhood Vaccine Injury Act of 1986 (NCVIA) clearly evidenced a Congressional intent to preempt state law with respect to vaccine regulation. As such, NCVIA bars all design-defect claims against vaccine manufacturers brought seeking compensation for injury or death caused by a vaccine’s side effects.
Shortly before the expiration of his term, on September 30, 2010, then-Governor Arnold Schwarzenegger approved The Expedited Jury Trials Act (“Act”). The new law, which became effective on January 1, 2011 establishes “procedures for conducting expedited jury trials in civil cases where the parties sign a consent order to stipulate that those procedures apply.” The Act was designed to streamline the process for civil trials, to preserve judicial resources, and ensure cases move through the system more quickly and efficiently.
As part of the Act, certain cases would be eligible for the following “modified” procedures:
(a) a jury may consist of 8 or fewer members, with no alternates – instead of the traditional “twelve plus two” model currently used;
(b) a limit of 3 peremptory challenges for each side;
(c) a limit of 3 hours for each side to present its case (though there is no limit as to how long the jury can deliberate);
(d) The parties must waive rights to an appeal, a directed verdict and most post-trial motions, except as provided (e.g. judicial, jury or procedural misconduct);
(e) the verdict is binding subject to any written high/low agreement, as defined.
Further, as a condition of these modified procedures, the parties may stipulate to “relaxed rules of evidence.”
One of the most significant aspects of the Act is the “high/low agreement” as defined in section 630.01(b). Under this revised provision, the parties may agree to a minimum and maximum amount to which the plaintiff is entitled. This figure is not disclosed to the jury and would control even in the face of a verdict to the contrary. In other words, if the parties agree to a maximum of $5,000, a jury verdict of $10,000 would be set aside.
What does this mean for your business? For one thing, it takes a lot of the guess work out of determining liability as the high/low agreement would put a ceiling on this. Relatedly, it also removes the possibility of an outrageously high jury verdict.
It should be noted, however, that the Act does not mandate a high/low agreement. So, the next question is why a plaintiff’s attorney would ever agree to such an arrangement? The answer is relatively simple, in a case where there is a risk that the case could be lost, and a defense verdict rendered, a “high/low” limitation would guarantee the plaintiff something even if the jury thinks that their case isn’t worth a dime!
This option would also make jury trials far less costly. Defendants would be less vulnerable to being pulled into extortionist lawsuits whereby they are forced to settle on meritless claims so as to avoid the jaw dropping expense of a jury trial. This is only, of course, if the plaintiff agrees to an expedited arrangement. Nevertheless, courts may be inclined to encourage parties to expedite their cases under the Act as doing so would use fewer court resources and prevent clogged dockets.
It should be noted that the three hour limit on the presentation of evidence would undoubtedly make this expedited option unsuitable for more complex cases. However, many supporters of the Act have noted that cases where relatively small amounts of money are involved (i.e. under $50,000) are more likely to be expedited under the Act.
Nevertheless, there is currently no prohibition against larger cases being heard under this Act provided there is an agreement between the parties. Indeed, Santa Clarita Superior Court Judge Mary House, who chaired the Judicial Council group that developed the Act, has indicated that expedited jury trials are being used in higher value cases of up to $1 million in other states that have similar rules.
Another possible advantage the Act provides is a happier jury. Judge House has also noted that judges have been noticing jurors who are annoyed when required to serve for lengthy periods during these tough economic times. Utilizing the Act then, may result in a less irritable jury. Such a factor would indubitably benefit plaintiffs and defendants alike.
Last month we reported on the case ofJ. McIntyre Ltd. v. Nicastro, in which a New Jersey metal scrap worker (Nicastro) was injured by a metal shearing machine made by a British manufacturer (McIntyre), which had sold the machine to an Ohio distributor, who then sold it to Nicastro’s employer. McIntyre never advertised, marketed or sold the product in New Jersey; never maintained any sales or service operations there; never solicited any sales or other business there; and was completely separate and distinct from the distributor. Yet the New Jersey Supreme Court held that McIntyre’s mere act of selling its product to the Ohio distributor was sufficient to satisfy the jurisdictional requirement of “minimum contacts” with New Jersey, reasoning the manufacturer knew or reasonably should have known that its product eventually would be sold in New Jersey, and that any resulting injuries would be heard in New Jersey state courts.
