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Oklahoma Supreme Court Reinforces an Insurer's Freedom to Contract for Liability Coverage and Finds that Insurer can Enforce Indoor Air Exclusion

 

On February 24, 2017, the Oklahoma Supreme Court answered a certified question from the United States District Court for the Western District of Oklahoma regarding the enforcement of the indoor air exclusion, and in doing so, reinforced an insurer’s freedom to contract for liability coverage.

Century Surety Company (“Century”) issued a Commercial Lines Policy to Siloam Springs Hotel, L.L.C. (“Siloam”). That policy included general liability coverage of a hotel owned by Siloam in Siloam Springs, Arkansas for the policy period from November 13, 2012 through November 13, 2013. The coverage provided by the policy was modified by an Arkansas Special Exclusions and Limitations Endorsement which added an Indoor Air Exclusion to the policy. That exclusion provided that the insurance afforded by the policy does not apply to bodily injury, property damage or personal and advertising injury “arising out of, caused by, or alleging to be contributed to in any way by any toxic, hazardous, noxious, irritating pathogenic or allergen qualities or characteristics of indoor air regardless of cause.”

On January 17, 2013, several guests staying at the hotel allegedly suffered bodily injury. i.e., poisoning caused by carbon monoxide that allegedly escaped into the air due to leakage from the hotel’s indoor swimming pool heater. Siloam sought coverage under its Century policy, but Century denied based on the Indoor Air Exclusion. Siloam filed suit in state court seeking a declaration that the policy provides coverage. The case was removed to the United States District Court for the Western District of Oklahoma where both parties filed summary judgment motions. The Western District granted Century’s motion, and denied Siloam’s motion. Siloam appealed the Western District’s ruling to the United States Court of Appeals for the Tenth Circuit. The Tenth Circuit did not reach the merits of the underlying case because it recognized a potential jurisdictional defect. However, in its final opinion, the Tenth Circuit provided guidance to the Western District regarding the coverage issue, and suggested that the Western District consider whether the state’s interest in insurance regulation would be best served by certifying the coverage question at issue in the case to the appropriate state supreme court. On remand, the Western District found that Oklahoma law applied, and it certified the following question to the Oklahoma Supreme Court:

Does the public policy of the State of Oklahoma prohibit enforcement of the Indoor Air Exclusion, which provides that the insurance afforded by the policy does not apply to “’Bodily Injury’, ‘property damage’, or ‘personal and advertising injury’ arising out of, caused by, or alleging to be contributed to in any way by any toxic, hazardous, noxious, irritating pathogenic or allergen qualities or characteristics of indoor air regardless of the cause.

The Oklahoma Supreme Court interpreted the certified question as being one concerning public policy in the State of Oklahoma and whether Oklahoma prohibits the enforcement of a specific coverage exclusion in an insurance contract.

The Court examined Oklahoma precedent discussing coverage exclusions that are unenforceable in motor-vehicle insurance policies. The Court cited Ball v. Wilshire Insurance Co., 2009 OK 38, 221 P.3d 717 to illustrate the manner in which an insurance clause can be void and unenforceable if it violates public policy as expressed in the Oklahoma Statutes. In that case, the Oklahoma Supreme Court held that because the exclusion at issue violated public policy as expressed in Oklahoma’s Compulsory Liability Insurance statute, that exclusion was unenforceable. However, the Court distinguished this case from the automobile insurance cases finding there is not a similar public policy articulated by the Oklahoma statutes that is violated by an air quality exclusion in a liability insurance policy. “Oklahoma has no compulsory liability insurance law requiring liability insurance be maintained for air quality issues, nor is there any law explicitly prohibiting such an exclusion.” The Court held that there is no precedent for intruding into a parties’ freedom to contract for liability coverage, and such an intrusion “runs counter to the carefully circumscribed approach this Court articulated in Ball.” Therefore, it concluded that because there is no articulated public policy in Oklahoma that prohibits the enforcement of an Indoor Air Exclusion, Century and Siloam were free to negotiate and contract for coverage as they saw fit.

Further emphasizing the policy in Oklahoma favoring the right to contract, the Oklahoma Supreme Court’s ruling in Siloam Springs reinforces an insurance company’s freedom to contract for general liability coverage. This case stands for the proposition that unless it is clear there is a public policy that is violated by an exclusion in a liability insurance policy, a parties right to contract should be favored, and exclusions shall be enforced.

The full opinion is available at: http://www.oscn.net/applications/oscn/deliverdocument.asp?citeid=479789.

[Posted March 14, 2017]

 
 

Use of Adoptive Child's Photographs on Social Media

 

With the prevalent use of social media, a recent Oklahoma case, Thomas v. Cash, serves as a reminder to adoptive parents to be aware of potential consequences of sharing pictures and information online.

The Thomas family had adopted a child through DHS in August 2006. Several years later, the adoptive parents sought, and obtained a protective order against members of the child’s biological family for alleged “stalking” on Facebook. The admitted actions included: 1) the biological family members had sent the adoptive mother “friend requests” on Facebook, 2) the biological family members had copied unrestricted pictures from the adoptive mother’s Facebook page and posted them on their own pages, 3) biological family members used the child’s photograph as their own profile picture on Facebook, 4) biological family members posted comments that they would see the child again, and 5) the biological family members sent at least one message to the adoptive family either asking to see the child or asking about the child’s welfare. After requesting the biological family members to remove the child’s pictures, the biological family members refused and the adoptive family sought the protective order.

On appeal, the Oklahoma Court of Civil Appeals reversed the trial court’s order granting the protective order for harassment. The appellate court found that under the circumstances presented, there was no evidence that the biological family posed a threat of harm or caused the adoptive family to suffer any substantial emotional distress.

It is important to note that in this case, the adoptive family had posted unrestricted photographs of the child on Facebook, and allowed others to do so as well. It should also be noted that the biological family members never attempted to contact the child directly and the adoptive parents stated that they did not feel threatened.

The appellate court did state that its holding in this case did not indicate that a protective order would be unwarranted in all situations. However, use of enhanced privacy settings on social media, and being aware of the potential audience, could be of assistance in avoiding a similar situation.

The full opinion is available at: http://www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=479796.

[Posted March 6, 2017]

 
 

South Carolina Supreme Court Finds Reservation of Rights Letter Ineffective

 

Although not the first of its kind, on January 11, 2017, in Harleysville Grp. Ins. v. Heritage Communities, Inc (No. 13-1291), the South Carolina Supreme Court joined a growing number of courts that have held that a reservation of rights letter can be ineffective and invalid if it fails to adequately inform the insured of the reasons the insurer may not be obligated to provide coverage. The issue came before the Court pursuant to cross-appeals from a declaratory judgment action to determine the amount of coverage applicable to two jury verdicts arising from two construction defect cases.

Heritage, the developer, had constructed two condominium complexes between 1997 and 2000. Harleysville insured Heritage from 1997 through 2001; thereafter, Heritage was uninsured and went out of business in 2003. The construction defect lawsuits were filed in 2003. Harleysville accepted the defense of Heritage under a reservation of rights. Following jury verdicts against Heritage, Harleysville filed the declaratory judgment actions to determine what portion of the judgments would be covered under Heritage’s policies. The declaratory judgment actions were referred to a Special Referee, who held an evidentiary hearing in 2010. The Special Referee found that Harleysville had failed to adequately reserve its rights, and as a result, the policies provided coverage for the majority of the verdicts. Both parties appealed.

The South Carolina Supreme Court held that Harleysville’s reservation of rights, paired with recitation of several pages of the policy provisions, was ineffective because it failed to adequately inform the insured of the reasons why the insurer may not be obligated to provide coverage. The reservation of rights included no discussion of Harleysville’s position as to the various provisions or explanation of its reasons for relying on those provisions.

Specifically, the court stated, “Harleysville’s reservation letters gave no express reservation or other indication that it disputed coverage for any specific portion or type of damages. Nor did the letters or testimony indicate that, in the event Heritage was found liable in the construction-defect suits, Harleysville intended to file the instant lawsuit to contest various coverage issues. Specifically, Harleysville did not expressly put its insureds on notice that it intended to litigate the issues of whether any damages resulted from acts meeting the definition of occurrence, whether any damages occurred during the applicable policy periods, what damages were attributable to non-covered faulty workmanship, and whether certain damages resulted from intentional acts by the insured and were thus excluded. And in no way did the letters inform the insureds that a conflict of interest may have existed or that they should protect their interests by requesting an appropriate verdict.”

This case serves as a reminder that in every type of liability policy, reservation of rights letters must give fair notice to the insured that the insurer intends to assert defenses to coverage or intends to pursue a declaratory judgment action. Without this information, the insured has no reason to act to protect its rights because it is unaware of the conflict of interest that exists between itself and the insurer. The insurer must specify in detail any and all bases upon which it might contest coverage in the future. In addition, the insurer must inform the insured of the need for an allocated verdict as to covered versus non-covered damages, and of the insured’s interest in obtaining a written explanation of the award that will permit the parties to determine which part of the verdict is covered.

The full opinion is available at: https://www.sccourts.org/opinions/HTMLFiles/SC/27698.pdf.

[Posted February 1, 2017]

 
 

Oklahoma Supreme Court Weighs in on Statutory Pre-Lien Notice Requirement for Subcontractor's Mechanics and Materialmen's Lien

 

Recently, the Oklahoma Supreme Court issued its unpublished opinion in Pizano v. Lacey & Assocs., LLC, providing direction on application of Oklahoma’s pre-lien notice requirement for certain mechanics and materialmen’s liens. Lacey & Associates, LLC (“Lacey”) had purchased a commercial property and contracted with Everest Homes, LLC (“Everest”) to replace the roof and HVAC units. Everest contracted with the Williams Group to complete the work, who ultimately hired Andrea Rosa Pizano (“Pizano”) to remove the roof. Pizano filed suit and sought to foreclose on the property pursuant to her subcontractor lien when Williams Group did not pay her. Lacey and Pizano both filed motions for summary judgment, with Lacey arguing that Pizano’s lien was invalid because Lacey did not receive the requisite pre-lien notice. The trial court granted Pizano’s motion but awarded Pizano a judgment in a reduced amount. On appeal, the Court of Civil Appeals reversed, holding that Okla. Stat. tit. 41, §142.6 does not require subcontractors like Pizano to file a pre-lien notice. The Oklahoma Supreme Court agreed to review the Court of Appeals’ order.

Section 142.6 requires a subcontractor to file a pre-lien notice if it falls within the definition of “Claimant” in subsection (A)(1) and (A)(2). A “Claimant” is defined as a “Person,” other than an original contractor, who is entitled to a lien pursuant to Okla. Stat. tit. 42, §141.Section 141 provides, in pertinent part:

Any person who shall, under oral or written contract with the owner of any tract or piece of land, perform labor…on said land for the erection, alteration or repair of any building, improvement or structure thereon…shall have a lien upon the whole of said tract or piece of land, the buildings and appurtenances. If the title to the land is not in the person with whom such contract was made, the lien shall be allowed on the buildings and improvements on such land separately from the real estate.

The Supreme Court held that Pizano fell within the definition of a “Claimant,” and had Pizano filed a pre-lien notice, Section 141 would have limited the lien only against the buildings and improvements of the property separately from the real estate. The Court explained that because Section 141 applied to Pizano, then Section 142.6’s pre-lien notice requirement applied as well: “Prior to the filing of a lien statement pursuant to Section 143.1 of this title, the claimant shall send to the last known address of the original contractor and an owner of the property a pre-lien notice pursuant to the provisions of this section.”

In granting Pizano’s motion for summary judgment and reducing the judgment, the trial court had utilized the exception to pre-lien notice found in Section 142.6(D), which allows a lien claim to be enforced without pre-lien notice when the aggregate amount of the claim is less than $10,000. The Supreme Court, in upholding the trial court’s reduction in that regard, quoted subsection D, “[f]ailure by the claimant to comply with the pre-lien notice requirements of this section shall render that portion of the lien claim for which no notice was send invalid and unenforceable.” Based on this language, the Supreme Court upheld the trial court’s determination that Pizano’s lien was not completely barred but simply enforceable only up to $9,999.00.

The full opinion is available at: http://www.oscn.net/applications/oscn/DeliverDocument.asp?CiteID=478193.

[Posted July 19, 2016]

 
 

Colorado's High Court Rules in Favor of Liability Insurers and, Again, Rejects Expansion of the Notice-Prejudice Rule

 

For the second time in as many years, the Colorado Supreme Court has ruled in favor of liability insurers, and it has rejected the expansion of the notice-prejudice rule. On April 25, 2016, the Colorado Supreme Court in Stresscon Corp. v. Travelers Property Casualty Co. of America ruled that policy holders that settle claims prior to litigation without an insurance carrier’s permission cannot receive coverage, effectively rejecting an expansion of Colorado’s notice-prejudice rule. At issue in Stresscon Corp. was whether a policyholder could receive coverage after settling a lawsuit prior to litigation, but before notifying the insurer. The Colorado Supreme Court did not so find, and limited the application of the notice-prejudice rule.

