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Recent Case Notes from Jordan Coyne & Savits, LLP
The materials contained on this web site have been prepared by Jordan Coyne & Savits L.L.P. for informational purposes only, and should not be considered as legal advice as to any specific matter or transaction. Readers should consult a knowledgeable attorney, licensed in their home State, for advice. These materials may not reflect the most current legal developments, verdicts or settlements. The descriptions of the resolutions of certain matters should in no way be taken as an indication of future results; litigation is inherently unpredictable.
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Posted by David B. Stratton on 01/06/2011 at 04:51 PM
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Professional liability: 4th Circuit finds insurer required to defend Maryland accounting firm
In Trice, Geary & Myers, LLC v. Camico Mutual Ins. Co., No. 10-1473 (4th Cir. Dec. 22, 2011 (unpublished), an accounting firm appealed the district court's award of summary judgment to their insurer in a declaratory judgment concerning insurance coverage. The 4th Circuit reversed.
The district court had awarded summary judgment to the insurer, finding that it had no duty to defend, on the grounds that all the underlying claims were "in connection with or arising out of" a member of the firm's sale and promotion of annuity plans as an agent or broker of Hartford, and under a Special Exclusion Endorsement, any of the plaintiffs' alleged acts, errors or omissions connected with the plan sales were excluded from coverage.
The 4th Circuit reversed and remanded, on the grounds that the underlying actions alleged that the accounting firm rendered substandard tax and accounting advice. Because these claims raised a potentiality that there is coverage under the professional liability policy, the Court ruled that the insurer's duty to defend was triggered. The Court therefore reversed the district court's award of summary judgment to the insurer, and remanded for further proceedings.
The underlying actions were three actions in which the insured were sued for their alleged recommendation to clients that they create section 412(i) defined benefits plans that would invest in insurance policies written by Hartford Insurance, and informed the clients that the premiums for that insurance would be tax deductible expenditures. These tax deductions were later audited by the IRS and the deductions were disallowed.
The 4th Circuit agreed with the insured's argument that because the insurer's Special Endorsement Exclusion invoked the exclusion for claims "in connection with or arising out of any act, error or omission by any Insured in his/her capacity as an [insurance] agent or broker," the exclusion applies only to claims asserting insurance agent or broker professional liability.
The Court disagreed with the insurer's argument that when the parties to the insurance contract agreed to the "in connection with or arising out of" language in the "Special Exclusion Endorsement", they also agreed that, even if there were several grounds for a claim, coverage would be barred so long as one of the grounds was any insured's having placed or sold an insurance product. Rather, the Court defined the issue as whether the acts, errors, or omissions of the insureds arise out of their capacity as brokers and agents. The Court also disagreed with the insurer's argument that merely "acting" as an agent or broker is itself sufficient to invoke the "Special Exclusion Endorsement." Instead, the Court pointed out that the terms "agent" and "broker" are terms of art under Maryland law, that the burden is on the insurer to prove the applicability of the exclusion, and that the insurer has not proven the principal-agent factors.
The Court also analyzed the complaints in the underlying action, and found that based on an analysis of the four corners of the complaints, contrary to the district court's interpretation, all of the underlying actions asserted that the insureds acted as accountants and tax advisors, and none of them contained allegations which put all of the counts in the underlying actions within the "Special Exclusion Endorsement."
Impact: This decision illustrates that in Maryland, if even a single count of a complaint creates the potentiality of coverage, the insurer must defend the entire complaint, including the counts which fall within policy exclusions. Sometimes it is difficult to determine what causes of action have been plead, depending on how the complaint is written and whether separate causes of action have been set forth in separate counts.
Posted by David B Stratton on 02/06/2012 at 09:21 PM
Insurance •
Maryland •
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Allocation of lead paint poisoning liability under Maryland law
In Pennsylvania Nat. Mut. Cas. Ins. Co. v. Roberts, No. 10-1987 (4th Cir. Feb. 3, 2012), the Court considered an insurer's allocation of liability, under Maryland law, for a $850,000 judgment arising from lead paint poisoning, where the insurer's time on the risk was only a fraction of the plaintiff's exposure to lead paint poisoning. The insurer had sought a declaratory judgment that its allocation was no more than 40%, because it had covered its insured for no more than 40% of the time in which the plaintiff was exposed to lead poisoning.