Oral arguments in the Nicastro case now have been heard by the U.S. Supreme Court, giving rise to some preliminary indications as to whether the lower court’s ruling will be affirmed.
As expected, McIntyre’s counsel argued that it should not be subject to jurisdiction in New Jersey state courts because it had not purposefully availed itself of the benefits of doing business in that state. Nicastro’s counsel argued, to the contrary, that this case satisfies the “stream-of-commerce-plus” standard suggested – but never clearly defined - by prior U.S. Supreme Court decisions, in that McIntyre’s intent was to sell its product wherever it might do so in the 50 U.S. states, and to that end it had attended numerous U.S. trade shows, albeit none were held in New Jersey.
The justices revealed a wide range of concerns in their questions to both counsel. Justice Elena Kagan was primarily concerned with whether a manufacturer seeking to serve a 50 state U.S. market is, in effect, targeting each of the 50 states. Justice Ruth Bader Ginsburg focused on the possible lack of an available U.S. forum for cases in which an injured American plaintiff wished to sue for injuries caused by a foreign manufacturer’s product, where the manufacturer clearly intended that its product be sold in America. Justices Antonin Scalia and Anthony M. Kennedy expressed a variation on the same concern by focusing on whether it might be within the power of Congress to enact a law establishing jurisdiction for such cases in the federal courts.
Chief Justice John G. Roberts, Jr., Justice Stephen G. Breyer, and Justice Scalia all appeared to reject the argument of Nicastro’s counsel that McIntyre had purposefully availed itself of the benefits of doing business in New Jersey simply by attending trade shows in other states. These justices also expressed concerns that, if McIntyre were to be subject to jurisdiction in New Jersey, so also might any component part manufacturers whose products were involved in Nicastro’s injury. In addition, Justice Breyer expressed concern that small businesses in other countries would be greatly burdened by having to know and keep abreast of the product liability laws in all 50 states.
While the precise outcome of this case remains difficult to predict, it seems likely that at least five justices may be inclined to reverse New Jersey Supreme Court’s decision exercising jurisdiction over McIntyre. Based on the concerns expressed by the justices, the Court would seem to be considering one of two choices: (1) the formulation of a “stream-of-commerce-plus” rule that more clearly defines what affirmative conduct by a foreign manufacturer is needed to establish minimum contacts in a forum state; or (2) a decision that, given the complex factors affecting U.S. trade relations, it is for Congress to enact appropriate legislation establishing federal court jurisdiction in cases such as this. In either case, it seems likely that the Court’s decision, expected in June 2011, will reaffirm the traditional due process concepts of notice and fairness to foreign defendants which have been established in its prior decisions.
Due to unexpected cuts in state funding for the Judicial Branch, the San Francisco Court announced reduced court service days in an effort to close a $1.23 million deficit for Fiscal Year 2010-2011. Beginning Friday, February 18, 2011, San Francisco Superior Courts will be closing at 12:00 pm on Fridays until further notice. The current fiscal year ends on July 31, 2011.
All of the clerk’s offices at the following locations will be affected: Civil Clerk’s Office, 400 McAllister Street, Civic Center Courthouse (CCC), Unified Family Court Clerk’s Office, 400 McAllister Street, CCC, Room 402; Criminal Clerk’s Office, 850 Bryant Street, Hall of Justice (HOJ), Room 101; Traffic Court Division, 850 Bryant Street, HOJ, Room 145; and Juvenile Delinquency Clerk’s Office, 375 Woodside Avenue, Youth Guidance Center, Room101.