A majority of jurisdictions recognize and apply the notice-prejudice rule when faced with the issue of liability coverage when the insurer receives late notice of a claim. The “notice-prejudice rule” provides that an insurer may not deny a claim on the grounds of late notice without demonstrating prejudice. The application of this rule has, however, been limited to claims made under an occurrence policy, as opposed to a claims-made policy. An occurrence policy covers claims that arise out of occurrences that take place during the policy period, regardless of when the claim is made. A “claims-made” policy covers losses that arise out of claims that are made during the policy period, even if the claim arises out of an occurrence that took place when the policy was not in effect.

The State of Oklahoma implemented this limitation in State ex rel. Crawford v. Fanie Int’l, 1997 OK CIV APP 39, 943 P.2d 1099. The Oklahoma Court of Civil Appeals recognized that coverage is only triggered under a claims-made policy when an insured becomes aware of and notifies the insurer of a claim. It is that notice that triggers coverage under the policy. Crawford, 1997 OK CIV APP 39, ¶ 4, 943 P.2d at 1100. Clear notice of a claim or occurrence during the policy period is crucial, because allowing actual notice beyond the policy period would “constitute an unbargained for expansion of coverage.” Id. (quoting LaForge v. The American Casualty Company of Reading, Pennsylvania, 37 F.3d 580, 583 (10th Cir. 1994). Therefore, it was concluded that the notice-prejudice rule was inapplicable to claims-made policies.

One of the more recent jurisdictions to implement this same limitation was the State of Colorado. In April of 2015, the Colorado Supreme Court issued an opinion in Craft v. Philadelphia Indemnity Insurance Co., 2015 CO 11, 343 P.2d 951, and held that Colorado’s notice-prejudice rule doesn’t apply to time-specific notice requirements in claims-made policies. In so ruling, the Colorado Supreme Court cited the traditional rationale for this majority rule, a rationale similar to that relied upon by the Oklahoma Supreme Court. More specifically, the Colorado Supreme Court found that because the date-certain notice requirement defines the scope of coverage in a claims-made insurance policy, “to excuse late notice in violation of such a requirement would rewrite a fundamental term of the insurance contract.” Craft, 2015 CO 11, ¶ 7, 343P.2d 951.

Just this week, the Colorado Supreme Court limited the application of the notice-prejudice rule even further. In Stresscon Corp v. Travelers Property Casualty Co. of America, Stresscon, a concrete company, found itself in an insurance coverage battle with its liability insurance carrier stemming from a construction accident. Prior to filing a lawsuit, Stresscon settled its claim with a general contractor, a settlement that was struck without Stresscon’s liability insurance carrier on board. In September of 2013, a Colorado intermediate appellate court found that Colorado’s notice-prejudice rule should be extended to cases where policyholders violate a clause in liability policies barring them from voluntarily settling claims or making payments without the insurer on board. The Colorado Supreme Court, however, disagreed with this ruling.

On April 25, 2016, the Colorado Supreme Court, in a 4-3 opinion, overturned the September 2013 appellate court decision, and rejected an expansion of Colorado’s notice-prejudice rule. The state high court majority rejected the application of the notice-prejudice rule to the “no-voluntary-payments” policy provision at issue in Stresscon Corp., and held that Stresscon was not entitled to coverage for its deal with the general contractor. Justice Nathan B. Coats, writing for the majority, stated that “[t]his so-called ‘no voluntary payments’ clause clearly excluded from coverage any payments voluntarily made or obligations voluntarily assumed by the insured without consent, for anything other than first aid.” Accordingly, “[t]he insurance policy emphatically stated that any such obligations or payments would be made or assumed at the insured’s own cost rather than by the insurer.” The majority of the Colorado Supreme Court did not require the liability insurance carrier to show that it had suffered prejudice, and it put Stresscon on the hook for the settlement it entered into with the general contractor.

The Colorado Supreme Court’s April 25, 2016 ruling highlights the risks of policyholders settling claims prior to litigation without giving the insurer notice and an opportunity to participate. Ultimately, the ruling helps shield insurance carriers from the risk of having to pay covered claims when policyholders and third-party claimants negotiate settlements that can be passed along to insurers, without the insurer’s knowledge. The Colorado Supreme Court ruling was a big win for insurers, and in light of this decision, and the similarities between Oklahoma’s view and Colorado’s view of the notice-prejudice rule, it is important to understand the potential implications on insurers and policyholders in the State of Oklahoma. A policyholder that believes a third-party’s claim may be legitimate is not always free to negotiate and settle with that third-party prior to notifying their liability insurance carrier. An insured that holds a liability policy with a no-voluntary-payment provision should comply with that provision, and, when faced with a third-party claim, make efforts to involve their carriers in settlement negotiations. Absent a waiver of that provision, or a consent-to-settle provision in the policy, if an insured settles a claim without its insurance carrier on board, an insurer may be able to escape from providing coverage in circumstances where coverage is otherwise available.

[Posted April 29, 2016]

 
 

Miranda Calhoun Collaborates on "Understanding the Roles of Supervised Visitation and Therapy in Family and Juvenile Legal Proceedings" and Publishes in Tulsa Lawyer Magazine

 

In collaboration with other members of the Tulsa County Bar Association’s Children and the Law Committee, McDaniel Acord, PLLC Associate Attorney Miranda R. Calhoun publishes “Understanding the Roles of Supervised Visitation and Therapy in Family and Juvenile Legal Proceedings.” The article serves as a resource for practitioners by explaining the parameters of supervised visitation and various therapies in the arenas of domestic and juvenile law. The full article, published in the April 2016 edition of Tulsa Lawyer Magazine, is available here: http://issuu.com/tulsacountybarassoication/docs/tulsa_lawyer_magazine_april_2016/8?e=16570281/34595935.

[Posted April 26, 2016]

 
 

Tenth Circuit Affirms CAFA Jurisdiction and Dismissal of Putative Environmental Class Action in Favor of Client

 

The Tenth Circuit Court of Appeals ruled in favor of our client, a Fortune 100 member of the energy industry, and affirmed denial of motions to remand and dismissal entered against a putative landowner class action entered by the federal district court. The plaintiffs were landowners attempting to bring a class action for alleged air, water and soil contamination arising from the disposal of fly ash and oil and gas produced fluids against numerous defendants.

The Order and Judgment provides needed clarification in the circuit on the citizenship element of the “local controversy” exception to the Class Action Fairness Act (“CAFA”) jurisdiction by a federal district court. After the defendants removed the case to the federal district court, the plaintiffs filed two motions to remand, asserting the exception applied and mandated remand. However, the district court and Tenth Circuit agreed that plaintiffs failed to meet their burden of proof on the exception’s element of citizenship, which requires plaintiffs seeking remand to show that “greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed.” See 28 U.S.C. §1332(d)(4)(A)(i)(I). Noting that the plaintiffs’ class was not restricted to citizens of Oklahoma, but, rather, included “citizens and/or residents and/or property owners,” the Tenth Circuit held that the class definition encompassed groups of people who may not necessarily be Oklahoma citizens.“ Because Plaintiffs did not include in their amended petition an unambiguous limitation confining the class definition to Oklahoma citizens, they were obliged to do more; they, perforce, had to marshal and present some persuasive substantive evidence (extrinsic to the amended petition) to establish the Oklahoma citizenship of the class members.”

The Tenth Circuit also upheld the district court’s dismissal of the plaintiffs’ amended complaint, concluding that it failed to state a plausible claim for strict liability, negligence and negligence per se due to failure to include adequate factual allegations of injury resulting from the defendants’ alleged wrongdoing. The Order and Judgment explains that, under Oklahoma law, the claims asserted by the plaintiffs require specific allegations that the defendants caused an injury. Furthermore, “a plaintiff in a toxic tort case must prove that he or she was exposed to and injured by a harmful substance manufactured by the defendant.” The Tenth Circuit held plaintiffs’ expressions of “reasonabl[e] concern[]” and allegations that they “suffer physical ailments consistent with disclosures and warnings set forth on MSDS [i.e., Material Safety Data Sheets]” were not sufficient to allege an actual injury in fact.

The full text of the Order and Judgment is available here: https://www.ca10.uscourts.gov/opinions/14/14-7010.pdf.

[Posted March 7, 2016]

 
 

The 2016 Adoption Tax Credit

 

With tax season upon us, this is a good time to remind adoptive parents to make their tax professional aware of adoption-related expenses and to request the adoption tax credit. Because it is a tax credit as opposed to a deduction or exemption, the credit applies dollar-for-dollar to reduce your tax liability up to the maximum amount of the credit. The maximum amount for 2015 is $13,400 per child, but begins to phase out if your modified adjusted gross income is $201,010 or more.

The credit applies up to the amount of your qualified adoption expenses, including reasonable and necessary adoption fees, court costs and attorney fees, travel expenses (including meals and lodging while away from home) and other expenses directly related to the adoption. These amounts can include expenses even before a child is identified for adoption, such as home study expenses incurred prior to finding a child for adoption.

Keep in mind that you may only claim the tax credit one time for the same adoption effort. For example, if you claimed a credit of $4,000 for 2014, any credit you claim for 2015 for the same adoption cannot exceed $9,400 ($13,400 minus $4,000).

If your employer provided adoption assistance, you may also claim an exemption from income for the amounts paid by the employer, as long as neither the credit nor the exemption claimed exceed the $13,400 limit. For example, if you incurred $18,400 in qualified adoption expenses in 2015 and your employer reimbursed for you $5,000, you can claim a $13,400 tax credit and exclude $5,000 from your income for tax purposes (assuming your income is below the phase-out amount and all other requirements are met).

For more information on the adoption tax credit, see IRS topic 607.

[Posted February 16, 2016]

 
 

Eighth Circuit Rejects Claim for Stacking of Cincinnati CGL and BOP Policies

 

In an opinion issued on January 6, 2016 in the case of John Gohagan, et al. v The Cincinnati Insurance Company, Appeal No. 14-3454, the Eighth Circuit Court of Appeals upheld summary judgment entered by the United States District Court for the Western District of Missouri in favor of Cincinnati that held the plaintiff could not recover the each-occurrence single limit under both the CGL and BOP policies issued to the alleged tortfeasor.

The case arose from an accident when Thomas Campbell was attempting to remove a tree in a land clearing operation for a residential development. The tree fell on the plaintiff causing serious bodily injuries. Cincinnati had issued both CGL and BOP policies to Thomas. Each policy had an “Each Occurrence Limit” of $1,000,000 and a “General Aggregate Limit” of $2,000,000. Cincinnati paid plaintiff the each-occurrence limit of $1,000,000 under the CGL policy, and the parties agreed to submit a declaratory judgment complaint jointly to the District Court to determine whether the BOP and CGL policies’ anti-stacking provisions prohibited coverage stacking, thereby limiting the combined total of the applicable each-occurrence limit of liability to $1,000,000. The District Court held that the anti-stacking provisions of the policies limited plaintiff’s coverage to the $1,000,000 each-occurrence limit.

On appeal, plaintiff first argued that the anti-stacking provisions of the BOP and CGL policies were ambiguous with regard to the meaning of “aggregate maximum limit of insurance.” The Eighth Circuit began its de novo review of the District Court’s interpretation of the insurance policies by considering the policy terms. The BOP policy’s anti-stacking provisions, labeled “Two or More Policies Issued by Us,” provided:

If this policy and any other policy issued to you by us or any company affiliated with us apply to the same “occurrence” or “personal and advertising injury” offense, the aggregate maximum limit of insurance under all the policies shall not exceed the highest applicable limit of insurance under any one policy.

The anti-stacking provision in the CGL policy, labeled “Two or More Coverage Forms or Policies Issued by Us,” provided:

If this Coverage Part and any other Coverage Form, Coverage Part or policy issued to you by us or any company affiliated with us apply to the same “occurrence” or “personal and advertising injury” offense, the aggregate maximum limit of insurance under all the Coverage Forms, Coverage Parts or policies shall not exceed the highest applicable limit of insurance under any one Coverage Form, Coverage Part or policy.