The district court held that the insurer was only responsible for a portion of the judgment, notwithstanding that its insured was held jointly and severally liable for the entire judgment in the state proceeding. The district court reasoned that in lead paint or "continuous trigger" cases like this, Maryland courts determine an insurer's liability through a "pro-rata allocation by "time on the risk." The 4th Circuit affirmed in part and reversed in part.
On appeal, the plaintiff argued that the insurer was responsible for paying the entire $850,000 judgment in light of the joint and several liability of its insured. The plaintiff argued that the insurer contracted to cover the risk of any judgment for bodily injury by promising to "pay those sums that [the insured] becomes legally obligated to pay as damages because of 'bodily injury.'"
The 4th Circuit rejected this argument, because under the policy, the insurer contracted only "to pay those sums that [the insured] becomes legally obligated to pay as damages because of 'bodily injury' . . . To which this insurance applies." By its own terms, the contract does not cover damages that the insured because legally obligated to pay for injuries that occurred outside of the policy period. Not only was the insurer's coverage restricted to the policy period, it was also limited to premises that the insured owned, rented, or occupied. Thus, the insurer could not be liable for injuries that occurred after the insured sold the property.
The 4th Circuit concluded:
In seeking to impose the entire judgment on . . . [the insurer], [the plaintiff] would have us turn a blind eye to these terms and hold an insurance company liable for risks for which it never contracted and for which it never received premiums. We decline to do so.
The 4th Circuit also relied on Maryland precedent which holds that in lead paint or continuous trigger cases like this, Maryland courts engage in a pro rata time-on-the-risk allocation of liability." Under this method of allocation, each insurer is liable for that period of time in was on the risk compared to the entire period during which damages occurred, and losses will be prorated to the insured for period during which it was uninsured.
The Court emphasized that this rule does not reduce the tort defendant's own joint and several liability for the judgment. Rather, the question here was whether the insurer is liable for the entire judgment, and that question could be answered only be reference to the insurance contract and the application of contract law.
The 4th Circuit ultimately ruled that the insure was only liable for 22months/55 months of time-on-the-risk, or 40% of the $850,000 judgment.
Impact: By providing more certainty concerning the allocation of judgments to the tortfeasors' insurance policies, this opinion should permit disputes concerning such allocation to be resolved more easily.
Posted by David B Stratton on 02/05/2012 at 09:33 PM
Insurance •
Lead Paint Poisoning •
Maryland •
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Attorney malpractice claims in $100 million D.C. patent malpractice suit survive preliminary motions
In Lans v. Adduci Mastriani & Schaumberg L.L.P., No. 02-2165 (D.D.C. May 23, 2011), the District Court, in a 120-page opinion, denied the defendants' motion to dismiss an attorney malpractice suit arising out of patent litigation. In this suit, the plaintiffs claim that the defendants' alleged misdeeds resulted in the loss of the plaintiffs' proprietary interests in a patent worth more than $100 million.
Judge Walton's opinion is predominantly a discussion of challenges raised by defendants concerning personal jurisdiction under the D.C. long-arm jurisdiction statute, concerning the fiduciary shield doctrine, and concerning the application of issue and claim preclusion based on decisions in the underlying litigation. Judge Walton dismissed the plaintiffs' civil RICO claims.
Concerning the malpractice claims, Judge Walton ruled that although no federal claims remained in the case, the state law malpractice claims require resolution of substantial questions of federal patent law under 28 U.S. C. sec. 1338(a). Judge Walton decided that the Court would maintain subject matter jurisdiction over the malpractice claim, due to the need to litigate the issue of patent infringement and resulting damages in the malpractice claim. Further, the court maintained supplemental jurisdiction over all the remaining state-law claims in the case.