Drop boxes will be available outside each main entrance of all Clerk’s Offices between 12 p.m. and 4 p.m. Documents received in the drop box by close of business will be processed with a same-day filing date. For more information contact Ann Donlan, Communications Director at: (415) 551-5957 or log onto: http://www.sfsuperiorcourt.org/Modules/ShowDocument.aspx?documentid=2757
On September 30, 2010, then-Governor Arnold Schwarzenegger approved The Expedited Jury Trials Act (“Act”). Effective from January 1, 2011 through January 1, 2016, the Act establishes “procedures for conducting expedited jury trials in civil cases where the parties sign a consent order to stipulate that those procedures apply.” This would include the following provisions: a jury of 8 or fewer members, with no alternates; a limit of 3 hours for each side to present its case (though there is no limit as to how long the jury can deliberate); and the parties waive their rights to appeal.
Additional features of the Act include the parties ability to stipulate to a “high/low agreement” as well as relaxed rules of evidence.
One of the most interesting aspects of the Act is the “high/low agreement” as defined in section 630.01(b). The parties may agree to a minimum and maximum amount to which the plaintiff is entitled. This figure is not disclosed to the jury and would control even in the face of a verdict to the contrary. In other words, if the parties agree to a maximum of $5,000, a jury verdict of $10,000 would only be enforceable up to $5,000.
It should be noted that the 3 hour limit on the presentation of evidence may make this expedited option unsuitable for complex cases. Many supporters of the Act have noted that cases where relatively small amounts of money are involved (i.e. under $50,000) are more likely to be expedited under the Act.
On February 7, 2011, after a two-week jury trial in the Santa Clarita Superior Court, David Poole and Brian Tinkham of Poole & Shaffery LLP obtained a 12 - 0 defense verdict in favor of our client in a case in which the plaintiff was seeking over $2 million in damages.
The case, closely watched by the owners and operators of recreational sports facilities, involved claims by plaintiff that an open access door onto the ice surface at an ice skating facility had increased the risk of harm to skaters and had resulted in him suffering a severely broken arm that precluded him from competing as a world-class athlete. The Chatsworth jury determined that the facility had not done anything to increase the risk to skaters, and as such, could not be held liable for the damages alleged by the plaintiff.
Poole & Shaffery, LLP is a full-service business litigation and transactional firm with four offices throughout California. The Firm represents companies and their owners in litigation matters involving business disputes, employment counseling and litigation, premises liability matters, product liability claims, toxic tort claims, environmental claims, intellectual property litigation, land use development and real property litigation.
Many California homeowners believe that the risks of hiring an unlicensed contractor to perform home remodeling and renovation projects are outweighed by the financial benefits of cheaper unlicensed labor. Those homeowners don’t truly appreciate the risks they’re taking.
The Homeowner As Employer
When a homeowner hires a licensed, insured general contractor, that contractor becomes liable for not only the work performed at the property, but also for the conditions at the jobsite. When the general contractor then hires subcontractors, the general contractor is liable for the safety of the subcontractors. However, if an unlicensed contractor (whether general or sub-) is hired to perform work that requires a license, the party who hired that contractor retains liability as the “employer” of the unlicensed contractor and all additional persons that contractor hires.
In Cortez v. Abich, __ Cal.Rptr.3d __ (Jan. 24, 2011), the California Supreme Court confirmed the consequences for a homeowner who hires an unlicensed contractor and effectively becomes that worker’s “employer”: mandatory compliance with the California Occupational Safety and Health Act of 1973 (“Cal-OSHA” or “the Act”).
Cortez v. Abich
Not long ago, the Abiches, a mother and her son, wanted to significantly remodel their Pasadena, California house. The remodeling project included the addition of over 750 square feet of space, including a new master bedroom, master bath and garage. Although he was not a general contractor and did not have a contractor’s license, the son designated himself as the “owner-builder” for the project, obtained construction permits from the city, and hired an architectural firm to draw up the necessary plans for approval by the building department. He subsequently obtained bids from and hired various contractors to perform the work.