Plaintiff argued that because neither policy defined “aggregate maximum limit of insurance,” the ordinary purchaser would understand the term to refer to the $2,000,000 general aggregate limit in each policy. Cincinnati responded that the term referred to the “highest applicable limit of insurance under any one Cincinnati-issued policy.” The Eighth Circuit held that the anti-stacking provisions were not ambiguous. The policies provided that the “aggregate maximum limit ‘shall not exceed the highest applicable limit of insurance under any one policy.’” The falling tree was the “occurrence, and each policy had an each-occurrence limit of $1,000,000.” Thus, the Court held, the “highest applicable limit of insurance” under either policy is the each-occurrence limit. The result is “the aggregate maximum limit of insurance under both policies combined may not exceed the each-occurrence limit under either policy – in this case, $1,000,000.

Plaintiff also argued that the “Other Insurance” provisions in Cincinnati’s BOP and CGL policies were ambiguous because they establish coverage that the anti-stacking provisions preclude. The relevant provisions stated:

This insurance is primary except [in circumstances not relevant here]. If this insurance is primary, our obligations are not affected unless any of the other insurance is also primary. Then, we will share with all that other insurance by the method described in c. below.

The sharing provision stated:

If all of the other insurance permits contribution by equal shares, we will follow this method also. Under this approach each insurer contributes equal amounts until it has paid its applicable limit of insurance or none of the loss remains, whichever comes first.

Plaintiff contended that the BOP and CGL policies individually provide primary coverage that the anti-stacking provisions impermissibly limit. The Eighth Circuit rejected this argument and agreed with the District Court, which found that the “‘Other Insurance’ provisions apply when the policies covering the same injury are issued by Cincinnati and another insurance company, not when two policies are issued by Cincinnati.” Accordingly, these clauses do not conflict or create an ambiguity with the anti-stacking provisions that apply only in the case of two Cincinnati policies. Thus, the coverage limit for the plaintiff’s injury was $1,000,000.

The full opinion is available at http://media.ca8.uscourts.gov/opndir/16/01/143454P.pdf.

[Posted January 25, 2016]

 
 

A Post-Divorce Checklist

 

You have finally reached the end of the dissolution process and have the final decree. Now what? There are a few items you still will need to take care of to ensure that you are protected financially.

  1. Make a list. Go through your divorce decree and make a list of everything you and your ex have been ordered to do, i.e., put the house on the market, deed property, turn over the silverware to your former spouse, etc. Many of the requirements will be time sensitive and you will want to ensure you are in full compliance with the order. 
  2. Change your beneficiaries. Even if your decree says you retain the full benefit of your retirement plan, the plan administrator will be bound by your beneficiary designation for the account, NOT the decree. As soon as the decree is entered, you should contact the administrators for all retirement accounts, life insurance policies, etc. to have the beneficiary changed from your former spouse to another trusted individual, if the change complies with the decree. The same is true for any “transfer on death” assets that you retained in the divorce. Your homeowner’s insurance policy may need to be changed as well. 
  3. Update your will. Chances are, you no longer want your estate to go to your former spouse upon death. Work with an attorney to update your will. You should also change any health care proxies and durable powers of attorney, unless you want your ex to make life-altering decisions once you become incapacitated. 
  4. Close joint accounts. If any joint banking and credit card accounts remain upon entry of the decree, you should close those immediately. If your ex will still be using a credit card account, have your name removed from it. Cut up the card and send a certified letter to the credit card company advising them that you will no longer be responsible for any future charges. 
  5. Update your name. If you choose to change your name upon divorce, you driver’s license, social security card, passport and other documents will need to be changed. You will also need to update bank accounts, your children’s school records, retirement accounts and anything else that is listed under your married name. 

 

This list is not exhaustive but applies in most cases. Although these tasks are burdensome, they are an important step in ensuring your protection from future problems.

[Posted January 8, 2016]

 
 

Sixth Circuit Reverses Southern District of Ohio in Finding Professional Errors and Omissions Policy Exclusion Required Insured's Subjective Knowledge of the Potential for Suit

 

On November 18, 2015, the United States Court of Appeals for the Sixth Circuit issued its opinion in Maxum Indemnity Co. v. Drive West Insurance Services, Inc., reversing the Southern District of Ohio’s grant of summary judgment in favor of Maxum Indemnity Co. (“Maxum”). At issue was whether the subject professional errors and omissions policy excluded claims that the insured should have known, prior to coverage, would turn into claims. The Sixth Circuit did not so find; instead applying a subjective knowledge standard.

Drive West Insurance Services, Inc. d/b/a Mulberry Insurance Services, Inc. (“Mulberry”) is a wholesale insurance broker that provided quotes and binders for insurance coverage to National Condo & Apartment Insurance Group, Inc. (“NCAIG”), a retail insurance broker. NCAIG, in turn, issued the insurance coverage to its property owner clients. The coverage issued named AIX Specialty Insurance Company and North American Specialty Insurance Company as the insurance carriers, but those companies never issued or approved the policies.Accordingly, Mulberry received multiple cease-and-desists letters from these purported carriers, alerting Mulberry that they had no business relationship and had never issued or approved any of the policies in question. However, none of the cease-and-desist letters actually threatened legal action against Mulberry.

After receiving the letters, Mulberry applied for professional errors and omissions liability coverage through Maxum, checking “No” in response to whether Mulberry had “any knowledge of any potential errors or omissions claim(s).” Maxum issued the Policy to Mulberry on March 1, 2012.

The Exclusions section of the Policy provided, in pertinent part:

This insurance does not apply to: J. Any “claim” arising out of or resulting from any “wrongful act” or “personal/advertising injury,” (1) Disclosed in your application of insurance or any accompanying documents provided to us; or (2) You had knowledge of or information related to, prior to the first inception date of this continuous claims-made coverage with us, and which may result in a “claim.”

The term “wrongful act” was defined as “any actual or alleged negligent act, error or omission in the rendering or failure to render ‘professional services.’”  “Claim” was defined as “a written or verbal demand received by any ‘insured’ for money or services, including notice of service” of a civil proceeding for monetary damages or “institution of any administrative, judicial, arbitration or alternative dispute proceedings against any ‘insured.’”

In the spring of 2012, property owners, aware of the lack of valid insurance for their properties, filed suit against NCAIG. In June 2012, NCAIG notified Mulberry of the lawsuits and its intention to hold Mulberry responsible for NCAIG’s loss. By the end of August 2012, Maxum was aware of three claims filed by NCAIG against Mulberry and began its investigation.Invoking Exclusion J.2, Maxum denied coverage, claiming that Mulberry had “knowledge and information relating to” the forged insurance before Mulberry’s professional liability coverage began on March 1, 2012.

In March 2013, Maxum filed suit against Mulberry, NCAIG and others seeking rescission of the Policy, or in the alternative, a declaration that Maxum had no duty to defend or indemnify Mulberry in any of the several underlying suits because Exclusion J.2 excluded those claims from coverage. The district court entered summary judgment in favor of Maxum, finding Exclusion J.2 unambiguously covered all wrongful acts of which Mulberry had knowledge prior to coverage.

The Sixth Circuit, applying California law, reversed the district court. The Sixth Circuit interpreted the Policy language to require Mulberry’s knowledge of the claims to be subjective, i.e. that Exclusion J.2 applied only to the wrongful acts Mulberry believed, prior to coverage, would turn into claims. The court noted that Maxum could still evade coverage if it showed Mulberry was subjectively aware of the potential for suit arising from the unauthorized insurance prior to coverage, but Maxum had not done so.

The full opinion is available at: http://www.ca6.uscourts.gov/opinions.pdf/15a0760n-06.pdf.

[Posted November 30, 2015]

 
 

Sixth Circuit Holds Clean Air Act Does Not Preempt State Common Law Tort Claims

 

On November 2, 2015, the Sixth Circuit Court of Appeals affirmed the United States District Court for the Western District of Kentucky’s refusal to dismiss the plaintiffs’ air pollution claims for nuisance and trespass against a permitted facility by concluding that the federal Clean Air Act does not preempt Kentucky’s common law. See Merrick, et al. v. Diageo Americas Supply, Inc., Appeal No. 146198. For the full Opinion, see http://www.ca6.uscourts.gov/opinions.pdf/15a0261p-06.pdf.

Diageo distills and ages whiskey at its facilities in Louisville, Kentucky. The plaintiffs brought the lawsuit on behalf of a putative class of owners, lessors and renters of properties near Diageo’s facilities claiming that ethanol emissions from the facilities reach their properties, and when combined with condensation, form “whiskey fungus” that is unsightly, deteriorates surfaces, and unreasonably interferes with the use and enjoyment of their properties. Plaintiffs seek compensatory and punitive damages, and an injunction requiring Diageo to install control technologies to abate the emissions.

Ethanol emissions are regulated under the federal Clean Air Act, 42 U.S.C. § 7401, et seq. (“CAA”). Under the structure of the CAA, the US-EPA develops national ambient air quality standards, and then it is up to the individual states to determine how to meet those standards. The states then enforce those standards through their regulatory programs, including mandatory permit systems for stationary sources. Diageo’s facility operates under air quality permit overseen by the Louisville Metro Air Pollution Control District that includes emission limits for various pollutants. While Diageo’s permit caps its non-fugitive emissions of volatile organic compounds (including ethanol) at 100 tons per year, it does not cap fugitive ethanol emissions from its storage warehouses.

Diageo moved to dismiss the plaintiffs’ common law tort claims asserting that the CAA preempts the application of Kentucky common law standards imposed by court action. Diageo argued that such common law standards would conflict with the CAA’s methods for regulating emissions and disrupt the balance of power between federal and state law, and therefore applying such standards to its operation would frustrate Congress’ purposes and objectives in the Act. The District Court rejected this argument, and the Sixth Circuit took up the issue on an interlocutory appeal.

In concluding that the CAA does not preempt the plaintiffs’ common law claims, the Court relied on the “states’ rights savings clause” in the CAA that provides:

Except as otherwise provided…nothing in this chapter shall preclude or deny the right of any State or political subdivision thereof to adopt or enforce (any standard of limitation respecting emissions of air pollutants or (2) any requirement respective control or abatement of air pollution…

The Court held that “[s]tate courts are arms of the ‘State,’ and the common law standards they adopt are ‘requirement[s] respecting control or abatement of air pollution.” Thus, the savings clause preserves common law remedies under state law.

While the United States Supreme Court has declined thus far to review a CAA preemption case, the Sixth Circuit concluded that the Supreme Court’s preemption analysis under the federal Clean Water Act (“CWA”) was persuasive because numerous provisions in the CWA, including the savings clauses, were modeled on the CAA. In the landmark decision in International Paper Co. v. Ouellette, 479 U.S. 481 (1987), the Supreme Court held that the CWA “savings clause preserves other state actions, and therefore, nothing in the [CWA] bars aggrieved individuals from bringing a nuisance claim pursuant to the law of the source state.” The Diageo Court held that this leads “to the conclusion that the analogous states’ rights savings clause in the Clean Air Act similarly preserves claims based on the law of the source state.”

In an Opinion also issued on November 2, the Court applied its reasoning in the Diageo case to reject CAA preemption of state law remedies in Little, et al. v. Louisville Gas & Electric Co., Appeal No. 14-6499.

There is a potential Circuit Court split regarding the interpretation of the CAA’s savings clause; however, the Supreme Court has denied review to multiple CAA-state law preemption cases, thus the matter of CAA preemption of state common law will not be finally resolved for some time to come.

[Posted November 11, 2015]

 
 

Planning for an Aging Parent

 

Our office frequently receives calls from adult children worried about how to care for an aging parent who is showing signs of dementia or who is otherwise no longer able to make informed decisions or properly care for himself. A few options are available under the law to ensure one has the ability to make important decisions for an elderly parent.

Often, clients are interested in seeking guardianship of their elderly parent. Guardianships are available in Oklahoma if a person is incapacitated. An “incapacitated person” is someone, age 18 or older, who is impaired by reason of mental illness, mental retardation or developmental disability, physical illness or disability, drug or alcohol dependency or other similar causes. 30 O.S. § 1-111. In addition, the person seeking guardianship must show the court that the proposed ward’s ability to evaluate information effectively or to make responsible decisions is impaired to such an extent that the ward either lacks the capacity to meet essential requirements for his physical health or safety or is unable to manage his financial resources. Id.

Based on the degree and type of incapacity, the court may grant a guardianship over the person, over the property, or both. The court-appointed guardian will then be required to submit annual reports to the court regarding the status of the ward’s health, financial condition or both, depending on the type of guardianship entered. 30 O.S. § 4-305 (person) and 30 O.S. § 4-306 (property). Note that a non-incapacitated person may execute a document to nominate a guardian in the event he later becomes incapacitated.