The defendants had argued that the plaintiffs' claims for breach of contract, breach of fiduciary duty, and breach of the implied covenant of good faith and fair dealing should be dismissed because they were all duplicative of the malpractice claim, arose out of the same facts as the negligence claim, and required essentially the same standard of care. The Court rejected this argument, on the grounds that the various causes of action each rested on different proof. The malpractice claim was based on the alleged failure to investigate and clarify ownership of the patent. The breach of contract claim was based on alleged failure to carry out the terms of the contingency fee agreement, and on alleged conversion of funds owed under the terms of the fee agreement. The breach of the implied covenant of good faith was based on the same facts as the breach of contract claim. The breach of fiduciary duty claim centered on alleged violations of the D.C. Code of Professional Conduct and the Swedish Bar's Canon of Ethics, including among other things failure to disclose conflicts of interest. Thus, the Court found that the fiduciary duty claims did not arise out of the same facts as the malpractice claim, and that a failed malpractice claim would not neessarily preclude recovery on a claim for breach of fiduciary duty. Thus, the Court found that none of the other state-law claims were duplicative of the malpractice claims.
Interestingly, the Court also rejected an argument by the defendant law firm that an independent cause of action for breach of the covenant of good faith and fair dealing does not exist in the District of Columbia for claims based on an attorney's representation of a client. See slip op. at 118. The Court distinguished Jacobsen v. Oliver, 201 F.Supp. 2d 93, 98 n. 2 (D.D.C. 2002), on the grounds that Jacobsen dismissed the implied covenant count because it was identical to a malpractice claim in that case. But in this case, the plaintiffs' implied covenant claims were founded upon their contingent fee agreement with the defendant law firm, not on the legal representation or alleged malpractice. Therefore, Judge Walton reasoned, the general rule applies that in every contract there is an implied covenant of good faith and fair dealing. "No cases addressing legal malpractice have carved out an exception for such cases, and therefore, just like other contracts, contracts with attorneys are subject to an implied covenant of good faith and fair dealing."
Maryland upholds use of fair reporting and comment privilege as basis for dismissing defamation suit
In Nicholas A. Piscatelli v. Van Smith, et al., No. 18, Sept. Term 2011 (Jan 23, 2012), the Maryland Court of Appeals affirmed that the reporters published articles in the City Paper, which described Nicholas Piscatelli's possible connection to a double murder in an unflattering light, were within the protective embrace of the fair reporting and fair comment privileges, thereby affirming the ruling from the trial court and Court of Special Appeals.
In 2006 and 2007, Van Smith, authored, and the City Paper published, two articles revisiting the trial of Anthony Jerome Miller for the murders of Jason Convertino and Sean Wisniewski. Piscatelli owned Redwood Trust, a popular nightclub. Convertino managed and procured musical acts for the club. Both articles more than hinted that Piscatelli may have been involved in the murders, even though he was not charged criminally.
The two articles at issue quoted a memorandum from the prosecutor in Miller's murder trial regarding Convertino's mother, Pam Morgan, which was made part of the record, though not admitted into evidence, detailing a conversation she had with a stranger who approached her and told her that Piscatelli was involved in her son's murder. The articles also summarize Piscatelli's testimony from Miller's murder trial. As a witness for the State, Piscatelli testified that Convertino was leaving him to work for a competitor and suspected him of taking larger commissions that he was due while working for him. The prosecutor asked Piscatelli bluntly if he had anything to do with the murder, which he denied. On cross-examination, Miller's attorney insinuated that Piscatelli had motive to kill Convertino.
In Piscatelli's suit for defamation and false light, Smith and City Paper moved for summary judgment arguing that Piscatelli failed to establish that the statements at issue were false and that the fair reporting and fair comment privileges protected any allegedly defamatory material. Piscatelli responded that the accusations that he was involved in the murders were false and abused the fair reporting and fair comment privileges.