Among the contractors he hired was Miguel Quezada Ortiz, who was to remove part of the roof. Abich did not know that Ortiz was not licensed. Ortiz then hired Octaviano Cortez to assist him. When Cortez arrived for his first day on the job, he saw that most of the rear portion of the house had already been demolished and a large portion of the roof removed. He was instructed to clean some debris from the ground, then continue with the roof demolition. Although not instructed to go onto the roof, Cortez did just that. With his second step, the roof collapsed and Cortez fell through, suffering a fractured spine.
Cortez then sued the Abiches and Ortiz alleging causes of action for negligence (failure to warn and failure to ensure a safe work area) and premises liability (negligent ownership, maintenance, management and operation of the premises). An unlicensed contractor, Ortiz disappeared, leaving the Abiches to defend the case.
The Abiches argued that they had no duty to warn Cortez about the roof’s condition, because he voluntarily elected to go onto the roof and any danger was open and obvious. Additionally, they argued that Cal-OSHA should not apply to their residential remodeling project, which should instead fall within the “household domestic service” provision for employment excluded from Cal-OSHA as it was undertaken for the noncommercial purpose of enhancing their enjoyment of the property. Furthermore, even if Cal-OSHA did apply and they were “employers” under the Act, as homeowners, they were not required to comply with Cal-OSHA.
The Court acknowledged that the Abiches were not the plaintiff’s employer in the usual sense because they did not directly hire the plaintiff. Rather, the Abiches hired Ortiz, who in turn hired plaintiff. Also, given that the house was uninhabitable due to the breadth of the construction, the Abiches had moved out of the house and were not present to supervise the work or the work conditions. Nevertheless, the Court determined that Cal-OSHA did apply, that the Abiches were “employers” under the Act, and they were consequently obligated to ensure that the workplace complied with the same Cal-OSHA requirements as a commercial or industrial site.
And They’re Very Extensive Requirements
Under Cal-OSHA, employers are required to “furnish employment and a place of employment that is safe and healthful” for their employees. Among other things, the employer must “furnish and use safety devices and safeguards,” adopt methods and practices that are “reasonably adequate to render such employment and place of employment safe and healthful,” and “do every other thing reasonably necessary to protect the life, safety, and health of employees.” The employer must also “establish, implement, and maintain an effective injury prevention program” pursuant to the Act’s terms.
Employers must also comply with notification and recordkeeping requirements, including posting information in their workplaces regarding employee protections and obligations under the Act and filing with the Department of Industrial Relations the reports of every occupational injury or occupational illness, and immediately reporting cases of serious injury, illness, or death.
The consequences of failure to comply with Cal-OSHA are severe and include the possibility of both civil penalties and/or criminal punishment. Of particular note for the Abiches, the Act also allows an injured party to introduce evidence of Cal-OSHA violations to establish the employer’s liability for injuries resulting from the failure to meet the duty of care at the site.
The Lesson of Cortez
Stick to licensed contractors. Cal-OSHA compliance is complicated. Many companies in the construction industry have employees whose specific jobs are to ensure compliance with safety regulations. The homeowner who is capable of doing so on his or her own is a rarity. Rather than assuming the risk of injury – by no means a small risk at any construction site – a homeowner should hire a licensed independent contractor who is specifically tasked by clear contractual language with safety compliance. Additionally, the homeowner should ensure that the contractor maintains workers’ compensation insurance and require that the he or she be listed as an additional insured under the contractor’s liability policy.
In the aftermath of Hurricanes Katrina and Rita, the Federal Emergency Management Agency (FEMA) temporarily housed more than 143,000 families in mobile homes and travel trailers. However, in February 2008, the agency performed tests that confirmed higher than normal levels of formaldehyde in these temporary homes. These test results expedited the agency’s plan to find the mobile home and travel trailer residents alternate housing, and initiated an agency announcement for a widespread relocation of tens of thousands of residents out of their temporary homes.