In some cases, a person may not qualify for a guardianship, but still needs some help with daily activities or financial matters. A durable power of attorney (“DPOA”) is a popular option, if a person is not incapacitated at the time of execution and wants to avoid a guardianship later. 58 O.S. § 1071 et.seq. The DPOA can be made effective immediately or upon the happening of a certain event, such as a medical opinion (or two) that the subject of the DPOA has become incapacitated. One potential downside of a DPOA is that the subject does not forfeit control over his finances and can still enter into contracts and make other life-changing decisions. He may also withdraw the DPOA at any time, without notice. An upside is that the caretaker will not have to go to court to utilize the DPOA.

A person who is not yet incapacitated may also choose to execute a health care proxy. A health care proxy allows the person named as the proxy to make health care decisions for the subject of the health care proxy. However, in the event of a conflict between the wishes of the subject and the proxy, the subject’s wishes likely will be honored. A HIPPA medical records release is another possibility, and allows another specified person access to one’s medical records and other information from medical providers.It does not allow anyone other than the patient the ability to make health care decisions and the release must be executed voluntarily by the subject of the records.

Finally, in the event of a physical disability that renders one unable to manage his property, a conservatorship may be appropriate. The subject must consent to a conservatorship to manage his estate, and the conservatorship must be entered by the court. 30 O.S. § 3-211. Like a guardian, a conservator must submit annual reports to the court. Upon appointment of a conservator, the ward will no longer have the power to enter into contracts, except for necessities.

If you would like to discuss options for caring for your loved one, contact our office for an appointment.

[Posted September 16, 2015]

 
 

U.S. Supreme Court Refuses to Review Clean Water Act Permit Shield Ruling

 

Recently, the United States Supreme Court declined review of the Ninth Circuit opinion in Alaska Community Action on Toxics v. Aurora Energy Services, LLC.  The Court’s decision allows the Ninth Circuit’s decision to stand and exposes otherwise permitted companies to liability under the Clean Water Act.In its decision, the Ninth Circuit held that Aurora Energy Services, LLC and Alaska Railroad Corp. (“the Companies”) were not shielded from liability for non-stormwater coal discharges by their Multi-Sector General Permit for Stormwater Discharges with Industrial Activity issued under the U.S. Environmental Protection Agency’s National Pollutant Discharge Elimination System.

The Companies urged in their Petition to the Supreme Court that compliance with such a permit bars liability under the Clean Water act for any and all types of discharges, whether specifically discussed in the permit or not, unless the discharge was not known to the permitting agency at the time the permit was issued.  The Companies’ arguments were unsuccessful in obtaining the high court’s review, despite their having argued to the Court that the Ninth Circuit’s ruling conflicts with opinions from the Second, Fourth and Sixth circuits, all of which applied the shield to protect permitted companies from liability for discharges within the authority’s reasonable contemplation.

On the other side, environmentalists including the Sierra Club, argued that the Ninth Circuit’s decision did not address the permit shield issue but instead determined that the Companies’ non-stormwater coal discharges were prohibited by the terms of the general permit, and thus, even under the permit shield analysis, the discharges were unlawful.

Companies must be cognizant of the Ninth Circuit’s ruling, as it could provide a basis for citizen suits for discharges not specified in a permit.  The Ninth Circuit’s decision undermines any conclusive permit shield from liability.

The full Ninth Circuit decision is available here:  http://cdn.ca9.uscourts.gov/datastore/opinions/2014/09/03/13-35709.pdf

[Posted July 27, 2015]

 
 

Texas Supreme Court Holds that EPA Superfund Cleanup Proceedings Qualify as a "Suit" and Trigger Insurers' Duty to Defend

 

On June 26, 2015 in McGinnes Industrial Maintenance Corp. v. The Phoenix Ins. Co. (No. 14-0465), the Texas Supreme Court in a 5-4 decision held that when the EPA commences cleanup proceedings against a party under the federal Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA” or “Superfund”), the proceedings qualify as a “suit” under the duty to defend provision of the standard form commercial general liability policies at issue. The issue came before the Court pursuant to a certified question from the Fifth Circuit Court of Appeals.

The controversy arose from the alleged disposal of pulp and paper mill waste sludge into pits near the San Jacinto River in Pasadena, Texas by a subsidiary of McGinnes. In 2005, the EPA started investigating the site, and in November 2007, it sent McGinnes notice that it was a Potentially Responsible Party (“PRP”) with an invitation to enter negotiations with the EPA for cleaning up the site and reimbursing EPA’s costs. A year later, EPA served McGinnes with a detailed request for information advising McGinnes that its failure to respond could result in penalties of up to $32,500 per day.In July 2008, EPA sent McGinnes a special notice stating that McGinnes was responsible for cleaning up the site and demanding $379,000 to reimburse EPA’s costs. The notice required McGinnes to make a good faith offer to settle with the EPA within 60 days. McGinnes did not respond, and the EPA issued a unilateral administrative order directing McGinnes to conduct a remedial investigation and feasibility study, and warned that its failure to comply would subject it to penalties of up to $37,500 per day and punitive damages up to three times the costs to EPA.

During the period between EPA’s two notice letters, McGinnes notified the insurers who had issued standard form CGL insurance policies during the period of the alleged waste disposal. McGinnes demanded the insurers defend against EPA’s proceedings, and the insurers declined based on the policy that required them to defend only in the event of a “suit” against the insured demanding damages. McGinnes commenced a declaratory judgment action in Texas federal court. The District Court granted the insurers’ partial motion for summary judgment and McGinnes appealed.

In its analysis, the Texas Supreme Court noted that in the 1960s when the policies were issued, the primary means for addressing pollution was a lawsuit asserting common law or statutory claims. When Congress enacted CERCLA in 1980, the landscape changed dramatically. CERCLA gave the EPA the power to conduct what amounts to pretrial proceedings without having to commence a court action until the end of the process. The Court concluded that (1) EPA’s notice letters to PRPs serve as pleadings; (2) EPA’s requests for information to PRPs serve as discovery; (3) EPA’s invitations to settle serve as mediation; (4) its unilateral administrative orders resemble summary judgment; (5) the fines and penalties assessed by the EPA against PRPs for non-cooperation are like sanctions issued by a court; and (6) by limiting a PRP’s opportunity for court review until the end of the process, and then limiting the review to whether EPA abused its discretion based on EPA’s own record, CERCLA ceded a judicial function to EPA. Thus, the Court held that EPA’s cleanup proceedings are the functional equivalent of a “suit.” The Court stated that McGinnes would have been afforded a defense under its CGL policies if it had been sued for the pollution before the enactment of CERCLA. Accordingly, the Court held that its "rights under its policies should not be emasculated by the enactment of a statute intended not to affect insurance, but to streamline the EPA’s ability to clean up pollution."

In conclusion, the Texas Supreme Court noted that it is well settled in the Fifth Circuit and other courts that cleanup costs incurred under CERCLA qualify as “damages” under the form of the CGL policies at issue in this case. Thus, it observed that to hold that the insurers had no duty to defend the EPA proceedings while their policies covered the damages would create "perverse incentives and consequences for insurers and insureds alike."

[Posted July 20, 2015]

 
 

COCA Holds that Best Interest Standard Applies Despite New BIA Guidelines on ICWA

 

The best interest of a child is still an important factor in Oklahoma when determining child custody, despite a push by the Bureau of Indian Affairs and Native American tribes to remove that factor from consideration. Earlier this month, the Oklahoma Court of Civil Appeals issued its opinion in In the Matter of M.K.T., et al. v. Pigg, et al., disagreeing with the BIA’s new guidelines and proposed regulations.

In M.K.T., the court examined a trial court’s decision to transfer a child from a traditional foster home into a Cherokee foster home. The State placed the child in emergency protective custody in May 2013. The child’s mother was not Native American, but the incarcerated father was a member of the Cherokee Nation. The child was placed in a traditional (non-ICWA-compliant) foster home.(Indian children are subject to the state and federal Indian Child Welfare Acts.) The State attempted to locate an ICWA-compliant placement for the child for the next nine months. No extended family member was willing or able to take the child and the Cherokee Nation had no placement option available.

In February 2014, the Nation found a Cherokee family willing to take the child and filed a motion in May, one year after initial placement, to transfer the child to the Cherokee home. The State, the Natural Mother, the Natural Father, the Foster Mother and the child filed a joint objection, but the trial court agreed with the tribe and ordered the child transferred to the Cherokee home.

Upon appeal, the Court of Civil Appeals noted that ICWA provides priority for placement of Indian children, with “i) a member of the Indian child’s extended family; ii) a foster home licensed, approved, or specified by the Indian child’s tribe; iii) an Indian foster home licensed or approved by an authorized non-Indian licensing authority; or iv) an institution for children approved by an Indian tribe or operated by an Indian organization which has a program suitable to meet the Indian child’s needs.” 25 U.S.C.A. §1915(b). That statute allows for deviation from the preferences when good cause exists, with the burden of proof resting on the party seeking to avoid the preference.

Following the much-publicized Baby Veronica case in 2014, many tribes lobbied the BIA to change its Guidelines on ICWA to strengthen their position on placement of Indian children. In February of this year, the BIA updated its Guidelines. The new Guidelines now provide that, when determining whether to deviate from the Guidelines, “the good cause determination does not include an independent consideration of the best interest of the Indian child because the preferences reflect the best interest of an Indian child in light of the purposes of the Act.” See Guidelines at §F(4)(c). The Guidelines also direct that Courts may not consider the “ordinary bonding or attachment that may have occurred as a result of a placement” or the length of time a child has been in the non-ICWA placement. Id. (The BIA is in the process of making these Guidelines into regulations with the force of law, over significant, well-founded objections.)

The Court in M.K.T. disagreed with the Guidelines and the directive to ignore the best interest of the child as an independent consideration, and the bonding a child has experienced. The Court noted that the Guidelines’ “intentional disregard of these factors results in a one-size-fits-all approach to the placement of children with any tribal affiliation. That result may bear little resemblance to what is really in the child’s best interests, despite the self-serving pronouncements in the BIA Guidelines.” The Court pointed out that ICWA is being applied in a manner far exceeding its original purpose, and children “who do not have any tribal connection other than biology, oftentimes through distant ancestry, are transferred from stable homes in order to create a tribal connection where none existed before.”

The Court noted that the child at issue was never part of an Indian community, had only a 1/128th blood quantum, and was not even an enrolled member until the Nation visited the father in jail to enroll her after the State initiated the deprived case. “She was removed from the only stable home she had ever known solely because of her distant biological link to the Nation.” The Court held that, as the Guidelines are only instructive at this point, Oklahoma will continue to consider the child’s best interests. Given the facts of the case, the child’s best interests are served by remaining in the original foster home and good cause was found to deviate from the placement preferences. The court ordered the child returned to the care of her foster mother.

[Posted May 28, 2015]

 
 

Ninth Circuit Disagrees With the Third Circuit's Interpretation of the Local Event Exception and Upholds Federal Jurisdiction Under the Class Action Fairness Act for an Intrastate Mass Environmental Tort Alleged to Span 40 Years

 

On April 27, 2015, the Ninth Circuit Court of Appeals issued its Opinion in Allen, et. al. v. The Boeing Company holding that the District Court for the Western District of Washington erred when it remanded the environmental mass tort claims of the plaintiffs to state court under the local event exception to federal jurisdiction under the Class Action Fairness Act (“CAFA”).

This case originated in Washington State Court when 110 named plaintiffs brought their state claims for negligence, nuisance and trespass against The Boeing Company (“Boeing”) and for negligence against Landau Associates (“Landau”) alleging that “for over forty years Boeing released toxins into the groundwater around its facility in Auburn, Washington, and that for over a decade Landau had been negligent in its investigation and remediation of the pollution.” The defendants removed the case asserting federal jurisdiction based on diversity of citizenship and CAFA. Boeing contended that the plaintiffs’ action was a “mass action” under CAFA, § 1332(d)(11)(B) that states:

[T]he term “mass action” means any civil action (except a civil action within the scope of section 1711(2)) in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs’ claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under section (a).

Congress enacted CAFA to curb potential abuses of class and mass action procedures in state courts. Regarding mass action, the Senate Committee Report states:

The Committee finds that mass actions are simply class actions in disguise. They involve a lot of people who want their claims adjudicated together and they often result in the same abuses as class actions. In fact, sometimes the abuses are even worse because the lawyers seek to join claims that have little to do with each other and confuse a jury into awarding millions of dollars to individuals who have suffered no real injury.

S. Rep. No. 109-14, at 7 (2005), reprinted in 2005 U.S.C.C.A.N. 3, 44.

The Western District of Washington remanded the case to state court holding that plaintiffs’ claims fall within the local event exception to CAFA federal jurisdiction in CAFA, § 1332(d)(11)(B)(ii)(I), to wit:

As used in subparagraph (A), the term “mass action” shall not include any civil action in which – all of the claims arise from an event or occurrence in the State in which the action was filed, and that allegedly resulted in injuries in that State or in States contiguous to that State.