As to the fair reporting privilege, the Court reiterated that "The fair reporting privilege is a qualified privilege to report legal and official proceedings that are, in and of themselves, defamatory, so long as the account is fair and substantially accurate". "The privilege arises from the public's interest in having access to information about official proceedings and public meetings". "A defendant abuses his or her fair reporting privilege, not upon a showing of actual malice, but when the defendant's account fails the test of fairness and accuracy." Here, the supplemental discovery memorandum containing Ms. Morgan's account of the conversation with the stranger was part of the Miller criminal case file and was a public record that may be reported without liability for defamation, so long as the report is fair and accurate. Smith's articles included exact quotes from the Morgan memorandum and detailed her recollection which were consistent with the memorandum. Similarly, Smith's articles accurately depicted Piscatelli's trial testimony so as to be a reasonable abbreviation of his entire testimony. Piscatelli conceded as much in his deposition that Smith's summary was accurate. Thus, Smith's statements were reported fairly and accurately and fell within the purview of the fair reporting privilege.
As to the fair comment privilege, Maryland law states that derogatory opinions based on non-defamatory fact, true facts, privileged facts, or facts assumed mutually by the opinion-maker and recipient are privileged. Since the Court concluded that Smith's reporting of the memorandum and Piscatelli's trial testimony were privileged as fair reporting, which was the basis for any opinions, it enabled the readers to judge for themselves the quality of those opinions. "Therefore, what would otherwise have been an allegation of fact becomes merely a comment, or a simple opinion, which the fair comment privilege declaws of its defamatory expression."
In upholding the grant of summary judgment by the trial court and Court of Special Appeals decisions, the Court stated that Piscatelli failed to adduce facts that would be admissible in evidence to demonstrate that Smith and the City Paper's reporting about Miller's murder trial was unfair and inaccurate, which is a burden he bore, in order to present a triable issue for a jury as to whether the fair reporting privilege was abused. Additionally, where Smith and the City Paper expressed simple opinions based on disclosed, privileged statements, those opinions are themselves privileged as fair comment. "Although perhaps an unflattering account of Piscatelli's relationship with Convertino, [Smith's] report was an accurate, fair account of Piscatelli's testimony". "Piscatelli failed to advance any facts to demonstrate otherwise."
Posted by Robert D. Anderson on 01/26/2012 at 06:44 PM
Defenses •
Maryland •
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Employees’ Claim Against Employer for Unpaid Wages Dismissed Pursuant to Iqbal and Twombly
In Eric Johnson, et al, v. Prospect Waterproofing Company, et al., Civil Action No. 11-0077, (D.D.C. Sept. 21, 2011), the U.S. District Court for the District of Columbia dismissed the plaintiffs' suit against their employer for unpaid wages for failing to state a claim pursuant to Ashcraft v. Iqbal, 129 S.Ct. 1937 (2009) and Alt. Corp. v Twombly, 550 U.S. 544 (2007), on the basis that Davis-Bacon Act merely establishes an administrative process for the recovery of unpaid wages, does not give rise to a private right of action, and that it is impermissible to try to circumvent the Act by asserting that the claims governed by the Act arise under state law.
Plaintiffs were hired as roofers by Prospect Waterproofing Company to work on various federally-funded or federally-assisted construction projects in the District of Columbia. Plaintiffs contend that projects were subject to the Davis-Bacon Act, 40 U.S.C. sec. 3141, et seq., which requires employers to pay prevailing wage rates for certain categories of jobs in the community, and that defendants failed or refused to pay them the prevailing wage rate established under the Act. Plaintiffs sought to recover the difference between the Davis-Bacon prevailing wages allegedly owed and the wages defendants' actually paid.
Plaintiffs' complaint alleged that three state law causes of action arise out of defendants' failure to compensate plaintiffs according to the prevailing Davis-Bacon rate: (1) violation of the D.C. Wage Payment and Collection Law; (2) violation of the D.C. Minimum Wage Act; and (3) a common law quantum meruit claim based upon the defendants retention of the difference between the prevailing wage and what was actually paid to plaintiffs.