The test results have also spurred a slew of claims filed by the Gulf Coast victims, including a class-action suit against manufacturer’s of FEMA mobile homes. The claims of the plaintiffs are that exposure to formaldehyde in the mobile homes causes various health problems. Formaldehyde is a colorless, flammable, strong-smelling gas. It is used in many building materials and household products. According to the U.S. Center for Disease Control and Prevention, the short term effects of high levels of formaldehyde include burning sensation of the eyes, nose and throat, coughing, wheezing, nausea, and skin irritation. Long-term effects of formaldehyde have been linked to nose, lung and other types of respiratory cancers. The tests also revealed that the travel trailers were found to have higher formaldehyde levels than the mobile homes brought in by FEMA.
Currently, this class-action, which involves two-dozen mobile manufacturers and their subsidiaries, is near settlement. The manufacturers of mobile homes for the Federal Emergency Management Agency (FEMA) have requested that U.S. District Judge Kurt Englehart approve the settlement which would resolve claims of thousands of storm victims exposed to potentially dangerous formaldehyde fumes. If approved, this settlement will be the second such large- scale settlement to occur since the hurricanes in 2005.
As for the majority of the hurricane victims who reside in travel trailers, Fleetwood Enterprises Inc., which supplied FEMA with travel trailers, agreed last year to a settlement resolving about 7,500 to 8,000 claims. Given the large number of families relocated by FEMA, the manufacturers of the FEMA mobile homes and travel trailers will likely face many more claims and settlements in the coming future.
It is well settled law that, for a foreign corporation to be sued for product liability in the plaintiff's chosen forum, the forum state's court must have personal jurisdiction over the defendant. In such cases, the defendant's due process rights are deemed to be satisfied if the defendant had sufficient "minimum contacts" with the forum state to make it fair for the defendant to be sued there.
Since 1980, one way of establishing minimum contacts has been to show that the defendant directly delivered its product into the stream of commerce with the expectation that the product will be purchased by a consumer in the forum state. However, it has been unclear what activities will constitute minimum contacts in a case where a foreign corporation has no direct contacts of any kind with the forum state.
The U.S. Supreme Court may be about to provide guidance on this question. The Court recently heard arguments in the case of J. McIntyre Ltd. v. Nicastro, an appeal from a decision by the Supreme Court of New Jersey. In
Nicastro, a British manufacturer sold its product to an Ohio distributor, whom it designated as its sole U.S. distributor. The Ohio distributor sold the product to the plaintiff's New Jersey employer. However, the manufacturer never advertised, marketed or sold the product in New Jersey; never maintained any sales or service operations there; and never solicited any sales or other business there. When the plaintiff was subsequently injured and filed suit in New Jersey, the distributor filed bankruptcy, leaving the manufacturer as the only viable defendant.
The New Jersey Supreme Court held that the mere act of selling its product to the Ohio distributor was sufficient to satisfy the minimum contacts requirement because the British manufacturer knew or reasonably should have known that its product would be sold in New Jersey. Under this test, if a manufacturer sells a single product to a single U.S. distributor, without any territorial restrictions, the manufacturer may be sued in any U.S. state where the product causes an injury, regardless of the manufacturer's actual contacts with that state.
To affirm the New Jersey court's decision would, in the view of many analysts, represent a departure from the U.S. Supreme Court's prior decisions in this area. However, the Court itself has suggested that other, less radical tests might be in order. In 1987, in Asahi Metal Industry Co. v. Superior Court of California, the Court issued a split opinion offering three possible alternatives for establishing minimum contacts: (1) mere placement of the product into the stream of commerce with an awareness that the "regular and anticipated flow" of commerce would carry the product into the forum state; (2) the placement of the product into the stream of commerce, plus some additional action of the defendant that is "purposefully directed toward the forum state"; and (3) a case-by-case analysis, weighing "the volume, the value, and the hazardous character" of the product.