There was no controversy that the defendants’ removal was proper under CAFA’s mass action provision, or that the alleged pollution occurred in Washington and its alleged effects were limited to that state. The sole CAFA issue in contention was whether Boeing’s alleged 40 years of pollution and Landau’s alleged ten years of negligent response to the alleged pollution met the local event exception’s definition of “an event or occurrence.” As the Ninth Circuit recited, the Supreme Court clarified in Dart Cherokee Basin Operating Co. v. Owens, 135 S. Ct. 547, 554 (2014), that under CAFA, there is no presumption against finding federal jurisdiction, and the proponent of a CAFA exception to jurisdiction carries the burden of proof.

In its analysis, the Ninth Circuit noted its prior analysis of the local event exception in its 2012 decision in Nevada v. Bank of America Corp., 672 F.3d 661, where it held:

The “event or occurrence” exclusion applies only where all claims arise from a single event or occurrence. “[C]ourts have consistently construed the ‘event or occurrence’ language to apply only in cases involving a single event or occurrence, such as an environmental accident, that gives rise to the claims of all plaintiffs.”

Id. at 688 (original emphasis) (citations omitted). The Ninth Circuit analyzed the Third Circuit’s construction of the exception in Abraham v St. Croix Renaissance Group, L.L.L.P., 719 F.3d 270 (3rd Cir. 2013), cited by the plaintiffs to support removal. That case involved claims of nuisance from the wind dispersion of bauxite and mud, and the Third Circuit held that “treating a continuing set of circumstances collectively as an ‘event or occurrence’ for purposes of the mass-action exclusion is consistent with the ordinary usage of the words, which do not necessarily have a temporal limitation.” The Ninth Circuit disagreed with the Third Circuit’s construction, and stated “such a broad definition renders portions of CAFA redundant and is not supported by legislative history.” Regarding the single local event exception, the Senate Report states:

The purpose of this exception was to allow cases involving environmental torts such as a chemical spill to remain in state court if both the event and the injuries were truly local, even though there are some out-of-state defendants.

The Ninth Circuit took note that the Senate referred to a chemical “spill,” not “spills.” Holding to its 2012 precedent, the Ninth Circuit read the exception as referring to a single happening stating that its definition: “(1) reflects the most common understanding of the terms; (2) is consistent with, and furthers the purposes of CAFA; [and] (3) conforms to the judicially endorsed admonition in CAFA that exceptions to federal jurisdiction under CAFA are to be strictly construed….”

The Opinion may be accessed at:

https://ecf.ca9.uscourts.gov/n/beam/servlet/TransportRoom?servlet=ShowDocMulti&incPdfHeader=Y&pacer=t&incPdfHeaderDisp=Y&d=9509223& dktType=dktPublic&caseId=265894&incPdfFooter=y&outputType=doc&outputForm=view 

[Posted Apr. 28, 2015]

 
 

EEOC Publishes Proposed Regulations on Corporate Wellness Programs

 

In recent years, corporate wellness programs have become increasingly popular, and so the EEOC received some criticism last year when it sued several companies claiming they violated the ADA with such programs. According to Law360, at a Senate Health Education Labor and Pensions Committee hearing in November, GOP lawmakers expressed their opinion that “the agency’s litigation arm should have held off on suing until issuing guidance to help employers devise wellness programs that steer clear of potential disability discrimination.” The EEOC is now coming through with the requested guidance, publishing today its Notice of Proposed Rulemaking (“NPRM”) in the Federal Register. The publication initiates a 60-day comment period.

According to the EEOC, “[t]he [] proposed rule would provide much needed guidance to both employers and employees about how wellness programs offered as part of an employer’s group health plan can comply with the ADA consistent with provisions governing wellness programs in the Health Insurance Portability and Accountability Act (HIPAA), as amended by the Affordable Care Act.” The proposal amends ADA regulations to delineate when businesses may use incentives to encourage employees to take part in wellness programs that include disability-related inquiries or medical examinations. The agency says that the ADA allows companies to offer incentives “of up to 30 percent of the total cost of employee-only coverage in connection with wellness programs.”

The NPRM also emphasizes that employee health programs that include disability-related inquiries or medical examinations must be genuinely voluntary. For an employee’s participation in such a program to be deemed voluntary, employers must provide a notice describing what information will be collected, what will be done with the information and how confidentiality will be maintained. Finally, wellness programs and any disability-related inquiries or medical exams associated with them must be reasonably designed to promote health or stave off disease.

The EEOC also published this Fact Sheet for Small Businesses and a Question and Answer document for the general public. The entire NPRM may be viewed here: https://www.federalregister.gov/public-inspection.

[Posted Apr. 20, 2015]

 
 

What Right Do Grandparents Have to Visitation?

 

In this age of the ever-changing family dynamic, clients frequently ask what rights grandparents have to visitation with their grandchildren. The answer is that Oklahoma law recognizes the positive impact grandparents can have on a child, but the paramount concern is the parents’ constitutional right to raise the child as they see fit. Grandparents have a heavy burden to overcome that constitutional right to be awarded legal visitation with the child.

Oklahoma’s statute on grandparent visitation is found at 43 O.S. § 109.4. Section 109.4 provides that a grandparent may be allowed court-ordered visitation with a minor, unmarried grandchild if: 1) Visitation is in the child’s best interest; 2) The child’s parents are unfit or “the grandparent has introduced clear and convincing evidence to (i) rebut the presumption that a fit parent acts in a child’s best interest and (ii) demonstrate that without grandparental visitation the child would suffer harm or potential harm;” and 3) There has been a disruption to the child’s nuclear family due to one of fourteen factors listed in the statute. Some of those factors include divorce of the parents when the grandparents have an existing relationship with the child, death of the parent of the child who is the child of the grandparents, or when custody of the child is granted to someone other than the child’s parent and the grandparents have a preexisting relationship with the child. Under no circumstances may a grandparent be granted visitation with the child when the child’s nuclear family is intact and both parents object.

Furthermore, even though the legislature lists the child’s best interest as the first factor in the statute, the Oklahoma Supreme Court has continuously held that the courts can only consider the child’s best interest AFTER the grandparents prove parental unfitness or harm to the child and a disruption to the nuclear family. The focus is, therefore, on preserving the parent’s constitutional rights rather than the best interest of the child. See, i.e., Craig v. Craig, 2011 OK 27, 253 P.3d 57; and see Murrell v. Cox, 2009 OK 93, 226 P.3d 692.

[Posted Apr. 13, 2015]

 
 

Tenth Circuit COA Denies Indemnity Under Texas Fair Notice Rule Based on Indemnitor's Implicit Duty to Indemnify Against Indemnitee's Fault

 

On February 3, 2015, the Tenth Circuit Court of Appeals held that the Fair Notice Rule under Texas law barred an alleged indemnitee’s demand to recover the costs of successfully defending claims of fraud, nuisance, restitution, and violations of CERCLA and the Texas Solid Waste Disposal Act in Martin K. Eby Constr. Co., Inc. v OneBeacon Insurance Co. and Kellogg Brown & Root, LLC, No. 13-306 (10th Cir. 2015).

In the underlying case, the plaintiff brought claims against Eby and Kellogg alleging that when the companies were constructing a water pipeline, workers struck a methanol pipeline, causing environmental damages. The plaintiff alleged that Eby accidentally struck the methanol pipeline, and that Kellogg’s inaction after Eby caused the leak resulted in the damage. Both defendants prevailed, and the case at bar arose from Kellogg’s demand to recover its cost of defense from Eby under the indemnity provision of the parties’ contract, including over $2 million in attorney’s fees. Eby promised to indemnify Kellogg “for all claims, including attorneys’ fees and expenses, ‘directly or indirectly arising from or caused by or in connection with the performance or failure to perform any work’ by Eby.”

The Court construed the indemnity clause broadly to conclude that while the clause did not specifically state that Eby agreed to indemnify Kellogg for Kellogg’s malfeasance, it covered claims “involving Kellogg’s failure to comply with a duty created by something Eby had done.” Since Eby hit the methanol pipeline causing the leak, and the plaintiff in the underlying action alleged Kellogg should have taken corrective action, the indemnity clause was broad enough to cover the plaintiff’s claims against Kellogg for Kellogg’s fault. Eby and its insurer argued that the indemnity clause was unenforceable under the Fair Notice Rule. Kellogg argued unsuccessfully in the trial court that the Fair Notice Rule did not apply because it is seeking indemnity for Eby’s conduct, not its own.

The Texas Fair Notice Rule is similar to the conspicuity rules enforced in many other jurisdictions. The Rule requires that “promises to indemnify a party for its own fault must be expressly stated and conspicuous.” Relying on Texas cases applying the express negligence rule, the Court held that the Fair Notice Rule might apply when the indemnity clause covers an indemnitee’s fault implicitly despite no express mention of such claims. Finding that the facts presented gave rise to an implicit duty for Eby to indemnify Kellogg for its own fault, the Court held that the Fair Notice Rule applied to each of the claims asserted against Kellogg in the underlying action, including fraud, nuisance, restitution, and violations of CERCLA and the Texas Solid Waste Disposal Act.

The Court reviewed the parties’ contract, and finding that the indemnity clause was not conspicuous as it was in single-spaced, small black and white print on page 86 of a 197-page document, it held the clause unenforceable thereby affirming the summary judgments entered by the lower court in favor Eby and its insurer.

The full opinion is available: http://www.ca10.uscourts.gov/opinions/13/13-3076.pdf.

[Posted Mar. 12, 2015]

 
 

Adoptive Parents Should Utilize the Adoption Tax Credit

 

With tax time bearing down upon us, adoptive families should remember to utilize the adoption tax credit for qualified adoption expenses and the exclusion for employer-provided adoption assistance. The nonrefundable tax credit for 2014 is $13,190.00 per child. Qualifying expenses include adoption fees, court and attorney fees, travel expenses and other expenses directly related to the adoption.

The income limit for both the credit and the exclusion is based on modified adjusted gross income (MAGI). The credit and exclusion begin to phase out when the adoptive family’s 2014 income reaches $197,880.00. Once income reaches $237,880.00, the adoptive parents no longer qualify for the credit or exclusion. However, if income is below $197,880.00, the credit or exclusion will not be affected.

In most cases, the credit or exclusion is limited to amounts the adoptive parents actually pay for the adoption. However, if the adopted child is a U.S. child with special needs, the adopting family is eligible for the full credit or exclusion, even if the family did not pay qualified adoption expenses. To be considered a special needs child for purposes of the adoption tax credit, the child must have been a citizen or resident of the U.S. when the adoption began, the state must determine that the child cannot or should not be returned to the parent’s home, and the state must determine the child probably would not be adoptable without assistance to the adoptive family.

For more information, visit the IRS website. In particular, Topic 607 - Adoption Credit and Adoption Assistance Programs, provides a helpful explanation and the particular forms necessary to claim the credit or exclusion.

[Posted Feb. 24, 2015]

 
 

U.S. Supreme Court Rules that in the Absence of a Statement in the Complaint as to the Amount in Controversy, a Defendant's Notice of Removal Need Only Include a Plausible Allegation that the Amount in Controversy Exceeds the Jurisdictional Threshold

 

On December 15, 2014, the United States Supreme Court considered this question in Dart v. Cherokee Basin Operating Co., LLC v. Owens, 574 U.S. ___ (2014): “To assert the amount in controversy adequately in the removal notice, does it suffice to allege the requisite amount plausibly, or must the defendant incorporate into the notice of removal evidence supporting the allegation?” The Respondent, Owens, had filed a putative class action in Kansas state court against Dart Cherokee Basin Operating Company, LLC and Cherokee Basin Pipeline, LLC (collectively “Dart”) for underpaid royalties under certain oil and gas leases. In the Complaint, Owens sought only “a fair and reasonable amount” to compensate the putative class members.

Dart removed the case to the U.S. District Court for the District of Kansas pursuant to the Class Action Fairness Act of 2005 (“CAFA”), alleging with respect to the amount in controversy that the purported underpayments totaled in excess of $8.2 million. Owens moved to remand, arguing that the notice of removal was “deficient as a matter of law” for failing to include evidence proving that the amount in controversy exceeded $5 million as required by CAFA. Dart responded with a declaration from one of its executive officers detailing the damages calculation. Owens did not challenge Dart’s calculation but argued the “evidence” came too late. Ultimately, the district court granted Owens’ remand motion. The Tenth Circuit denied Dart’s petitions for review, but the U.S. Supreme Court granted certiorari to resolve a division among the circuits on the question presented.