The Davis-Bacon Act requires all laborer and mechanics working on federally-funded construction projects to be paid not less than the prevailing wage in the locality where the work is performed. 40 U.S.C. sec. 3142. Every contract entered into pursuant to the Act must stipulate that the contractor shall pay the established wages and, if the contractor fails to pay the minimum wages specified, that the government's contracting officer may withhold so much of the accrued payment as necessary to pay the laborers and mechanics the difference between the wage rate and the wages paid. 40 U.S.C. sec. 3142(c)(1) and (3). The Act goes on to provide that "if the accrued payments withheld under the terms of the contract are insufficient to reimburse" the laborers for the wages owed, those "laborers and mechanics have the same right to a civil action and intervene against the contractor [] as is conferred by law on persons furnishing labor or materials." 40 U.S.C. sec. 3144(a)(2). "But, this purely financial remedy is available only after there has been an administrative determination that some money is owed and that insufficient funds have been withheld to compensate the affected laborer." U.S. ex rel. Bradbury v. TLT Constr. Corp., 138 F. Supp. 2d 237, 241 (D.R.I. 2001).
After an analysis and recitation of cases from other districts that have tackled this issue, the Court concluded that the Act did not provide a private right of action to recover unpaid wages.
Even though the Act did not confer a private right of action, plaintiffs' insisted that their suit could proceed because they were not seeking relief under the Act, but instead under D.C. law, which created a valid claim for unpaid wages governed by the Davis-Bacon Act under D.C.'s Wage Payment and Collection Law and Minimum Wage Act. However, the Court ruled that plaintiffs were merely trying to bypass the exclusive administrative remedies of the Davis-Bacon Act by bringing state law and common law claims, even though the complaint makes clear that plaintiffs' claims are founded exclusively on the Act. Consequently, the Court concluded that "plaintiffs' claims are clearly an impermissible end run around the Davis-Bacon Act" and that allowing such a claim would severely undermine the specific remedial scheme established by Congress. Therefore, since no private right of action exists under the Davis-Bacon Act, plaintiffs failed to state a claim upon which relief could be granted and the Court dismissed plaintiffs' complaint.
Posted by Robert D. Anderson on 01/26/2012 at 06:35 PM
Defenses •
District of Columbia •
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Lawyer Professional Liability: D.C. Circuit discusses remedy following breach of fiduciary duty
In So v. Suchanek, Nos. 10-7071, 10-7087 and 10-7113 (D.C. Cir. Jan. 20, 2012), a professional liability action against an attorney, the Court considered the defendant attorney's appeal of a judgment that the attorney had to disgorge fees, with interest, totaling $455,933.52 as a result of the attorney's breach of fiduciary duty by failing to disclose a direct conflict of interest. The Court also considered the former client's cross-appeal, in which the former client argued that the amount of disgorgement should have been higher. The Court ruled against the attorney and in favor of the former client, affirming the judgment against the attorney as to liability, but remanding the matter to the trial court for recalculation of the amount of disgorgement of fees, in a higher amount, covering the entire course of representation.
The facts of the case are perhaps best summed up by the trial court's scathing one-sentence introduction to its Memorandum Decision:
This case presents the sad story of a blind and
partially deaf retired administrative law judge who robed himself
with the made-up title "Chief Judge Emeritus"; held himself out
as a knowledgeable, indeed powerful, lawyer with experience in
complex international financial matters; undertook to provide
legal representation from Washington, D.C., to a British
corporate entity, an American investor, a wealthy but naive, non-
English speaking Hong Kong investor, and a Chinese woman resident
in Canada, in connection with a financial fraud perpetrated in
London; ignored or failed to recognize conflicts of interest
between and among these clients; accomplished roughly nothing
except administrative duties for any of them; accepted
substantial payments from his client but neither prepared nor
submitted bills; and, when his representation came to an end and
his Hong Kong client demanded the return of $400,000 of the funds
that had been entrusted to him, refused to do it.
So v. Suchanek, No. 08-2091 (D.D.C. May 6, 2010)(U.S. District Judge James Robertson).
Finding several conflicts of interest in violation of D.C. Rule of Professional Conduct 1.7, the district court stated that:
The controlling Circuit precedent found in Hendry v.