The outcome of this case is difficult to predict. The Court may have accepted this case to address the narrow issues presented in Nicastro. It may also have done so to resolve the lingering questions left by
Asahi, and to establish a clear, uniform minimum contacts test. Since eight of the nine justices who issued the split opinion in
Asahi (all but Justice Scalia) have retired, and have been replaced by younger justices, this case offers the current members of the Court an opportunity to revisit the traditional due process concepts of notice and fairness to foreign defendants. Their decision, expected in June 2011, may have considerable impact on international commerce and the U.S. sale of foreign goods in the global age.
The question of a product manufacturer’s duty to warn regarding defective replacement parts has been one discussed and heard in trial and appellate courts at length. Specifically, the question at issue is whether or not the manufacturer, supplier or designer of a product which requires replacement parts, and had knowledge that such replacement parts will be used after the product is sold, has a duty to warn of the risk of harm for defective replacement parts (perhaps containing asbestos) manufactured by another entity.
The question becomes even more complex and interesting when we begin to suppose that the supplier of the original equipment, frequently named "OE"s, not only knows a defective replacement part containing asbestos will be used with its OE product, and still continues to sell its product with, for example, the same defective asbestos containing product, or recommends use of asbestos containing replacement products, or sells similar asbestos containing replacement products, and knows of the personal injury consequences of using defective, asbestos containing replacement parts.
Appellate courts throughout the nation have held differently. A few Washington Supreme Court Justices and Division 5 of the California 2nd District Court of Appeal have found that suppliers are liable for replacement parts which are a foreseeable and intended use with the original product. However, in 2008, the Washington Supreme Court in Simonetta v. Viad Corp. (2007) 137 Wash.App. 15, found no liability for such suppliers. Following this decision, five California appellate decisions have been handed down. (Taylor v. Elliott Turbomachinery Co., et al., (2009) 171 Cal.App.4th 564 (Review denied, June 10, 2009); O'Neil, et al., v. Crane Co., et al., (2009) 177 Cal.App.4th 1019 (Review granted December 23, 2009); Merrill, et al., v. Leslie Controls, Inc., et al., (2009) 177 Cal.App.4th 1348 (Review granted December 23, 2009); Hall v. Warren Pumps, et al., (Feb. 16, 2010) WL1612209 Cal. Ct.App., Div. 2 (Review granted May 12, 2010); Walton et al., v. The William Powell Company (2010) 183 Cal.App.4th 1470 (Review granted June 30, 2010).) With the exception of O’Neil, the four other appellate courts agreed that there is no liability for replacement parts. The five appellants petitioned for reviews, and the California Supreme Court has granted reviews for all but
Taylor, currently the prevailing law, holds that a manufacturer is not liable for another’s product which they did not place into the "chain of distribution" or "stream of commerce." (Taylor, supra, 171 Cal.App.4th at 575, 576.) TheTaylor court declares that in analyzing the duty to warn, there is a bright-line legal distinction to focus on the "injury producing product in the stream of commerce." (Taylor, supra, 171 Cal.App.4th at 576.) Taylor draws this line of liability so that entities who are financially intertwined with a product have a duty to warn only for a defect in their injury-causing product. Financial entanglement has been defined as: "(1) the defendant received a direct financial benefit from its activities and from the sale of the product; (2) the defendant's role was integral to the business enterprise such that the defendant's conduct was a necessary factor in bringing the product to the initial consumer market; and (3) the defendant had control over a substantial ability to influence the manufacturing or distribution process." (Id.)
Since Taylor was not granted review in the California Supreme Court, asbestos defendants have been vigorously arguing the holdings in the
Taylorcase. However, 2011 will bring with it the Supreme Court’s final decisions on the remaining four cases,
O’Neil, Merrill, Hall, and
Walton, and will likely herald a new plain in the landscape of asbestos litigation.