In the opinion written by Justice Ginsburg and joined by Justices Roberts, Breyer and Sotomayor, the Supreme Court explained that under §1446(a) “a defendant seeking to remove a case to a federal court must file in the federal forum a notice of removal ‘containing a short and plain statement of the grounds for removal.’” And, §1446(a) follows the general pleading requirement provided in Rule 8(a) of the Federal Rules of Civil Procedure. The Court further explained that when a plaintiff invokes federal jurisdiction, the plaintiff’s allegation with regard to the amount in controversy is accepted if made in good faith. “Similarly, when a defendant seeks federal-court adjudication, the defendant’s amount-in-controversy allegation should be accepted when not contested by the plaintiff or questioned by the court.” The Court instructed that it is only when the plaintiff contests the defendant’s allegation that the district court must determine whether, by the preponderance of the evidence, the amount in controversy exceeds the jurisdictional threshold. The opinion, on this issue, concludes with the Court’s holding that “a defendant’s notice of removal need include only a plausible allegation that the amount in controversy exceeds the jurisdictional threshold. Evidence is required by §1446(c)(2)(B) only when the plaintiff contests, or the court questions, the defendant’s allegation.”

The full opinion is available at: http://www.supremecourt.gov/opinions/14pdf/13-719_8mjp.pdf.

[Posted Feb. 16, 2015]

 
 

Oklahoma County District Judge Holds that 2013 Version of Section 19.1 of Title 12 of the Oklahoma Statutes is Unconstitutional

 

Okla. Stat. tit. 12, sec. 19.1 passed in 2011 required plaintiffs in professional negligence actions to file an “affidavit of merit” in support of their claims. That statute was declared unconstitutional by the Oklahoma Supreme Court in Wall v. Marouk, 2013 OK 36, on the bases that the provision was a special law and created a financial burden on access to the courts. Following that opinion, in 2013, the Oklahoma Legislature passed the most recent version of section 19.1, which requires an “affidavit of merit” to be filed “[i]n any civil action for negligence where in the plaintiff shall be required to present the testimony of an expert witness to establish breach of the relevant standard of care and that such breach of duty resulted in harm to the plaintiff.” On January 16, 2015, Oklahoma County District Judge Bryan C. Dixon ruled that the 2013 version of section 29.1 is also unconstitutional, as it continues to create “a subclass of tort victims and tortfeasors for cases requiring an expert witness to establish the standard of care and violation of that standard.” Judge Dixon explained, “Merely changing the wording from professional negligence to the new language involving experts does not resolve this constitutional problem.”

See the full opinion here: http://www.oscn.net/dockets/GetCaseInformation.aspx?db=oklahoma&number=CJ-2014-4764.

[Posted Feb. 10, 2015]

 
 

No Pay, No Play Law Declared Unconstitutional by Oklahoma Supreme Court

 

Plaintiffs filing automobile negligence claims no longer are excluded from claiming pain and suffering damages due to their own lack of insurance as a result of a decision of the Oklahoma Supreme Court. On December 16, 2014, the Court struck down 47 O.S. § 7-116, known as the “No Pay, No Play” law, in Montgomery v. Potter, 2014 OK 118. The law excluded uninsured plaintiffs from recovering pain and suffering in automobile accident cases, except in certain circumstances. Specifically, the law provided that:.

[I]n any civil action to recover damages arising out of an accident involving the operation of a motor vehicle or for any claim against the motor vehicle liability insurance coverage of another party, the maximum amount that a plaintiff or claimant may receive, if the plaintiff or claimant is not in compliance with the Compulsory Insurance Law, shall be limited to the amount of medical costs, property damage, and lost income and shall not include any award for pain and suffering…”

The Montgomery Plaintiff brought claims for injuries to herself and her minor child after being rear-ended by the defendant. At the time of the accident she was uninsured, her insurance having lapsed 60 days prior to the accident. The defendant alleged that the “No Pay, No Play” law prevented the plaintiff from recovering pain and suffering damages. The plaintiff responded that the law is unconstitutional as a “special law” precluded by the Oklahoma Constitution. The trial court agreed with plaintiff and the defendant appealed to the Oklahoma Supreme Court.

The Supreme Court agreed with the plaintiff that the law impermissibly creates a special class of victims of auto accidents who are uninsured out of a larger, more general class of all victims of auto accidents. The Oklahoma Constitution prevents the application of special laws where a part of a class of similarly-affected people are treated differently than the class as a whole. The Court pointed out that the “No Pay, No Play” law held uninsured drivers to a much stricter standard than other plaintiffs in auto accidents, despite whether those drivers are at fault. The Court struck down the law as unconstitutional.

[Posted Jan. 26, 2015]

 
 

Oklahoma Supreme Court Reverses $7 Million Fee Award to Class Counsel Where Nationwide Class Recovered Less Than $50 Thousand

 

On December 16, 2014, the Oklahoma Supreme Court issued its opinion in the case of Hess v. Volkswagen of America, 2014 OK 111, reversing the District Court’s award of $7 million in attorney’s fees to the class counsel. Hess had filed a class action in 2005 against Volkswagen for breach of express and implied warranties arising from an allegedly improperly designed front spoiler on the Jetta model. The class was certified and upheld on appeal to the Oklahoma Court of Civil Appeals. Ohio plaintiffs filed a similar action in 2004, and Volkswagen successfully decertified a similar action in Florida in 2005.

In December 2011, the parties settled, and the Ohio plaintiffs intervened in July 2012. The settlement required Volkswagen to notify over 2 million owners and lessees of the subject model nationwide, who could file claims for the cost to repair the front spoilers. No Oklahomans received a payout, and only 310 claims were paid nationwide, for a total distribution by Volkswagen of $45,780, or $140.00 per claimant.

The settlement required Volkswagen to pay the claimants’ reasonable attorney’s fees. Class counsel submitted a fee and expense application for $15 million. The District Court applied Oklahoma’s Lodestar method to determine the fee award of $3.6 million, which included a 5% deduction for the attorney fees applicable to the failed Florida litigation. Hess moved for reconsideration citing to the recently decided case Berry v. Volkswagen, 397 S.W.3d 425 (Mo. 2013), in which the Missouri Supreme Court approved a 2.0 enhancement multiplier to the Lodestar to determine class counsel’s fees. The District Court considered Berry, and amended its award by applying a 1.9 enhancement multiplier for a total fee award of $7.3 million. This prompted the instant appeal.

The Supreme Court reviewed the fee award under an abuse of discretion standard applying the Lodestar method that requires the District Court to review counsel’s time records, then arrive at the fee by multiplying counsel’s hourly rate by the time expended. The Court noted that in class actions, the fee may be enhanced upon consideration of multiple factors, including: (1) time and labor required; (2) novelty and difficulty of the questions; (3) skill required; (4) preclusion of other employment; (5) customary fee; (6) whether the fee was fixed or contingent; (7) time limitations; (8) amount involved and results obtained; (9) experience, reputation, and abilities of the attorneys involved; (10) undesirability of the case; (11) awards in similar cases; (12) risk of recovery; and (13) whether any benefits of the recovery take a non-cash form. The Court’s opinion focused on the amount involved and the results obtained by class counsel holding that “in all cases, the attorney fees must bear some reasonable relationship to the amount in controversy.”

First, the Oklahoma Supreme Court concluded that the District Court abused its discretion by including any of the fees from the failed Florida litigation in the fee award. In doing so, the Supreme Court rejected Hess’ arguments in support of the award that his counsel’s experience gained in the Florida litigation enhanced the successful settlement of the Oklahoma action, and Florida residents were included in the settlement class.

Addressing the District Court’s error in relying on the Berry decision from Missouri and applying a 1.9 enhancement factor, the Supreme Court held that Missouri law differs from Oklahoma law in the enhancement factors the trial court must consider, and that two factors relied upon by the Berry court were absent in this case. The Supreme Court also approved the First Circuit Court of Appeals’ holding in In re Volkswagen & Audi Warranty Extension Litigation, 692 F.3d 4 (1st Cir. 2012) that “the actual claims data collected by the settlement administrator is relevant to the enhancement question and in determining the appropriate fee.” In remanding the case back to the District Court for a proper determination of fees, the Supreme Court summarized:

This Court has long recognized the importance of the relationship between the amount sued for in a case seeking only money damages and the results obtained. As defined by Hess, the “class” included in excess of two million Jetta owners. Although in excess of 300 members have received full recovery for damage repairs and the warranty period has been expanded by twelve months through the settlement, if the pay-out is spread across the entirely of the defined class, recovery is miniscule. When we consider the award to the class, as did the federal court in Audi, we have little difficulty in concluding that application of a 1.9 enhancement figure to the lodestar amount constituted an abuse of discretion.

[Posted Jan. 12, 2015]

 
 

Supreme Court Rules Employees Not Entitled to Overtime Pay for Security Screenings

 

Employees required to undergo post-shift security screenings are not entitled to overtime pay for time spent waiting for and undergoing the screenings, according to an opinion issued last week by the U.S. Supreme Court. In Integrity Staffing Solutions, Inc. v. Busk, et al., hourly warehouse employees of Integrity Staffing sued to be compensated for the time involved in the screenings. The employees’ jobs consisted of retrieving products from shelves and packaging them for delivery to Amazon customers. At the end of each shift, Integrity required all warehouse employees to remove items on their persons, such as wallets, keys and belts, and pass through metal detectors. The employees claimed the screenings took around 25 minutes each day.

The District Court dismissed the claim for failure to state a claim under the Fair Labor Standards Act (“FLSA”), holding that the screening activities were not integral and indispensable to the job, and thus, not compensable under the FLSA. The Ninth Circuit Court of Appeals reversed in part, holding that the post-shift activities were compensable because the activities were “necessary” to the employees’ primary work and done for Integrity’s benefit.

The Supreme Court reversed the appeals court, relying on the Portal to Portal Act, 29 U.S.C. §251(a), which exempts employers from liability for claims for overtime related to traveling to and from work and claims preliminary to or postliminary to the principal activities of employment. The Court said the Court of Appeals was wrong in focusing on whether the employer required the post-shift activity. The Supreme Court held that an activity is compensable under the FLSA if it is “integral and indispensable to the principal activities that an employee is employed to perform.” Because the Court determined that time spent waiting and undergoing security screenings is not integral and indispensable to the job of pulling and packaging product, an employer is not required to compensate that time under the FLSA.

[Posted Dec. 18, 2014]

 
 

New York Appellate Court Holds that Pending or Anticipated Litigation Unnecessary to Invoke "Common-Interest Privilege"

 

On December 4, 2014, the New York Supreme Court, Appellate Division held that parties sharing identical legal interests may invoke the common-interest privilege to protect communications with common counsel when there is no pending or reasonably anticipated litigation. Ambac Assurance Corp. v. Countrywide Home Loans and Bank of Am. Corp., Case No. 651612/10. By adopting the interpretation of the privilege applied by most federal courts and the Restatement, the Court departed from prior New York cases that required actual or anticipated litigation to support a claim of common-interest privilege.

Ambac is a financial guaranty insurer that guaranteed payments on certain residential mortgage backed securities issued by Countrywide. Ambac brought the action alleging that Countrywide fraudulently induced Ambac to enter in the insurance agreements and breached those agreements. Ambac sued Bank of America as the successor in interest to Countrywide. Those secondary claims arose from a merger between a Bank of America subsidiary and a Countrywide entity.

The instant issue arose from Ambac’s quest for the production of several hundred documents reflecting communications between Bank of America, Countrywide and their common counsel during the pre-merger period. The defendants asserted protection against discovery under the common-interest privilege; however, the lower court rejected the claim and ordered production based on extant New York case law that required actual or anticipated litigation to support the privilege.

The common-interest privilege is a limited exception to the waiver of the attorney-client privilege that arises when a third party is involved in the communication between an attorney and client provided that “(1) the communication qualify for protection under the attorney-client privilege, and (2) the communication be made for the purpose of furthering a legal interest or strategy common to the parties.” A line of New York cases require the party claiming the privilege to establish additionally that the communication occurred while litigation was pending or reasonably anticipated.

The defendants asserted that because they are two heavily regulated public financial institutions, they required shared legal advice from counsel together to ensure their compliance with the law and to advance their common interest in successfully completing the merger. In reviewing the prior New York cases, the Court held:

These cases provide that when two parties with a common legal interest seek advice from counsel together, the communication is not privileged unless litigation is within the parties’ contemplation; on the other hand, when a single party seeks advice from counsel, the communication is privileged regardless of whether litigation is within anyone’s contemplation. We cannot reconcile this contradiction, as it undermines the policy underlying that attorney-client privilege.