Pelland, supra, amply supports a finding that a lawyer who
represents his client although he has conflicts of interests has
violated his fiduciary duty, and that such a violation, without
more, will support an order for the disgorgement of legal fees.
Hendry does not, however, require disgorgement, nor does it
prescribe the amount or proportion of fees that must be disgorged
if disgorgement is to be the remedy. For those matters, the
trial court is left to its sound, equitable discretion.
On appeal, the D.C. Circuit observed, in pertinent part, that although not every ethics violation rises to the level of a breach of fiduciary duty, a breach occurs when an attorney represents clients with conflicting interests.
The Circuit Court agreed that disgorgement is an equitable remedy entrusted to the sound discretion of the district court. Here, however, the Circuit Court held that the district court's award of damages was founded on an erroneous view of the law, namely, a misapplication of rule 1.7, because the district court erroneously considered the conflict of interest limited to two discrete time periods. The Court directed that on remand, the district court consider the following factors:
The remedy . . . [the district court] fashions should account for the full extent of the conflicts found; the need to deter attorney misconduct; the "fundamental principle of equity . . . that fiduciaries should not profit from their disloyalty"; and the decreased value of the services provided to So resulting from Suchanek's rampant misconduct. Hendry, 73 F.3d at 402; see also Restatement (Third) of the Law Governing Lawyers [sec.] 37 cmt. e (2000)("Ordinarily, forfeiture extends to all fees for the matter for which the lawyer was retained . . . . ")
While this matter was on appeal, the attorney filed for bankruptcy.
This case illustrates the importance of early identification of conflicts of interest and an effective response to such conflicts.
Posted by David B. Stratton on 01/23/2012 at 10:28 PM
District of Columbia •
Legal Malpractice •
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U.S. District Court rules that Federal law and FDA Regulation Pre-empt State Law Claims
In Beatrice Grinage v. Mylan Pharmaceuticals, Inc., Civil No. CCB 11-1436 (D.Md. Dec. 30, 2011), the U.S. District Court for the District of Maryland dismissed plaintiff's lawsuit on the basis that federal law and FDA regulations pre-empted the plaintiff's state law claims for negligence, strict products liability, fraud and breach of implied warranty under Pliva, Inc., v. Mensing, 564 U.S. -----, 131 S. Ct. 2567 (2011), and that to the extent any such claims survived, plaintiff failed to state a claim under Iqbal or Twombly.
Ms. Grinage filed suit against Mylan Pharmaceuticals on behalf of her deceased husband, Aaron Grinage, in Maryland state court. Mylan removed the matter to the US District Court on the basis of diversity jurisdiction and then moved to dismiss pursuant to Mensing.
Mr. Grinage had been prescribed Allopurinol, which was manufactured by Mylan, in January 2008 to treat gout. After taking Allopurinol for approximately one month, he was diagnosed with Steven-Johnson Syndrome, a skin disease, and then Toxic Epidermal Necrolysis, a more severe skin reaction. In March 2008, Mr. Grinage suffered multi-system organ failure and died.
Allopurinol is a generic version of Zyloprim, a brand-name drug the FDA approved in 1966. Mylan argued that Allopurinol's warning label was identical to that of Zyloprim and clearly stated that the "most frequent adverse reaction to [the drug] is skin rash" and that "[s]kin reactions can be severe and sometimes fatal." Both labels report that the skin reactions of Steven-Johnson Syndrome and Toxic Epidermal Necrolysis are "probably causally related" to the ingestion of the drug. Grinage argued that Mylan knew or should have known that the risks of Steven-Johnson Syndrome and Toxic Epidermal Necrolysis were greater than the 1 percent referenced in the label and that Mylan was negligent in failing to report published articles and other evidence to the FDA, the brand-name manufacturer, health care providers and patients, such that Mr. Grinage's consumption of the product "caused unreasonably dangerous risks" and was "not safe or fit for its intended purpose."