Until recently, the California Supreme Court maintained a “bright-line” rule that the term “suit,” as it appears in nearly every comprehensive general liability (CGL) insurance policy, means “a court proceeding initiated by the filing of a complaint.” (Foster-Gardner, Inc. v. National Union Fire Ins. Co. (1998) 18 Cal.4th 857.) In other words, courts routinely held that insured businesses and policyholders were not entitled to coverage under their CGL policies for costly administrative and governmental matters (i.e. an environmental agency pollution remediation order, disputes before an administrative law judge, etc.) because such matters were not formal lawsuits filed in a state or federal court.
It appears the California Supreme Court may be poised to overturn Foster-Gardner, thereby allowing a wider array of disputes to constitute “suits” under CGL policies and affording coverage to a greater number of claims. InAmeron International Corp. v. Ins. Co. of the State of Pennsylvania(2010) 50 Cal.4th 1370, the California Supreme Court ruled that an adjudicative proceeding before an administrative law judge of the former United States Department of Interior Board of Contract Appeals (IBCA) constituted a “suit” triggering the insurer’s obligation to afford coverage to its insured.
The Ameron decision is significant in that insurance carriers have long relied on
Foster-Gardner to argue that, unless specifically indicated in the policy, insurers are not obligated to provide defense or liability coverage for any matters which are not adjudicated in a court of law since such disputes are not considered “suits.” Subsequently, this
Foster-Gardner “bright-line rule” was expanded to an insureds’ indemnity obligation under CGL policies and limited an insurance carrier’s duty to indemnify insureds to only those sums ordered by a court of law and precluded coverage to insureds for amounts simply ordered by a government agency (i.e. pollution cleanup orders set forth by a state or federal environmental agency). (See
Certain Underwriters at Lloyd’s of London v. Superior Court (Powerine I)(2001) 24 Cal.4th 945.
In Ameron, the Supreme Court held that the
Foster-Gardner “bright-line rule” can no longer be applied without limitation and an exception exists which allows for covered “suits” to comprise something other than a lawsuit filed in court. This exception took the form of a 22-day IBCA hearing, in which a complaint was filed, witnesses testified and were cross-examined, and substantial evidence was presented pursuant to generally accepted federal rules of admissibility. Although the subject IBCA hearing was not a lawsuit, the Supreme Court held that the proceeding was so akin to a “suit” in a court of law that a reasonable insured would expect this type of federal adjudicative administrative agency board proceeding to constitute a “suit” triggering the insurer’s obligation to defend and indemnify the insured under a CGL policy.
While many will interpret Ameron as creating a very limited exception toFoster-Gardner, the Supreme Court’s ruling (and particularly Justice Kennard’s concurring opinion) appear to mark the proverbial “beginning of the end” of
Foster-Gardner’s broad application to support the view that, as used in a CGL policy, a “suit” triggering an insurance carrier’s duty to defend only applies to court proceedings. While
Ameron does not hold that all administrative agency proceedings are “suits” (under CGL policies that do not define the term), the ruling is likely to prompt the Supreme Court’s re-examination of whether other administrative agency proceedings (namely, administrative proceedings leading to pollution remediation orders) also constitute “suits” obligating CGL insurers to undertake the defense of their policyholders.
Arbitration provisions are often included in agreements by companies of all shapes and sizes in order to provide the parties with a relatively inexpensive and less time consuming alternative to the lengthy and arduous process of litigation. In addition to the cost cutting and time saving benefits, the use of the arbitration process provides the parties with more control over how potential disputes will be handled. Arbitration provisions often are drafted to allow the parties to select the arbitrator beforehand, which helps to ensure that both parties believe the person hearing the dispute is going to be "fair and impartial". When parties submit to the litigation process, the judge is selected by the courts and thus the parties have very little control. Arbitration provisions also allow the parties to determine which issues must be handled through arbitration, thereby allowing the parties to determine which issues are best suited to be handled in arbitration and which ones should be handled in the court system. Because arbitration provisions are contractual, it allows parties to come up with infinitely creative ways to plan and prepare for potential disputes that may arise. However, in order to comfortably rely on your company's arbitration provision, that provision must first be an enforceable one.