The Court observed that case law from federal and Delaware courts, as well as the Restatement (Third) of the Law Governing Lawyers, § 76 (2000), hold that the common-interest privilege is not tied to the contemplation of litigation. In adopting this view and reversing the lower court, the Court held the application of the common-interest privilege is particularly suited to the case at bar where the two defendants, “having entered a merger agreement without anticipating litigation, and having signed a confidentiality agreement, required the shared advice of counsel in order to accurately navigate the complex legal and regulatory process involving completing the transaction.”

The full opinion is available at https://iapps.courts.state.ny.us/fbem/DocumentDisplayServlet?documentId=uz8JzzlYSZbAG5h9OkPhGA==&system=prod

[Posted Dec. 8, 2014]

 
 

Amici Curiae Urge Resolution of Whether the Clean Air Act Preempts State Tort Claims in Case to Watch Before the United States Supreme Court

 

Last month, the National Association of Manufacturers, National Mining Association, Nuclear Energy Institute, Corn Refiners Association, Council of Industrial Boiler Owners, Metals Service Center Institute and National Shooting Sports Foundation filed a brief as amici curiae in support of the Petitioners before the United States Supreme Court in Grain Processing Corp. v. Freeman, on Petition for a Writ of Certiorari to the Supreme Court of Iowa. The Petitioners have asked the U.S. Supreme Court to negate a class action alleging that it negligently releases harmful chemicals onto residents’ homes and properties, arguing that the state law claims are preempted by the Clean Air Act. The amici curiae’s brief states the issue for review by the high Court is “whether state tort claims involving air pollution, especially public nuisance, are preempted by the federal Clean Air Act.” The brief maintains that without resolution of the issue, a “destructive ‘dual track’ system where federal agencies and courts use conflicting standards to redress the same concerns” will result. The Respondents, at least according to the amicus curiae, argue that the Clean Air Act exists concurrently with state common law remedies, including public nuisance, and that such remedies are available even when a source complies fully with the Clean Air Act.

The amici curiae provide the Court with three reasons why it should grant certiorari to review the underlying Iowa Supreme Court decision, set for Conference before the Supreme Court on November 25, 2014: (1) the case presents the “ideal opportunity” to resolve the question remaining after the American Electric Power v. Connecticut, 131 S.Ct. 2527 (2011) decision that public nuisance claims were “displaced” by the Clean Air Act, i.e. whether state claims were also preempted; (2) the case presents an opportunity to resolve a split of authority existing within the federal and state judiciaries; and (3) unless the Court grants review and decides in favor of preemption, “the predictability and certainty of the [Clean Air Act’s] carefully designed permitting system will be replaced by the mutability and malleability of state common law – and the efficacy of the [Clean Air Act’s] pollution control system will surely be compromised.” The brief concludes with this summary of the amici curiae’s argument:

The current “Circuit by Circuit” and “state by state” approach to the question of preemption precludes any uniform standards for environmental compliance and enforcement, and also vitiates any reliable basis for capital investment, expanded operations and work-force stability. Since the [Clean Air Act] was enacted to promote all of those goals – as well as to promote jobs and a healthy economy – delaying review prolongs uncertainty and intensifies the dilemma facing not only the courts, but also the regulated community. Under these circumstances, granting certiorari now presents the best opportunity to resolve this difficult question.

It will be interesting to see whether the Supreme Court takes the opportunity to “clarify the respective roles of the federal and state regulatory authorities and courts in air pollution control,” as framed by the amici curiae’s brief. You can follow the Petition for Certiorari and the case docket here: http://www.supremecourt.gov/search.aspx?filename=/docketfiles/14-307.htm.

[Posted Dec. 1, 2014]

 
 

Parents May Be Liable for Their Child's Social Media Posts

 

Add one more reason why you may want to monitor your kids on social media. A Georgia appellate court held last month that parents potentially can be liable for what their kids post on Facebook. The decision rested on the fact that the parents made no attempt to determine the content of posts or whether the posts could be deleted after learning of the false and offensive information posted by their son.

The problems started when a 13-year-old boy, Dustin, and a female friend created a fake Facebook page posing as a classmate, Alex, using a computer and Internet account provided by Dustin’s parents. Dustin used a “Fat Face” app to create a profile picture of the classmate using a photo he took of her at school. Dustin and his friend posted racist and homosexual information to the profile and friended over 70 classmates in the first two days. The two posted updates and comments that were graphically sexual, racial and otherwise offensive and which stated Alex had mental health disorders and took illegal drugs.

Alex suspected Dustin and went to the school principal. Dustin and his friend admitted their actions and Dustin’s parents grounded him for one week from seeing friends after school. Nevertheless, the Facebook account remained active for another eleven months, continuing to accept and extend friend requests and posts, until Facebook deactivated it shortly after Alex’s parents filed the lawsuit.

Alex and her parents sued Dustin, his parents and others for libel. The trial court granted summary judgment in favor of Dustin’s parents on the claims against them but the Georgia appellate court disagreed. The appellate court pointed out that “[p]arents may be held directly liable … for their own negligence in failing to supervise or control their child with regard to conduct which poses an unreasonable risk of harming others.” The key question is “whether the parents had knowledge of facts from which they should have reasonably anticipated that harm to another would result unless they controlled their child’s conduct.”

The Court’s decision turned not necessarily on the original posting by Dustin, but on the parents’ failure to act after learning he created the fake profile. Given the nature of libel, the injurious conduct may continue to cause injury if published to additional readers or if it continues to exist in a public forum. Therefore, the appellate court held that a jury could reasonably find that Dustin’s parents’ negligence in not attempting to remove or correct the offensive profile caused some part of Alex’s injury resulting from Dustin’s actions. Based on that finding, Alex and her parents’ were allowed to maintain their claims against Dustin’s parents at the trial court.

[Posted Nov. 10, 2014]

 
 

Fifth Circuit Court of Appeals Finds CGL Coverage for Defective Home Construction

 

On October 29, 2014, the Fifth Circuit Court of Appeals issued its Opinion in Crownover v Mid-Continent Casualty Company, No. 11-10166, which held Mid-Continent liable for the cost of repairing residential construction defects under Texas law under its CGL policy issued to the home builder.

In 2001, the Crownovers contracted with Arrow Development for the construction of a new home. Within a year of completion, the home developed foundation and wall cracks, and the HVAC units failed due to defects in the duct system. The construction contract included a clause in Para. 23.1 that obligated Arrow to “promptly correct work…failing to conform to the requirements of the Construction Documents.” When Arrow refused the Crownovers’ repeated demands to correct the problems, they made the repairs at a cost of several hundred thousand dollars.

Pursuant to the contract, the Crownovers commenced an arbitration proceeding against Arrow. The Arbitrator found that Arrow had breached the express warranty in Para. 23.1 for failing to repair the foundation and HVAC defects, and awarded the Crownovers the cost of repairs. Arrow filed bankruptcy, and the court lifted the stay to allow the Crownovers to pursue Arrow’s insurer. After Mid-Continent denied the Crownovers’ demand, they commenced the instant action. On appeal, the Fifth Circuit evaluated the district court’s grant of summary judgment to Mid-Continent.

The Fifth Circuit framed the primary question on appeal as follows:

[W]hether a contractual provision in the construction contract between the Crownovers and Arrow, which obligated Arrow to repair its work where that work failed to conform to the requirements of the construction contract, was an “assumption of liability” that exceeded Arrow’s liability under general Texas law, thereby triggering a “contractual liability exclusion” in Arrow’s insurance contract with Mid-Continent.

The Policy stated that Mid-Continent “will pay those sums that [Arrow] becomes legally obligated to pay as damages because of…’property damage’ to which this insurance applies.” The contractual liability exclusion stated that “[t]his insurance does not apply to [] ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement,” subject to the exception for “liability…[t]hat the insured would have in the absence of the contract or agreement.” The Crownovers argued that since there was no express disclaimer of the implied warranty of good workmanship in the contract, Arrow was liable for the defects under Texas law notwithstanding the express warranty, and thus, the exception to the exclusion applied and the claim was covered.

The Fifth Circuit conducted its analysis pursuant to the burden-shifting paradigm for determining the applicability of policy exclusions, to wit:

[1] Initially, the insured has the burden of establishing coverage under the terms of the policy. [2] If the insured proves coverage, then to avoid liability the insurer must prove the loss is within an exclusion. [3] If the insurer proves than an exclusion applied, the burden shifts back to the insured to show that an exception to the exclusion brings the claim back within coverage.

Quoting Gilbert Texas Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 124 (Tex. 2010).

In the first step of the analysis, the Court concluded, “Arrow’s defective work was an ‘occurrence’ that caused the HVAC system and the foundation to require repairs, both of which amounted to ‘property damage.’ Thus having found coverage, the Court moved on to analyze the contractual-liability exclusion. The Court held that for the exclusion to apply, Mid-Continent had the burden to show that Arrow was obligated to the Crownovers for the costs of the repairs, and that such liability exceeded Arrow’s liability under general law. Thus, Mid-Continent had to establish that Arrow’s express warranty set out in Para. 23.1 of the contract with the Crownovers imposed a greater duty on Arrow than those imposed by extant Texas law. The Texas Supreme Court had held previously that the contractual-liability exclusion does not apply merely because the obligation is expressed as a contractual duty. The determination for the court is whether the contractual duty expands the insured’s liability beyond that established by general law.

The Fifth Circuit noted that Texas law requires a party to perform its duties under a contract with reasonable care and skill, which includes the duty to repair (correct) deficient performance. The remedy for failing to fulfill the duty to repair is the cost to repair the defective work. Comparing these general duties to Arrow’s express warranty, the Court held that because Para. 23.1 of the contract required Arrow to correct its work that failed to conform to the Contract Documents, the contract did not expand Arrow’s existing obligations under Texas law. On this conclusion, the Court held that the contractual-liability exclusion in Mid-Continent’s policy did not apply.

Mid-Continent also argued that there was no coverage under the policy pursuant to the “your work” exclusion. The exception to the exclusion in the policy at the time Arrow constructed the home stated that it did not apply “if the damaged work or the work out of which the damage arises was performed on your behalf by a subcontractor.” Mid-Continent argued that it had removed the exception from the renewed policy issued to Arrow after the home was completed and before the alleged property damage manifested. Mid-Continent had tendered the opinions of an expert in the district court asserting that the deflection in the foundation of the Crownovers’ home did not exceed the limits established by the American Society of Civil Engineers until a date falling after the Mid-Continent policy changes were in effect. The Court rejected this argument holding that the appearance of cracks was sufficient to constitute “property damage,” regardless of whether they exceeded some deflection threshold. The Court held that since the evidence was undisputed that the damage to the foundation and HVAC systems appeared during the policy period that included the subcontractor exception, and because the subject work was performed by Arrow’s subcontractors, the “your work” exclusion did not apply.

In its final argument, Mid-Continent asserted that coverage was barred by the exclusions for “property damage” to:

(5) That particular part on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the “property damage” arises out of those operations; or

(6) That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it.

Paragraph (6) of this exclusion does not apply to “property damage” included in the “products-completed operations hazard.”

Acknowledging that these exclusions applied to property damage that occurred while the work was ongoing, Mid-Continent argued that that the damage to the foundation and HVAC occurred at the time they were installed, and thus, before the home was completed. The Court rejected this argument holding that it does not matter when the faulty work is installed, only when the physical damage arises. Since the foundation and walls did not exhibit cracks and the HVAC system was functioning when the home was completed, the Court found the coverage exclusions inapplicable.

In sum, the Fifth Circuit ordered that summary judgment be entered in favor of the Crownovers and held that Mid-Continent was bound by the Arbitrator’s finding that Arrow had performed defective work that it failed to repair, and thus, there being no applicable exclusions to coverage, Mid-Continent was liable to the Crownovers for the costs of the repairs.

For the full opinion, see: http://www.ca5.uscourts.gov/opinions%5Cpub%5C11/11-10166-CV1.pdf.

[Posted Nov. 3, 2014]

 
 

Woman's 1938 Battle Against Anti-Slackism

 

Kindergarten teacher Helen Hulick made Los Angeles court history in 1938 when she appeared as a witness wearing slacks, according to the Los Angeles Times. The judge rescheduled her testimony on this occasion and one other, ordering her to return in a dress. Ms. Hulick was quoted by the Los Angeles Times as saying, “You tell the judge I will stand on my rights. If he orders me to change into a dress I won’t do it. I like slacks. They’re comfortable.” Ms. Hulick stood her ground, and on her third court appearance in slacks, the judge sentenced her to five days in jail for contempt. Follow this link to the full story on the conclusion of Ms. Hulick’s battle against “anti-slackism:”  http://www.latimes.com/local/california/la-me-california-retrospective-20141023-story.html

[Posted Oct. 28, 2014]

 
 

Oklahoma Attorney General Opinion Invalidates Electronically Signed Voter Registrations

 

On September 25, 2014, Oklahoma Attorney General Scott Pruitt issued an Opinion in response to a question submitted by Paul Ziriax, Secretary of Oklahoma’s State Election Board. See, Question Submitted by: Paul Ziriax, Secretary, State Election Board, 2014 OK AG 10.