Relying on Mensing, the Court noted that the statutory language and regulations related to the Drug Price Competition and Patent Term Restoration Act and the FDA's interpretation of these rules "require that the warning labels of a brand-name drug and its generic copy must always be the same." Mensing, 131 S. Ct. at 2574-75. Thus, "even if a generic manufacturer had new information about side effects, it could not change its label unless the brand-name manufacturer did so first, or unless the FDA instructed all manufacturers to do so. As a result, pursuant to the impossibility of pre-emption doctrine, federal law pre-empts any state law tort action that creates liability for generic manufacturers who fail to take independent action to change their labels." Id., 131 S. Ct. at 2577-81.
Plaintiff argued that Mensing's holding was narrowly tailored to specific failure to warn claims and that her claims survived pre-emption. However, the Court held otherwise and stated that plaintiff's complaint was insufficient under the pleadings standards of Iqbal and Twombly to state a claim not otherwise pre-empted. The Court also acknowledged that Plaintiff's claim might not have been dismissed if the prescription had been for Zyloprim instead of the generic Allopurinol, but that in this instance that Court was constrained by precedent and the FDA's regulations, unless and until Congress amended the governing statutes.
Posted by Robert D. Anderson on 01/23/2012 at 07:11 PM
Federal Civil Procedure •
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Minimum contacts analysis for personal jurisdiction over foreign components manufacturer
In Robert Windsor, Jr., et al., v. Spinner Industry Co., Ltd., et al., Civil No. JKB 10-114 (D.Md. Dec. 15, 2011), the U.S. District Court for the District of Maryland analyzed the appropriate standard by which to determine whether a foreign corporation has sufficient minimum contacts in order to assert personal jurisdiction over the defendant under the U.S. Supreme Court's holdings in Asahi Metal Indus, co., v. Superior Court of California, 480 U.S. 102 (2987) and J. McIntyre Machinery, Ltd., v. Nicastro, 131 S.Ct. 2780 (2011).
Plaintiffs brought suit against defendants after the front wheel of Robert Windsor?s bicycle dislodged, causing him and his toddler son, to be thrown to the ground. Plaintiffs alleged that defendants were involved in the design, manufacture, or assembly of the bicycle or its components, the defects of which were the proximate cause of the accident. Defendant, Joy Industrial Company ("Joy"), a Taiwanese company who manufactured the "quick release skewer" mechanism which secures the wheels to the bicycle, moved to dismiss all claims against it on the grounds that it was not subject to personal jurisdiction in Maryland.
Since plaintiffs bear the burden of establishing personal jurisdiction, plaintiffs argued that, even though Joy had no direct contact with Maryland, the nationwide marketing of Joy's products by intermediaries created sufficient minimum contacts to establish personal jurisdiction. Specifically, Joy sold its products to distributors, manufacturers, and trading companies in the U.S., which then market or sell the product in Maryland. Thus, it was foreseeable that Joy's product would be sold in Maryland and Joy availed itself to the forum jurisdiction.
In analyzing whether the Court had specific jurisdiction over a non-resident manufacturer whose only connection to the forum was that its products were sold there by a third-party distributor the Court looked to the U.S. Supreme Court's opinions in Asahi and McIntyre. Unfortunately, neither Asahi nor McIntyre were majority opinions causing ambiguity as to what standard actually applied to determine jurisdiction is these cases.
Without a majority opinion, the District Court sought to find consensus between the plurality and concurring opinions "on the narrowest grounds" to fashion an appropriate standard. In so doing, the Court found that, contrary to the plaintiffs' position, "McIntyre clearly rejects foreseeability as the standard for personal jurisdiction" and instead "specific jurisdiction must arise from a defendant's deliberate connection with the forum state." "Beyond this, however, McIntyre merely affirms that status quo." Consequently, the District Court relied upon the Fourth Circuit Court's precedent on the issue which largely adopted Justice O'Connor's plurality position in Asahi, i.e., a restrictive view that requires a defendant take some deliberate and overt action to target the markets of the forum State. The Fourth Circuit analyzed minimum contacts on the basis of "whether a defendant has created a substantial connection to the forum state by action purposefully directed toward the forum state or otherwise invoking the benefits and protections of the laws of the state," and specifically rejected the notion that a state could assert personal jurisdiction over a defendant merely because the company expected its product would ultimately be sold in the state.