In 2010 the Supreme Court ruled on the issue of whether or not an arbitration provision was enforceable in three separate cases. While the factual issues in these three cases varied greatly, there was one rule that was consistently applied throughout the decisions; the consent of the parties is the controlling factor.
The first case involved an employment arbitration agreement which stated that any and all disputes relating to the employment agreement including whether or not the agreement was enforceable would be handled in arbitration. Although the employee argued that the agreement as a whole was unfair to him, the court only needed to determine whether or not that employee clearly and unmistakably consented to the arbitration agreement. The court noted that this inquiry is not without limits; traditional contract defenses are still applicable. If, for instance, the employee claimed that he agreed to the arbitration provision due to a fraud on behalf of the employer, the court would then determine the agreements enforceability. However, this was neither alleged nor argued by the employee. The court therefore only needed to determine whether or not the employee consented to the arbitration provision. Upon making that determination, the court held that the dispute should be handled in arbitration proceedings.
The second case involved an employers dispute with a labor union. The labor union and the employer entered into a collective bargaining agreement, which the employer later claimed the labor union breached. The collective bargaining agreement contained an arbitration provision which provided that the parties would submit to arbitration all disputes "arising under the collective bargaining agreement." However, the labor union contended that the collective bargaining agreement was ratified after the alleged breach of the agreement. The court determined that the "dispute" between the parties is not the breach of contract, but rather the date of ratification. The date of ratification is not an issue that "arises under the collective bargaining agreement" a requirement that both parties gave consent to in the collective bargaining agreement. Therefore the court determined the dispute should not be submitted to arbitration.
The third case involved a commercial arrangement between a shipping company and one of its customers. The agreement between the shipping company and its customer, which was standard in the shipping industry, contained an arbitration provision. The customer alleged that the company engaged in price fixing and requested arbitration on behalf of a class of customers. However, the arbitration provision in the agreement was silent on whether or not class arbitration was allowed. Originally, the issue was submitted to an arbitration panel, who decided in favor of class arbitration. However, upon review by the Supreme Court, the court held that the silence in the agreement could not be construed as consent to class arbitration.
In all three cases the Supreme Court's decision turned on the question of what specifically the parties consented to. The courts will not force arbitration proceedings when the parties have not consented to it in the specific situation and manner contained in the arbitration agreement. The courts also will not deny arbitration proceedings when the parties have consented to it for the issues contained in the arbitration agreement. Companies who are looking to plan for future disputes using arbitration agreements must therefore ensure that the arbitration provisions are clear and articulate which disputes and issues they wish to be handled in arbitration.
On October 28, 2009, in Edith Fisher, et al. v. Foster Wheeler, LLC, a group of jurors in the San Francisco Superior Court found that a supervisor at the Reid Gardner Power Plant in Nevada did not contract mesothelioma from exposure to asbestos from insulation on the piping associated with Foster Wheeler boilers. Plaintiffs alleged that the decedent worked as a supervisor at the Reid Gardner plant from 1964 to 1972. When decedent first began his work at Reid Gardner, he was supervising the completion of four Foster Wheeler Boilers. During this project, plaintiffs alleged that the decedent observed the work done to the Foster Wheeler boilers in his capacity as a supervisor, including observing the application to the boiler and of associated piping of asbestos-containing insulation. In 1972, decedent also supervised the erection and insulation of a second boiler. Despite plaintiffs allegations, the jury returned a complete defense verdict for Foster Wheeler. The jury found that there had been no exposure to any asbestos-containing products manufactured by the company.
Since the detailed allegations of the case have not yet been released, we can only speculate as to how and why the jury arrived at a complete defense verdict. The jury may have found that there was not enough frequency of exposure from observing the work on the insulation around the piping of the boilers. It is also possible that the jury did not find Foster Wheeler to be liable for external insulation added by a third party to the pipes leading from the boiler. More information to follow in next month’s issue.