In the Opinion, the Attorney General considered whether voter registrations that were signed electronically using the “Allpoint Pen technology” satisfied Oklahoma’s voter registration requirements as detailed in 26 O.S. §4-112(A) and OAC 230:15-5-84. The Allpoint Pen technology is an electronic pen that transmits an electronic signature to a machine that uses an actual pen to create a simulated signature on real paper using wet ink. The Voter Participation Center used this technology as part of a voter registration project to submit “numerous voter registration applications.” Id. at ¶1.

The Attorney General opined that because §4-112(A) requires that all voter registration applications be personally signed and that the all signatures must be “original,” the Allpoint Pen technology fails to meet the statutory requirements. The Attorney General explained that because a machine creates the actual signature submitted, the “resulting signatures could not have been said to have been made ‘personally…’” Id. at ¶2. Moreover, as the statute and administrative code both require original signatures and neither allow for substitution of an original signature with a facsimile or reproduction, none of the applications submitted using the Allpoint Pen technology would be valid under Oklahoma law.

Although the Opinion did not state the precise number of voter applications that are potentially invalid because of this ruling, it is likely to impact a significant number of voters. Further, as the Election Board does not issue voter identification cards if there are 24 days or less remaining before an election, it is possible that many of the individuals who submitted invalid registrations will be unable to submit a new application in time for the November 4, 2014 elections.

The Attorney General’s Opinion is available here:  http://www.oscn.net/applications/oscn/deliverdocument.asp?citeid=474770

[Posted Oct. 21, 2014]

 
 

Powers of Attorney for Illness or Aging

 

A Power of Attorney is a legal document giving another person the power to act in your place without involving a court. A POA can give the person granting it (called the “principal”), and his family, peace of mind when they know an illness or the effects of aging might leave the principal unable to make appropriate decisions about his healthcare, finances and other matters. The principal can choose a trusted individual to pay bills, collect debts, manage investments or direct medical care in the event the principal cannot do so.

Individuals with serious illnesses or who are aging should consider a POA before one is actually necessary. Once the principal has become incompetent, i.e. he is no longer able to make responsible decisions, he no longer has the ability under the law to grant a POA. At that point, his family will likely have to go to court to seek guardianship of the individual, a more costly and time-consuming endeavor at a time when decision may need to be made quickly. Many also prefer POA’s over guardianship because the principal has more control over the extent of power granted to the chosen attorney-in-fact. For example, the principal may choose to allow a trusted relative to pay bills and manage medical care, but prefers to appoint another person or entity to manage investments.

Many considering this option are concerned that they are handing over decision-making power while they are still capable of handling their own affairs. However, this concern can be alleviated by drafting the power of attorney to become effective only upon the disability or incapacity of the principal. The principal may direct, for example, that two medical doctors must determine that the principal is incapacitated before the attorney-in-fact is granted any power. Additionally, the principal can revoke the power of attorney at any time or change his appointed attorney in fact, as long as he is still capable of making informed decisions.

Powers of attorney are one tool that can allow individuals to maintain some control over their persons and property while also providing some peace of mind. Many principals are relieved to know they have granted their loved ones the ability to sell property or withdraw retirement funds to help with the principals’ medical expenses if costs necessitate. The time involved in preparing a power of attorney is well worth the effort.

[Posted Oct. 13, 2014]

 
 

Drivers Should Review Insurance Limits as New Uninsured Motorist Law Goes Into Effect

 

A new Oklahoma statute set to go into effect on November 1, 2014 will have a significant effect on uninsured/underinsured motorist (“UM”) policies issued, renewed or reinstated after that date. UM coverage is applicable when an at-fault driver is uninsured or his insurance limits are less than the claim of the injured party. The injured party is then able to recover under his own UM policy. Oklahoma law requires UM coverage under each auto policy unless the policy holder rejects the coverage in writing.

Currently, Oklahoma law allows “stacking” of UM policies. This means that if you have UM coverage on more than one household vehicle, and UM coverage is applicable to a situation, you can seek to recover from your insurer under each UM policy if your damages warrant the recovery. For example, if each of three vehicles used by household members has UM coverage with a bodily injury limit of $25,000 and a household member is injured through the actions of an uninsured/underinsured motorist with damages totaling $75,000, the injured person can recover under all three UM policies for a total of $75,000.

The new law, 36 O.S. § 3636, will change Oklahoma law so that stacking is no longer required by insurance companies. (An insurer is still allowed to expressly allow stacking in the policy terms, but is no longer required to do so.) In other words, an insured person seeking to recover under his UM coverage will only be allowed to recover under one of his UM policies. Therefore, the injured driver mentioned above will have a maximum recovery under UM of $25,000. His additional UM policies will not be available for any damages above that limit.

All drivers should reexamine their policies to determine whether their UM polices will provide sufficient coverage in the event they are injured, or their vehicles are damaged, due to the fault of an uninsured motorist.

[Posted Sept. 30, 2014]

 
 

U.S. Supreme Court Urged to Take Up Question of Whether September 11 Attacks Satisfy "Act of War" Defense Under CERCLA

 

On August 27, 2014, the Plaintiff/Petitioner and Real Estate Developer, Cedar & Washington, LLC, filed its Petition for a Writ of Certiorari with the U.S. Supreme Court requesting the Court to reconsider what constitutes an “act of war” in the context of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. §§ 9601-9675.

CERCLA provides an affirmative defense to claims for cleanup where the defendant establishes by a preponderance of the evidence that the environmental hazard resulted solely from an act of war. Id. at § 9607(b).

In May 2014, the Second Circuit Court of Appeals affirmed the U.S. District Court for the Southern District of New York’s decision that CERCLA cannot be used to force defendants to pay for cleanup costs resulting solely from an act of war, even if the act of war was not caused by a formal state actor. Cedar & Washington Assocs., LLC v. Port Auth. of N.Y. & N.J. ( In re September 11 Litig.), 751 F.3d 86 (2d Cir. N.Y.2014). In Cedar, the Second Circuit considered whether the terrorist attacks of September 11, 2001 constituted an “act of war” for purposes of applying the CERCLA exception. Although CERCLA does not define what an “act of war” encompasses, the Second Circuit held that actions of both state and non-state actors can constitute an act of war within the meaning of CERCLA’s liability exception.

Although in a typical international law context, courts have held that only actions of state actors can constitute an act of war, the Second Circuit held that the facts surrounding the September 11 terrorist attacks were “indistinguishable from military attack in purpose, scale, mean, and effect.” Id. at 89. Thus, even if narrowly applied, the CERCLA “act of war” affirmative defense was applicable and served as a complete defense.

The Second Circuit’s Opinion is available here:

http://www.ca2.uscourts.gov/decisions/isysquery/3a6e8f3b-6e44-4fa1-b042-d77897468bd5/1/doc/10-4197_opn.pdf#xml=http://www.ca2.uscourts.gov/decisions/isysquery/3a6e8f3b-6e44-4fa1-b042-d77897468bd5/1/hilite/

[Posted Sept. 22, 2014]

 
 

The Tenth Circuit Finds a Party's Election Not to Procure a Witness' Attendance Does Not Preclude its Use of the Witness' Deposition Testimony at Trial under Rule 32

 

The Tenth Circuit Court of Appeals recently affirmed a Colorado district court’s decision to allow the videotaped deposition testimony of an expert witness at trial pursuant to Fed. R. Civ. P. 32 in A.H. v. Evenflo Company, Inc., No. 13-1403 (10th Cir. Sept. 10, 2014). Rule 32 creates an exception to the general rule that deposition testimony is inadmissible hearsay, providing:

   (4) Unavailable Witness.  A party may use for any purpose the deposition of a witness, whether or not a party, if the court finds:

   ...

   (B) that the witness is more than 100 miles from the place of hearing or trial or is outside the United States, unless it appears that the witness’s absence was procured by the party offering the deposition.

Fed. R. Civ. P. 32(4)(B).

It was undisputed that the expert witness at issue was more than 100 miles from the Colorado courthouse, living and working in Georgia. However, the plaintiffs argued to the appeals court that the district court should have excluded the deposition testimony because it “appeared” that the defendant had procured the expert’s unavailability. The Tenth Circuit rejected the plaintiffs’ arguments, stating that the record showed only that the district court suspected the defendant could have procured the expert’s live testimony if it had wanted to. The Tenth Circuit held that there is a difference between affirmatively procuring a witness’ absence and electing not to procure a witness’ attendance at the proceeding.

The full Order and Judgment is available here: http://www.ca10.uscourts.gov/opinions/13/13-1403.pdf. Note that the Tenth Circuit expressly states that the Order and Judgment may be cited for its persuasive value but it is not binding precedent except under the doctrines of law of the case, claim preclusion, and issue preclusion.

[Posted Sept. 15, 2014]

 
 

Federal District Court in Montana Sides with Third Circuit in Holding that CERCLA § 113(f)(3)(B) Contribution Claim Accrued from Settlement that did not Expressly Resolve CERCLA Liability

 

Faced with a lack of precedent in the Ninth Circuit, the District Court of Montana, Helena Division, wrestled with a split between the Circuit Courts of Appeal on the question of whether a Consent Decree that does not expressly resolve a potentially responsible party’s (“PRP’s”) CERCLA liability can trigger a contribution claim under CERCLA § 113(f)(3)(B). In its August 26, 2014 Order granting summary judgment to the defendant in the case of Asarco LLC v Atlantic Richfield Company (CV 12-53-H-DLC), the court considered the opposing conclusions reached by the Second and Third Circuit Courts of Appeal and held that the Third Circuit’s interpretation was “truer to the express language of [the statute].”

ASARCO operated a lead smelter at the site from 1888 to 2001. A predecessor to Atlantic Richfield operated a zinc fuming plant on land leased from ASARCO at the site from 1927 to 1972 at which time it sold the plant to ASARCO. The EPA added the site to the NPL due to the release of numerous hazardous substances. In 1998, ASARCO and EPA entered a Consent Decree that resolved EPA’s claims for multiple violations of RCRA and CWA. The Decree transferred the jurisdiction for the site cleanup from the CERCLA program to the RCRA program. The Decree required ASARCO to perform a wide range of activities to address the contamination.

The subject lawsuit was commenced by ASARCO seeking contribution from Atlantic Richfield under 42 U.S.C. § 9613(f)(3)(B). The central issue for the court was whether ASARCO’s claim was barred by the 3-year statute of limitations provided in 42 U.S.C. § 9613(g)(3)(B). To resolve this issue, the court had to determine whether the 1998 Consent Decree caused ASARCO’s contribution claims to accrue given that it did not expressly eliminate ASARCO’s CERCLA liability. Lacking any Ninth Circuit precedent, the court analyzed the opposing views previously expressed by the Second and Third Circuits.

In its prior decisions, the Second Circuit had interpreted § 113(f)(3)(B)’s reference to a “response action” as being a “CERCLA-specific term describing an action to clean up a site or minimize the release of contaminates in the future.” Thus, the Circuit held that § 113(f)(3)(B) contribution claims can be predicated solely upon the resolution of a PRP’s liability arising under CRECLA.

In Trinity Ind. v. Chicago Bridge & Iron Co., 735 F.3d 131 (3rd Cir. 2013), the Third Circuit expressly rejected the Second Circuit’s analysis. The Third Circuit held that “§ 113(f)(3)(B) does not require resolution of CERCLA liability in particular.” In reaching this conclusion, the Circuit considered that § 113(f)(3)(B) references resolving liability “for some or all of a response action,” however, Congress did not require that the response action be initiated under CERCLA. The analysis drew additional support from Third Circuit case law for cost recovery actions under § 107 that allowed the government to recover its costs if the government action qualified as a “removal action” under CERCLA’s definition. Thus, the Third Circuit rejected the Second Circuit’s holding that to qualify, a response action must be CERCLA-specific, and held that the response action must simply qualify as such under CERCLA’s definitions.

The Montana Federal District Court adopted the Third Circuit’s reasoning and held that “the plain language of § 113(f)(3)(B) [gives] rise to a claim for contribution after a party resolves some or all of its liability to the United States or a State for any ‘response action,’ or the costs of such action, that falls under the wide umbrella created by §§ 101(23)-(25).” Determining that ASARCO’s 1998 Consent Decree qualified as a CERCLA response action, the court held that ASARCO’s contribution claims accrued at that time, and thus, its 2012 action against Atlantic Richfield was time-barred.

[Posted Sept. 5, 2014]