Applied here, the Court found that the facts were insufficient to demonstrate jurisdiction over Joy based solely upon the motions and that the plaintiffs had failed to offer any details regarding the particular chain of distribution that brought the allegedly defective product to Maryland, or that Joy had any "additional contact" evincing intent to serve the Maryland bicycle market in particular. However, there was still a question of whether jurisdiction was proper since the manufacturers and distributors to whom Joy sells its products, not only market their products in Maryland, but maintain established channels of distribution there, suggesting a regular course of sales. Accordingly, the Court held Joy's Motion to Dismiss for lack of personal jurisdiction in abeyance in order to conduct a hearing to determine the extent of Joy's contacts with Maryland.
Posted by Robert D. Anderson on 01/23/2012 at 06:47 PM
Federal Civil Procedure •
Maryland •
Personal Jurisdiction •
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Employee’s disclaimer of third party tort action against employer’s customers upheld by D.C. Court
In Brown v. 1301 K Street Limited Partnership, No. 09-CV-695 (D.C. Nov. 23, 2011), the D.C. Court of Appeals upheld the validity of a disclaimer signed by a security guard, in which she agreed that her workers' compensation benefits from her employer would be her sole remedy and that she waived any rights she had to make a claim against her employer's customers arising from injuries covered under the Workers' Compensation statutes.
The wording of the disclaimer was as follows:
I understand that state Workers' Compensation statutes cover work-related injuries that may be sustained by me. . . . As a result, and in consideration of Allied Security offering me employment, I hereby waive and forever release any and all rights I may have to:
- make a claim, or
- commence a lawsuit, or
- recover damages or losses
from or against any customer (and the employees of any customer) of Allied Security to which I may be assigned, arising from or related to injuries which are covered under the Workers' Compensation statutes.
The plaintiff had slipped on a wet floor while working as a security guard for Allied Barton Security, which had a contract with the building owner and property manager to provide security services. Plaintiff received a lump sum workers' compensation settlement for her injuries, and then filed suit against the building owner and property manager. In her action, she alleged negligence, OSHA violations, and violation of the D.S. Industrial Safety Act.
The defendants were granted summary judgment on the basis of the above disclaimer, and the plaintiff appealed.
On appeal the plaintiff argued that the disclaimer was invalid because it is an agreement to forego her right to compensation under the D.C. Workers' Compensation Act. The Court rejected that argument, because the disclaimer did not purport to limit in any way the plaintiff's right to compensation under the Act.
The Court also rejected the plaintiff's argument that the disclaimer was too general, finding that the parties' intent is clear from the face of the disclaimer.
The Court rejected the argument that the disclaimer violated public policy. The Court has previously invalidated only a few exculpatory clauses on public policy grounds: an exculpatory clause in a will that excused self-dealing by the personal representative; and an exculpatory clause in a lease the excused the landlord's obligations under the implied warranty of habitability. However, the Court found "nothing violative of public policy in an employer's choice to protect its customers from liability for workplace injuries, choosing instead to compensate its employees itself exclusively through workers' compensation."
Finally, the Court rejected the plaintiff's argument that the disclaimer violated the public policy underlying the OSHA and ISA statutes. The Court noted that those statutes are not strict liability statutes, but are analogous to negligence in that they establish standards of care. "Although releases purporting to limit liability for gross negligence, willful acts, or fraud will not be enforced, releases are viable and enforceable when they limit liability for ordinary negligence."
This case illustrates that the Courts are willing to allow businesses to structure their relationships to apportion risk, at least where negligence claims are concerned. Here, the security company may end up paying higher workers' compensation insurance premiums than it would without the disclaimer. On the other hand, the security company can adjust its fee structure to account for its insurance costs.
Posted by David B. Stratton on 01/16/2012 at 11:19 PM
Defenses •
District of Columbia •
Workers Compensation •
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